Opinion- WATSCO Results show a continued focus on digital programs


WATSCO highlighted their continued commitment to digital enablement on May 8th in their 1Q24 investor presentations.

In the world of distribution many private or PE companies do not report results, and many public companies do not release detailed strategic initiatives that have more depth than what is provided in the 10K.

I eagerly await the annual WATSCO investor conference update, as once a year they provide a more detailed look at their digital Strategy.

In my opinion WATSCO  – has a strong strategy and continues to invest in digital and has the results to show for that investment.

WATSCO prides themselves on providing the following (this information is directly from their May 8th, 2024 release).

Robust E-Commerce Platform

Driving growth with existing customers and new customer acquisition, while reducing attrition

Product Information Management

Largest source of digitized product information for customers now over 1.5M SKUs

Mobile Apps for HVAC Customers

Enable customer engagement, technical assistance and sale anywhere, anytime, on any device

Feature-rich mobile benefits include:

Digital warranty processing, AHRI system match-ups, consumer literature, selling and financing platforms, and more.

A focus on these four digital pillars have helped WATSCO become a digital leader in the HVACR distribution space.

WATSCO Digital highlights

Customer-related technology updates include: Data as of 12/31/23 for FY23-

  • $2.4B Annualized e-commerce revenue in 2023, an 5% increase in 2023. Total Revenue in 2023 of $7.283B. (HVACR has a high level of service business which often requires distributor full service functions that are hard to digitize. Having roughly 1/3 of the WATSCO business being ecommerce revenue is impressive)
  • Product Information Management (PIM), WATSCO’s repository of rich product information, is delivered seamlessly through its mobile apps and e-commerce platform. WATSCO’s PIM database contains more than 1.5 million SKUs digitally accessible to more than 350,000 contractors and technicians annually. (These results are relatively unchanged in 2023)
  • HVAC Pro+ Mobile Apps provide customers with real-time access to critical information to enhance speed and productivity. Features include real-time technical support, product details, inventory availability, warranty look-up and processing, certified system matchups, e-commerce and more. (Again the number of authenticated mobile app users with e-commerce account is 55,000 in 2023 which is an impressive number)
  • OnCallAir®, Watsco’s digital sales platform, and CreditForComfort®, its companion consumer financing platform, increased penetration among HVAC contractors as digital engagement with homeowners expands. The annualized gross merchandise value (GMV) of products sold by customers through OnCallAir® had a 28% Increase in gross value of products sold through On-Call-Air® to $1.2B in 2023.

In the Investor conference release WATSCO shared a couple of other key digital items – (2023 Statistics)

  • 15% Higher ecommerce line items per order versus traditional orders (11% higher ecommerce lines per order in 2022 report). IMO – The more lines per order that the customer does in a self service manner the more it frees up their sales teams time to add more customer value. Less Ordering taking time means more time to serve and sell customers.
  • ~50% Less attrition for ecommerce users versus traditional customers (~63% Less attrition in 2022 report). IMO this number is declining potentially because of the proliferation on digital solutions being added by competitors and in general across all distribution.  WATSCO was first mover digital leader in the channel so a decline is predictable. A 50% less attrition makes it clear that the digital connection is a barrier to exit for end customers that is very valuable.

The storyline from the May Investor presentation continues to be simple to see. The more digitally engaged Watsco customers are the more their sales grow, and they also don’t lose ecommerce customers at the same rate as they do traditional customers.

I think anyone in B2B Distribution can see that the digital investment is resulting in building digital barriers around their end customers for WATSCO.

If you are a manufacturer or distributor what does this mean to you –

Whether or not you are a WATSCO supplier, you would be wise to partner with distributors that can deliver similar digital solutions (or have a plan to become more digitally enabled). If your channel partners are not as digitally enabled as you need, what can you to help your channel partners close that gap?

If you are a competing distributor how can you continue to evaluate a digital strategy that you can execute. Also you need to understand which manufacturer partners are digitally advanced that can help you.

Your market position and resources require a solution that fits your business. I eagerly await this release every year as I view it is a call to action to do something digitally. My advice is to double down on digital as a strategic initiative for your bsuiness.

As always, we would love to get your feedback, so please feel free to comment below or reach out to me directly at john.gunderson@dorngroup.com

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