What can you learn from Watsco’s digital journey in 2023?

This isn’t a doom and gloom “Build an Amazon type shopping experience or go out of business” prediction, but Watsco is smartly positioning themselves to discover how digitally enabled as a B2B distributor they need to be long term to take share and grow.

Later this month WATSCO will announce their 2023 year-end results, but in their latest operating results released on Oct. 20, 2022, and at their recent investor conference in November the company highlighted their continued commitment to digital services.

Watsco, Inc. announced record operating results for the third quarter and nine-month periods and provided commentary on trends, growth opportunities, technology innovation and financial strength. There was strong sales growth of 19% (17% increase on same-store basis) and a lot of commentary related to their digital initiatives.

WATSCO Digital highlights

Watsco’s PIM database contains approximately 1.3 million SKUs accessed by more than 350,000 contractors and technicians annually.

Contractor Assist MobileWatsco’s authenticated user community (mobile app users linked to an e-commerce account) grew 21% year-to-date to more than 45,000 users versus last year.

E-Commerce Sales grew 22% YTD, outpacing organic sales growth rates, to more than $2.3 billion during the last twelve months.

OnCallAir®, Watsco’s digital sales platform and CreditForComfort® its consumer financing platform experienced significant growth.

In the Investor conference release Watsco shared a couple of other key digital items – (2021 Statistics)

  • 17% Higher ecommerce line items per order versus traditional orders
  • ~70% Less attrition for ecommerce users versus traditional customers

The storyline is 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. To put it in simple terms – the more Watsco gets their customers digitally engaged the bigger barrier to exit it is for their customers.

It makes perfect sense. In your outside of work life when put an app on your phone, you buy more often and are less likely to quit buying from that company.

I think any distributor and manufacturer can see that more lines per order and happier customers are two very positive outcomes from a digital strategy for your business.

If you are a manufacturer these publicly reported digital results are critical for you to consider.

If you are a Watsco supplier, it makes sense for you get more involved with their digital efforts. Partnering with them to seamlessly present your brand message to your mutual end customers can build sales and loyalty to your brand.

If you are not a Watsco supplier, you need to ask yourself which distributors you can partner with that can deliver similar digital solutions (or have a plan to become more digital). If your channel partners are not as digitally enabled as you need, what can you develop digitally that helps your channel close that gap?

If you are a competing distributor you need to evaluate what digital strategy you can execute, and which manufacturer partners are advanced digitally that can help in your journey. Your individual market position and resources require that you find the best strategy that fits your business. Again, this is not become as “Amazon like as possible or sell the business warning”, but it is a call to action to do something that works for your customers digitally. I recommend that you start where you can, even with simple outreach email campaigns to drive interaction with your team.

Watsco has a unique HVACR distribution model, and in fact a very unique model in Industrial Distribution. For example- Carrier was 61% of their total purchases in 2021. As a comparison WESCO the largest publicly reported Electrical distributor reported that their Top 10 suppliers made up approximately 35% of their purchases with no single supplier making up more than 5% of their total purchases in 2021.

That isn’t a direct apple to apples comparison, but the HVACR and Electrical channels are similar and it’s the best comparison available. This shows the importance of Watsco’s Carrier Enterprises business to their company. The Carrier business does not change the fact that Watsco has a digital strategy they are executing and winning with for all parts of their business.

You may have already wrapped up your annual planning and be moving forward with business as usual. If you haven’t already started, I suggest you start to work with your leadership team to develop as detailed a digital playbook and strategy as possible in 2023.

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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