Replacement Market a Boon for HVAC Distributor Watsco

As the housing market continues to slump and new installations of central air systems with it, Watsco Inc., Coconut Grove, FL, continues to increase profits by building upon the growing replacement market.
 
Senior Vice President Barry Logan told attendees at the Piper Jaffray Industrial Growth Conference on June 11 that environmental mandates and aging systems have driven the replacement market to 75 percent of the business Watsco is doing today.
 
The mandate signed into law in 2001 required that all new air conditioning and heat pump units improve efficiency by 30 percent by 2006. In addition, use of refrigerants that deplete the ozone was to be phased out entirely by 2010.
 
Though new products don't need to be in place before 2010, Watsco already has begun providing the more environmentally friendly products for their customers, Logan says.
 
With the new regulations and an increased reliance on cooling systems, Watsco's replacement business has increased an average of 8 percent per year over the last five years. The higher price points of the new systems also help keep gross margins steady.
 
New construction still matters to the company, Logan says. The growing replacement market allows for better adaptation to the slowdown though.
 
Watsco still hopes to expand its reach in markets where it is already established, such as Florida where it says it maintains about 25 percent of the market share. In addition, growth plans are in place to enter new markets.
 
Air conditioning is something people just can't live without anymore," Logan says.