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Has Grainger Been Beaten?

Watsco 'Well-Positioned' Against Amazon Threat

Bountiful data, a solid value-add model and even the mammoth size of many of its products have HVAC distributor Watsco Inc. "well-positioned" against any looming disruption from Amazon, President Aaron "AJ" Nahmad told analysts on this week's earnings call.

When asked about the "threat of e-commerce and what Amazon represents," Nahmad acknowledged that while it might indeed be a threat, "Amazon does not like to handle the size of products that we handle," he said. "A five-ton condensing unit is not delivered very easily by drone, or by FedEx or UPS for that matter. That thing is a little bit of comfort, at least for today."

Nahmad and his father, CEO Albert Nahmad, outlined to analysts the investments Watsco has made with data and other technological capabilities in recent quarters, including mobile apps, business intelligence, 600,000 SKUs and supply chain optimization – all with a long-term focus on helping customers do their jobs better.

The company has invested $23 million in the last year on its technology efforts, which helped contribute to increases in both sales and profit in the first quarter.

Technology investment isn't the only reason Watsco views itself as well-positioned against Amazon. The company believes the distribution model of offering customer service and technical support is such a value-add for customers that it is insulated from disruption.

"We do business with 90,000 customers and contractors. And many of them, if not all of them, require our input on design and engineering and technical advice in diagnosing these products; that data expertise is valued in a big way by our customer base," AJ Nahmad said. "And I don't think that's going away anytime either.

"So (Amazon is) certainly something that we are aware of and that we watch and that we play offense against, but today I think those factors contributed to a little bit of a breathing room there."

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