CHICAGO — Last year was all about change, which can often be challenging — and 2017 will continue that trend. Specifically for the plumbing industry, it’s apparent that smart products are here to stay, and contractors that want to have a successful business need to stay abreast of these products and the technology that connects these devices. This can often be challenging since technology changes at lightning speed, yet contractors need to be on the forefront of technology since it is changing the way business is conducted and consumers want high-efficiency and smart products.
Another challenge is the labor shortage and recruiting issues within the trade industries. Most likely these issues will snowball until the trades see some traction from all the initiatives that people have been working on to change the stereotypes many still have when it comes to making a living as a tradesperson.
And this month there will be a big change for not only the plumbing industry, but for the nation as a whole — a new administration in Washington. Regardless of your politics and who you voted for in November 2016, Donald Trump will be sworn into office on Jan. 20.
Despite all these changes and challenges, there is a positive plumbing forecast for the New Year — the plumbing industry will continue to grow.
“Let’s just say that our crystal ball is a bit cloudier for 2017 as compared to this point last year leading into 2016,” said David Chisolm, vice president of marketing, A. O. Smith. “The biggest contributor to that is the transition to a new administration and the policy pivot that we will likely experience. There are also signs of continued interest rate increases throughout the year, so that could impact the macro economy as well. There are several signs for growth in the New Year, but that is certainly couched with the qualifying statement that there is a great deal of uncertainty related to the changing dynamics at play. I would say that we are cautiously optimistic for continued recovery, but with a close eye to broader macro-influencers.”
According to Carl A. Pinto Jr., director of marketing at Bradford White Corp., the company is expecting 2017 to bring about another year of growth opportunities, and Bradford White will continue to have its eye on national, regional and state regulations that affect water heating and storage systems.
There are limits as to when and how much some regulations already in process can be changed. Some of the state regs already in motion will likely go through regardless of what happens at the national level.
— Carl A. Pinto Jr.
“While there are industry leaders and observers who certainly believe that the new administration may be leaner on regulations that will direct our industry’s course, that remains to be seen,” said Pinto. There are limits as to when and how much some regulations already in process can be changed. Some of the state regs already in motion will likely go through regardless of what happens at the national level.”
Rich Bendure, vice president and general manager at Rheem Water Heating Division, said, “We may see a four to five percent increase in revenue on the commercial side of the business as the industry shifts to high efficiency products. With the recent administration change we see new potential for incremental growth, especially from small business, but that won’t translate into a huge lift in the near term. If there are new regulations enacted in 2017, it will take a year or so for those to ripple through the economy.”
According to Patrick Wallner, president of Plumbing-Heating-Cooling Contractors – National Association, some economists are forecasting that single-family starts may rise six to 10 percent in 2017, while multi-family projects will be about the same as 2016, and home renovation and repair spending is expected to continue at about the same level next year.
Preliminary indications are that movements could be made related to tax reform, changes in the regulatory environment and housing finance reform.
— Patrick Wallner
“PHCC is closely monitoring what happens in Washington over the next few months to help our members be ready for any changes that will affect their businesses,” said Wallner. “Preliminary indications are that movements could be made related to tax reform, changes in the regulatory environment and housing finance reform.”
According to Pinto, Bradford White is confident that an uptick in new residential construction will continue to boost demand for new water heating products, and a considerable part of this growth is expected to be in multi-housing projects.
“Given that water heating preferences by builders vary greatly within the multi-housing arena, manufacturers like Bradford White — offering a broad range of water heating technology –— should expect to have many opportunities in 2017,” said Pinto.
Regarding the replacement market, most water heater manufacturers forecast that it will continue to remain strong.
“All indications are that replacement market trends will be on par with last year, offering water heater manufacturers ample opportunities for growth,” said Pinto. “Many reports suggest that this positive trend is expected to continue out through at least 2021.”
“Disposable income growth will also be a factor in the replacement market as consumers gain the ability and desire to purchase newer, more efficient water heaters before their current products have actually reached their lifespan,” added Pinto. “In other words, we may begin to see more discretionary spending, versus emergency replacement purchases.”
For the water heater market specifically, both trends would indicate positive growth opportunity, particularly in an environment where the majority of water heater sales are replacements with the balance coming from new construction or remodeling activities.
— David Chisolm
According to Chisolm, the water heater industry is strong as a whole, and A.O. Smith sees continued growth (while modest) in the new construction sector (in this space, it will be very much like a continuation of 2016).
“The multifamily segment is also fueling a large portion of the growth,” said Chisolm. “Regarding remodeling activity, several studies indicate that 2017 is promising for continued growth. There are a number of factors influencing this activity — consumers are emboldened by improving economic conditions and rising home values. This all bodes well for continued activity in the home remodeling space. For the water heater market specifically, both trends would indicate positive growth opportunity, particularly in an environment where the majority of water heater sales are replacements with the balance coming from new construction or remodeling activities.”
According to Bendure, the replacement market will remain steady in the 80 to 90 percent range, just as it was last year.”
As the industry shifts to higher efficient, more complex products, there are huge implications and opportunities for contractors that sell, install and service these products (both commercial and residential).
— Rich Bendure
“The underlying trend here is high efficiency, which is being driven by regulation and by desire from the end user,” said Bendure. “As the industry shifts to higher efficient, more complex products, there are huge implications and opportunities for contractors that sell, install and service these products (both commercial and residential). Those contractors that embrace the new technology and learn how to sell and service the units will win the bigger ticket projects and jobs. We anticipate growth from these products and services to double in 2017, so the sooner a contractor adapts to the high efficiency products, the bigger the opportunity to grow their business.”
According to Wallner, economic studies that have been reviewed by the Plumbing-Heating-Cooling Contractors – National Association predict moderate growth for nearly all commercial/industrial sectors in 2017.
“These sectors included lodging, office and retail, and slight expansion also is anticipated for institutional projects, like education, health and amusement,” said Wallner.
According to Bendure, three segments stand out: health care, lodging and hospitality, and office buildings.
“In terms of the health care segment, we really see the areas of assisted living and late-life care facilities growing,” said Bendure. “These types of facilities are light-commercial, which is a much different profile than a hospital. The growth of the lodging and hospitality segment is directly tied to the recovery of the economy — this is across all business segments and is universal. Business people are traveling more and this growth also correlates to the tightness of employment. As the skilled labor market gets better it implies better things for this segment.”
According to Chisolm, A.O. Smith expects the commercial market to see modest growth in 2017.
“There are certain segments that will likely outpace the category, namely health and education,” said Chisolm. “We see 2017 as being a continuation of 2016 in most segments. However, there are also pending regulations within the commercial water heater segment that will likely impact certain products towards the latter portion of 2017.”
High efficiency is a major theme for 2017 — for commercial and residential applications.
“The top priority for hot water systems is high efficiency and ease of installation,” said Chisolm. “In recent years, facility managers have seen energy efficient hot water systems produce a fast payback in high-use applications.”
Smart, efficient products
It seems that many consumer-oriented products — from cars to thermostats and watches — are becoming smart enabled, and the plumbing industry is not excluded from the connected world.
The most talked about niche Wallner has heard PHCC members mention recently is providing “smart” technology to customers.
“To help our members assess how to break into this market, PHCC dedicated the fall 2016 issue of Solutions magazine, http://bit.ly/2hMdFHY, to this topic, and will provide additional special focused educational/networking content on this potential new niche for their businesses,” said Wallner.
“Products that are more visible or require direct daily engagement with consumers such as cars and watches are quickly going the smart route,” said Pinto. “Water heaters, which by and large are still indirect consumer, engagement products, are newer entrants to the smart appliance discussions, but inquiries on this matter have started to increase. Bradford White is carefully watching this trend to insure that any smart technology integration into our water heating products is truly driven by consumer demand and will provide value for the end user.”
According to Chisolm, for residential trends, high-efficiency alternate technologies, such as tankless, heat pump and condensing products, will continue to gain traction with homeowners and residential contractors.
“There’s growing interest in newer technology and now Internet-ready water heaters that connect to the home’s grid or your smart devices,” said Chisolm.
Plus, this evolving technology is causing the conversation between a contractor and homeowner to change.
“We’re pushing our partner contractors to focus on providing value-added solutions,” said Chisolm. “The days of ‘one size fits all’ are waning. Customers want options and they want to know that they are getting value. Contractors should become well-versed on the range of technologies that are available and should be able to provide guidance on when certain products should be recommended (or not). Conversations should focus on total cost of ownership versus simply up-front cost, and contractors should also integrate any local incentives that may exist for these products.
“To help contractors overcome some roadblocks, we’re putting a greater emphasis than ever on the tools we build specifically for residential plumbing contractors, such as our Xpert water heater selector app and the financing options to overcome the up-front expense,” added Chisolm. “These tools drive the adoption of newer and more efficient technologies and help contractors grow their revenue.”
To sell, install and service high efficiency products contractors need to be knowledgeable about these products — and this is where training comes into the picture.
Rheem recently conducted a market research study that asked residential plumbing contractors about training.
According to Bendure, most of the contractors noted that training is very important, yet only 50 percent of the respondents said they have attended training offered by an OEM during their career.
“What we see as a company is that time spent training varies significantly,” said Bendure. “In the boiler market, the contractor may take three days out of their week to travel to a training facility and take a course. But as you go into the commercial market and the residential market it may not be practical or economical for a contractor to take that much time away from their business. We have a responsibility to train and support our contractor partners, especially as technology becomes more complex, and we need to make it easier for contractors to interact with us. In 2017 we will open five regional facilities so contractors can drive rather than fly to a training session. We are also hiring a staff of professional plumbers who will be in the field and can offer one-on-one training on jobsites or in offices. This type of training is a big investment but we have seen firsthand that it’s an effective approach to learning, and can be a more practical alternative for some of our partners.”
In CONTRACTOR, online and in print, we have covered the topic of the labor shortage and recruiting people into the trades continually, and will continue to do so.
"A shortage of qualified workers is and will continue to be a challenge,” said Chisolm. “The complexity of technology developments will require more training for new hires and continuing education for longer-tenured employees.”
“At this point, many in our industry are aware of the increasing challenge of finding good, well-trained tradespeople to fill many of the jobs that are available today,” said Pinto. “Many very good grassroots efforts have sprung up around the country in response. Also, many industry organizations such as the American Supply Association and the Plumbing-Heating-Cooling Contractors – National Association are tackling this issue head-on through educational and legislative efforts.”