Residential HVAC Continues to Show Business Strength Amid COVID-19

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The entire economy has been severely impacted by COVID-19, with small businesses being hit the worst. These businesses make up 47% of the private labor force and contribute 44% to GDP in the United States. Thankfully, not all small businesses are the same. Jobber’s Home Service Economic Report: Summer Edition analyzes the performance of the Home Service category throughout 2020, and shows a positive path towards recovery.

It shows that the Contracting segment, which includes HVAC businesses, had its first full quarter of positive year-over-year growth since the start of the pandemic.

As we look ahead to the future, it’s important to reflect on the past year and understand how residential HVAC, and the Home Service category as a whole, has fared through this pandemic and the economic turbulence that it has caused. Jobber’s report highlights some trends and key findings that can help guide companies through the end of the year and into 2021.

The Residential HVAC Industry Falls within a Strong Home Service Category

Wrapping up the third quarter, it’s clear that the Home Service category—including residential HVAC—continued to recover as the economy opened up and consumer demand rebounded. With the exception of Grocery Stores and General Merchandise Stores, Home Service was the most stable category through the peak of the pandemic. It also recovered very well through June and into Q3, showing 10% year-over-year growth in September, compared to other categories such as Clothing Stores and Restaurants, which registered declines of 12% and 14% respectively.

New Work Scheduled Finds Pre-Pandemic Success

New work being scheduled is an early inductor of the health of Home Service businesses, and a proxy for consumer demand. When the pandemic first hit, the Contracting segment, which consists of industries such as Construction, Plumbing, and HVAC, saw a sharp decline in new work scheduled in March and April. Residential HVAC continued to recover as the economy opened upAt its lowest point, Contracting saw new work decline by 23% year-over-year as states across the country began implementing stay-at-home directives and consumer spending tightened. This impacted revenues in April and May, where growth declined 15% year-over-year, roughly 25% below expectations.

Despite this dip during the initial peak of the pandemic, new work scheduled for the Contracting segment started to show signs of recovery from May onwards, hitting a record high for the year in June with 15% growth year-over-year, and consistent positive growth since then. As a result, the third quarter revenues for this segment have also shown positive results. Although the growth was moderate earlier in the quarter, the Contracting segment finished strong with 12% year-over-year revenue growth in September, matching pre-pandemic levels.

Employment Growth Sees Upward Trajectory

In April, the U.S. unemployment rate shot up to a record high 14.7% largely due to COVID-19 layoffs, but improved to 10.2% in July as the economy began to reopen, and further to 7.9% by September. For Home Service specifically, the category began 2020 with positive employment growth in Q1 that outpaced the employment growth in Total Nonfarm. However, stay-at-home orders in April caused employment growth year-over-year in Home Service to drop drastically by 12.9%, although this was still a bit better than the 13.4% drop for Total Nonfarm employment. Since this drop, Home Service has seen rapid recovery, with September employment only showing a decline of 3.9% year-over-year while Total Nonfarm shows a decline of 6.4%.

Digital Payments on the Rise Despite Historic Resistance

The Contracting segment has historically been a bit slower to adopt digital payments as these businesses often have large invoice sizes, and don’t want to collect payment using methods that can deteriorate their margins. However, according to market reports, the adoption of digital payments has accelerated significantly due to the COVID-19 pandemic. The adoption of digital payments has accelerated significantly due to the COVID-19 pandemicSpecifically, the estimated percentage of transaction values done digitally in 2025 is now expected to be 67% rather than the previous estimate of 57%. In our data, we saw a significant increase from January to May, from 32% to 37%, in the share of payments being collected through digital methods, compared to other methods such as cash or check. While each business has its own unique dynamics related to e-payment usage, it will be interesting to monitor this trend heading into the new year, as social distancing continues, and more companies commit to improving their technology usage.

Although there has been a positive economic turnaround for all categories towards the end of Q2 and through Q3, it’s difficult to predict where we are going with the recent rise in COVID-19 cases throughout the country. While consumer spending and employment have recovered from the massive declines they saw in early Q2, they seem to be stagnating a bit below their pre-COVID growth levels, suggesting that both consumers and businesses are remaining cautious. One thing is clear though, Home Service as a category is incredibly resilient as most businesses managed to survive through unprecedented economic hardship, while finding new and better ways to service their customers.

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Abheek Dhawan VP of Business Operations, Jobber

Abheek Dhawan is currently the VP of Business Operations at Jobber. Previously he started and led the business operations department at Shopify Plus, and held a variety of other analytical roles in industries such as real estate, financial services, and energy. Abheek is an alumnus of the University of Waterloo and Wilfrid Laurier University, where he studied math and business, respectively.

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Temporary replacement components Loaner A/C units and temporary replacement components can bridge the gap when repairs are necessary Offer loaners and temporary repairs - Loaner A/C units and temporary replacement components can bridge the gap when repairs are necessary but customers aren’t interested in waiting for a new part. You may be able to offer loaner components or window units that can help keep customers cool. Salvaging working parts from systems your business replaces can give you a stockpile of functional, used items you can use for temporary repairs. These fixes will not last as long as a new part or complete HVAC system replacement. Still, they can provide a valuable stopgap when options are limited or customers aren't interested in more extensive work. Preparing reverse logistics Communicate with suppliers - Some manufacturers reduced component stockpiles to a minimum before the pandemic and have few spare components as a result. Others continued to buy items and may have parts on hand for contractors who need replacement components immediately. Communicating with your suppliers will let you know if rush orders are a possibility. In some cases, you may not have to worry about long lead times for every part, but only for specific components or products. Communication will also help you better prepare your reverse logistics Many HVAC businesses are also building stockpiles of their own, ordering parts and components well in advance to cover anticipated needs. Knowing which components or products are likely to require long lead times will help you inform your customers and get ready for repairs more effectively. Communication will also help you better prepare your reverse logistics — the processes you use to return unneeded or unwanted parts to suppliers. Good working practices Prioritize safe and sustainable work - Now is the time to make safety even more of a priority than usual. HVAC businesses can struggle in good times if a key employee is injured on the job. Independent contractors likely can’t afford the missed work that an injury may mean. The correct PPE and good working practices will help keep workers safe and encourage them to stay, making it easier for companies to avoid the HVAC skills gap. Safety will be especially important on hazardous job sites, like active construction or demolition areas. Following safety best practices for those locations will help keep you and your team safe. Cleaning condenser coils Teaching people how to safely clean their AC unit could provide similar benefits Let customers know how they can help - Communication with regular customers can also be key. It’s not unusual for someone to wait until their air conditioner has stopped working to schedule maintenance. As a result, issues with HVAC system components will typically not be noticed until they have failed or started to cause problems. It also means customers will miss out on maintenance that could reduce the strain on an HVAC system — like changing filters and cleaning condenser coils. Teaching people how to safely clean their AC unit could provide similar benefits. Encouraging regular maintenance and offering deals on services can keep their systems running for as long as possible without repairing or replacing components. Proactively informing customers about the long lead times needed for new or replacement parts may help you communicate why this upkeep is so important right now. Navigating the shortage Enable customers to upgrade their repairs - Other strategies that encourage customers to invest in replacements rather than repairs can help offset the higher costs of HVAC equipment. Second chance offers and similar deals allow customers to credit the cost of a repair against a replacement unit. These offers mean that even if customers choose to repair rather than replace a system, they can change their minds without losing the money spent on the initial fix. HVAC contractors should be willing to pass along these increases to customers Be willing to shift - Prices for HVAC equipment are likely to remain high during the shortage, and business costs will be higher as a result. HVAC contractors should be willing to pass along these increases to customers. Building in higher expenses for components and essential resources to your pricing will help you navigate the shortage. HVAC equipment shortage Anticipate related equipment and parts shortages - Your business should also be preparing for related problems — like the ongoing shortages of vinyl car wraps or replacement auto parts. Fleet vehicles that need repairs may be out for days or weeks at a time. Maximizing the lifespan of all business equipment with preventive maintenance will help keep the business running in the long term. The HVAC equipment shortage is likely to last well into the future — potentially as late as 2023. Businesses and contractors should prepare for rising costs and long lead times for new components and systems. To adapt to these new market conditions, companies may want to readjust their pricing schedules and change how they communicate with customers and suppliers. Proactive communication that prioritizes transparency will help businesses make the most of supplier relationships and let clients know what they should expect.