In the first quarter of 2020, a Europe-headquartered manufacturer of variable frequency drives (VFDs) decided to wind up its operations in the UAE. The reason: A pandemic-triggered drop in demand for its products had made it financially unappealing for it to maintain its brick-and-mortar operations, including its roster of sales engineers, any longer.

Seeking an opportunity, newly minted, UAE-based digital store, Phileo PM Aircondition & Refrigeration Trading approached the VFD manufacturer with an offer – of selling the latter’s products through its recently launched online platform. Finding the prospect of extending its presence in the region at a reduced cost appealing, the VFD manufacturer agreed to the deal, and Phileo, in turn, had a new range of products in its digital store.

The VFD manufacturer is among many others that are opting for the digital route for selling their products in the UAE and the larger Middle East and Africa regions. And Phileo is among a growing number of companies that have begun to offer HVACR-dedicated online platforms to those principals – and also distributors – looking to lower their overheads in a pandemic-instigated financial crisis.

Moan Abraham

The first murmurs about digital HVACR stores began in 2019. The onset of the pandemic, in 2020, pushed the pioneering few such stores to cross the threshold from tentative possibility to firm reality. And in 2021, these – and those that have joined the party – are looking to consolidate their position in the market.

Three clear models of such stores have emerged. The first is the brand-agnostic and third-party model of products, displayed as a potpourri and transacted through a single digital store, like that established by Phileo. The second, also brand-agnostic and third party, is a model that facilitates manufacturers and distributors to maintain their virtual stores on a central platform; the likes of UAE-headquartered MEP Global (a Verobiz company) belong to this category. And the third is the type owned by manufacturers and brick-and-mortar distributors, willing to go on their own.

While some may argue that there is not much of a difference between the first and the second models, the fact remains – digital HVACR stores seem to be carving a niche out for themselves through addressing the void of sorts created by those manufacturers and distributors that found it untenable to maintain a physical presence for selling their specific products, and through providing a platform for those squeamish about entering the market, in the first place. Of course, the exiting manufacturers have an opportunity to sell through those brick-and-mortar distributors still surviving or thriving in the marketplace, but a digital store still provides an option.

Najmal Abdul Latheef

The motivation for the third-party digital stores to strengthen their presence is high, as a digital platform constitutes their core business. Moan Abraham, Director & Managing Partner, Phileo, reveals how his platform is keen on offering all brands and multiple ranges, including heavy equipment. He speaks of giving customers proper technical support, including installation, and whatever it takes to promote the brands in his portfolio – in effect, a digital conduit between manufacturers and customers. Abraham is an industry veteran, who has clocked many years specifically selling HVACR products in the region. As part of Phileo, he is keen on leveraging his experience. “We are pivoting our skills to account for the trends in the market,” he says. “Since the market is trending towards digitising the industry, we are accommodating this change through our online store.”

Explaining how the third-party model works, Najmal Abdul Latheef, CEO & Founder, Verobiz, says that MEP Global helps to convert 100% licensed suppliers or service providers, who normally maintain an offline premise – like an office, showroom or service centre – to go online with an advanced hyperlocal-enabled e-commerce platform to trade and provide the services to the local and global market. “Our platform will be a marketplace with international and UAE brands for the local and global MEP community,” he says. “Each supplier or vendor can represent themselves on our portal with their own identity. What we do is provide the online infrastructure, which helps them to go online with some easy steps without the hassle of maintaining and managing a complicated website and its technical headaches. It is about  creating an opportunity for them to expand themselves to the bigger MEP community to do business beyond geographical limits.” Latheef sees MEP Global’s role as also complementing brick-and-mortar companies. He says his company’s plan is not to be a parallel system for the existing market players. Rather, he says, the aim is to help them reduce the cost on marketing and to increase the productivity of their sales engineers with the online automation of sales and trading processes.

Julia Semenova

Vendors would have all the independence to operate, he says, including the ability to provide invoices and delivery notes on their name. Elaborating on facilitation of the sales process, he says that leads generated from global MEP communities would be received by the respective vendors. Specialised sales engineers from the vendors’ side can then directly communicate with the client through the MEP Global portal to propose the selection and finalise the lead, either through the portal or any other means that the vendors see fit to do so.

The third model – of HVACR equipment manufacturers and brick-and-mortar distributors – running their own digital stores sounds equally intriguing for the purported opportunities they offer. Julia Semenova, Process Leader, External Communication, Systemair, elaborates on the Sweden-headquartered manufacturing company’s ‘WEBSHOP’, which, she says, it launched to ease the daily work of customers. “The idea was to give them a fast and effortless way to place orders that would help streamline project timelines,” she said. “Why should they have to wait or depend on the work hours of a supplier? When a customer already knows the items or product names, he can use the fast search and place an order in one second. Or repeat the order he placed in the past. That could be useful for the wholesaler companies, for instance.”

The WEBSHOP, Semenova says, is available to customers in 13 markets, with Chile and Peru, in South America, being two of them, and the rest in Europe. The plan, she says, is to activate the WEBSHOP in all countries that host Systemair’s subsidiaries. Systemair, she adds, has a sales presence in 50 countries and is backed by good logistics, which would help facilitate the process in those countries and ensure fast delivery.

Raphael Khlat

Semenova says all of Systemair’s standard range of products are available in the WEBSHOP, such as fans and accessories, air-distribution products, air curtains and residential air-handling units (AHUs). “That is about 92,000 items,” she says. The products that need to be configured, though, such as a chiller or a central AHU, are not in the WEBSHOP at this stage, she says, since the article number for these products will only be generated after the configuration and selection of all necessary attributes. That function, she says, will be added to the WEBSHOP later.

Be it a third-party or first-party arrangement, storage of equipment, parts and accessories is an issue that requires substantial consideration. Should the digital store hold the stock, or should that responsibility fall on the manufacturer or supplier? Abraham says Phileo keeps fast-moving parts, while the manufacturer or supplier holds the major inventory.

Latheef says MEP Global is not planning to store physical products in its premises, as of now, as its portal is based on the hyperlocal system, where the customer would be able to place the order of a product or service from the nearest vendors, based on geo-tagging, and the vendors would undertake the fulfillment to the nearest or the farthest customer using their own facilities or any of MEP Global’s partner shipping companies. “We are working on a fulfillment model, though, where we would be able to store the vendors’ products on our premises to speed up the deliveries and service, which would be especially helpful to international vendors to keep their items in the UAE to serve the customer without delay,” he says.

While availability of products is a key feature, for which storage is a vital aspect, digital stores would be expected to present other features that would build a compelling case for them amidst manufacturers, brick-and-mortar distributors and customers. Phileo and MEP Global say they have the tools and whatever it takes to facilitate commercial activity involving new construction and retrofit projects, among other projects. “Customers will have a B2C-level experience when using our online store,” Abraham says. “The freedom and ease of using the store is the same as that of an e-commerce giant.

Surajit Mahanty

They will be able to select, order and pay in a seamless manner. We will be giving them all the key information they need, including technical data sheets, lead time and pricing. And yes, customers can have the option of bulk purchasing, and they can submit payments using credit cards, PayPal or bank transfer. And to provide further ease, we offer drop shipment capability.”

Abraham says digital online stores would be a shot in the arm for small contractors, giving them access to a global supply chain. “While a brick-and-mortar store offers tangibility, our online stores offer accessibility, with all the datasheets and videos online for them to check, with links to suppliers’ websites,” Abraham says. “We also have chat rooms to provide any technical assistance during their purchasing process.” Latheef echoes Abraham’s upbeat tone in elaborating on the benefits of digital stores. He says that over the years, consumers have found it difficult to find technically complicated and niche MEP products in the market. Visiting each supplier physically for availability, quality and price comparison has been a nagging problem, he says. In that context, the MEP Global platform, he says, allows customers to see a wide range of MEP products from different suppliers, to compare the price and services and to even contact them. “The shopping is hassle-free, and the delivery is quick,” he says. “Or the customer can even pick the items up, if the purchase is being done from the nearest suppliers, with the help of MEP Global’s hyperlocal system, saving valuable time, energy and money. Our target is to make available the complete range of items related to MEP segments on our portal.”

Latheef says customers can benefit from the experience of hyperlocal and international shopping from the nearest legitimate suppliers. The location-based vendor listing and the option to see the nearest vendors and products or services, two features in MEP Global, give choices to the customer to get the items quickly and to reduce aftersales issues, he says. The advanced product filters in our portal help easy search and comparison with many combination options, which make life easy for the customers in terms of analysis and pricing, prior to finalising the purchase, he says.

Latheef says the features are possible through the use of artificial intelligence (AI) and the latest coding techniques. “Our back-end and infrastructure are well secured and provide such facilities for vendors and customers, like high-end dashboards, options for multilevel user accounts and the facility to showcase products or services to bigger audiences, giving a Middle East entry point for international brands,” he says. “And our system is integrated with various payment methods, including all major cards, and the latest payment systems with a highly secured data encryption algorithm.” Like Latheef, Semenova speaks of speed of fulfilling the needs of customers. She says that when a customer already knows the items or product names, he can use the fast search and place an order in a second, or can repeat the order he placed in the past. That could be a useful feature for wholesaler companies, for instance, she adds.

Semenova says that if a customer needs to select a product first and compare several solutions, he can use the selection tool that is integrated into Systemair’s online catalogue. “He just puts his operating point and selects the right products,” she says. “That function is useful for installers and contractors. All technical data, living diagrams, dimensions, wiring, installation instructions, BIM models and documentation are available here. The system shows only the appropriate accessories for the selected product, though, which eliminates mistakes.”

S.P. Sarangan

A recent addition to the Systemair digital platform, Semenova says, is the Project Planner function, which is useful for customers who work on projects, in that it allows them to create the individual list of products and accessories they would need for their upcoming projects. “A customer can set up his compilation to get a better overview of his requirements,” she says. “He can export his list with all the technical documentation, cost and operating points in any format – zip, pdf, excel, etc. – and can also share his solution online with his colleagues to discuss.”

Semenova says that when a customer logs in, he automatically gets his individual prices and terms according to his agreement with Systemair. The WEBSHOP, she says, allows him to check the availability of the products and delivery time in real time. It also lets him decide when he wants to receive the order, and he can choose the delivery address for every shipment, she says. “That means, we can even send the product straight to the construction site, if needed,” she says. “That is highly appreciated by installers.”

Digital stores not only save time but also give cost advantages to customers, its advocates say. Speaking in the context of Phileo, Abraham says the cost advantage would be around 5-7% in prices. One reason for low costs, he says, would be low overheads, but he points out that Phileo also has a special pricing agreement with its suppliers. “And because of our quicker response time, we optimise the process, leading to more efficiency, which leads to a more cost-effective process than brick-and-mortar suppliers,” he says.

Vendors as much benefit, through lower cost of doing business, Latheef says. Their overhead costs are drastically reduced, in terms of document preparation, reconciliation, inventory, data entry and supervision, he says. “All these are eliminated in the online portal, where the lead happens with a single click, as opposed to the long time it takes in physical trading,” he says. So, with all the benefits listed by digital store owners, are traditional brick-and-mortar stores scrambling to set up their own virtual platforms? Evidence points more to a wait-and-watch approach. Surajit Mahanty, Head of Marketing, Awal Gulf Manufacturing, speaks of how the Bahrain-headquartered company is evaluating the option. “At the moment, we don’t have it (digital store),” he says. “Having said that, our newly launched Web site has a page for the Pearl brand, and can be scaled up to a full-fledged online store.”

Like Mahanty, Raphael R Khlat, President of UAE-headquartered Faisal Jassim Group, admits that his organisation has not entered the digital realm but that it is to be an area of focus in 2021. Even if a foray, Khlat says, the emphasis would be on simple products like grilles, diffusers and thermostats. He adds that he is still not convinced that a digital store can facilitate the transaction of every HVACR equipment conceivable. “You can buy a pump of 1 HP capacity online, because it is simple, but I believe it will still need a technician to install,” he says. “If the pump is of 15 HP capacity, you are talking of flanges, pressures, etc. – all these are considerations, when you go into a chilled water installation.”

Ravi Wadhwani

Much in the same way, buying an AHU involves selection, and several considerations need to be complied with, unless the job is very small and the user accepts the standard package available without any questions asked, Khlat says. Unless we evolve to that extent of standardisation, he says, it is unlikely that engineers will be sitting on the Internet and buying. Also, there is the element of competitiveness, he says, pointing to the fact that contractors reach out to multiple suppliers in search of a cost-effective option. “Negotiations do happen,” he pithily says. He points out to the case of large capital equipment valued in the millions, the sale of which, he says, might not be concluded through an online portal. He also points out to the dynamics involved in a sale. “Things do get delayed,” he says. “We have to send the proposal to the consultant, and they review and ask us to revise the submittal. This kind of process can take a lot of time.” S P Sarangan, General Manager, Trosten Industries Company, echoes Khlat’s reservations.

Like Faisal Jassim, the UAE-headquartered company has still not taken the digital route, as it still needs to be convinced that doing so will result in an increase in customer traffic, or that it can be applied to all equipment. For now, Trosten’s digital foray has been limited to investing in software that generates Revit models. To date, the company provides Revit data only to those customers that specifically ask for them. “In the near future, we want to upload all Revit models, so the architect and consultant can download and place on their drawings,” he says.

As for a full-fledged digital store, like Khlat, Sarangan says that in the case of AHUs and FCUs, the equipment would need to be selected. He points out that somebody has to go through the specs and that those specs would have to be incorporated in equipment selection. “If I am an end-user and need a specific type of AHU, I won’t get it at a common platform,” he says. “When that knowledge is not there and the quantity is a good number, nobody has the patience. As Trosten, we give selection software, but most of our customers do not have the patience to use it.” Sarangan says there is also a lot of customisation involved to place products on a digital platform. “It is difficult,” he says. “Even an FCU, which is a unitary product, has to be selected for a specific chilled water temperature, so we cannot generalise. If you have a 1 ton or 1.5 ton room air conditioner, it is fine to place on a digital platform, as you don’t have working conditions, but in the case of FCUs, you have working conditions.”

Like Khlat, Sarangan points to the process of negotiation, as something not yet possible to cover in a digital environment. He speaks of how when working with a specific contractor, there is the process of understanding what their budget is and responding to that by doing value engineering by lowering the specs. “We lose all these in a digital platform,” he says. Spare parts, he concedes, can probably be part of a digital platform. Much like Faisal Jassim and Trosten, UAE-headquartered Hira Industries has also not made a foray into digital selling. Ravi Wadhwani, Managing Director, Hira Walraven AC Industry, says the company is still assessing if establishing a digital platform ought to be a priority for now. He points to the high – albeit one-time – upfront investment in e-commerce, plus the annual maintenance of apps, say, but acknowledges that digital will reduce recurring HR costs, like employment visa, medical and insurance.

Like Trosten, the digital focus at Hira has been on BIM. When it comes to a full-fledged digital store, he sounds like Khlat and Sarangan when pointing out that the UAE and the larger GCC region together constitute a project market. “We still need to be more out there with the customer,” Wadhwani says. “We have two indoor salespeople and 10 outdoors salespeople. Having the product displayed digitally is good, because that is where the world is going towards, but I am not sure about logging into Amazon to buy an insulation product, because you can’t compare 4-5 products.” Some products would lend themselves to a brick-and-mortar model, while some could be fitted into a digital ecosystem, he says. “If a matter of tools and spare parts, digital works well, but as in our case, project-specific purchases are consultant driven and about meeting his specifications,” he says.

Wadhwani expects the situation to eventually turn towards digital, though. He says it is really about looking at two aspects, with one being giving the customer the experience of augmented reality (AR) and getting into a project as almost being there. “Providing such an experience to the customer will support the sales team,” he says, “but to date, I have not come across any project where I send a quote to a customer and he has signed it. So, you still need that face-to-face interaction for negotiating on the pricing.”

If Wadhwani speaks of AR, Khlat speaks of AI – as does Noufal while describing MEP Global’s many features – as possibly helping mimic the face-to-face experience for customers. “If the consultant industry also latches onto a digital ecosystem for specifying products, I think the guy who is going to do that is going to gain huge ground,” Khlat says. “There will no longer be the involvement of selection engineers. Today, the products we have and the service we do for the products have tremendous potential for improvement, and so that is where AI can come in, and that is where the shift has to happen.”

But, before getting into discussions on AI and AR, for that matter, there is a need to address the fundamental issue of cyber-security. How exactly would the vendor and the customer be protected in the digital marketplace in this age of cyber-attacks? Abraham speaks of how data protection remains a strong focus at Phileo. The company has a privacy policy in place, which ensures the data the customer presents is strictly confidential. “We have all the checks and balances required,” Abraham says. “We are using Amazon Web services, and all the information is hosted on Amazon Virtual Private Cloud (VPC) Security, which is globally recognised and has all the required safety protocols. Cloud is the future, owning a server is the past.”

Speaking of MEP Global, Latheef says the platform secures vendor and customer data with a “state-of-the-art” security algorithm to encrypt the data on its cloud servers. “Moreover, our secured payment system with point-to-point encryption makes sure the data we collect are transferred securely,” he says. Semenova says Systemair invests a lot into its IT infrastructure and digital safety. “The company follows the EU’s General Data Protection Regulation (GDPR),” she says. “The personal information is handled in accordance with the company’s privacy policy.”

While security is a vital element, the main threshold that still needs to be crossed is the ability to fully serve B2B requirements – the type of project-centric dynamics that Khlat, Sarangan and Wadhwani so articulately speak about. Semenova says she is unaware when the threshold will be crossed. “No one knows,” she says. “Fifty years ago, you could not even make a video call. Now you have VR and AR technology that are growing at a fantastic speed. You can simulate not only a unit’s operation but also weather conditions.”

Abraham says that till AR comes to the fore, as does any other conceivable sophisticated technology, the two – digital and brick-and-mortar – can co-exist. A project-related buy would involve negotiation and ideation, all of which can be done offline, he says, but once the BOQ (bill of quantities) is finalised, the procurement can be online. “They can source, but only if the online store has enough information,” he says. “So, we publish the technical data sheets. That way, whenever they decide to buy, they can go through the sheet and easily judge the product. And if they need further clarity, they can engage with us till fully satisfied.

Semenova seconds this. Design engineers and consultants, she says, are used to taking decisions not on the basis of tactile feel but on the basis of technical data, selection programs and certification, which confirms quality and reliability. So, are digital vendors nearing the threshold? As she says, “No one knows.”