How Pool Distribution Actually Works: A Three-Tier System Primer
The pool equipment industry operates through a well-established three-tier distribution system: manufacturers produce equipment, distributors warehouse and deliver it, and service providers install and maintain it for end customers. This architecture isn't arbitrary—it exists because each tier solves specific coordination problems that would be prohibitively expensive to solve through vertical integration.
The Basic Structure
At the top tier, manufacturers like Hayward Holdings, Pentair, and Maytronics design and produce pool equipment. In Q2 2025, Hayward reported net sales of $299.6 million, with approximately 85% coming from aftermarket (replacement and upgrade) sales rather than new pool construction.[1] These manufacturers don't typically sell directly to the thousands of pool service companies or millions of pool owners. Instead, they sell primarily to distributors.
The middle tier consists of distributors, with Pool Corporation (POOLCORP) being the dominant player. As of Q2 2025, Pool Corp operated 460 sales centers across North America, up from 445 in Q2 2024 and 430 in Q2 2023.[2] This steady expansion of approximately 15 centers per year represents significant capital deployment—each sales center requires real estate, inventory, personnel, and delivery infrastructure.
The bottom tier comprises tens of thousands of pool service providers, builders, and retailers who interact directly with pool owners. Pool Corp also noted 290-310 independently-owned Pinch A Penny franchise locations in their Q2 2025 report,[2] representing just one franchise system within the broader service provider ecosystem.
Why Three Tiers Instead of Two (or One)?
The question worth asking is: why do distributors exist at all? If manufacturers can ship products, and service providers need products, why insert a middleman who, by definition, must take a margin?
The answer lies in inventory economics and coordination costs.
The Inventory Problem
Consider Pool Corp's Q2 2025 financial data: they held inventory worth $35 million more than the prior year, specifically to "support our customers' in-season product needs."[2] This inventory increase wasn't driven by sales growth (Q2 sales were only +1% year-over-year) but by the need to have products available locally when service providers need them.
Pool equipment sales are highly seasonal. Service providers need pumps, filters, and heaters now when a customer's equipment fails on a hot summer day, not in 3-5 business days via direct manufacturer shipping. Pool Corp's 460 sales centers create a distributed inventory network that puts products within same-day or next-day delivery range of most service providers in their coverage areas.
Manufacturers benefit from this arrangement because they can produce in bulk and ship in container quantities to distributors, rather than managing thousands of small shipments to individual service providers. Hayward, for example, operates manufacturing facilities in specific locations but sells into a geographically dispersed market. Shipping individual units to thousands of service providers would multiply logistics costs dramatically.
The Working Capital Transfer
Distributors also serve as a working capital buffer. Pool Corp's Q2 2025 balance sheet showed a debt/EBITDA ratio of 1.47x,[2] meaning they use leverage to finance inventory. This inventory financing is essentially a service to both manufacturers (who get paid when they ship to distributors) and service providers (who don't have to warehouse equipment themselves).
The alternative would require either:
- Manufacturers to finance consignment inventory at thousands of service provider locations, or
- Service providers to maintain their own warehouses and carry significantly more working capital
Neither scales well. Manufacturers aren't equipped to manage thousands of small inventory locations. Service providers have limited capital and space, and most lack the volume to justify warehousing full product lines.
The "Early Buy" System: Coordinating Seasonal Demand
One of the most interesting mechanisms in pool distribution is the "early buy" program. Maytronics' Q4 2023 earnings noted "solid start to the 'Early Buy' sales in North America & Europe,"[3] treating this as a significant positive indicator.
Early buy programs offer service providers and retailers discounts for purchasing inventory in the off-season (typically fall and winter) for delivery before peak season. This creates value for all three tiers:
For manufacturers: Production can be smoothed across the year rather than spiking in Q2-Q3. This improves manufacturing efficiency and capacity utilization. Maytronics noted they "gradually increase production volume" as part of their operational strategy,[3] and early buy programs enable this gradualism.
For distributors: Early buy allows distributors to pre-position inventory when warehouse space is available and before the Q2 crunch. Pool Corp's inventory levels build from Q4 through Q1-Q2, then decline in Q3-Q4 as products sell through.
For service providers: Discounts compensate for the working capital cost and storage burden of holding inventory themselves. Service providers with adequate capital and storage can improve margins by participating in early buy programs.
The early buy system is essentially a mechanism for shifting inventory holding costs to whoever can bear them most efficiently, using price incentives to coordinate behavior across thousands of independent actors.
Distribution Center Economics
Pool Corp's expansion from 430 to 460 sales centers in two years implies each center generates enough incremental profit to justify the investment. While Pool Corp doesn't break down per-center economics, we can infer some dynamics from their aggregate financials.
In Q2 2025, Pool Corp generated:
- Net sales: $1,784.5 million
- Gross profit: $535.2 million (30.0% gross margin)
- Operating income: $272.7 million (15.3% operating margin)[2]
The 30% gross margin represents the markup distributors take for their inventory, logistics, and coordination services. The gap between 30% gross margin and 15.3% operating margin (14.7 percentage points) represents the cost structure of running the distribution network: real estate, personnel, delivery trucks, inventory financing costs, and corporate overhead.
With 460 sales centers, this implies roughly $3.9 million in Q2 net sales per center on average. Of course, this varies widely—metropolitan centers likely do much higher volume than rural locations. But the economics must support not just the ongoing operational costs but also the capital cost of establishing each center.
The Digital Intrusion: POOL360
Pool Corp's POOL360 digital platform represented 16% of total sales in Q2 2025, up from 14% in Q2 2023.[2] This 200+ basis point shift in just two years represents a significant change in how the distribution tier operates.
Digital ordering changes several dynamics:
Price transparency: When service providers can see pricing online, distributor sales representatives have less ability to offer relationship-based pricing. This could compress margins over time, though Pool Corp maintained 30.0% gross margins in Q2 2025, "in line with Q2 2024."[2]
Order efficiency: Digital orders reduce the labor cost of order taking and processing. This operational efficiency allows distributors to handle more volume with the same overhead, potentially improving operating leverage.
Inventory visibility: Real-time inventory visibility lets service providers check stock before calling or driving to a center, reducing wasted trips and phone calls. This is valuable in high-season when distributor staff are overwhelmed.
The 16% digital penetration suggests we're in an intermediate state—most orders still go through traditional channels (phone, in-person), but a significant minority have moved online. Given e-commerce penetration rates in other industries, this could easily reach 30-40%+ over the next 5-10 years.
Why Vertical Integration Is Rare
Given the margins involved, why don't manufacturers simply acquire distributors and capture that 30% gross margin for themselves? Or why don't large service provider roll-ups backward integrate into distribution?
The answer is that these are genuinely different businesses requiring different capabilities:
Manufacturing requires process engineering, supply chain management, product development, and quality control. Hayward achieved a record 52.7% gross profit margin in Q2 2025,[1] reflecting strong manufacturing economics—but this came from "disciplined cost control, targeted strategic investments in sales & marketing, customer service, advanced engineering."[1] These are manufacturing-specific capabilities.
Distribution requires real estate management, logistics optimization, local market knowledge, credit management, and customer relationships across thousands of accounts. Pool Corp's 15.3% operating margin[2] reflects the reality that distribution is a much lower-margin business than manufacturing, but it requires scale and operational excellence in a different dimension.
Service provision requires skilled labor, route optimization, customer service, and local reputation. These are yet another set of capabilities.
Companies occasionally try vertical integration. Manufacturers sometimes establish "direct" sales forces for commercial accounts. Large service provider roll-ups sometimes negotiate volume purchasing agreements that bypass some distributor services. But the three-tier structure persists because specialization economies generally outweigh integration benefits.
Implications for Service Providers
Understanding distribution economics helps service providers make better decisions:
Distributor margins are real costs: That 30% gross margin isn't "waste"—it pays for inventory availability, delivery, credit terms, and local expertise. Service providers who try to bypass distributors (e.g., buying direct from overseas manufacturers) discover they must replicate these services themselves.
Geographic coverage matters: Pool Corp's expansion to 460 centers improves availability for service providers in newly covered areas. Conversely, service providers in underserved areas face higher costs (more time spent on parts runs) or must hold more inventory themselves.
Digital adoption is inevitable: The shift from 14% to 16% digital ordering in two years suggests this trend will continue. Service providers who build digital ordering into their operational workflows will gain efficiency advantages.
Early buy programs are strategic decisions: Participating in early buy means trading working capital today for margin improvement tomorrow. Service providers should calculate their actual cost of capital and storage to determine if the discount justifies the cash outlay.
The System's Stability
The three-tier distribution model has persisted for decades because it efficiently allocates inventory risk, working capital costs, and coordination overhead. Manufacturers produce at scale, distributors warehouse and deliver locally, and service providers focus on customer relationships and technical service.
Pool Corp's steady expansion of 15 centers per year, maintained 30% gross margins, and growing digital platform all suggest this model remains robust. The system adapts (digital ordering, early buy programs) but the fundamental three-tier structure persists because it solves real economic problems more efficiently than the alternatives.
For pool service providers, this means distribution will remain a critical partner rather than a disintermediable middleman. Understanding how distributors make money—and what services they provide beyond simply marking up products—helps service providers work more effectively within this system.