Question: Given the unpredictable economy and the number of dealers who have gone out of business, why haven’t more hot tub manufacturers folded?
Brian Quint, president
Manufacturers have done what retailers have done. We’ve been smart and efficient. We’ve cut expenses and gained efficiency. Those of us still in the business have figured out how to make more money on less revenue. It’s really about scaling operating expenses. You can’t do it instantly. It takes two or three years, but those that aren’t undercapitalized are probably even healthier.
James S. Johnston, vice president of sales and marketing
A couple of the top-tier manufacturers have abandoned U.S. employees to control costs, and they have a large network of long-standing dealers to weather the economic storm. Their business may be down in most markets, but they have enough of them to sustain operations. Many in the second tier pursue the same programs and product quality levels as the larger organizations, but there has likely been a bit more change and strain in their dealer [base]. Most brands in tier two are more entrepreneurial and flexible in one way or another to react to the stagnant market. The third tier is the largest in number (perhaps 50 or more), smallest in annual units manufactured per brand, and the group that most people assumed would see major decline. But this group has a more flexible operating structure. They can shut their doors and turn off most of their costs for a month or two. They operate very small manufacturing staff and are willing to furlough people. They don’t have many fixed or sustained sales and marketing costs. They utilize lesser cost components. Their flexibility has kept most of them in the market with a minimized operation. At least up to this point. The phrase, ‘by hook or by crook’ comes to mind.
Chris Robinson, business manager
It’s not a simple answer. A lot of those dealers weren’t committed retail sales operations. There was a ballooning when life was easy and those guys dropped away. It is no small issue for the industry, but the manufacturers that are here have been around for a long time and they have found a way to diversify. Also, we shouldn’t discount how strong a local player can be locally. But I don’t think we’ve seen the end of it. Often, a small business will hunker down and survive, and when it comes back and comes back strong, they don’t have the reserves to capitalize on that, so you see a lot of failures during the growth spurt. This recession is different in that it’s a slow growth coming out of it, so it might not create that dynamic as strongly this time. Most of the folks that we see now are not on the edge.
Rebekah Decker, marketing manager
Spring Dance Hot Tubs
Instead of going into research and development and creative marketing efforts, their operations must be sustained by cash reserves. We haven’t seen much innovation in the industry. And I can’t name too many manufacturers who have invested heavily in online efforts. I think many manufacturers have been waiting for the glory days again, and while there’s evidence things are getting better, I don’t know that we’re going to see those kinds of sales for a few years. It wouldn’t surprise me if we see more manufactures shutting their doors in the next year or two because the cash is almost gone.
Norm Coburn, president
New England Spas
Savvy spa makers have adjusted overhead to accommodate lower production levels. Spa makers continually search for new dealerships to pick up their lines, and this can also sustain some companies. Theoretically, a smaller dealer base means additional market share for some, and therefore additional unit sales. That said, I wish there were fewer manufacturers and retailers, so we could all make more of a living and consumers would enjoy some stability in this volatile industry.
Steve Lopez, sales/marketing manager
Oasis Hot Tub & Sauna
Your question has had many of us puzzled. We expected a larger number of casualties during the recession. What may have occurred to the manufacturers is what many dealers went through, which was going lean, trimming costs, and largely becoming more profitable as a result. Most dealers that I have spoken with have experienced some kind of growth, some better than others. I also feel that the historical oversaturation of hot tub manufacturers is largely due to a low barrier of entry unlike other products (i.e. autos, computers, appliances). Overall, these are relatively simple “boxes of hot water.” Spas are not as stylistically perishable or technology driven, either, allowing for inventory to age until demand catches up. It seems some manufacturers simply shift resources to build shower stalls or surf boards, or may just allow output to go into dormancy.
Joe Musnicki, president/owner
Ocean Spray Hot Tubs & Saunas
Westhampton Beach, N.Y.
Manufacturers have cut down their factory line times and raw product purchases, and adjusted to lower production. In addition, there are fewer stand-alone dealers, with many replaced by pool dealers getting into the hot tub business. The major brands are generally not available, but many lesser-known ones are. This is sustaining some of the lower-end manufacturers. In addition, a lot of manufacturers still roll the dice with the mass merchants.