Hearth & Home October 2017

A gas fireplace in the town of Mount Royal on the island of Montréal in Québec.
Photo: ©2017 MCM Photography. www.mcmphoto.ca. www.techo-bloc.com.

Canadian Leaf Hearth Business: Buying Canadian

By Bill Sendelback

Canadian hearth sales are up, but without many U.S. products in the mix.

The Canadian hearth products market matches up quite closely with the U.S. market. The products, dealers, distribution, challenges and sales methods are all similar. What’s not similar is the exchange rate between the Canadian dollar and the U.S. dollar. It presents a big gap that results in U.S. products in Canada costing anywhere from 25% to 40% more, pushes Canadian dealers into buying Canadian products, and perhaps eliminate, or reduce, U.S.-made hearth products in their stores.

Canadian hearth products dealers, however, appear to be doing just fine selling Canadian products, and that certainly has to raise concerns for U.S. hearth products manufacturers.

Laura Litchfield, executive director of the HPBA Canada (HPBAC), has felt new “energy in the room” in recent Canadian dealer meetings. But she sees government regulations as major challenges to Canada’s hearth products industry.

Laura Litchfield, HPBA Canada (HPBAC).

“There’s a national push to address climate change, and action plans are in the works in most provinces,” she says. “So we’re working hard to take advantage of climate change to benefit hearth products rather than see them eliminated.”

Of major concern to Litchfield and most hearth dealers is the city of Vancouver’s Zero Net efforts aimed at the elimination of greenhouse gases and the reduction of the city’s carbon footprint by curtailing the use of natural gas. Vancouver’s Zero Emissions Building Plan asks for the reduction of emissions from newly permitted buildings of 70% by 2020 and 90% by 2025.

The law now affects high-rise buildings of more than seven stories, requiring emissions reductions by 50% over 2007 greenhouse gas levels. As of May, 2018, the action will affect townhouses, residential buildings of less than seven stories, multi-family units and single family residences of more than 3,500 sq. ft., says Litchfield. So far, the Vancouver plan does not affect single-family homes of less than 3,500 sq. ft.

“There is a lot of potential for this action to spread beyond Vancouver,” says Litchfield. “Even now, in the Vancouver area, homebuilders are electing to not even bring natural gas into their developments.”

The concern about such regulations spreading outside of Vancouver is well founded. The Carbon Neutral Cities Alliance is committed to reducing greenhouse gas emissions by 80% by 2050. That alliance includes Vancouver and Toronto in Canada, and eight U.S. cities – Seattle, Boulder (Colorado), Boston, Minneapolis, New York, Portland (Oregon), San Francisco and Washington, DC.

The HPBAC, with the support of the HPBA, has initiated in the Vancouver area a promotional campaign called “Save My Natural Gas.” Directed toward Vancouver residents, the campaign has already spent $70,000. On the positive side of Canadian government activities, the province of Ontario has committed to a $4 million Green Energy wood stove change-out this fall, and the HPBAC is promoting a similar action to the Newfoundland provincial government.

Canadian Hearth Manufacturers Doing Well

“We’re very, very pleased with our Canadian sales,” says John Czerwonka, vice president of Hearth Sales for Napoleon Fireplaces. “These sales are up 20%, and they are outpacing our percentage growth in the U.S.” Key factors in this growth include increases in new home construction, strong sales growth in gas direct-vent fireplaces, and new products introduced by Napoleon, according to Czerwonka.

“And as Canadian consumer confidence grows, we’re selling more high-end products. Stove sales are pretty flat, and pellet appliance sales are down, so gas appliances are carrying the weight.”

Canada’s economy in general is more stable than the U.S. economy, and it has been so for the last few years, says Czerwonka. “We’re seeing more Canadian consumer confidence, and Canadians are now spending money. Our dealers are having a strong year. Our Canadian early-buy program this year was the strongest in our history.”

Canadian hearth product sales continue to move toward contemporary styling. “The Canadian market is much further along in selling contemporary than in the U.S., particularly in the big cities,” says Czerwonka. “Traditional is still number one, but contemporary, especially linear, is outpacing the growth of traditional. The consumer is willing to pay more for these products, and dealer margins are better on them.”

He points out that Napoleon’s “4 Pillars of Construction” aesthetics program helps dealers customize even linear products to fit the traditional, contemporary, rustic or transitional/eclectic styles to suit any customer’s décor.

Stove Builders International/SBI sees U.S. dealers as a “bit more bullish with a stronger economy,” says president Marc-Antoine Cantin. “Sales patterns for this season in Canada are similar to those in the U.S. Although Canadian dealers were not keen on early booking orders, with unemployment down, we think this year is coming together.”

Canadian dealers have been complaining about U.S. products being overpriced due to the exchange rate. “But U.S. manufacturers and Canadian dealers are seeing the light at the end of the tunnel as the exchange rate continues to narrow,” says Cantin. “We don’t expect any huge changes in fuel costs, so we’re looking at this season being similar in the U.S. and Canada.”

Venting manufacturer Selkirk is seeing stronger demand in Canada for its larger-sized Class A chimneys, an indication of stronger wood-burning fireplace sales, according to Bob Emmell, vice president of Sales. “But there is still a lot of inventory at dealers and distributors for smaller-sized chimney,” he says. “Dealers want to be optimistic about this year, but last year they took shipments earlier in the year, and this year we’re being asked to ship later.”

Selkirk, too, sees a similar market with similar conditions in Canada and the U.S. “New home construction is seeing an uptick in Canada,” says Emmell, “but with today’s aging demographics in both countries, fewer consumers are buying wood-burning products. And in our major cities, gas products are selling, not wood burners.”

2-sided linear series from Valor.

“Last fall was very slow, and then sales went on a tear,” says Paul Miles, Sales director for Valor Fireplace/Miles Industries, “and we were very surprised by a very busy spring this year. Even in the hard-hit areas of the oil patches in Alberta and Saskatchewan, our sales are up 10%.”

The real estate booms in Vancouver and Toronto have cooled a bit because of the reduction in offshore investors, says Miles. “We’re seeing a big trend toward renovation, and people are prepared to spend more on those renovations thanks to the folks at HGTV. Sales of contemporary linear fireplaces are particularly strong in the West, as opposed to slower sales in fireplace inserts and freestanding stoves.”

Miles, too, sees strong parallels between sales trends in the U.S. and Canada. “In both countries, we’re seeing stronger sales in the West than in the East.”

Miles is particularly concerned about the city of Vancouver’s Zero Net program. “The recent change in the British Columbia provincial government moved it from right of center to left of center, backed by the Green party,” says Miles. “As one result, two weeks after the election of the new liberal government, a $36 billion investment contract to export liquid natural gas was cancelled. The Greenies celebrated.”

Tom Lymbery, Gray Creek Store.

The West, British Columbia

Gray Creek Store in Gray Creek, B.C., near the Alberta border and Lake Louise, is doing “very well” selling hearth products, according to owner and manager Tom Lymbery. “We’ve been in business since 1913 selling primarily wood burners, plus propane and pellet models in this town of 374 persons,” he says.

“Gray Creek covers a market area with a 100-mile radius including many second-home neighborhoods in this tourist area. Our economy is not bad with tourists coming from B.C., Alberta and the U.S. We have lots of jobs available and not enough people to fill them.”

After an “exceptional” 2016 sales year because of a “tough winter with lots of snow,” 2017 sales are “excellent,” but Lymbery’s summer business was not as busy as last year. He expects business to pick up. “We always seem to be busy,” he says. The regional district that covers rural areas near Gray Creek is offering $150 from the provincial lung association to consumers who upgrade to clean-burning, EPA-certified wood burners.

David Rosvold, president of two-step distributor Northwest Stoves, Langley, B.C., east of Vancouver, is seeing sales “up and down” with some growth in wood burners, while pellet stove sales are “almost non-existent.” The gas appliance market in Rosvold’s territory is big, but the market is “extremely competitive, and prices have eroded” because of the large number of gas appliance manufacturers in B.C. that are selling dealer-direct.

Although, as a distributor, Northwest Stoves does few custom products, Rosvold says his dealers tell him that custom model sales are up. “Price doesn’t matter with these custom products. It’s not unheard of for a dealer to sell a $100,000 fireplace and later sell a $1,500 fireplace. It’s the mid-range price points that are not selling.”

Rosvold says his dealers are feeling positive about the season, but there is uncertainty about the recent change in the B.C. provincial government – where it will stand on gas versus wood, and how that will affect their businesses. “The issue with the virtual banning of natural gas in Vancouver is hard to understand, but right now, that action is irrelevant in areas other than Vancouver. However, in Vancouver, dealers are running into building inspectors who don’t even understand the new law.”

Rosvold checks the exchange rate every morning, looking to pre-purchase when the rate gets more favorable. “Some U.S. manufacturers don’t understand the exchange rate, and they forget about the brokerage fees, customs and freight we must pay. This is a huge issue for us,” he says.

Rosvold is optimistic about this year with the B.C. economy doing well. Despite massive wildfires this summer in B.C. that caused evacuation of thousands, “I don’t know many dealers who are not doing as well or better than 2016,” he says. Despite not being strong in gas appliances because of the dealer-direct competition, Rosvold even had to hire people just to keep up. “In spite of our strong wood-burner sales, I’ve seen a nice sales jump in outdoor products and grills, so we’re moving more into those products.”

Doug Parkinson, Parky’s Heating & Cooling.

The year 2015 was Parky’s Heating & Cooling’s, Golden, B.C., best ever year, according to president Doug Parkinson, and 2016 was also a good sales year for hearth products. He’s seeing more wood-burner sales than normal, causing his sales balance to be 90% wood models and 10% propane units. “However, as our population gets older, they want to get rid of wood, and pellets are not a thing here.” So with more new construction in his area, Parkinson sees gas direct-vent fireplaces, propane models and freestanding units coming back.

“Our economy has been pretty average for the last five years,” says Parkinson, “but last year it increased, and this year it’s excellent. In our small, outdoor recreation area, we have a lot of second homes and retirees. The low Canadian dollar has helped our economy.” However, Parkinson tends to stay with Canadian manufacturers. “I can’t afford U.S. products along with the freight and duties,” he says.

Government regulatory efforts have not yet affected Parkinson’s market. “Our manufacturers say they will meet the 2020 EPA standard,” he says, “but the Vancouver actions eventually will absolutely affect us. It’s stupid, and it will make our cost-of-living go through the roof.”

The Prairie Provinces, Alberta, Manitoba and Saskatchewan

Matthew Jones, Sales manager for Apex Fireplaces in Red Deer, Alberta, north of Calgary, is seeing good, increased hearth product sales this year with “slow and steady” business. “We have a lot of projects going, many turnkey remodels,” he says. Apex sells lots of Rumford-type, large, wood- burning fireplaces, a good idea in an area that can hit minus 40 degrees Celsius!

The city of Red Deer is experiencing a slow, gradual economic pick-up, and Apex is getting “busier and busier. We were hit hard by the drop in oil prices, but the oil fields are hiring again and getting back to work.”

Like many Canadian dealers, Jones says that U.S. products just are not price competitive given the current exchange rate. “But our customers want Canadian products anyway,” he says.

It has been a “steady” 2016 and 2017 for Classic Fireplaces, Winnipeg, Manitoba, says co-owner Helen Peters. “We’re always hoping for sales increases, but with the growth in renovation products, we’re having a strong, busy fall, so we’re thinking positively.” Classic sells a broad mix of hearth products, both gas and wood burners, “and a lot of electric models. Linear gas models are particularly strong. It’s what most people are looking for.” Grill sales, however, have been off because of low-priced competition.

Winnipeg’s economy has been steady, very stable with no highs or lows, Peters says. Classic Fireplaces has always concentrated on Canadian-made products, “not much from the U.S. because we have strong manufacturers here in Canada.”

Saskatchewan’s economy was “rolling along pretty well” through March when the provincial budget was announced, says Dennis Sawchuk, partner in The Fireplace Hut in Prince Albert in central Saskatchewan. After a three-month dead period, the province’s economy is starting to move. But new budget details have killed new home construction.

“Now, because of this new budget, you have to pay taxes on the labor for work done,” according to Sawchuk. “On a $400,000 homebuilding quote, you now have to add about $45,000 to that total because of this tax.” He says that a local electrician had five jobs lined up, but when the tax was announced, four of those jobs were cancelled. “And real estate sales have never been so bad. The only positive to all this is that maybe it will weed out a few of our competitors.”

What are selling for Sawchuk are wood burners. “We used to sell six to one gas to wood burners. Now we’re selling twice as many wood burners as we used to,” he says. That may be caused by the increase in customers in the area who want to live off the grid.

In Prince Albert’s population of 45,000, upper end products don’t sell. So Sawchuk has expanded his sales area; now 95% of his business is outside of the city. The exchange rate has caused him to drop most of his U.S.-made products. “We’re fortunate that we have no borrowed money,” he says, “all our stuff is paid for. I sure would not want to start this business now.”

Hearth & Home Fireplace Specialties, Calgary, Alberta.
L to R: Regency Fireplaces Horizon HRI4E, Horizon HRI6E, Liberty LRI4E.

This is a “bounce back” year for Jason Meyer, president of two-step distributor and retailer Hearth & Home Fireplace Specialties, Calgary, Alberta. His hearth product sales are up 20% this year, and he’s had a real strong bump in distributor sales with dealers in southern Alberta up 52%.

Meyer’s market area is still a gas area, especially gas fireplaces, with gas models now representing 80% of his sales. There are pockets of interest in wood burners, and it has been a slow year for his outdoor products.

The local economy was hit hard with the layoffs and shut downs when oil prices tanked. With many oil companies headquartered in Calgary, 80% of engineering consultants were laid off. Energy companies found new ways to be profitable without new investments or adding back staff. The area’s economy seems to have bottomed out, “but consumers have accepted this as the new norm,” says Meyer. “They are spending money on their homes, but with cautious optimism they want more for less, making our margins tight.”

Even so, Meyer is seeing that the product itself is almost secondary to the entire remodel. “There is a big shift to remodeling and decorating the whole room, not just adding a hearth product.”

Most of Meyer’s hearth products are Canadian made. He’s had to drop margins on some U.S.-made products, but has found that Jøtul and Travis “value the Canadian market by being creative” to keep Meyer’s business.

Times are tight for Meyer, but he is still optimistic about 2017 – although he did shut down a second retail store in north Calgary to reduce expenses.

John Christenson, president of Suntech Systems, Saskatoon, Saskatchewan, says the economy of the area is slow, but he is “doing quite well” with steady, year-to-date sales increases. He now is selling far more gas appliances and a “limited number” of wood burners.

“Oil prices fell a few years ago along with the prices for potash and uranium mined here, so many of those people were laid off and are still looking for jobs,” says Christenson, “and some of our farmers were hit with not enough water.” But he says things are starting to straighten out, and he is now doing a “fair bit” of quoting. “We had a boom in this area for a long time, but now some dealers are fighting to keep the doors open.”

Like many Canadian dealers, Suntech is focused on Canadian products and offers only a limited number of U.S. products after seeing the price increases caused by the exchange rates.

For this year, Christenson is putting more emphasis on hearth products than on his radiant heaters. But after a few warm winters, he is hoping that, with a decent winter, he “can pull the year out of a hat.”

Shelley Wallace, Fireplace & Leisure Centre.

Ontario and Québec

Last year was “fantastic, up 20%” for Shelley Wallace, co-owner of Fireplace & Leisure Centre, Parry Sound, Ontario, north of Toronto on Georgian Bay. But even with new construction and remodels picking up, 2017 is “not as great – it’s steady, but only up 8%.” Still, Wallace has had to hire another installer and is out eight weeks on installations.

Wood burners are 75% of Wallace’s sales, and gas models are 25%. She has seen a jump in sales of ZC and EPA fireplaces, and fire pits, both wood and gas, “have really taken off.” But grill sales have “all but stopped.”

The area’s economy is good, and consumers are spending money. “People now are coming in with three-year-old quotes. They are more careful, a little more demanding, and they insist on quality,” she says.

Because of the exchange rate, price increases on U.S. products have cut the sales of those models by 50%.

Wallace is concerned about any ban on standing pilots. “IPIs don’t work in our colder climate,” she says. “We’re sticking with standing pilots.” She would like to see more consumer education on clean-burning wood stoves to re-enforce change-out programs. “Years ago there were trailers circulated that demonstrated old, dirty wood stoves versus the new EPA models,” she says.

Although hearth sales this year for Jukka Ovaska, president of Nordic Energy Systems, Sudbury in northern Ontario, are about even with 2016, he is seeing a big price gap between low- and high-end jobs. “The middle-priced jobs are eroding, while we’re doing some jobs with two and three appliances. Fortunately our margins are up.”

Gas products are 60% of Nordic’s sales, with wood burners totaling 35% and the remainder in pellet products.

Ovaska’s market area is about 250,000 within a 95-mile radius. With nickel mining slow after dramatic price decreases, the area’s economy is only “good for some. The professionals still have disposable income. We’re pulling out a lot of 25- to 30-year-old fireplaces and replacing them with high-end, linear, gas models.”

The price increases of U.S. products because of the exchange rate have “thinned out” the U.S. models Ovaska offers. Hearthstone is selling him at a landed cost in Canadian dollars, and that has helped him retain and sell those products.

For this year, Ovaska is planning on a sales increase. “We’re setting records with store traffic,” he says.

Marc Quirion, president of L’Attisēe in St. Hubert, Québec, a suburb of Montréal, can’t complain about his recent hearth product sales success. After a 16% sales increase last year, Quirion is up 50% this year; he sells only hearth products.

The economy in the Montréal area is good, with the unemployment rate at an all-time low, says Quirion. There had been a concern about Montréal’s ban on wood burning, but that has been modified to a mandatory swap of EPA-certified models for old dirty-burning appliances. Quirion is seeing 65% of these replacements switching to gas units and 35% moving to new wood burners. Most of what Quirion sells are fireplaces; he sells few stoves in his urban location. Electric models are “not selling very well because everyone sells them, making pricing very competitive,” he says, “and pellet stoves barely sell” at all.

The city of Vancouver’s action against natural gas is “scary” for Quirion even though it is now localized to Vancouver. “We’re constantly fighting bad press,” he says, “but our industry does not have the means to put up much of a fight.

“Our industry is evolving,” he adds. “Ten years ago fireplaces were a commodity. Now people are investing in upscale fireplaces, and we sell a $10,000 fireplace once a week. It’s good for our profitability.”

The exchange rate has affected Quirion’s showroom displays as he features fewer U.S.-made products. “You can’t sell U.S. products when they are priced at least 20% more than Canadian models. But some U.S. models are unique, so we display them.” Quirion is gearing up for another good year.

Etienne Dionne, Marcel Dionne et Fils.

At Marcel Dionne et Fils in Rimouski, Québec, on the St. Lawrence River in far east Québec, hearth product sales have slowed to about the same rate as 2016. “Last year was tough,” says owner Etienne Dionne. “Now we’re selling more wood burners, fewer gas and pellet models, but a lot of oil stoves.”

Dionne also is selling “a lot” of fire pits. “This is a really strong product for us as sales of all our outdoor products have grown. I sell more outdoor products in three months than I sell of hearth products for the entire year.” Dionne has been selling a lot of contemporary hearth products for a long time. “The trend now is to match contemporary with traditional by putting log sets in linear gas models. We’re customizing the interior of fireplaces.”

The economy in the Rimouski area was slow last year, Dionne says, but this year it is “very great. With the exchange rate, the price difference between U.S.-made and Canadian-made hearth products is incredible, especially when there is not much difference in the products,” Dionne says.

The Maritimes, New Brunswick, Newfoundland, Nova Scotia, Prince Edward Island

There is a lot of uncertainty about the current economy of Newfoundland, according to Courtney Clarke, general manager of Atlantic Fireplaces in Mount Pearl. “A lot of consumers are spending more money, but they are a lot more wary. Our taxes are high, and the electric rates have gone up. Some are now spending twice as much on electricity, and they are trying to get away from electric demand. Most consumers are spending less on unnecessary things and more on things that count.”

Ironically, Newfoundland’s economy follows the oil industry of the Prairie provinces. “Seventy-five percent of Alberta’s oil workers are from Newfoundland, and now that they are laid off, they are coming back here looking for work,” says Clarke.

Wood burners are 75% of her sales with propane – not natural gas – making up 25% of her hearth products sales. “Our weather does not allow us to be as Green as we would like,” she says. “It is 100% heat first. We need to rely on these products in power outages, so pellet models are not an option. And sales of fire pits and grills are just not happening.”

Price increases on U.S.-made products, because of the exchange rate, “have killed us. We still buy some U.S. models, but we buy bigger, fewer orders than frequent small orders. And we’re now buying European products.”

Maritime Fireplaces, Moncton, New Brunswick.

Maritime Fireplaces, Moncton, New Brunswick, is doing “well, a little increase over 2016 because of new construction and high-end fireplaces,” according to president Patrick Bourque. “We don’t see a lot of tract homes here. Almost all are custom homes, so instead of $4,500 fireplaces, we’re selling $14,000 models in both wood and gas.” Even with a “fairly strong” clientele for wood burners, Bourque is not seeing many wood stove sales. Instead, customers are opting for fireplaces.

Yet Bourque’s gas hearth products sales are 65% and wood burners are 35%. “We’re seeing more renovations. Rather than just an insert, customers are putting in an entire wall, and we do it turnkey.”

Bourque put contemporary models on his floor and sold them. But when he put more traditional models on display, sales swung back to traditional. “Customers want aesthetics, with heat as back up,” he says.

New Brunswick’s economy is “steady as she goes,” according to Bourque. “Everyone is quite busy.” And with the exchange rate making U.S.-made products 25% to 35% more expensive, most of Bourque’s products are Canadian made, including his grills. “We do show a few U.S. products that have unique features,” he says.

George Hill, Ultimate Home Comfort.

Last year hearth product sales were flat because of no winter in Nova Scotia, says George Hill, director of Ultimate Home Comfort in Halifax. But this year his hearth product sales are up, and he expects a good 2017.

Hill’s wood-burner sales are down 40%, and gas model sales are up 10%. But electric model sales are up 400%. Hill’s hearth accessory sales are up 147%, and his outdoor product sales are up 10% after being up 30% last year.

“We’re selling more $4,500 grills than ever,” he says. “People are not looking for cheap.” He attributes his electric hearth product sales increase to the building codes. “Homes here now are so efficient and so tight that gas models simply cannot stay on for any length of time. Builders have abandoned gas fireplaces. They are back to builder boxes. It is now aesthetics of a fire rather than heat.

“There is a lot more consumer confidence. This year customers are not scared by the price tag. They seem to have loosened up their wallets,” Hill adds.

Hill is getting around the exchange rate problem by participating in a buying group. “Unless you make a big purchase, as this group does, buying U.S. doesn’t make sense,” he says. He is, however, buying Hearthstone in Canadian dollars, and his Hearthstone sales are up. “If we could not buy U.S. products in Canadian dollars, we would have to guess at the cost at the border.”

Back in the day, the catch phrase was, “It’s the economy, Stupid.” Now that phrase for Canadian hearth product dealers is, “It’s the exchange rate, Stupid.”

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