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Hearth & Home November 2014

Manufacturers Discuss Sales, Products, Trends, Regulations and the Future of Gas Hearth Products

By Bill Sendelback

Hearth & Home recently interviewed a few of the industry’s leading manufacturers to get their perspective on gas hearth appliances, where the market is now and where the products and that market are headed. Their individual responses were edited into the following “round table” format.

Included are the following manufacturers:

Nick Bauer
COO

Empire Comfort Systems

Bob Ballard
Senior Vice President Marketing

Hearth & Home Technologies

Glenn Thomson

Executive Vice President Sales and Marketing

Innovative Hearth Products

Ed Reyer

President

Kingsman Fireplaces

Stephen Schroeter

Senior vice president Sales, Marketing and Administration

Napoleon Fireplaces

Paul Miles
 and 
Martin Miles
Director of Sales, Director Product Development
Valor Fireplaces/Miles Industries

Jess Baldwin

Senior vice president Sales and Customer Service

Vermont Castings Group

 

Sales

Hearth & Home: How have sales of your gas hearth appliances increased or decreased in the last few years?

Bauer.

Nick Bauer: “Sales of gas fireplaces are booming right now for us. We’re having trouble keeping up with demand. I think a lot of it has to do with the Baby Boomers retiring and not wanting to cut wood, so they really like gas.”

Stephen Schroeter: “Gas product sales have increased dramatically for us in the U.S. and just marginally in Canada where we didn’t feel the effects of the recession. But in the U.S., with the economy rebounding, we’re seeing very, very strong growth in the builder market. We’re also seeing it in the retrofit market through our specialty dealers.”

Paul Miles: “We’ve had pretty steady increases in our sales of gas hearth products for the last five to 10 years. We’ve had strong Canadian sales, but in the last two or three years, sales have improved even more in the U.S. just because of the improvement in the U.S. economy. We’re seeing a big rebound in the U.S., and it’s very encouraging.”

Sales By Category

How does that compare with your sales in other fuel categories?

Jess Baldwin: “We continue to see growth in gas hearth appliances, and in some areas we’re growing faster than we’ve done in our history. We’re also seeing good growth in our wood-burning fireplaces and stoves, with very nice double-digit increases in these categories.”

Schroeter: “Other fuels are not growing at the same rate as our gas products. Sales of wood products depend on the specific market, and for us it’s steady but nothing exciting. Growth in pellet products is starting to happen, particularly with propane costs at an all-time high in certain regions. Electric fireplaces have been doing really well; we’ve added many new items and now offer a full line.”

Products

In your gas line, which products are showing the most growth – fireplaces, inserts, stoves or logs?

Paul Miles.

Paul Miles: “Over the last couple of years we’ve seen a pretty general, broad-based improvement in all categories. But our biggest sales growth has been in contemporary, linear zero-clearance fireplaces.”

Ed Reyer: “Our zero-clearance gas fireplaces are up a little bit, and fireplace insert sales are pretty steady as are sales of our freestanding stoves.”

Bauer: “I think we’re in the middle of a perfect storm. Four or five years ago it was a negative perfect storm, but now it’s a positive version. Gas insert sales are doing well because that market is dependent on the weather, and we’re coming off a cold winter. There are millions of homes built in the ’90s and early 2000s with wood-burning boxes, and now they are being converted to gas inserts. But our gas fireplaces are doing just as well due to the recovery in residential new construction, certainly a lot better than two or three years ago.”

Baldwin: “Our vent-free log sales are growing by double-digit numbers, and our vented logs are up only slightly as much as our vent-free sets. We’re seeing double-digit growth in our gas stoves. Gas inserts are showing insignificant growth, but our direct-vent fireplaces are up. I think the latter half of this year is going to be stronger for us in our gas fireplaces.”

Venting

Speaking of venting, what’s happening when comparing B-vent, direct-vent and vent-free sales?

Reyer.

Reyer: “We do a few B-vent inserts, stoves and fireplaces, but it only represents about two percent of our market. Our vent-free sales are down somewhat to probably less than five percent. Direct-vent is our strongest category.”

Paul Miles: “We’ve seen a trend toward declining B-vent sales. We’re probably 98 percent direct-vent now as opposed to seven to 10 percent years ago when B-vent was 35 to 40 percent for us. We’ve never done vent-free – it’s not in the Miles’ DNA.”

Baldwin: “Even though we still have a few builders who use B-vent fireplaces, for the past few years that category has been declining, not only for us but for the industry. For us, vent-free has actually posted the largest growth numbers.”

Glenn Thomson: “B-vent is a little bit off for us because where we used to sell a fair amount of B-vent in California, it’s now illegal in a number of areas of the state. Vent-free for us shows some moderate growth, but not at the same rate as direct-vent because there are only certain parts of North America that do much in vent-free, like the Southeast and central Midwest in the U.S.”

Trends

What trends are you seeing in gas hearth appliances, such as styling, features and pricing?

Ballard.

Bob Ballard: “For a long time, linear fireplaces were referred to as a trend, but that trend is over for this category – it’s here to stay. Another real trend is outdoor. Consumers are continuing to look for ways to really embrace their outdoor living space. They are spending more time on their patio or deck and are seeking products that can really bring that living space alive just like it would inside.”

Thomson: “Contemporary products are gaining more and more popularity. Our contemporary products are growing at a little faster rate than our traditional direct-vents. We see more features being added like lighting and contemporary media.”

Schroeter: “The linear style, the modern contemporary style, is definitely growing at a good rate. It’s not a massive percentage of our sales, but it’s slowly growing and becoming a big part of our business. High-end models are also growing. Consumers are tending to spend a little more to get something a little nicer with a better flame and maybe some extra features such as remotes and lights.”

Paul Miles: “While we don’t see pressure on prices, we’ve seen a market for people who are prepared to spend a lot more on a fireplace than perhaps they would have five years ago. Prices on some larger, designer products have doubled, and five years ago we would not have thought that possible. But there is still price competition on fireplace inserts and stoves.”

New Construction

How much of your gas hearth appliance sales are now for new home construction compared to five years ago and what do you think it might be five years from now?

Thomson.

Thomson: “The percentage of new home construction business for us has not changed, but our sales numbers have increased, so that percentage represents more sales. All indications are that there is a significant amount of pent-up demand in single-family housing starts, so we should see significant growth in this area over the next five years, maybe 20 to 30 percent.”

Bauer: “Maybe five to 10 percent of our business goes to new home construction, but it’s growing since we have added some business from new construction guys. Even some of our larger dealers and wholesalers are now getting bids for as many as 40 or 50 units in a new project.”

Schroeter: “I don’t see the percentage changing dramatically for us. I see our Canadian business growing steadily since we have 47 percent of the direct-vent market here. In the U.S. builder market, we’re doing quite well, but we’re smaller in that market so we have a lot of room to grow. In five years, we will grow and so will the builder market, but we’ll stay with about 30 percent of our sales in new home construction.”

Other Fuels?

Do you have any plans to expand into other fuel categories?

Bauer: “We’ve talked about wood, but we’ve made a conscious decision to focus on the gas market, and that has really paid off for us. For us to start playing with another fuel and take our attention and focus away from our core business and core customers isn’t the right idea now, especially since we really don’t know much about wood-burning and we don’t know what’s going to happen with the NSPS.”

Reyer: “For wood, we’ll have to wait to see what happens with the EPA/NSPS. They could mess that up pretty good. We’re thinking about electric, but, boy, there are a lot of people in it, and a lot of things are coming from the Orient.”

Regulations

How have regulatory efforts such as the Department of Energy’s (DOE) attempts to regulate gas hearth products, the P.4 efficiency testing mandate in Canada, glass barriers, etc., affected you, and where do you see these efforts headed?

Thomson: “The uncertainty is there with the DOE as to whether everything will be heater-rated or we’ll retain decorative appliances. We feel comfortable because we have products in both arenas, and we could simply retest to have everything heater-rated. But the real effect will be on the consumer, the homeowner.

“In the Sunbelt, with only a couple of weeks of cold, you don’t want a heater-rated product; it can produce too much heat. The majority of consumers use a fireplace for ambiance; in many markets they don’t view it as a heating source. I think our government has its head up its butt, quite frankly, with what they’re trying to accomplish by attempting to regulate these products.”

Baldwin: “Perhaps we’ve been our own worst enemy because we have created the delineation between decorative and heater-rated. They are all decorative, even heater-rated models. The consumer doesn’t walk into a dealer and say, ‘I’m looking for a heater-rated product.’ The first comment the consumer makes is on the aesthetics of the appliance. We have to change that discussion because all of our products are decorative regardless of whether they are tested to Z21.50 or Z21.88.”

Martin Miles.

Martin Miles: “To say that a decorative unit doesn’t make heat and that a heating unit isn’t decorative confuses the issue. The consumer needs the ability to choose an appropriate product for his or her needs, maybe skewed toward decorative or skewed toward heating. On the gas side, a longer-term issue for our industry is where do we go from here. Until recently, we haven’t had to deal with regulations, so this is a wake-up call.

“We can’t ignore the regulatory road. As an industry we have not done a very good job of really explaining our products and presenting them for what they are, such as the value and benefits of a gas zone heater being a more effective means of heating. We shouldn’t be reacting and trying to fend off regulators. We should be proactive – proud of what we do – and explain our products and go forward. The regulators don’t understand our industry and our products.”

Paul Miles: “They have never appreciated that a 70 percent efficient gas appliance making direct heat in a space where the homeowner is spending his or her evening is more effective and efficient than something that is rated as 85 percent efficient connected to a leaky duct system that heats the entire home.

“Regulators don’t understand that these products are an effective source of zoned heat that is a better way to heat, and they also provide backup heat when the power is out.”

New Technologies

What new technologies for gas hearth appliances are on the horizon?

Bauer: “If the DOE has its way, you’re going to see some higher efficiency products, which I think is a positive for our industry. If we don’t start pushing ourselves toward higher efficiency products, the government will make that decision for us.”

Baldwin.

Martin Miles: “Some manufacturers have ventured into very high efficiency condensing technology on some gas fireplace products. There is a place for those, but I don’t think there is a need to go into super high efficiencies. With our current, standard technology, we’re starting to push the limits at 70 percent efficient.”

Baldwin: “I think there is a need within our industry to simplify some of the operating systems we have for gas hearth products.

So I see us going back to some basic, simplified operations, still with electronic ignition to light the pilot, but very simple to operate.”

Paul Miles: “We’re continually pushing our suppliers to have controls that work better and smarter. Now you can light the pilot from a hand remote. If the fireplace is not used for a period of time, the pilot is automatically turned off. We’re now offering smarter, energy-saving electronics and controls.”

The Future

So how do you view the future of gas hearth products and their markets?

Schroeter.

Schroeter: “I see contemporary styling beginning to include and embrace the European twist like taller, vertical models, particularly in stoves. Quebec has been quick to adopt this styling, but it has been slow to come on board in most of North America. However, I see a lot of that in our future.

“I was born in 1980, and my generation is now starting to buy their first homes. When they can afford to renovate, the style will definitely be contemporary. We’re now seeing contemporary sales shifting from 15 to 20 to 30 percent of manufacturer and dealer sales. I think this will accelerate as my age group starts to renovate.”

Paul Miles: “We’re going to have to adapt to these demographic changes. Millennials, as they come into the marketplace, may view fireplaces differently than the Baby Boomers. These younger generations are going back to the cities looking for older, urban homes. They will be ripe for our type of products.”

Bauer: “Hopefully our products won’t become too expensive. Our biggest concern is that, with the glass front barriers and the push toward greater efficiencies, we’ll price ourselves out of the market for the average consumer. The incident rate of fireplaces in new homes is maybe 50 percent. Hopefully we can get back to where that incident rate is 60 or 70 percent. I don’t know if we will ever get back to the peak sales of 2006, but hopefully we’re on our way back up there.”

Ballard: “The future of gas hearth appliances looks bright. Natural gas is a fuel that continues to be very affordable. If you look at the new incident rate of gas transmission lines, especially in the Northeast, there’s nothing that tells us it’s going to slow down anytime soon.”

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