By Richard Wright
It should be fair to say that 2013 was the year everyone in the hearth industry has been waiting for – for five-and-half long years. That’s not to say that manufacturers haven’t been able to pare down and manage to reach a number of profitable years. They have, but until now we haven’t seen the kind of wild activity at retail that has been the hallmark of the hearth industry many times before.
Sales, it seems, were not concentrated in one or two categories, but encompassed all fuels. Gas may have led the pack, but wood, pellets and even electric units also did well.
The result was that a retail base that could be characterized as “financially shaky” a few years ago, now appears financially solid. And the best is yet to come.
The National Association of Home Builders (NAHB) recently released data showing that new home sales in 2013 increased 16.4 percent, going from 368,000 in 2012 to 428,000 in 2013. It expects new home sales in 2014 to reach 600,000, a 40 percent increase over 2013.
To put these numbers in perspective, 2013 was the third year in a row to show increases in new home sales. That followed an incredibly steep decline from 1.3 million in 2005 to 306,000 in 2011.
There was a hole; it was big; we have just (almost) dug ourselves out.
The four manufacturers we interviewed for this article, by the way, are predicting growth in 2014 of anywhere from 10 to 30 percent.
It should be a very good year.
|Paul Miles||Brad Determan||Nick Bauer||Kurt Rumens|
|Paul Miles with the L2 Linear Series.|
There’s great benefit to having a solid business on both sides of the Canada/U.S. border. While the U.S. economy struggled over the past five years, Valor’s sales in Canada did very well. Now the tide has turned and the company experienced solid 20 percent growth in the U.S. in 2013, while Canadian sales were flat.
How well did you do in 2013 compared to the prior year?
Paul Miles: “Well, our sales were up. Our sales in the U.S. were up over 20 percent. Our Canadian sales were more on the flatter side and there is some discrepancy between east/west. In fact, we saw it was busier on the eastern half of the country than the western half. So overall our total sales were up a little over 10 percent.
“Things are good. We had a busy December. In fact, I think it was our busiest December ever. That was nice.”
So Canada was flat?
Miles: “Kind of flat. But Canadian sales were so good the last couple of years, I think just even having flat sales is good.”
What percent of your business is in Canada these days?
Miles: “We’re getting close to half and half. We’re still a little more on the Canadian side, but not by a whole bunch.”
I recall chats you and I have had over the past years when the U.S. was in the downturn while Canada was doing famously.
Miles: “That’s right. I think it was 2009 when Canadian sales went up. It was almost as if there was some relief that the Canadian banking system wasn’t collapsing, and then the Canadian Federal Government created a tax incentive program for home renovations, which was probably the only government policy I’ve ever seen that actually did something. That really helped our business.”
This year, when we sent out our monthly survey the first day of October, asking retailers to tell us about their sales in the month of September, they were dramatically better than anything we had seen over the past five years. Retailers were up 30, 40, 50 and 60 percent over the same month in the prior year. In your view, what caused such a spike?
Miles: “That’s a tough one. Having read some of the HPBA numbers, I was surprised at the increase in decorative gas fireplace sales, which leads me to think that’s a builder surge; that’s typically where those products go. But wood and pellet had a pretty decent year at the same time. So everything was up. It wasn’t just one thing.
“Gas was up, and I was surprised at the strength of the zero-clearance decorative products. Heater-rated units were flat. It almost makes me wonder if the DOE has scared companies out of heater-rated product into decorative product (laughs).
“We’ve seen a big uptake in the more expensive, contemporary, linear- type products. Those models have done well, and that would lend itself to higher-priced either custom homes or remodeling, which is a big factor for the dealers.”
Where are you now in comparison to the last good year before the recession, which was probably 2008?
Miles: “We’re quite a bit above the 2008 levels, probably in the 40 percent range.”
Well, congratulations. That’s the best number I’ve heard.
Miles: “Of course, we had room to grow too. We didn’t have a big American presence prior to 2008, even though we had a long presence through various sorts of incarnations of Valor. Since we’ve been going dealer-direct to all our dealers across the U.S. starting in around 2006 and 2007, we’ve had good steady growth with a slight pause during that 2008 and 2009 period. We had some areas where sales were down. It just so happened that the Canadian side really took off in those days and now the Canadian side is a little more stable and we’re getting growth in the U.S.”
Talk to me a bit about how you work new construction in Canada and in the U.S. Obviously you’re not going after anything like builder boxes or track housing, but how do you work the custom end of it and how do the countries differ?
Miles: “It has all been through the dealer network. We try and get specs by doing some design shows and promoting products with website links to designer magazines. We try and get the word out to interior designers themselves. You get a bit of pull through that way. But it’s all dependent on us getting the sales through our dealers. We don’t deal directly with any builders ourselves other than trying to promote the products. We do quite a few of the trade shows around the country.”
Did you have any of your dealers go out of business this year?
Miles: “I think we had a few, not too many. I’d say we have a fairly stable dealer network. It’s growing, but not in leaps and bounds. The bulk of the growth of business that we get is with the existing dealer network.”
The minute the downturn hit, all of a sudden dealers backed off and didn’t want to put a lot of product in a warehouse. Is that still the way it is where they are very nervous about inventory?
Miles: “Yes. I see it more on the American side than the Canadian side. Having said that, going back 10 to 15 years, early-buys were very common in the States and sort of uncommon in the Canadian market. We’ve never really tried to stock guys up with six months of inventory. We tend to run the program as a bit of an off-season incentive to take some product; we give longer terms and we do a decent business with bookings.
“The American market still seems a bit gun shy. A lot of that goes back to the old days when guys would really pile dealers up with inventory. We don’t encourage anybody to take more than a few months’ stock.”
Miles: “We also have so many different product types now. We’ve done a pretty good job at creating an engine program where you can buy an engine and then have five different looks. That lends itself to a booking-type program.
“We’re fairly happy with the program we have. It helps to keep our guys selling product in the off-season, although I don’t think we’re quite as seasonal as we once were. That’s due to the renovation business because a lot of people are putting in a fireplace now as part of a bigger project, and these projects often get done in the spring. So we’re seeing a big demand for fireplaces being installed in April and May through into the summer months when it used to be very, very quiet.
“The renovation side of the business has been one of the season levelers that have come along in the last couple of years, which is good for dealers and for us.”
As Sales director, you travel throughout both countries calling on a lot of dealers. Are many retail shops moving into counter-seasonal products to balance some pain they may have experienced over the past five years?
Miles: “That’s a tough one. Some have, some haven’t. Part of the problem is a lot of the counter-seasonal businesses lend themselves to cash and carry. There is always the struggle of finding something that is counter-seasonal, yet the Big Box guys haven’t jumped on it like they’ve done with grills and patio stuff.
“Probably the best thing that has happened may be the Outdoor Room where people started to put fireplaces and firepits in. That is usually part of a bigger project that might require some design and specialty work, and that’s where the dealers come in. I would say they are getting some traction there. I do think that working the Outdoor Room, along with the renovation part of the business, has helped.”
A number of retailers over the past couple of years have mentioned to me that hearth products are becoming way too expensive. They are seeing customers come in very interested and, when they are told the price, they turn on their heels and say, “You’ve got to be kidding me,” and walk out. Do you think there’s any truth there?
Miles: “I hear both sides of that. I hear guys say they are surprised at the price points that people are prepared to pay and if they get what they like they are happy to pay it. But I’ve heard the other side as well. We certainly are trying to find ways to keep our core products within a price range, say $2,000 to $2,800. I’m not talking installed pricing, but for equipment.”
What is your forecast for 2014? How good a year is it going to be?
Miles: “I think it’s going to be more of the same. I’m confident that it will continue, that we will see growth. I think the American side is going to outperform the Canadian side. Now, I’m always cautious. I don’t ever predict big growth. We would rather see nice steady growth and I think that’s what we’re in for in the next 12 months.
“Trend wise, we’re still seeing contemporary products sell well. I think with DOE and other issues we’re facing, we have to keep improving our game on energy efficiency and smart controls. But I see a fairly good year of growth ahead. It might not be 20 percent growth, but it could certainly be a good five to 10 percent growth this year.
“If you think back a year, Congress was deadlocked on the budget. There were definitely some hurdles to overcome. The other good thing is the availability of gas. There are no big price shocks coming in gas despite the fact that gas has been cheap; it also looks like it was a good wood and pellet year as well. That’s good news. I would say we’ve got a rising tide that should pick everybody up.”
What percent of your business is in contemporary products?
Miles: “I would say it’s about half and half, but it depends on what you consider contemporary. A lot of it is just clean design; at what point does clean become contemporary? I mean hard, hard contemporary, it’s maybe 30 percent, but contemporary clean, probably more than half of our business.”
In what year did you create your first truly contemporary product?
Miles: “In linear contemporary, probably 2006.”
|Brad Determan with the Heatilator Caliber Gas Fireplace.|
Brad Determan is feeling fine; he’s coming off a strong year and heading into the next which may be even better. Much of that has to do with the rebound in new construction and its potential for growth over the next few years.
Hearth & Home: Congratulations. Being up 18 percent for the year is a huge leap, isn’t it?
Brad Determan: “Yes. We’re feeling pretty good about the market momentum. Obviously everybody has been waiting for this housing recovery to show up in a more meaningful way. That’s starting to happen, and we’re having a real winter that’s great for our dealers. So both sides of the marketplace are finally helping us a bit as opposed to challenging us. That’s pretty good.”
Based on our monthly surveys, it really seemed as if sales for the specialty channel just took off like a rocket at the beginning of September and hasn’t stopped yet. Was that what you experienced as well, or was it more throughout the year?
Determan: “I would say we saw the same pattern. There was a little bit of momentum coming out of last year. We had a delayed fall last year, which made Q4 a little tenuous. So winter came late and hung around a little bit better. In general I would agree with your point that the first half of last year was a little soft and somewhat concerning, and the second half has turned out to be a pretty nice, more normal hearth season.”
As you know, we send out our monthly sales survey the first day of every month. When we sent in out on Oct. 1, 2013, they came back via fax that day and the next two. Hearth retailers were telling us they were up 30, 45, 50, 65 percent when comparing sales in September to those of the prior year. We were astonished, and hadn’t seen anything like it in five or six years. My question is, what was the trigger? What made that happen?
Determan: “That’s a great question. Anecdotally, you look at things like consumer confidence. You look at natural gas prices, which certainly appear to be bolstering the gas product category, and obviously you look at weather patterns. We’ve literally run a lot of math on trying to do regression analysis between weather patterns and revenue, and frankly I’m not sure how useful it is. But, anecdotally, we know what drives the business and our take is that we’re getting help from multiple sources.
“There is much stronger consumer confidence, less negative press regarding the economy and unemployment, without the whole government budget fiasco that did have a negative effect for a short period.
“The triggers are really just the general economic recovery, good (meaning reasonable) fuel prices, and a nice brutal winter. With fuel prices, the economies are still really good. If you’re going to buy a pellet stove in lieu of using your fuel oil furnace, with fuel oil up at $3.60/gal., your return is still really nice.
“What’s not there now is the fear factor, the noise, the constant media attention when fuel oil was $1.80 and it jumped to $2.60. People have become desensitized to relatively high fuel oil prices, but they are stable and that puts the onerous on us as an industry to market better. We have to go out and explain to people that at $3.60 a gallon for oil vs. $160 or $170 a ton for pellets, you can save some money. That just shifts the burden a bit.
“I don’t think we’re going to get a lot of help from volatility in energy prices. But the weather is the huge trigger. Look at what you guys are facing now and have been for a while, in the whole east corridor. When you guys get bombed, things light up, and that’s just human nature.”
Hearth product sales, gas, wood, pellet – were you firing on three cylinders or even four this past year?
Determan: “Yes, every product category seems to be finding new life. The new construction pipe is really more biased to gas, so I think that helps. As the housing market recovers you get a disproportionate lift on gas, but even on the retail retrofits or the remodel side we’re seeing strong gas.
“We’re seeing really nice heating products, wood and pellet, gas stoves. I saw your last article, and I think you got a lot of feedback that gas stoves are coming back to life a little bit and that product category may have been sort of underappreciated and under maintained by the manufacturers for a while. In general I would say all categories are looking at the right direction in a meaningful way.”
Now is electric part of that mix?
Determan: “We know less about electric. My sense is that electric is probably at some sort of plateau, but that said we’ve been pretty clear with our customers. We don’t believe the specialty hearth channel is the primary channel for electric so we’ve talked pretty openly with our distributors and dealers that we are kind of a minority player in electric.
“If you go to furniture online and DIY guys, in terms of volume, that’s where the action is. So my gut tells me that it has hit a plateau. I don’t have any way to actually validate that.
“That said, we’re rejuvenating our electric line, so I wouldn’t say we’re not interested in it. I’m just saying we’re not the experts on what that category is doing in terms of volume and market growth. We’re very interested in the category. In fact we just re-launched our line and we’re about to augment the re-launched line, so our direction in electric is really good right now.”
New construction – was it both track housing and custom homes this past year?
Determan: “Oh, yeah, definitely. Maybe a little bit of a shift to the upper end. What I’ve been reading on the housing recovery is it’s coming back in the middle market and up, and now the entry price-point market is starting to come back to life here in 2014 and going forward.”
And is the main activity going to be in the South and the West, where most new homes will be built?
Determan: “I would say maybe not. It’s very regionalized, as you know, but what we saw last year was strong markets nationwide. I wouldn’t characterize the residential housing recovery as super strong in one area and weak in another. It’s strong across the nation.”
Fireside stores – last year you had five of your own and about 30 with whom you were partnering. Is that still just about the same number?
Determan: “Yes it is. We still have the five core stores in Minneapolis that do a nice job and give us a direct consumer touch and feel and intelligence. We’ve still got the network out there. We’ve added a couple in Detroit, so it is not materially different. There are a couple more in the system, but no huge shift either way.”
Now we’ve got the DOE and the EPA active again. If they had backed it up a few weeks, it would have been a nice Christmas present.
Determan: “(Laughs). Yes, we’ve got a mess in Washington and it’s pretty interesting stuff. With the DOE we’re faced with a political environment that is going to challenge us from a regulatory perspective.
“Kudos to Jack (Goldman) and staff on DOE. After a very wobbly start, we sort of got pinned to the wall with DOE. They hijacked us and we should have seen that coming. Then, when we hunkered down and started working together, Jack and his staff really did a nice job of presenting our case, fighting them in court and backing them down.
“Now, DOE is moving off the legal path and taking a legislative route. So it’s going from a legal to a political battle, and that should be a little cheaper for us. It won’t be any easier to win, but it shouldn’t be as expensive. At the end of the day, as long as we keep Government Affairs intact, and we keep working together, we’ll get through it fine. Obviously the regime that’s in there now doesn’t really care about small industry and what consumers really want. They’re on a mission.
“The EPA is going to be the opposite. In many ways the way they’re behaving is more egregious than what DOE tried to do. The EPA is being way over aggressive and irrational at this point. They’re taking extreme emission hurdles and coupling that with a complete shift in methodology on testing protocol. That is incredibly difficult to handle.”
Moving away from DOE and EPA, what key trends, if any, do you see today in the hearth industry? What are you looking at for trends?
Determan: “Obviously the monster trend is the volume trend in new housing. That is what has got everybody feeling better about the next few years and reestablishing some sort of normal baseline for volume. That helps everybody. That is the overriding trend, short term anyway.
“In terms of product selection trends, modern is still very popular and growing. The DOE discussion is going to continue to elevate energy efficiency, and how do we make an aesthetically pleasing appliance that is less wasteful, but doesn’t heat you out of the room. And then we have the emissions issue. These government initiatives are going to force some product trends in terms of a response.
“Here’s another trend. How do we make these products easier for people to handle downstream – with installation and training requirements. How do we make the product a little more intuitive and a bit simpler for the dealer, for the installer and for the homeowner to operate?”
What’s your forecast for 2014?
Determan: “We’re feeling good about new construction. You could say the range is up 10 to 30 percent? We don’t see new construction going down, but how much will it go up? We’re expecting more modest growth out of the remodel channel than what I just told you for new construction.”
|Nick Bauer with the Chateau contemporary direct-vent luxury fireplace.|
Nick Bauer joined the family company as vice president of Product Development four or five years ago. Since then he has continued the company’s move from space heater to hearth products and, in particular, more into direct-vent units. The company’s two main lines are White Mountain Hearth and American Hearth.
How well did you do in 2013 compared to 2012?
Bauer: “I like to keep that fairly close to the vest, but we had a very good year. My estimation is that the market will be up about 20 percent on the hearth side this year (2013) and we’re going to pick up more than our fair share of that. We had a really good first two quarters and a really good fourth quarter.”
What caused that? What were the triggers?
Bauer: “The late winter was a factor, getting cold in the first quarter and then staying cold through about April or so. But the winter didn’t start until about December, which actually hurt Broilmaster. We’ve done a fairly good job over these last couple of years introducing new and exciting products that our existing customers can sell.
“I also think the market is growing. There has been a fair amount of pent- up demand. Our September was actually flat with the year before, but since we do sell through two-step we lagged by a month or two. Then October was the second best October we’ve ever had going back to 2003. Now, with the storm that just went through in January, we should have at least a good January and February.”
Where are you now compared to 2008, right before the downturn?
Bauer: “We’re a bit different because our biggest year ever was in 2003 and that was when we were at 65 percent space heaters and 35 percent hearth. Now we’re 70 percent hearth and 30 percent space heaters. In 10 years our products have completely shifted. Compared to 2008, our hearth products have probably doubled, if not tripled, but overall we’re up by a pretty good margin from 2008.”
Is much of your business in Canada?
Bauer: “Yes, I’d say about five percent of our sales are in Canada. We have a couple of good distributors up there. Our goal is to have Canada be about 10 percent of our sales. We would be doing a pretty good job if that happens. One of our biggest growth opportunities is with direct-vent fireplaces, and that’s the only thing they sell. So it’s a logical choice for us. We have trucks going there on a weekly basis, whether it’s with hearth products or space heaters or even Broilmaster grills.”
Is all of your business through two-step distribution?
Bauer: “I would say 90 percent is two-step. The other 10 percent is dealer-direct or one-step. We strongly believe in two-step. It adds a lot of value for us from a service aspect, with the warranties, calling on customers, pushing new products. When we decided to go two-step it was in the late ’70s, early ’80s on the space heaters and our sales just exploded. We used to have 60 different sales reps, but we only had five percent of their overall sales, so how much attention did we get?
“When we went to two-step we had a smaller number of sales reps, a bigger focus on the larger customers. The two-steps have their own sales reps and it has really, really grown our business and made it into what it is now.”
Going through two-step, do you still have a sense of how your products are doing in new construction or remodeling?
Bauer: “We’re definitely seeing a lot more quotes for bid projects through our two-step channel, our dealer-direct channel, but also we have added a fair amount of new one-step customers that are purely focused on residential new construction. For us, it’s all growth; it’s all new so it’s hard for me to say the numbers are up or down.
“My understanding of new construction is that it’s probably up 20 or 30 percent – probably units, maybe not dollars. I’m starting to see the dollars start to dive again as we’re bidding 200 unit jobs instead of 20 unit jobs.”
As you know, the HPBA has spent about $4.5 million battling regulations from both the DOE and EPA. It’s still very early in the process, but do you have any comments regarding the DOE at this point?
Bauer: “I’m going to take the opposite argument on this. I believe that if the industry had regulated itself we would be in a better position than we are now.
“The industry is not a small group of family businesses like we were back in the ’70s and ’80s. We’re a billion dollar industry and if we think that a billion dollar industry can just regulate itself and get away with whatever it wants, we’re sadly mistaken. Right now, every hearth manufacturer certifies its products to a different efficiency standard and can print anything they want. I can say my products are 105 percent efficient and nothing can happen to me; I can call it a study standard, or whatever I want and the consumer is going to believe what they read and it’s not true.
“That’s why DOE is doing what they’re doing because we have printed fake efficiencies and advertised specific products as high efficiency at 70 or 80 percent efficiency they’re not because we haven’t regulated ourselves. We need to have one test procedure for every manufacturer to test by and to have a third party regulate us. There should be separate standards, one for a decorative product and one for a heater-rated product.
“We need to have the same set of rules that everyone tests by so the consumer has the right information when they make their purchasing decision.”
Switching gears, I’ve had a number of retailers tell me that hearth products have become way too expensive. Are you getting that kind of feedback from your dealers?
Bauer: “We’re more of a value price, but I agree 100 percent. Our cheapest direct-vent fireplace lists for $10,050, not counting installation or anything. The same thing happened with space heaters. We sell a lot of space heaters, whether they are $400 or $1,000, and an HVAC system costs $400. Is someone going to buy an HVAC system or are they going to buy four space heaters? I’m afraid hearth products are doing the same thing.
“And, unfortunately, we now have a required screen, which will add 10 percent; if we get rid of standing pilots, that will add another 10 to 15 percent. If we have to raise the efficiency of our units, the price will go up again. Right now our products are more expensive than a certain percentage of the population is going to pay. My biggest worry, and what keeps me up at night, is how can we supply an attractive, valuable product to a consumer at a price they can afford? That’s tough. I’m extremely worried and I think hearth retailers should be extremely worried as well.”
Hand in glove with the expense of hearth products, and certainly part of the cause, is complexity.
Bauer: “Absolutely, the products have become way too complicated. When I first got into the industry back in 2007 it was mostly standing pilots. I’ve seen the rage all become IP units and these remotes that can turn on the blower, turn on the lights, turn the back burner off and leave the front burner on, which all sounds cool. Then the consumer gets home and three months later they forget what the retailer told them they were supposed to do, what three buttons they had to press to turn on the front burner and now they can’t get the rear burner on and then all these bells and features and whistles that they paid a couple hundred dollars extra for they don’t want anymore.
“I would love it if we could go back to standing pilot only.”
Are there any key trends that you see right now in the hearth industry?
Bauer: “We’ve kind of touched on them. I’m afraid we’re becoming too expensive and we’re becoming too complicated. We need to figure out how to go back to producing a quality, affordable product that our customers can use and enjoy using. I think the market is going to continue to show contemporary. I don’t think it’s ever going to be all contemporary. If it’s 50/50 at some point, so be it.
“I think we need to do a better job of remembering who our consumers are and why they are using our product. They are using our product to heat their homes with gas, because gas right now is more affordable than some other fuels. We can’t be selling them a $4,000 fireplace, because the guy who is looking to save money on his heating bill can’t afford a $4,000 fireplace.”
What about new products? Are you going to have many?
Bauer: “We’ve got a lot of new direct-vent products; one is a cool little portrait-style product. It’s taller and skinnier. One of my dreams has always been to do a campfire-looking fireplace, so we did it. Then we have a larger direct-vent linear. We’re probably talking about four new direct-vent product families next year.
“If we don’t kill our product every three or four years, our competition is going to. We’ve got to be tweaking, enhancing, taking some costs out on a regular basis. No longer can we just keep passing on cost increases each year; I think the world has changed.”
Talk to me a bit about Broilmaster. How did that line do? Where are you going with it?
Bauer: “Broilmaster is a counter seasonal product. This year we were a little flat to down. We introduced the first non-gas Broilmaster – charcoal – in 2013; we introduced a slow cooker the year before. It has given our reps and our customers another product to sell and another thing to talk about.”
What’s your forecast for 2014?
Bauer: “I’ve used the words cautiously optimistic for the last five years, and I’ve been pretty happy with it. If we have a 10 percent 2014 on top of a 20 percent 2013, we should all be dancing in the streets. I think that’s achievable. We’re always dependent on the weather. I’m not a big believer, like some of the other people, that we’re going to have a million housing starts in two years. I think we’re more than two years away from a million housing starts, but I could be wrong.”
|Kurt Rumens with the 4915 Illuminations electric fireplace.|
It was a very strong year at Travis Industries, with business in the U.S., Canada and Australia growing at a very strong clip. As with a number of other manufacturers, business in the last two quarters absolutely boomed.
How well did you do this year?
Kurt Rumens: “We’re going through January and we are still hiring and training a work force to keep up. We’re back up to 450 employees and we’ve added 150 jobs in the last 13 months. This was our best year since 2008. So many of our dealers have just worked so hard. They were hoping it would come back at this level and they are so pleased that they have worked hard to stay in business and are now being rewarded.”
How much are you up from last year – gross revenues?
Rumens: “A little over 15 percent. We’re only down about 10 or 11 percent from where we were in 2008. Business has grown steadily each year, but this year was the biggest jump. We’ve seen 15 to 16 percent overall growth and good steady business. People are paying their bills. Very few dealers closed up. There were a few people who retired, but the financial strength of the dealer network is very good.
“We had quite a few businesses sell, but there were buyers there who were well-financed and experienced in retail. So we got some great new store owners. Plus we’ve got probably 25 new stores this year that have come on board. I’ve met most of them and they’re just dynamic people, excited about the future and good business people.”
We found that around the beginning of September, everything exploded at retail for the hearth guys. Did you find the same thing?
What was the trigger? I looked at the price of oil; I looked at natural gas and nothing is too scary. Oil was high, but we’re used to it now; gas has been low and will remain low for quite a while. The weather hadn’t turned cold yet. So what drove so many people to a hearth shop at the beginning of September?
Rumens: “I don’t know, but if I knew I would bottle it and sell it. But it’s funny. We’re experiencing solid sales in Canada, solid sales in Australia, solid sales in the U.S. and now we have a good opening in the Asian market. It could be a combination of all the hard work the dealers are doing, and all the hard work manufacturers are doing, that is making sense to consumers.
“In the fourth quarter temperature played a big role in people deciding ‘This is the year I need to buy a hearth appliance.’
“That was huge and I think it will propel first quarter sales this year. But there are many positive signals right now: real estate markets are rebounding, new housing is starting, the economy is waking up.”
Housing triggers so many things. The minute people move they start buying stuff – a ton of stuff. I remember Weber’s Mike Kempster saying a few years back that the incidents of people moving is the number one key for the barbecue industry. When people move they leave that old, greasy grill behind.
Right now, only 12 percent of the U.S. population is moving; back around 1990 it was 21 percent. Now we should start climbing back.
How are you doing in Canada?
Rumens: “What we’ve found in Canada is there is such a treasure of knowledge with these dealers. They are every bit as committed and as knowledgeable as the dealers we’ve worked with for the last decades. Now that we’re going on year five, or six, in Canada we’re becoming part of the marketplace. We’re opening warehouses; we’re hiring local guys in their communities for reps. We’re just delighted with the kind of relationships we’re building with these people because a lot of them have seen us for years and years. It’s just a real treasure of talent up there and we’re really excited to be becoming more and more a part of it.”
The word on the street is that you have quite a number of incredible new products that you showed this summer at your dealer meeting.
Rumens: “(Laughs). We’ve got some very unique things. We know the dealers will like them because we had a private showing for about 250 guys and they just loved it. There is wood, gas and pellet. We’ve got some innovations, some very new things to talk about in Salt Lake City.
“We’ve got a bunch of things we’ve already released that should help the dealers grow their business, and some of these things are in a zero- clearance category for retrofitting into zero-clearance.
“DuraVent has come up with some new liner systems that we think are superior to anything that the industry has sold in the past for wood-burning, zero-clearance inserts, for example. There have been so many inefficient metal fireplaces put in over the years, but that offers a huge potential market for a lot of dealers. We’ve got new products for those categories that came out last year.
“There is so much opportunity for the dealer, and there’s only maybe 25 percent of our network that really does a good job with builders; we think there’s a lot of opportunity there. It’s not for everybody, but for those builder people who are service-oriented and want a repeat customer, there is a way to earn that and we’re here to help them do it.
“We start by showing the builders what’s available now and direct them into our network. We are not going direct with our gas and wood fireplaces and, in fact, at the Builder’s Show we’re showing Fireplace Xtrordinair only. We’re not trying to do the stove and insert market to builders for obvious reasons. We’re featuring Fireplace Xtrordinair as the brand at the Builder’s Show.”
The two big issues right now are the EPA’s new NSPS, and the fact that the DOE wants the right to regulate just about all of our gas products. Do you want to comment at this point?
Rumens: “Let’s start with the EPA. We’ve obviously developed some game changing products. We’ve used hybrid technology that gets us way down in the grams game, very low emissions, very high efficiency. That’s using 20 years of knowledge with the same fuel protocol; if you start changing protocol or adding in a cordwood number to it, we’re going to possibly have a cordwood standard shaping up.
“There is nothing relevant to the numbers we currently know. We are testing stoves to the proposed standard and we’re trying to get some data on burning cordwood taking a certified stove and trying different parameters of cordwood to see how they relate.
“Is there anything relative to a 4.5 gram stove with the current protocol versus 4.5 grams with cordwood? We suspect the correct number for cordwood for an equally well-designed stove that burns cleanly is going to be somewhere around 12 to 15 grams of particulate. It’s just not relevant.
“We’re certainly not opposed to clean air. I think all the guys in our industry have been champions of clean air. But we have very little time and no data on some aspects of this proposal. So there are a lot of questions.
“This is going to cost thousands and thousands of man hours and probably millions of dollars for the industry, and that gets passed on to the consumers. Hopefully there is a measureable benefit. That’s the question we’ve got. Is this really improving the stoves? Is this really cleaning up anything or is it just a theory?”
Plus, on the gas side you could say basically the same thing. We really don’t know. Here comes the DOE saying, “We want authority to regulate any gas hearth product.” We have no idea what they are going to do with it, but it’s not going to be good whatever it is.
Rumens: “The first thing that comes to mind is former President Reagan saying. ‘We need less government in business.’
“I feel like saying, Guys. You don’t even know what you’re talking about. You lump all this stuff together and you have no idea of the significance of those statements. It just seems to be not well thought out and not well planned, just kind of anti-business, anti-American manufacturers.
“I’m personally aware of many people who are so committed and spending their money to make more efficient products and to make cleaner-burning products, and their efforts are based on facts, on science, and it’s based on pushing the envelope. But when you just start throwing some comments like the DOE seemed to just release, where are they coming from? I don’t understand the basis for it.”
Now you mentioned new products with wood, gas and pellet. What are you doing, if anything, with electric these days?
Rumens: “Quite a bit. We’ve got a whole new line this year. We’ve got three inserts and three fireplaces that we brought to the market. They were not on display at the last Expo.”
What trends, if any, do you see that are affecting the hearth industry right now? Any product design trends, for example?
Rumens: “Design trends? Certainly we all know about the proliferation of linear fireplaces. That has become a real category, a new strong category. And as new housing begins to flourish again, we’re seeing a lot of products that had slowed down come back to life – see-through fireplaces, the clean-face fireplaces.”
What is your forecast for 2014?
Rumens: “Between 15 and 20 percent growth again. We think we can do it. We’ve got the resources here and we’re just starting to see an impact in the stores of all the new things we released last year. I think we had seven or eight new models all across the board, in pellet, wood and gas.
“If a few things go right, and a lot of it has to do with the government, I think this next decade could be just an exciting one for everybody in the hearth industry. It could be the most lucrative period the industry has seen.
“Everyone knows what they’re doing now. They know how to make money even when revenues are down. All of the things we’ve learned are going to pay off.”