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Hearth & Home May 2016

Brad Determan.

Determan Steps Down

By Richard Wright

After 21 years in the hearth industry, Brad Determan backs away to spend more time with family and to “get the hell out of the way” of his understudy.

Brad Determan, president of the HHT (Hearth & Home Technologies) Group and executive vice president of HNI Corp., retired on April 29 of this year.

He began his hearth industry career with Ron and Dan Shimek as the Operations manager for Heat & Glo fireplaces. Two years later, that company was purchased by HNI Corp., as an addition to its Heatilator and Arrow brands. 

At the end of 2015, the hearth division of HNI had net sales of $526 million and operating profit of $78 million; it also had grown from those three original brands to a total of 13, including stellar names such as Quadra-Fire, Harman, Fireside Hearth & Home, Vermont Castings, Majestic and Monessen.

Brad Determan was there to monitor that growth and, for much of the time, as the person in charge.

Hearth & Home: From what I know, you did a fine job steering Hearth & Home Technologies (HHT) through the recession and downturn. You were downsizing the company to prepare for the decline before most of us even woke up to the fact that there was a problem.

Brad Determan: “It’s been a heck of an experience, but we have a great team, you know that. It’s really about how strong the players are in the company. But it’s been fun. It’s been 21 years already. When I went to work for Ron and Dan (Shimek), I never would have guessed that I would be here 21 years later.”

You started in Operations, am I correct?

Determan: “Yes.”

Did you have a background in Operations?

Determan: “Yes. I kind of grew up on the plant floor at Electrolux, and then ended up being one of their Group vice presidents; I ran the laundry and dishwasher business for Electrolux in North America. That’s when I got to know the Shimeks, and I joined the Heat & Glo team in 1995 as the Operations guy. They were growing so fast they were kind of out of control. Then along came HNI in late ’96 and they bought the company.” 

When you came into Operations, was it with the idea that you were on a career path going north to VP and then into CEO?

Determan: “Not at all. The catalyst was anything but that. The problem was little kids at home and Dad’s never home; that came to a loggerhead and that’s when I went to work for Heat & Glo. I wasn’t there to sacrifice my family for a job. The Heat & Glo move was a small piece of equity. Let’s make the company stronger and then, over a period of time, sell it off and I would go on and do something else. 

“That turned into 21 years helping to build a pretty strong business, but that certainly was not the plan going in.”

You made some very smart acquisitions. Quadra-Fire was a solid company when you picked it up, correct?

Determan: “Absolutely.”

Harman was a leader in its field and also solid. I can’t say quite the same thing about the Vermont Castings Group, but I’m sure you’re going to get that group on its feet fairly fast.

Determan: “Well, I think they have done a remarkable job in the last year. They are well on the way to being back on their feet. The one that you missed is Fireside. Fireside was an interesting strategy play on going vertical, and it was a little messy for a while, but it has turned into quite a nice business and really a winner for us. 

“It gives us credibility with our distribution partners and allows us to better understand how to help them and co-exist with them along with being a really nice business in terms of returns. That was probably one of the more risky, more difficult plays, but it has turned out very well.”

Now, correct me if I’m wrong, with Fireside you not only have retailers who fly the flag of Fireside but basically run their own business. You also have the equivalent of one-step distribution going through Fireside as well. 

Determan: “That’s correct. The bulk of that business is builder-direct. So Fireside is, at its core, a very large installing distributor business model. We’re pretty much off of the retailer licensing program. Pre-downturn we were working hard on trying to influence the merchandising through the dealerships – how to elevate our game in front of the consumer – and we tried to grow that license model. The reality is that it failed. 

“Strategically in this industry, the frequency of buy is so small. Consumers are not in there buying a hearth appliance every six months; it’s a very long cycle. To really run a license model such as Best Buy’s, or some of the models that are out there, doesn’t make sense in this industry. We tried pretty hard when the market went south, but we have fallen back from trying to be the nationwide storefront brand to helping our retailers better merchandise inside of their own brands. 

“So it’s still Richard’s Hearth Shop and then, once you walk in the door, we want our product brands to have a strong presence. I just don’t think this business is large enough, and the frequency high enough, to warrant a storefront franchise model.” 

Just as an aside, there are three companies in the patio furniture field that are taking baby steps in the direction of licensing and trying to establish national brands. One is Summer Classics, which is being quite aggressive right now, one is Brown Jordan and the other is Gloster. We’ll see what happens.

Determan: “They might have a better shot at it. On its face I would argue they have a better shot at it because it’s more style and design driven, and probably a more frequent buy where people can come in and buy one piece as opposed to doing a major construction project. So they probably have a better shot at making that work than we did with hearth appliances.”

I agree. Now, the hearth industry has always been confronted by issues. Which ones do you find most important right now? 

Determan: “What pops into my mind is the whole Government Affairs environment. I think it’s important that the industry be effective and efficient at managing Government Affairs. We certainly have tried to help Jack (Goldman, president and CEO of the HPBA) get our arms around Government Affairs – to be more effective and efficient, which is important for the industry. Making sure that we get an effective Government Affairs process that is inclusive, but at the same time not standoffish and ignorant, for lack of a better term. That is really important. 

“After that, we need to get more pragmatic about innovation. Your Vesta Awards program, your push of the industry on innovation, has served it very, very well. I think that’s super important. Meaningful innovation that brings something practical to the consumer and that you can make a buck on, that is never going to go away. 

“Then, one of my passions is consumer service. I still think the industry is a little bit, maybe sloppy is too strong a term, but not good enough at making sure the homeowner is taken care of. There are still a lot of stranded consumers out there. Consumer service is something that, when you’re on the front line as a dealership, you get by fire. When you’re a manufacturer in the background, you’re a little insulated from it. 

“Sometimes we need a 2-by-4 to make sure the entire value chain gets the point that there is a user on the end of the pipe that better be happy or we are all in trouble. 

“That bothers me at times and that’s been one of the focal points at HHT. If everyone isn’t healthy, and everyone doesn’t have a healthy relationship and trust each other, then the industry is headed for trouble. I don’t think that’s the case in this industry, but I think it merits at least mentioning that it is super important. 

“There are incredibly healthy dynamics in what is a relatively small, but complex industry. That’s part of what makes it fun. Those are the things that are on my mind in terms of industry protection.”

You mention the exceptional nature of the hearth industry. Do you think it has a great deal to do with the incidence of entrepreneurship, where it’s retailers who started their own business, and distributors and manufacturers who did the same? It’s not like walking into an Electrolux operation.

Determan: “I would agree with that. It’s much more pragmatic, and it’s very competitive in a good way. That manifests itself in lots of great options for consumers and trade partners, which is all good. The dynamics in the industry are pretty damn healthy.”

I’ll mention one issue, Net Zero out in California. So far the hearth industry appears to be pushed aside a bit. We’re on the negative side of Net Zero and, if it flies well in California, which it probably will, it’s going to spread. Is that a major threat to this industry?

Determan: “I think you have to say that it is. We need to stay on top of it from a Government Affairs perspective. The short answer to your question is absolutely yes. The longer answer is that it’s going to come down from an energy efficiency, or environmental regulation, perspective, but can the government actually take away your basic human right to enjoy the emotional and physiological benefits of a fire? 

“At some point they’re going to hit a wall with respect to our basic human rights. Can you imagine if there were mass publicity around the government banning fireplaces? What a negative that would be. I’ve got to believe that we have enough basic common sense that that won’t be the outcome. But I don’t know. At the moment, it’s absolutely something that needs to be monitored and managed.” 

We saw the power of consumers in a micro way up in Salt Lake City not long ago, where people came out of the woodwork when told that burning wood was going to be banned in some counties.

Determan: “Exactly. That’s a great point. That’s exactly the point.”

Envision that on a national scale, and you’ve got a revolution.

Determan: “Well, even in California. Can you imagine the state of California trying to prevent all those homeowners from using their hearths? That would be interesting.”

Absolutely. Let me ask about DOE, because the EPA seems to be well in hand. Nobody really loves what’s coming down the pike in 2020, but somehow manufacturers will figure out the testing, and they will certainly meet the requirements. But what is your sense of DOE? Is it still a major threat to the industry?

Determan: “Well, again, I think you would have to say yes to that question, and the longer answer is it’s perhaps less so than even a Net Zero. I think the softening of energy prices has been a positive. My experience with DOE and my interactions with them are purely political. There doesn’t seem to be much of an opportunity to talk logically and with common sense to DOE. 

“But depending on what happens in this election cycle, and the fact that energy prices have dropped quite a lot, maybe that whole issue will soften a bit more. I don’t know. I do know we’ll get through it though, even if it ends up going back to court. I give Jack (Goldman) and his team credit. I think we can win again if it comes to that.”

What do you regard as your personal major accomplishments since joining the hearth industry? 

Determan: “What I take the most pride in is the customer list that we have achieved. We believe we have the best distribution in the industry. I’m sure some of our competitors would challenge that, but I would put our customer list and the capability and relationships that we have been able to build over the years against anybody out there. I’m proud of that. We’ve got some really strong trade partners who are damn nice people and very good at what they do. 

“Next would be our ability to hold together a team composed of prior company owners who are still actively engaged, contributing at the team level and enjoying what they do at HHT. This is a company that was built in large part through acquisitions over the years. So it’s not by accident that we’ve been able to keep this very capable, very diverse team on the field.

“HNI is a pretty fascinating company that began in the mid-’40s formed by a couple of guys who were trying to create jobs for returning soldiers. The HNI story has a very good, paternalistic, almost philanthropic base to the culture. We talk a lot about members/owners and fairness/ respect; everybody who has been here more than a year has the opportunity to be a stockholder. That concept includes making sure the culture is strong, that we share risks, share rewards, member/owner thinking, profit sharing models. 

“We aren’t apologizing for being profitable; we understand why we exist in terms of serving customers and providing value for shareholders, and not tolerating people who don’t or can’t perform. It’s been easy for me to assimilate to the HNI culture, but keeping that intact through an industry downturn and with all the moving parts, that’s something I can take some pride in.”

The incidence of fireplaces in new construction is quite low right now. Only about 51 percent of new homes have a fireplace. What can be done to increase that number?

Determan: “It dropped a little and then it came back. Right now it’s hobbling around that 51 percent. Perhaps we have found some bedrock. To answer your question, I think it comes back to innovation. Some of the style and design work – the landscape trend for example – is great. Building what people want in their home would be the number-one answer to your question. 

“The second answer is clearly on the new construction side, basically getting builders to understand that homeowners really want these products and that they are money-makers for the builder. They can’t be viewed just as an optional product or, worse yet, a pain in the butt for the builder, or we are never going to see that number go up. 

“There must be a steady drumbeat from the industry to the builders that a fireplace is an important product category for the homebuyer, and you can make money on it and it’s relatively easy to program in. If we can get the builders to understand that and buy into that, then I think you will see that number go north. 

“We (HHT) certainly have been beating that drum and I’m sure our competitors are as well; it’s just a matter of how much we have been influencing a much, much bigger industry called new construction. It’s a day-to-day battle I guess.”

Another question concerns a new hearth category that we call Ultra High-End fireplaces. Your company is somewhat in it, so is Travis Industries, Big Woods/Stellar Hearth, and Montigo. Prices in that category might be $30,000, $60,000, $80,000 or higher. Do you see that as a viable category that is going to continue to bring in more manufacturers and more money to the industry?

Determan: “The first answer is yes, it is a viable category. Is it large enough to be attractive enough to bring in more manufacturers? I don’t know. I would argue, maybe not. It’s not a category that has gone unnoticed by us, but VP Berger is really good at formulating a strategy around how he wants to address that market space, if at all.”

Are you leaving prior to accomplishing all the goals you may or may not have set for yourself in that position?

Determan: “No, I don’t think so. I think it’s the right time. It’s really a lifestyle choice for me. It’s been 21 years. Over half of that time I’ve been leading the company. It’s time for Lori (Brad’s wife) and I to go see what the next chapter brings, and to some extent it’s a form of ‘get out of the way.’ VP Berger, who has replaced me, is a stronger businessman than I will ever be, and he’ll show that over time. He is just an exceptional guy. It’s time for me to take my next step, and in a way it’s time for me to get the hell out of the way.” 

I first heard the name VP Berger from Dane Harman, when you had put VP in to help him with the finances and running the company. Dane was just raving about this guy. I kept thinking, if I just lost my company – which was the position Dane was in – and all of a sudden there is a guy coming in who is going to be showing me how to run my own business, I probably would have been more than a little upset. But according to Dane, he was glad to have VP there and thought he was great.

Determan: “Yes, I think that speaks well for VP’s character and his talent. Certainly stepping into Harman and helping transform it was one of his major accomplishments. Hearth & Home Technologies has never been about Brad Determan. I’m not an out-front, got to be on stage kind of guy. It’s like a giant family. The whole industry is that way. It’s like I’ve got a bunch of brothers/sisters and some uncles/aunts and some cousins and some nephews/nieces, everyone from the Shimek family where I started in the industry, to (Alan) Trusler and his crew, and Dane (Harman) and his crew, and then the Fireside crew and now Ricardo (Leon) and his crew. 

“It’s just a blast to watch these people get to know each other and row the boat in one direction. It ends up feeling like a big old family that you can’t help but love. When I talked to Dane today, he is pretty happy with what’s going on there.”

Can you share anything about your future plans? Do the NASCAR drivers have to be worried that you’re going to join the circuit?

Determan: “Oh no, not at all. In fact, I’ve actually done a deal with Stan Askren, the CEO (of HNI). I’m going to stay around and consult with HNI focusing on lean operations projects for one week a month, for a year or two. I’m not itching to go run another business or doing anything. I’m going to try retirement, spend a little more time with my family and my lovely wife, and maybe work with HNI on some things I can do that will add value. That’s the plan right now.”

That sounds like a very smart plan.

Determan: “I would like to think so. Thank you.”

Is there anything I haven’t asked that you would like to say to the industry, as we will consider this your exit interview?

Determan: “Well, I think the industry is strong; it’s recovering; it’s volatile in segments – the pellet and wood segments. It’s always been volatile though. It’s also very competitive, which is a good thing for everybody. I see the industry’s growth rate getting better in the next five years. Innovation is going to be important to everybody. (Hearth & Home) is pressing that in a good way and I complement you for it. 

“The industry will stay competitive, but it will be at a faster pace as the whole technology environment and the information environment and consumers’ expectations continue accelerating. The industry needs to be prepared to move quicker, but the overall outlook for the industry is fantastic. It’s a wonderful business and I’ve been fortunate enough to be a part of one of the leaders in the industry. It has been damn fun. 

“The transition from me to VP has been underway for over a year, so it’s not anything that we’re springing on customers or members. It’s been well thought out, very orderly and I hope everybody is feeling the benefits of that. I’m proud of it and that feels good.”

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