The Loonie & the Buck
By Bill Sendelback
The Canadian hearth products market is not much different from that of the U.S. Both are slowly recovering from sagging economies, and both are faced with growing regulatory challenges and still-convalescing consumers. But Canadian manufacturers are being aided by a strong U.S. dollar against the Canadian “loonie,” and that’s helping their U.S. sales and their bottom line.
While the Canadian economy is struggling to recover, the plunge in crude oil prices has resulted in huge unemployment in some Prairie Provinces, particularly Alberta, while the economy is booming in metro areas such as Vancouver and Toronto.
Just which hearth products are selling in Canada or the U.S. varies widely from region to region. Gas models may be hot in one area, and wood or pellets hot in another. In general, however, wood-burning hearth appliance sales in Canada last year were down four percent and off six percent in the U.S. Pellet stoves were up almost six percent in Canada.
Numbers are not available for most gas appliances, but direct-vent gas fireplaces were up almost eight percent in Canada while gas fireplace inserts were down more than four percent.
|Katherine Marcakis, Supreme Fireplaces.|
First quarter sales numbers for this year indicated wood-burning appliance sales in Canada were down more than 12 percent. Pellet stoves were also down, and by a whopping 66 percent. Gas hearth appliances were up more than 56 percent with gas fireplaces leading the way, up almost 67 percent.
Business is good for Pacific Energy Fireplace Products, according to Shannon Sears, general manager. While the company is seeing sales growth on both sides of the border, most of their growth is occurring outside of North America, and 40 percent of the company’s current sales are from products developed in the last three years.
“The typical consumer doesn’t know hearth brand names,” says Sears. “Their decisions are all about designs and aesthetics.”
He admits that his sales in the U.S. provide greater profit (due to the weakness of the Canadian dollar), but much of that profit is offset by the additional costs of U.S.-made components. “If this exchange rate continues like this long-term, we’ll see more Canadian products displacing U.S. products on (Canadian) dealers’ floors,” he said. “This year we’ll see considerable sales gains by Canadian manufacturers.”
“The Canadian market is improving for us, and so is consumer confidence,” says Cherbel Yousief, president and CEO of Sherwood Industries. “While the wood category is stable for us, we’re selling more gas fireplaces and a lot of gas inserts. We’re cautiously forecasting growth this year in Canada.”
In 2013-2014, pellet stoves accounted for 65-70 percent of Sherwood’s sales, gas products were 25-30 percent, and wood made up the balance. For the period 2015 and to-date 2016, gas is 60-65 percent, pellet is 25-30 percent, and the balance is wood.
“For the last four years, we’ve invested heavily in new gas models and new technology,” says Yousief. “We’ve widened our gas exposure with gas being so strong in Canada. Wood and pellet will remain strong in our line, but we see gas as bringing us more stability.
“Because of that, we will be installing a new powder-coat line, leading to a porcelain enamel line. That is essential to our gas market growth plans as customers are looking for better and higher quality finishes.”
Referring to the difference in currencies, Yousief says that, “A higher percentage of our sales is in the U.S., so that now helps our bottom line. But the negative to our Canadian sales is the current cost of U.S. components.”
On the other side of the country, Katherine Marcakis, engineer at Supreme Fireplaces, says, “We’re having a strong sales year; we’re always strong in Quebec because we started there and are located there. But we’re also having a good year in the Atlantic Provinces and Ontario, and we’re even seeing increases in the Prairie Provinces and British Columbia. The exchange rate is helping us set up dealers in the U.S.”
For now, Supreme plans to stay exclusively in the wood-burning business, but Marcakis admits gas models may be in the company’s future. “But we will want them to be different and innovative,” she says.
|Tony James, Woodbridge Fireplace.|
“Our sales are up 15 percent this year,” says Tony James, president of Woodbridge Fireplace. “We’re seeing growth in Canada, and our U.S. sales are steady.” James sees the Canadian economy as being strong with “steady and slow growth.” Like other Canadian hearth manufacturers, he finds added profit from his U.S. sales because of the exchange rate, but it’s “almost a wash” when the extra costs of U.S.-made components are considered. He says the company’s big sellers in Canada are fireplace inserts and outdoor fireplaces.
“Our venting sales are good and at least even with 2015, except for pellet chimney since pellet stove sales in Canada are down significantly,” says Ray Bonar, vice president of Industrial Chimney Company/ICC. “Our biggest growth is with our gas venting, and the exchange rate has made the U.S. market even better for us.”
ICC is enjoying “very good” sales with both its RSF and Renaissance wood-burning fireplace lines, and its new RSF Delta Fusion, EPA-certified, single-burn-rate model is selling so well the company “can’t build enough. Overall, our company sales are better than expected.”
“Canada’s economy is not good, and job creation is not as good as in the U.S.,” says Tony Gottschalk, CEO and director of Government Affairs for the HPBA Canada. “Unemployment in Alberta is through the roof because of the oil collapse. Things are not as bright up here as a few years ago.”
The HPBAC is “fighting to establish wood as a renewable energy source,” he says. The Ontario government is funding a Green Energy Initiative program with C$100 million for wood stove change-outs. But the City of Vancouver’s plan to eliminate greenhouse gases (see details below) “threatens gas hearth products. The challenges now are, how do we position gas hearth products to survive and where will all hearth products be in 10 years?” asks Gottschalk.
Despite the growing economy of Vancouver, British Columbia, the hearth business in much of the Province is slow. “Summer was very slow, but August started to pick up,” says Don Hiebert, Sales manager for hearth distributor Concorde Distributing, based in Abbotsford, British Columbia. “Dealers are doing service work just to keep busy. Weather has a big affect here, and we didn’t have a winter last year, but the Old Farmer’s Almanac says we will this year.”
|Don Hiebert, Concorde Distributing.|
Top selling hearth products for Concorde are linear gas fireplaces. “We thought this trend would be over now, but it’s continuing. We’re also seeing momentum on electric fireplaces because of the ease and low costs of their installation. Pellet appliances are not selling, with the costs of gas and oil so far down.”
More and more consumers are asking for Canadian products, according to Hiebert. “When the exchange rate adds 35 percent to U.S. prices, Canadian manufacturers have a distinct advantage,” he says.
Greg Fink, owner of Kootenay Woodstoves and Alternative Heating in Nelson, British Columbia, is seeing real estate sales pick up as people move from the Vancouver and Okanogan areas. “With home prices lowering here, we’re seeing the most first-time residents, retirees and younger families,” says Fink of his market area of 50,000.
As the prices for “hydro,” or water- generated, electricity go up, Fink is seeing pellet appliance sales drop while gas sales are going up. Wood-burner sales also have dropped and are now almost even with his gas product sales. “With our demographics, people want gas so they just need to push a button.”
Fink deals with two major U.S. stove manufacturers and has gone dealer-direct with both to help balance out the cost differences because of the exchange rate. “Some U.S. manufacturers are offering new programs for Canadian dealers,” he said, “but stoves are not the issue right now. Parts are, because of the freight costs. We’re not showing as much U.S. product as we used to.”
Net Zero in Vancouver an Issue
A big concern for the hearth industry on both sides of the border is the version of California’s Net Zero Energy Program recently adopted by the City of Vancouver. While the goal of California’s version is energy efficiency by requiring homes and commercial buildings to produce their own energy, the goal of Vancouver’s adaptation is the elimination of greenhouse gases and a reduction in the city’s carbon footprint.
Called the Zero Emissions Building Plan, the action is designed to “achieve zero emissions from newly-permitted buildings by 70 percent by 2020 and 90 percent by 2025,” according to the City of Vancouver’s website.
“This could lead to the elimination of gas heaters, gas water heaters, gas fireplaces and stoves, and perhaps even gas grills,” warns Martin Miles, director of Product Development for Valor Fireplaces/Miles Industries. “This is a big concern, but also a possible opportunity,” he says. “But we as an industry have to become more proactive regarding energy conservation.” Miles points out that 97 percent of British Columbia’s current electric power is produced by hydro.
“Although this program (Zero Net) is now limited to the City of Vancouver, just a small part of the Vancouver metro area, the rest of the cities around Vancouver are watching,” says Rod Eide, president of Mr. Fireplace. “It won’t be long before other municipalities join in.”
“Both California’s and Vancouver’s Net Zero programs are terrifying for gas fireplace manufacturers,” says ICC’s Ray Bonar. “It may create small opportunities for wood, but wood-burning is not ideal in urban areas. This can hurt our industry very badly. In California, new homes can load up with solar panels, but that is not as practical in Vancouver.”
British Columbia is also moving away from allowing standing pilots in gas appliances, according to Cherbel Yousief of Sherwood Industries. “Some municipalities, such as Kelowna, British Columbia, now are enforcing that regulation,” he says. “We’re testing all our gas products with both IPI and standing pilots.”
Don Hiebert of Concorde Distributing adds that some British Columbia gas utilities have changed their consumer incentive programs to provide a C$300 rebate only if the gas product has IPI, while in the past that rebate was given for any new gas model.
The Prairie Provinces, particularly Alberta, continue to be hit hard with the decline in oil prices and the resulting oil patch layoffs. Edmonton, Alberta, has taken a second hit as the major oil companies based there recently had massive white-collar layoffs. Hearth dealers are feeling the sales crunch with some reporting a 50 percent decline in sales.
Calgary, Alberta’s economy is also off considerably, according to Rod Eide, of hearth distributor Mr. Fireplace, headquartered in Calgary. “New home construction is down, and Alberta now has more unemployment than Nova Scotia, and it’s going to get worse,” he says. “Now people with employment packages are on the job market. It may take 18 months for it to get better. It used to be hard for us to find employees. Now people will take any job for less money.”
Pellet appliances are “off a little,” says Eide, and sales of U.S.-made wood stoves have been “significantly impacted” by the exchange rate. “Our early-buy orders were down some,” he says. “Everyone is being very cautious.”
In Eide’s area, retailers are not dropping U.S.-made hearth products even with the exchange rate. “But they are not inventorying them,” he says.
“They are relying on us, the distributors, to have inventory. Canadian-made products are selling if they are equivalent with American-made because Canadian products are so much cheaper with this exchange rate,” he adds.
Four Seasons Home Comfort in Lethbridge, Alberta, is “doing pretty darn good with lots of traffic”, according to Tony Meli, manager, “but people are looking for Canadian products because of the prices caused by the exchange rate.” Meli says the Lethbridge area, about 50 miles north of the border, is “in a bubble. The Lethbridge economy is more farming-based with a burst of new construction. Fortunately, we’re not dependent on the oil industry as are Calgary, Edmonton and Red Deer.”
Meli’s hearth sales are primarily in gas models with wood representing 10 percent of his sales and any pellet sale “is an anomaly.” Big sellers are gas fireplaces with logs, although Meli says there is a trend toward the linear contemporary look with big glass fronts.
“We used to sell 90 percent fireplaces with logs. Now that is 50 percent and 50 percent glass, rocks and things other than logs. The modern European look is gaining ground. We tried it years ago and people turned up their noses. No longer.” Traffic that Meli gets from nearby British Columbia is more into wood-burning for back-up heating, with high heat-output and long-burn fireplace models.
“The exchange rate has made people more cautious about U.S.-made versus Canadian-made, but we have not backed off the U.S.-made models. We still display both, and we still sell a lot of U.S. products, but now maybe not the more fancy, higher-priced models.”
|Jim Treloar, Firebridge Fireplaces.|
Ontario and Quebec
The economy in most of Ontario and Quebec is slow except in the Toronto metro area where upper-priced homes are selling.
“House prices have just exploded,” according to Jim Treloar, owner of Firebridge Fireplaces, 50 miles north of Toronto, “so we’re seeing a lot of folks moving further out of Toronto into our mix of an urban and rural, upper-income community.”
Sales have “not been bad” says Treloar, and sales of wood-burners are picking up. “We have quite a few C$1 million homes, and these folks want exotic, high-end fireplaces. But our middle class consumers are not into fancy. They want the more traditional wood-burners that generate heat.”
Wood-burning fireplace inserts into masonry fireplaces are also hot for Treloar, and “not fancy” stoves are also moving. “They fire them up in November and burn them until April,” he says. Gas models now are 65 percent of Treloar’s business, split equally between LP and natural gas. But pellet stoves are not selling at Firebridge Fireplaces.
The exchange rate caused Canadians to stay home last winter instead of joining the snowbirds in Florida, says Treloar, and this has helped his sales since many are now buying heat sources instead of traveling to the U.S. But the exchange rate also is taking a toll on Firebridge Fireplaces. “This exchange rate is knocking the %$#@X out of us on the many items we buy from the U.S.,” he says.
After a hot summer, hearth sales have been flat but steady for Advanced Prefabs, a distributor headquartered in Ottawa, Ontario. The region’s economy is slow, says Jeff Jackson, Commercial Sales manager.
|Jeff Jackson, Advanced Prefabs.|
“People are not spending, and for them a fireplace is a luxury,” he says. “The job market is pretty good, and new homes are being built, but they are not selling. Fireplaces are becoming less standard and more of an option in new homes.”
The fireplaces that Advanced Prefabs is moving are more modern, linear models with glass embers and LED lighting. “Sales of wood-burning models are down, but pellet-burner sales have taken the biggest hit,” according to Jackson. “Previously, 60 percent of our sales were gas models, 30 percent wood and 10 percent pellet. Now 80 percent of our sales are gas models.” Jackson says a lot of that is because there has been an expansion of natural gas in the area, converting many homes from LP to natural gas.
Advanced Prefabs purchases a lot of Canadian-made hearth products. “The prices for U.S. products have shot up making the Canadian models more competitive,” says Jackson. One major U.S. wood and gas products supplier to Advanced Prefabs had to “crank up its list prices, and that almost drove it out of our market,” he says.
Wood-Burning Reprieve in Montreal
The city of Montreal, Quebec, in 2009, banned all wood-burning appliances, even EPA-certified models. A new Montreal city amendment states that, as of Oct. 1, 2018, only EPA-certified models listed to the 2.5 gph standard may be installed and used. As of that date, old non-EPA models cannot be used and must be removed or upgraded to the newer EPA models. As of Aug. 18, 2015, Montreal homeowners have been required to declare their old models. The amendment softened Montreal’s stance to only prohibit wood-burning during smog warnings. The amendment now also allows the use of all wood-burners during electric outages of three hours or more.
|Andy Connors, Classic Stoves & Fireplaces.|
The economy of the Atlantic provinces of New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland has been depressed for the last couple of years, according to Andy Connors, co-owner of Classic Stoves and Fireplaces in Hanwell, New Brunswick.
“Many local workers went off to work in the oil patches of the Prairie Provinces in the heyday of high oil prices. With the crash of oil prices and our oil industry, they are now back home, unemployed, and that affects our economy. Consumers are still suffering from the uncertainty of our two elections last year, national and provincial. That also has slowed things down, but we’re holding our own.”
Wood-burning appliances are the strongest sellers for Connors. “Pellet appliance sales are strong, but are recovering from a drop last year after we had a shortage of pellet fuel in 2014.” Connors says sales of propane appliances are “surprisingly strong” since propane prices dropped along with oil prices.
But a relatively new, non-hearth product is cutting into hearth sales in the Atlantic provinces – ductless mini split systems. They are efficient, electric-powered systems that can provide both air conditioning and heating independently into each room as room heaters. Offering 6,000 to 36,000 Btus, Canada’s www.energy.gov website says these systems cost about 30 percent more than central heating systems – not including ductwork – but are more efficient since they don’t require ductwork.
“They are here to stay, but they don’t perform well below 20 degrees F.,” Connors says. One manufacturer, Mitsubishi Electric, says its systems perform to minus 13 degrees F.
Connors is feeling the pinch of the Canadian currency, trading at roughly two-thirds the value of the U.S. dollar. “Even with price decreases from my (primary U.S. pellet stove supplier), we’re still faced with a 20 percent price increase. Fortunately, we also deal with a strong, major Canadian pellet stove manufacturer.”
Even with good hearth products sales last year and so far this year, Glenn Lozman, Energy category manager for Central Home Improvement in Antigonish, Nova Scotia, also is seeing the ductless mini split systems make a “huge impact” on wood stove sales. He says the co-efficiency of performance, the ratio of heat or cool provided to the work required, of ductless mini split systems is three-to-one compared to a typical baseboard heater at one-to-one.
“Most dealers here are expanding into these systems as we’re seeing a big drive by consumers toward high-efficiency products including catalytic wood-burners,” says Lozman. His heating appliance sales are 1/3 wood, 1/3 pellet and 1/3 ductless mini-split systems.
“Our population is declining as the young move west, leaving an aging population. We now have only 900,000 persons in the entire Province. Pellet stove sales are picking up as they are more fitting for this aging population, especially since fire wood is more expensive.”
Natural gas is making some inroads in the metro area, says Lozman, but it’s not readily available since the gas utilities are sending most of the natural gas across the border to the Northeast U.S. for more profit.
“With the big jump in U.S. prices, consumers are having sticker shock,” says Lozman. “What cost C$2,000 last year now costs C$2,500. This has slowed our U.S. hearth products sales somewhat, but not as much as we thought. With the Internet, customers seem to understand that you have to pay for quality.”