Hearth Retail Survey Report – Gas Remains King
By Richard Wright
Overall Hearth sales in 2016 were up 2% on the heels of a 1% gain in 2015. Put another way, Hearth sales in the specialty retail channel have been flat the past two years.
The West and Northeast seem to be offsetting each other in the past two years. The West has been up 6% in 2015 and 10% in 2016. Not bad. However, the Northeast was down 8% in 2015 and 10% in 2016. Real bad. Sales in the South declined by 3%, while the Midwest was up 6% and Canada remained flat.
In only one region did more than 50% of Hearth retailers post a positive year – the West at 60% – while 50% of Northeast Hearth retailers experienced a down year.
Gas Hearth products – both vented and vent-free – now command 53% of the total market, while wood declined 1% to 28%, and pellet appliances dropped from 18% to 14%. Electric units took a small step up, from 4% to 5%.
In 2016, the average Hearth dealer derived 49% of his/her revenue from Hearth products, 11% from “Other,” 10% from Patio and 8% from Barbecue.
In 2016, 32% of Hearth product sales were to replace inefficient fireplaces, and 23% to replace pre-EPA stoves. Fully 65% were new installations, and 35% were replacing a previous Hearth product.
As usual, retailer days of being backlogged peaked in November at 18 days, compared to 26 days in 2015.
This year, 51% of Hearth dealers plan to place early-buy orders, a decline of 7% from 2016, and a decline of 15% from 2015.
Thirteen percent of Hearth retailers plan to increase their early-buy orders this year, and by an average amount of 16%. However, 18% plan to decrease their orders, by an average of 27%.
Only 38% of retailer Hearth purchases occur in the first two quarters of the year, while 26% occur in the third quarter, and 36% in the fourth.
|The last two years have provided little chance for the hearth industry to celebrate. Weather and oil are the primary culprits.|
|Once again, the Northeast had a negative year. In the past two years it has plummeted 18%, while business in the West has increased by 16% over that two-year span.|
|Only one region – the West – posted a positive year.|
Connecticut: “Wood was down 25%; pellet was down 90%. Nothing helped pellet sales. We had sales events but that didn’t help. We lowered prices, but still not a big help. The year was just what it was. It was too warm the prior winter, and oil prices were too low. There was no urgency.”
Connecticut: “Total wood stove and insert sales were off about 22%; pellet stove and insert sales have been off much more than that – approximately 40%. We still had a profitable year, despite the poor hearth numbers, by refocusing our marketing efforts into hearth products that are not as affected by low fossil-fuel prices and warm weather.
“Doing so required more service and installation expertise, as well as increased labor costs. We will continue on that path in 2017 and will continue to add the right people to our team; the additional labor costs will be well worth it.
“The issue of increasing our marketing efforts without increasing our costs is always a challenge, but that is what makes this industry so interesting. Even when our hearth industry was doing well, marketing/advertising dollars were hard to come by. The hearth industry has never done a very good job of letting the consumer know about its products.”
Delaware: “Wood stove and pellet stove sales were down 33%. Unfortunately, we did have more sales and discounts than normal, to help generate more sales when sales where slumping, thus affecting profit margins.”
Maryland: “Wood appliance sales were down by 21% and pellet appliance sales were down by 3%. We do not and will not lower prices. We do offer attractive financing and quick install. We believe that wood stoves will continue to decline as gas stoves continue to grow. We are increasing the number of gas displays and burning units.”
Massachusetts: “Wood sales were down 10%; gas sales were up 20%. We stopped selling pellet stoves.”
Massachusetts: “Both wood and pellet were down by approximately 15%. We offered a little lower price on product, along with some ‘free’ accessories to secure the sale.”
New Hampshire: “Wood sales were strong. This is a wood-burning area! Sales of pellet stoves definitely fluctuate more with the price of oil, although at the end of 2016 pellet stove sales were up, partly because manufacturers offered deals.”
New Jersey: “We used Internet advertising, specials and having reps visit stores.”
New York: “Wood was down 10% (stove/inserts down 35%, fireplaces up 45%). Pellet stoves were down 33%, inserts up 125%. The decine in pellet appliance sales was tempered by the NYSERDA (NY) Residential Pellet program, a swap-out program. We performed 23 NYSERDA projects that included a new pellet stove or insert during the months of August-December 2016. The program was set to continue through the end of 2016 and possibly beyond (pending funding).”
New York: “Pellet sales were down 80%.”
New York: “Wood was down and has been going down for years. Pellet stoves were surprisingly up for us, something we did not expect. Did not do anything special for sales promotions.”
New York: “As I have a store in Levittown, New York, the price of oil drives all sales as there is no gas service to most of the area.”
Pennsylvania: “Wood and pellet were both down by around 40%. Price did not seem to make or break any of the deals. We did follow-up calls with free tons of pellets and could not get them to move forward on quotes.”
Pennsylvania: “Both wood and pellet sales were down in the 10% range. Only by using sales promotions with a decent discount were we able to keep these numbers from falling off the charts. Colder winter and rising oil costs should enable us to have to rely less on cutting margin to stay afloat.”
Vermont: “Wood down 10%, gas up 10%, pellets down 80%.”
Vermont: “Wood was down by 5%. Pellet appliances were extremely soft - down 25%. A major challenge this industry faces is what you just stated - the dependence upon weather and/or energy prices to either drive or negatively impact sales for all parties involved - retailers, distributors and manufacturers.
“It’s time for the industry to develop a plan to increase awareness of our products beyond the obvious heating aspect. A $100 on-line coupon offer by a manufacturer is not ‘marketing.’ A free vent kit worth $350 on a $4,000 gas insert purchase doesn’t motivate a consumer sale.
“We still have builders coming into our store saying they need an ‘insert’ when they really need a ZC fireplace. Overall consumer awareness of our products has much room for improvement and, unfortunately, too many manufacturers rely on the retailer to do this.”
|Vented and vent-free gas now account for 53% of the market in the specialty hearth channel.|
|The number continues to decline. In 2017 only 51% of specialty retailers plan to place an early-buy order.|
|Only 13% of retailers plan to increase their early-buy orders from the prior year; that increase will be 16%. Of the 18% that plan to decrease their early-buy orders, they will do so by 27%.|
Arkansas: “Wood appliance sales were down over 40% due to lack of winter weather and other unfavorable weather conditions. Pellet sales were non-existent and down 60% at least. We did not promote any special sales or marketing actions this year due to weather and election concerns.”
Georgia: “It was an unusually warm winter. Wood and pellet appliances are down 20%.”
Kentucky: “No, we were not able to generate sales in these categories by lowering prices, or creating special promotions, or by any other creative means.”
Mississippi: “Wood was down 20%.”
Texas: “No, wood is going to continue to fall in the metropolitan areas like Dallas/Ft. Worth. Outlying areas will increase when fuel prices rise, or if there is another Y2K type of motivation.”
Iowa: “Pellet sales are not popular in the Midwest. Wood stove and insert sales rose last year (over 2015 sales).”
Illinois: “I was about to give up on wood, but cool early weather saved the day. Pellet is dead.”
Indiana: “We had good wood stove and insert sales, but our gas products did much better.”
Michigan: “Wood was down 10%, pellet about the same.”
Missouri: “Wood appliance sales have dropped by around 5%; pellet appliance sales have stayed the same, but account for an extremely small part of our business. We sell one to two a year. We were able to generate sales without lowering prices or creating promotions, but rather by providing new heating solutions to people.
“Educating consumers regarding the inefficiencies of their existing fireplaces leads to sales and installation of hearth appliances. Our focus is on doing a thorough job of finding the issues that concern our customers, and finding options to address those issues that fits their budget. This approach has led to a large referral network for marketing.”
Missouri: “Predictions of a coming cold winter, and an early start of the season, drove our sales way up in the last quarter!”
Ohio: “Our three retail locations have always been very strong in gas hearth appliances. We have struggled to grow the wood-burning product lines since we got into them in 2006. Of the wood products we do sell, they are predominately of the insert variety.
“With the low cost of natural gas, we have seen respectable growth in the direct-vent insert category. That increase, plus the better margins in gas products, have kept us from making wood product sales a priority.”
South Dakota: “Sales of wood and pellet products stay pretty even year-to-year because we have wood available and local pellet mills; also a lot of areas have totally electric homes so some back up or supplemental heating is needed. Having sales or promos to show a discount always helps get people in the door.”
Wisconsin: “We really didn’t have to do anything, people just like the warmer heat supplied by pellet.”
Wisconsin: “Wood was 10% lower. We did not lower prices. We stayed busy with gas appliances. Pellet is a small percentage. We display pellet but usually convert 50% to gas from pellet once we explain the cost per Btu, fuel delivery/pick up requirements, electrical requirements, operational noise, flame picture, and maintenance requirements.”
Wisconsin: “Wood was up 10 to 15%. Pellet was about the same as last year. Sloooow!”
Wisconsin: “Wood appliances were down 4% in units sold. Pellet appliances were up 100% in units sold.”
|The average hearth dealer receives 61% of his/her income from hearth products; patio furnishings, barbecue grills and spas account for the next main sources of revenue.|
|Backlogged orders usually peak in November. In 2015, the average hearth dealer was 26 days behind; in 2016 that figure was only 18 days.|
Arizona: “Wood appliances were down 1%. Pellet appliances were up by 2%. Sales were generated by online coupons, word-of-mouth and radio advertising.”
California: “We were up in both categories and I believe we will continue to climb. With the recent storms and no power in our region, I believe that more and more people are looking at gas and wood as a second source when the power goes out. In our area, forced air furnaces are not used often; wood, pellet, oil and gas stoves are used as primary sources of heat.”
Montana: “Flat sales for us. We are a natural gas market. Outlying areas are LP but prices have been low and have not helped drive wood or pellet products.”
New Mexico: “Neither of those two things are the drivers for our sales. They haven’t been since the 1980s. We offer top of the line products for a fair price with knowledge, service and integrity.”
Oregon: “It has been fairly wet and cold in Oregon, Willamette Valley, and a lot of people are looking for supplemental sources of heat. They also want to be prepared for the unknown – snow storms, cold weather, earthquakes, etc. Our general sales of wood and pellet appliances, which we specialize in, were up from the last two to four years. I think that the overall economy is also having an impact on what folks are spending money on.”
Washington: “Our wood-burning category has been in steady decline over the past 10 years - to the point that it represents less than 5% of our business. It has been replaced by gas products. We are in a primarily urban market. Our gas product sales have been strong, but our growth areas are electric, and outdoor fire features (gas fire pits and fireplaces, including commercial settings).
“We also had one of our more successful barbecue seasons in 2016 compared to prior years. Our installation and service component generated about $850,000 in revenue for our company this past year.”
Sixty-two percent of retailer hearth product purchases will take place in the final two quarters of the year.
Sixty-five percent of hearth product sales were for new installations.
In 2016, 32% of hearth product sales were to replace an inefficient wood fireplace, and 23% were to replace a pre-EPA stove.
Sixty-one percent of hearth retailers expect sales in 2017 to be better than those in 2016.
British Columbia: “Our wood sales were down about 20%, but 2015 was a record year for wood-stove sales. I found that sales would happen much easier with incentives or price discounts. It was a tough year but sales were there if you added value or discounted product.”
British Columbia: “Wood appliance sales were unchanged. Pellet appliance sales were unchanged. We did no promotional specials as the number of sales were as expected.”
Manitoba: “This year was great for all products at the retail price.”
Ontario: “Wood sales were up by 25%. Consumers were looking for WETT certified knowledge, honesty and fair pricing. We were giving discounts for cash, check or debit rather than by credit card.”
Quebec: “I sell only wood appliances. No gas, no pellet, no patio. We offer chimney sweeping service ($80,000 income/year), chimney inspection ($25,000 income/year) and masonry restoration ($50,000 income gross/year). We also close our store for February and March for lack of sales and sweeps (winter, cold and snow). We put all staff (3) on unemployment. I take a break and go to Texas for two months.”
Quebec: “We sell fewer units but with a higher price. Fewer transactions, more profit!”
|Gas fireplaces and inserts were the two strongest sellers at specialty retail in 2016.|
|Pellet stoves and wood inserts and wood stoves were the three weakest products in the market.|
|This chart highlights the fact that wood stoves/inserts and pellet stoves/inserts lost substantial market share in 2016.|