All Good But the NSPS
By Bill Sendelback
In real estate the mantra is “location, location, location.” In hearth product sales, it’s “weather, fuel prices, economy, new-home construction.” Those factors all lined up positively to make 2018 a strong hearth product sales year. They are predicted to continue on a positive track that will make 2019 another strong hearth sales year.
Weather tops everyone’s list of what propels hearth product sales – obviously, the colder the better, and the earlier in the year the better. The Farmer’s Almanac forecasts a 2018-2019 winter with temperatures below normal in the majority of the U.S., with the coldest temperatures occurring in February 2019. The National Oceanic and Atmospheric Administration (NOAA) is concerned that an El Niño is “likely” for 2019, predicting that there is a 70% chance of a warm 2019-2020 winter.
Ed. Note: The NOAA is by far – BY FAR – the more reliable source.
High heating-fuel prices are another trigger that could help hearth product sales. However, so far it appears there is nothing on the horizon that would push heating-fuel prices up. The U.S. Energy Information Administration forecasts for 2019 that crude oil prices will rise only 1.6%. Heating-oil prices are predicted to go up only 0.4% to $3.18 per gallon average. Natural gas prices are expected to increase 1.9% to $10.04 per thousand cu. ft. average with a similar increase in LP prices. Electricity prices will bump up the most, up 2.9% to $13.31 per kilowatt.
Even with the mid-term national elections, the U.S. economy is expected to continue strong through 2019, according to Robert Dietz, chief economist for the National Association of Home Builders (NAHB). After 3% 2018 growth in the gross domestic product (GDP), he predicts 2.7% GDP growth for 2019, with inflation increasing to 2%. Unemployment, at 3.7% in October, is expected to drop to 3%, continuing to create labor shortages for new home construction, and slowing the growth of housing starts.
Dietz also predicts 30-year mortgage rates to be near 5% for 2019, and consumer confidence at “near a two-decade high” because of more disposable income created by the recent tax reform.
Regarding housing starts, the NAHB forecasts total housing starts for 2019 to go up 2% to 1,293,000 units. Single-family housing starts are forecast to increase 4.7% to 927,000 units, and multi-family starts to actually decline 4.4% to 366,000 units. Dietz also forecasts that home remodeling will rise 7% in 2019 after a 9% increase in 2018. His reasoning is that more houses are aging, home prices are going up, and people are looking for more energy-efficient homes, so they will turn to remodeling their existing home.
In 2018, hearth product sales were good for most manufacturers, and great for some. Gas hearth product sales, especially gas fireplaces, continued to increase and gain market share because of the continued rebound in new-home construction, and the increase in remodeling.
Electric fireplace sales did increase in the specialty retail channel with higher-end models, but most of those sales continue to be through Big Box stores. With low heating-fuel prices, pellet stove sales were dismal in all areas except the Northeast, a long-time hot bed for pellet burners.
The big surprise in the hearth product market is the 2018 sales growth of wood-burners, particularly freestanding stoves and fireplace inserts. Low heating-fuel prices didn’t seem to slow down sales of wood-burners, while the strength of home remodeling, and increased interest in the aesthetics of wood-burning products, brought new life to the category.
Whatever happened in 2018, most expect it to continue into 2019. The triggers for hearth product sales – weather, heating-fuel prices, the economy, and new-home construction – are expected to hold steady for 2019. The only wild card for 2019 is the impending influence of the EPA’s May 15, 2020, deadline by which retailers can sell wood- and pellet-burners that are not certified to the 2020 NSPS standards.
Most industry members feel that dealers and manufacturers will be busy flushing out inventories of non-2020 models. But that may offer opportunities for dealers to replenish their inventories with 2020-certified models. While there are pending bills in the U.S. Senate and House of Representatives to delay the May 15, 2020 deadline to perhaps 2023, no action has been finalized, and many manufacturers are not optimistic about the possibility of that deadline occurring.
“It’s been a fantastic sales year for hearth products, with the industry up 7 to 10% led by gas fireplaces,” says Bret Watson, president of Jøtul North America. “Sales of gas hearth products for Jøtul were up 20%, and sales of wood-burning appliances were up 7%. Each month in 2018 sales were up for us, and into the fall many of our dealers had installation backlogs out four weeks.” Watson reports that Jøtul’s unit sales for 2018 were up 15% and dollar sales were up 18%. “We’ve had double digit sales growth the last two years and cannot keep up with demand,” he says.
Watson expects hearth product industry sales to be up 4 to 8% for 2019, not as strong as the industry sales increase in 2018. “Sales of gas hearth products will stay strong and will dominate even though rising interest rates may temper new-home construction,” he says. Watson believes that sales of wood-burners will be up for 2019, but warns that dealers will have to be cautious of early-buy orders for non-2020 certified models to keep from having carryover of these units after May 15, 2020, if the extension to 2023 is not granted.
Industry sales of gas hearth products increased in 2018 by more than an “average” increase, according to John Czerwonka, vice president of Hearth Sales for Napoleon Fireplaces, and he expects that trend to continue, driven by the strength of new-home construction and remodeling activities, as well as consumer confidence levels. In 2018 Napoleon had its largest product launch with a new line of linear gas fireplaces. “We’ve had nice sell-through on the new models,” he says, “and we expect that trend to linear styling to continue.”
In 2018, sales growth of electric fireplaces for Napoleon was “off the charts,” says Czerwonka. “Pellet appliance sales were flat after being down in 2017, and wood-burner sales were also flat, perhaps because of the confusion caused by the NSPS.” Napoleon focused its 2018 R&D efforts on gas models. “But now that the NSPS has firmed up, we’re developing a new line of wood-burners.”
Czerwonka believes hearth product sales in 2019 will be “up considerably, with gas models continuing to be the biggest industry growth category.” But he is concerned about the efforts to restrict or eliminate wood-burning and/or gas-burning in regions such as California and British Columbia.
“Our 2018 hearth product sales are significantly ahead of last year,” he says, “and we see sales going up considerably for 2019, particularly in the U.S. with double-digit increases, assuming labor will be available to continue the rise in new-home construction. Canadian sales should be up slightly, with signs that growth of the Canadian economy is easing up.”
Hearth & Home Technologies
Hearth & Home Technologies has had a “very solid” 2018 hearth product sales year in its retail channel, partially because of growth in remodeling. Its sales to the new-home construction channel have been “a little softer than we thought,” according to Jeni Forman, senior vice president of Retail Sales. “We’re seeing growth in gas appliance sales, but pellet stove sales are on their historic roller coaster ride, off in most places but up in the Northeast where an early cold snap and some rising fuel prices have helped. Sales of wood-burners always have been pretty stable, never up by much, and we expect that to continue in 2019.
“With the May 15, 2020, NSPS deadline getting closer, dealers are being very careful about taking on non-2020 models, and we expect that hesitancy to continue,” she says. Forman also expresses concern about the low number of EPA-published, 2020-certified models, and the manufacturers that have few, if any, 2020 models certified.
She is also concerned about the lack of inventory sell-through time if the NSPS deadline remains May 15, 2020. “If this deadline is not extended, it will slowdown wood- and pellet-burner sales to dealers since, with non-2020 models still in stock, they will not be able to take on new models in 2019.”
In 2019 we will see sales of high-end products continuing strong, says Forman. “And sales of modern and linear styling will continue.” But she is concerned about the incidence rate of fireplaces in new-home construction not rising with the resurgence of new-home construction.
“We’ve had a great sales year,” says Glen Spinelli, president of Regency Fireplaces, “and we expect a healthy 2019. Sales of fireplaces and inserts are up. We thought wood-burner sales would be sluggish, but they are up quite a bit, and we think that will continue. Overall, we’re selling higher-priced models in all categories. Our dealers were out three to five weeks on installations going into the fall. Sales in every region are up a healthy amount, and we’re seeing quite a bit of sales momentum going into 2019.”
Sales for the year are driven by sales in January and February, according to Spinelli. “If the weather is bad, that fuels business to be up maybe 15 to 20% and drives sales into later months. We’ll adjust our sales forecast based on what January and February tells us. Working directly with dealers, we can react very quickly to trends.”
Spinelli expects “some sales growth” in 2019, but not like the growth in 2018. He, too, is concerned about regional environmental pushes against gas- and wood-burning. “Government regulations by states and provinces can affect the whole country, and are certainly affecting our business,” he says. He points out a recent natural gas main pipeline shutdown in British Columbia; it also affects Washington State. “In October in that area, people were asked to shut off all natural gas appliances. We don’t know how long it will last, but it affects the entire Pacific Northwest and may drive up wood-stove sales.”
Innovative Hearth Products
For Innovative Hearth Products, hearth product sales were “kind of a mixed bag” in 2018, according to Tom Krebs, executive vice president of Sales and Marketing. “Open hearth fireplaces, including vent-free models, did well as did our EPA-certified fireplaces. Surprisingly, sales of our direct-vent gas fireplaces were flat. We think sales of our open hearth models look promising for 2019.”
Krebs believes linear gas fireplaces offer increased sales opportunities for 2019. “Linear models are becoming more transitional in styling rather than so contemporary, and while transitional styling is growing, traditional styling is holding its own and is still the majority of sales.
“2019 should be a good year, but we’re concerned that the incidence rate of fireplaces going into new homes is dropping off even as housing starts continue to go up.”
Krebs also sees the 2020 NSPS deadline as “a challenge. Dealers and manufacturers are nervous. If dealers don’t have time to sell their non-2020 models, they won’t be buying replacements. And it might be difficult for manufacturers to then clear out their non-2020 inventory if dealers are afraid to purchase them next year.”
Travis Industries posted an “excellent” 2018 sales year after a good 2017, according to Perry Ranes, vice president of Sales. “And we anticipate a double-digit sales increase for 2019.” Gas appliance sales are leading the way for Travis, with sales of its DaVinci brand “very strong. DaVinci has developed a strong following, and sales continue to be robust.”
Sales of fireplaces by Travis are “way up” because of increases in remodels and new-home construction, he says. Travis’ wood stoves are also selling “very well,” but sales of pellet appliances are “soft. In parts of the U.S. like the Northeast, pellets are more active. But if prices of LP remain low, there will be no sales growth in pellet appliances.”
Acadia Hearth, a new hearth products company in 2018 with Acadia and Breckwell brands, had a slow start in 2018 but plans a “hard launch” of its lines in 2019. Even so, Acadia’s gas appliance sales have been “pretty strong,” according to Kent Roeder, general manager and vice president of Sales and Marketing. “We’re revamping our Breckwell pellet and wood models for specialty hearth dealers for 2019, including our new Traverse gravity-fed pellet stove,” he says.
Roeder is counting on a good 2019 sales year. “Gas is not going away and will always be strong,” he says. “Pellet stove sales are hanging in there, particularly in the Northeast. It’s scary getting wood and pellet models ready for the 2020 NSPS standards as we and our dealers try to clear-out models that don’t meet that standard.”
DuraVent’s 2018 sales were doing very well until September, when sales slipped due to continued warm weather. “We had been exceeding our sales goals every month, and now with colder weather, sales are back and we’ve made up lost ground and are now up overall,” according to Todd Lampey, vice president of Residential Sales. “Sales of Class A chimney have been flat, and direct-vent sales have been pretty good, up by high single digits. B-vent sales have been given new life in hearth products, with B-vent now being used in the popular linear gas fireplaces using 8 or 10 inch B-venting. Surprisingly, sales of pellet chimney are up 10 to 15% after a positive 2017.”
Lampey sees “some sales growth for 2019, but it will be a fairly flat sales year. If 2019 is as good as 2018, it will be nice.” He sees a good year for wood-burners as manufacturers and dealers sell-off non-2020 certified models. Lampey sees sales of direct-vent gas appliances increasing a bit, but leveling off with the NAHB’s relatively flat 2019 projection of 1.3 million new homes – single-family and multi-family – a total slightly ahead of 2018. “And pellet stove sales are a crap shoot, depending on oil and LP prices.”
Kozy Heat Fireplaces
Kozy Heat Fireplaces has had a “very good” 2018 sales year, up by double-digits as it has been for each of the “past few years,” according to Jim Hussong, president. “We finally got some cold weather going into the fall.” Kozy Heat offers mostly gas hearth appliances, but its few wood-burning models are growing slower than the company’s gas units.
“The hearth product market is still strong, and we expect that to continue into 2019 with double-digit sales growth similar to that of 2018,” says Hussong. “We’re seeing a lot of optimism from our dealers.” Kozy Heat added warehouse space in 2018 and already is increasing that space because of sales demand. “We need products ready to ship in the season, so we have to maintain that inventory,” he says.
Hussong believes the linear gas trend will continue, and Kozy Heat has added more linear models to its lineup. “But we still sell a lot of traditional models,” he says.
Empire Comfort Systems
“With a strong economy and an early winter, 2018 has been probably one of the most normal hearth product sales years we have had,” says Nick Bauer, president of Empire Comfort Systems. After not having had a flat or down sales year in a decade, and “substantial” sales growth in 2017, Bauer’s idea of “normal” is a 2018 where his sales growth leveled off.
Offering only gas products, gas logs were the company’s biggest sales growth category in 2018. And its direct-vent gas appliance sales were up 5 to 10% because of the continued strength of new-home construction.
“With the U.S.’s strong economy and very low unemployment rate, we’re cautiously optimistic about 2019,” says Bauer, “even though home mortgage rates are near 5% and we still have the threat of tariffs taking effect January 1. But we’re confident 2019 will be as good or better than 2018. Our dealers are busy, many out three to five weeks on installations.” Bauer says the early cold winter of 2018-2019 is “promising. If this cold remains, it will help us since we sell products more for heat than for decoration.”
Sales for 2018 have been “amazing” for HearthStone, according to Dave Kuhfahl, president. “It’s almost like a return to the old days. We’re growing at a rate that is making it hard to keep up with production.” With propane prices rising this year, it has been a good wood year for HearthStone. “Smaller gas stoves are selling well, but sales of bigger wood-burning models are going crazy,” says Kuhfahl.
HearthStone has been “working hard” to get its wood-burners ready for the 2020 NSPS standards. “We have a bunch of models ready, and they are selling well. Dealers are nervous, however, about that 2020 date, concerned about their carry-over inventory of non-2020 models. And that carry-over inventory at the dealer level is of concern to us. That deadline may be moved to 2023, but we’re not counting on it.”
Kuhfahl thinks HearthStone is “well positioned” for another strong sales year in 2019, with a sales increase similar to that of 2018. “It will probably be a more seasonal sales year, and we’re concerned that it will not be a big year for dating orders,” he says. HearthStone is diversifying its product offerings into fire pits to flatten that seasonality. “Dealers will embrace new 2020 models, and we’re working hard to build inventory to eliminate back orders,” he says. “The lack of potential employees has been a huge problem for most, including us. We would set up an additional production line if we could get the people.”
It was a “great” sales year for Blaze King, up about 17%, according to Alan Murphy, president. “Although 95% of our line is wood-burners, we see that the sales of gas models throughout the industry were up, so we will be adding more gas units, stoves and fireplace inserts, for next year.”
This sales season was about three weeks late, according to Blaze King’s dealers, after 2018 sales started off strong but softened later in the year. “We think a reason for this later softness to the season was that dealers started selling off non-2020 compliant wood-burners, so were buying fewer replacements,” Murphy explains, “and we think that will continue into 2019.”
Although Murphy thinks the market conditions in 2019 will be similar to those in 2018, with similar sales increases, he’s concerned about how the May 15, 2020, NSPS deadline will affect the market.
“Assuming we have no NSPS delay beyond 2020, dealers will have to sell off their non-2020 certified inventory, maybe flooding the market. But on the plus side, they’ll have to replace that inventory with 2020 models.” And based on the number of 2020-certified models published on the EPA’s web site as fall began, Murphy is concerned that many manufacturers may not yet be ready for that sales push.
“The volatility of politics and oil prices will continue, and tariffs may drive up prices. But we’ll see a continued strong U.S. economy with new-home construction continuing to grow,” he says.
RH Peterson saw a “very strong” 2018 sales year in both its vented and vent-free gas log sets, says Bob Dischner, senior vice president of Marketing. “Vented log sales were strong across the country, while vent-free sets continued strong in the Southeast. Our new log sets that heat did well, as did our new electronic controls for log sets. We also saw a ‘birch frenzy’ this year as sales of this style of logs took off.”
Dischner hopes sales in 2019 continue going up as they did in 2018. “Gas prices should be good, but mild weather is forecast,” he says. Dischner points out that, over the last 10 years, fewer fireplaces accept gas logs since gas fireplaces now dominate new-home construction. “But gas logs are still going strong.” Peterson plans to add a gas fireplace insert featuring logs to its line.
As the manufacturer interviews above clearly state, hearth product sales in 2018 were strong across the board, and it appears that 2019 will be another good year for the category.