Good to Better
By Bill Sendelback
Nick Bauer – Empire Comfort Systems
Marc-Antoine Cantin – Stove Builder International
John Crouch – HPBA
John Czerwonka – Napoleon Fireplaces
Bob Dischner – RH Peterson
John Klopstad – Kozy Heat Fireplaces
Dave Kuhfahl – Hearthstone
Alan Murphy – Blaze King
Kirk Newby – Associated Energy Systems
Perry Ranes – Travis Industries
Glen Spinelli – Regency Fireplaces
Bret Watson – Jøtul North America
Despite the confusion and uncertainty of the upcoming May 15, 2020, deadline for manufacturers and dealers to sell non-2020-certified wood-burners, 2019 was a pretty good year for hearth product sales. Manufacturers didn’t report record-breaking sales, but most saw at least single-digit sales increases. With the NSPS Step 2 deadline five and a half months away, manufacturers are looking forward to stronger hearth product sales even if those sales increases are moderate.
As might be expected, wood-burner sales were not great in 2019, but most manufacturers were surprised they were not down more as dealers held off purchasing 2020 models until they flushed out their pre-2020 inventory.
Gas hearth products continued to gain market share, especially higher-end models. Pellet burner sales, also affected by the 2020 deadline, were reported to be down – when manufacturers even bothered to report pellet stove sales. Electric fireplace sales again are up and trending; they continue to grow quickly.
Weather is always a major factor for sales of hearth products. The Old Farmer’s Almanac may not always offer the most accurate long-term weather forecasts, but it seems to be one of the few sources willing to risk a guess at coming 2020 weather trends.
This winter (2019-2020) the Almanac is forecasting below-normal temperatures in the Heartland to the Pacific Northwest and Southwest, with above-normal temperatures elsewhere. Spring 2020 is predicted to be warmer than normal in the eastern two-thirds of the U.S., near-normal in the Pacific Northwest, and cooler elsewhere.
Summer 2020 temperatures are forecast to be below normal from Florida north through the Southeast, and from Texas and Oklahoma west to California. Fall 2020 temperatures are forecast to be cooler than normal in Texas, Oklahoma, New Mexico, and the Pacific Northwest, with near normal temperatures elsewhere.
“Although minimal solar activity has historically meant cooler average temperatures across the Earth,” the Almanac says, “we believe that recent warming trends will dominate in the eastern and northern parts of the nation this winter (2019-2020), with below normal temperatures limited to the Southwest.”
Of course, heating-fuel prices also affect hearth product sales. The “Annual Energy Outlook” from the U.S. Energy Information Administration (EIA) forecasts that natural-gas prices for residential use will increase 2.7% in 2020, propane prices will rise 6.5%, fuel-oil prices will jump 2.3%, and electricity prices will remain even with 2019 prices.
While there is a lot of discussion in some regions about the use of natural gas, the EIA reports that natural-gas consumption in the residential sector has risen 13% since 2017. The EIA says that increasing energy efficiencies “across the end-user sectors” will keep U.S. energy consumption “relatively stable.”
A growing number of U.S. homes are now all electric, says the EIA, reporting that 25% of U.S. homes now only use electricity, particularly in the Midwest and South. Eighteen percent of single-family homes are now all electric, with the EIA reporting that new homes are “more likely to be all electric.”
Housing starts, too, are all important to the hearth product industry. According to the National Association of Home Builders (NAHB), total housing starts will rise 3.4% in 2020 to 1,286,000. Single-family starts will drop 1.8% to 902,000, while multifamily starts will increase 2.6% to 384,000.
With some manufacturers concerned about the U.S. economy in 2020, the U.S. gross domestic product (GDP) is expected to be up 1.8% in 2020, down from 2.5% in 2019, according to The Kiplinger Letter. Inflation will begin 2020 at 2.0%, compared to 1.9% at the end of 2018. Unemployment will be at 3.6% going into 2020. Regarding interest rates, 10-year treasury notes are forecast to remain in the “low 2% range until the trade wars end.” The NAHB expects fixed-rate, home-mortgage rates to go up to 4.49% in 2020, while the prime rate drops to 4.88%.
The tariffs on Chinese imports are another factor affecting hearth products in 2020. In October, 2019, the U.S. suspended an additional 10% tariff on $250 billion in Chinese imports after China agreed to purchase $40 billion to $50 billion in U.S. farm products. Still a tentative agreement with nothing signed, the U.S., as of this writing, has not dropped its proposed December 15, 2019, tariffs on $160 billion in Chinese imports.
“The partial nature of the deal won’t relieve much of the uncertainty surrounding trade policy that has discouraged many American companies from investing in new equipment and expanding,” according to Gregory Daco, economist with Oxford Economics as reported in the October, 2019, edition of The Economist.
After 2018, which was one of the best-ever sales years for Blaze King, 2019 has been a “very interesting year,” according to Alan Murphy, president. “We were up 10% early in the year but gave it all away during a slow summer. However, by this fall we were back to 2018 sales levels and hoping the fourth quarter will put us ahead.”
Company sales for the year were OK in the U.S., and even though early-buy orders in Canada were up, Canadian sales ended 2019 “off significantly,” particularly on the West Coast. “We did not see brisk sales in the U.S. into the summer because there were a lot of non-2020-certified wood-burners still in dealers’ inventories going into the season.
“Dealers have been cautious about purchases,” says Murphy. “Ninety-nine percent of our dealers are now in great shape with their inventories, but they are still being very cautious. However, our dealers are in good shape for 2020 and looking forward to getting back to business. So we’re going to build product like crazy.”
Murphy sees his current positive sales trend continuing into 2020. “The Step 1 wood-burners should have been discounted and cleared out by early February,” he says. “Sales in the U.S. should be quiet in January and February and pick up after May 15, and Canadian sales should go back to historical norms. Unfortunately, I will be very surprised if the EPA reconsiders and offers dealers a delayed sell-off period.”
Trends in woodburning will be more of the same for 2020, and gas burners will become more furniture than heaters, Murphy predicts. “There has been a general lack of innovation in our industry because of the pressures to develop 2020 wood-burning products, but now it’s back to R&D. Unfortunately, we may see the 2020 deadline reducing the number of wood-burner manufacturers because of the high costs to develop these 2020 models.
“An example is that the current EPA list of manufacturers offering 2020-certified wood-burners is much fewer than half of those offering former Step 1 models listed. We’ve been fortunate in that we’ve been gaining new dealers because all of our line is 2020-certified.”
Blaze King, whose sales are 98% wood-burners, refined its product line but “did not have to change much” with its line of catalytic models, a technology it has offered for 40 years. Its King model is 2020-certified at 1.1 gph and 81% efficient, and its Princess model is certified at 0.4 gph and 80% efficient.
Yes, prices will increase for 2020, Murphy says. “Because of the Chinese tariffs, we’ve had price increases from all of our suppliers, and labor rates are steadily rising. We anticipated much of these factors, so we slowly increased our prices over the past few years.”
Empire Comfort Systems
This year, 2019, was a “pretty normal” hearth product sales year for Empire Comfort Systems, according to Nick Bauer, president. “Our pre-season orders were up, and sales have been steady. Higher-end product sales have been doing very well. Sales of our gas fireplace inserts have been doing pretty well, but they always seem to sell when we have bad weather.”
Bauer is “cautiously optimistic” about his 2020 sales. “We expect slower sales in the summer and fall with concerns about tariffs, the economy, and the uncertainty of the U.S. elections. With all the rhetoric surrounding the election, we just may talk ourselves into a recession.”
Bauer admits he is concerned about the recent local and regional efforts to eliminate use of natural gas from new construction. But he is more concerned about the tariffs on Chinese imports scheduled to take effect Dec. 15, 2019. “These will affect everything, and consumers will feel the effect. We’ve already had to take our prices up on our grills 10% to 15%, and these new tariffs may take that to a total of 25%. The grill market won’t take a 25% price increase.”
Sales were slow in the summer of 2019 for Hearthstone as “dealers finally got the message” about the 2020 deadline and began selling off non-2020 models before bringing in new 2020-certified models, says Dave Kuhfahl, president.
In 2018, Hearthstone saw its average unit dollar sale drop, but now larger wood stoves are selling, and the company’s average sales dollars are up. “In fact, we’ve sold out of large wood stoves this year.”
Kuhfahl expects a “good” sales year in 2020. “We expect fewer total 2020-certified models on the market from the industry than were available with Step 1 models, and we’re well positioned, with our whole line Step 2-certified. Our dealers will be out of the non-2020 early in the year, so we expect good early-buy orders. Having our whole line 2020-compliant has brought us a lot of new dealers. But with the recent tariffs and the technology required to meet the 2020 Step 2 standards, wood-burning products next year will be more costly.”
Kuhfahl thinks continued use of natural gas in new construction is “in trouble. This will definitely have an impact on our industry,” he says. But he admits that it will have minimal effect on Hearthstone since most of the company’s current sales are from wood-burners. “Nevertheless, we’ve been neglecting our gas offerings. We need to get back to expanding our gas products.”
Jøtul North America
“All manufacturers of wood-burners felt pressure this year from the lack of an extended sell-through period for dealers with non-2020 models,” according to Bret Watson, president of Jøtul North America. “Our early-buy orders were down 35% as dealers did a good job of clearing out their non-2020 inventory by placing fewer early-buy orders for 2020 models. Our total unit sales of wood-burners were off slightly, but our total dollar sales were up as consumers bought higher-priced models.”
Growing sales of gas models helped Jøtul offset its decline in sales of wood-burners. “In 2018, we were 50/50 wood and gas,” Watson says, “but this year 65% of our sales have been gas models.” Jøtul has not felt pressure to flush out non-2020 inventory. “With our ‘just in time’ production, we have not had to dump old merchandise. We can produce what we need on a very timely basis.” But Watson is concerned about other wood-burner manufacturers. “Because of this 2020-deadline, we may see consolidation or worse of some wood-burner manufacturers,” he says.
Watson expects Jøtul’s 2020 unit sales to be flat, especially for wood-burners, but he expects increased dollar sales as larger and more expensive models will be sold. “With dealers still cautious about purchases, we expect our early-buy orders will be down. But sales of our gas models, especially contemporary models, will continue to grow. This is the fastest growing portion of our business.”
Kozy Heat Fireplaces
Sales for 2019 have gone “well” for Kozy Heat Fireplaces, they’re “on pace for another record year,” according to John Klopstad, general manager. “With homebuilding a little softer this year, we saw a softening in sales of direct-vent gas fireplaces,” he says, “but fireplace insert sales were up. Dealers have been scared to bring in new 2020-certified wood-burners, so we’ll see in the next two months just where sales of wood-burners will head.”
Klopstad thinks 2020 will see a “little decrease” in sales of wood-burners. “Although we’ve been able to hold our prices, consumers will see price increases because of the high costs of 2020 certification. Because of the costs of that certification, consumers will have fewer wood-burner options in 2020.”
The biggest trend going into 2020, according to Klopstad, is that we now have a more educated consumer who wants more features in fireplaces, such as being able to move heat to other rooms. “They want clean-faced fireplaces that offer more stylish decor,” he says.
Kozy Heat, too, is concerned about recent efforts to ban natural gas. “We need to watch this closely and be proactive,” Klopstad adds.
“For the first eight months of this year our hearth product sales were OK but not record setting,” according to John Czerwonka, vice president of Hearth Sales for Napoleon Fireplaces. “Canadian sales took it on the chin with new-home construction down, but now showroom traffic is up and sales are picking up. Our U.S. sales have been up slightly and are now picking up because of our new products and improved new-home construction.”
Czerwonka sees a better 2020 hearth product sales year. He expects Canadian sales for Napoleon to be up by single digits as Canada’s economy improves. “We’re more bullish on next year’s U.S. sales,” he says, “expecting a double-digit increase because of increasing new-housing starts and improvement in remodeling activity. We expect a lot of our growth will come from our new products.”
With pellet stove sales down and wood-burner sales on the decline, according to Czerwonka, sales of gas products are “up slightly. Homebuilders have not done a good job of meeting the needs of homebuyers when it comes to hearth products. But they are getting smarter, now preferring direct-vent gas fireplaces rather than cheap wood Builder Boxes. They are learning that they need to include hearth products that are commensurate with the value of the home.”
Outdoor living is growing “well beyond a trend and is here to stay,” says Czerwonka. He says that sales of electric fireplaces are up “significantly. Electric fireplace sales will continue to grow. Dealers now recognize that they are not going away. We’ve invested heavily in electric models, now with more than 50, and our electric fireplace sales this year are up by double-digits. Dealers should embrace higher-end electric models to truly be full-service dealers.”
With strong orders from 2018 carrying over to 2019, RH Peterson (RHP) has had a “very strong 2019 with a strong sales season,” says Bob Dischner, senior vice president of Marketing. “We’re selling more expensive, vented log sets with more features, such as electronic ignition. These larger, higher-end log sets are designed to put out more heat.”
There has been a “birch frenzy” in gas logs, says Dischner as RHP has seen sales of these models increase. “During the season, consumers burn with the logs that came with their set. But in the off-season, many are replacing these burned logs with white birch sets.”
Although Dischner describes RHP as a “Johnny come lately” with its gas fireplace inserts, sales of these models, with their look of log sets, are steadily growing, he says. Sales of RHP’s outdoor fire features are showing “steady growth. We’ve been adding new features such as LED lighting,” he says. Dischner expects 2020 will be another strong sales year for RHP.
Regency Fireplaces is having a “phenomenal” 2019 with sales growing in all fuel categories, according to Glen Spinelli, president. “The season started early and came on stronger in the fourth quarter. Dealers are buying what very few non-2020 wood-burners we still have and also are now buying our new 2020 models.” Spinelli says Regency now is offering more EPA-certified wood-burners than ever. “Our sales of wood-burners are stable, and we’re selling more and more gas models.”
Regency is “conservatively optimistic” about 2020, says Spinelli. “Depending on the weather in January and February, that will determine the sales momentum for 2020. The drama with 2020 wood-burners will be over, but with the upcoming U.S. election, who knows what will happen. No matter who wins, however, the hearth industry will continue to be robust because consumers want and need our products.”
Spinelli, a member of the HPBA board of directors, is concerned about recent efforts to ban burning natural gas. “But I’m happy that the HPBA and its government affairs staff have ramped up robust actions to overcome these challenges.”
Stove Builder International (SBI)
“This year has been good and will be a record sales year if our sales keep up this pace,” according to Marc-Antoine Cantin, president of Stove Builder International (SBI). “The demand was early this year in Canada as homeowners there seemed to have researched and saw what was coming with the 2020 wood-burners, and bought Step 1 models. Sales in the U.S. are starting to move, but have not been as robust, as U.S. dealers had to get rid of their non-2020 models.”
SBI is ready for 2020 with its wood-burners and expects sales to be “robust,” especially in the U.S. “U.S. sales during an election year usually are not as good, but dealers will have cleared out their old non-2020 models early and will be ready to buy. So we’re optimistic about our Canadian sales in 2020 and very optimistic about our U.S. sales.”
SBI has always had more success with its bigger wood-burners, and that trend continues. So for 2020, SBI is introducing more large models. “Maybe consumers see more value in larger sizes for a few dollars more.” The company also is working on a wood-burning furnace but is holding off pending final NSPS standards for wood furnaces.
Product pricing is not a concern for Cantin. “Since we now only make wood-burners, nothing we use is made in China, so tariffs do not affect us. We see some cost increases from the technology we have developed to meet the 2020 standards, but these costs have not been as bad as expected, so we have not increased our prices.”
Cantin points out continued difficulty in finding and hiring qualified workers such as welders. “If we have a real sales spike and need to ramp up production, this will make it almost impossible to hire people to meet that demand. For the first time, we’ve had to go offshore to hire workers,” he says.
Travis Industries’ 2019 sales were up 6% going into the winter, with signs of that percentage increasing in the fourth quarter. “Much of our growth has come from new products, and we have just released so many more new products,” says Perry Ranes, vice president of Sales. (Ranes will be retiring from Travis as of Jan. 1, 2020.)
“We hope 2020 sales will hit at least 2019 levels, but we’re a little concerned about what may happen to the U.S. economy next year. If the economy holds up, we’re looking for a good sales year.”
Ranes was concerned about the amount of non-2020 compliant wood stoves in his dealers’ inventories. “But with our line now 2020-compliant, we’re selling a lot of wood stoves. A large portion of our dealers have sold off their non-2020 models.”
Associated Energy Systems
Associated Energy Systems (AES), a large, two-step distributor selling hearth products and outdoor living products throughout the U.S. West Coast, Rocky Mountains, and South Central region, had an “awesome” first half of 2019, and, after a summer slowdown, is seeing a strong fourth quarter, according to Kirk Newby, president. “Most of our dealers are on track to have a strong 2019 sales year,” he says.
This year Newby has seen the high-end market growing as customers want more full-featured products. “This is helped by a strong stock market, higher wages, and increased home values,” he says. “We’ve not seen personal incomes rise like they are now.”
Newby sees 2020 as a “pretty decent” sales year with much of AES’ sales increases to come from new products. “The headwinds that may affect 2020 are the U.S. elections and whether the U.S. economy and stock market continue to grow,” adds Newby. “Even though we have 2020 wood-burners in stock, dealers won’t buy until their non-2020 inventory is gone. But it’s interesting that our venting sales are very strong, indicating that there are a lot of wood stoves being sold.” Newby expects sales of wood-burners to dealers will recover after the May 15, 2020, NSPS deadline.
All eyes in the hearth product industry have been on the May 15, 2020, deadline to develop wood-burners to the Step 2 NSPS standards and to sell off all non-2020 certified models. While, thankfully, this is coming to a head, John Crouch, director of Public Affairs for the HPBA, says the biggest news and biggest battle of 2020 will be to save natural gas in new-home construction.
“A year ago, nobody predicted just how much discussion would be going on regarding natural gas,” he says. “These discussions may accelerate. Fortunately for now, these are more discussions than adoptions.” If adopted, natural gas would no longer be allowed in new-home construction, forcing more expensive, all electric homes.
The discussions revolve around “concerns” about greenhouse gas emissions in burning natural gas. Discussions and some regulatory proposals to ban natural gas in new construction have occurred in Northern California, Vancouver, Seattle, and Massachusetts.
The HPBA is in a coalition of other trade associations, such as the American Gas Association, to respond to these challenges of using natural gas that could affect everything from hearth products to gas cooking. “A big concern is the consumers’ perception of the word ‘ban’ in news headlines, much like with wood stoves years ago. So we are responding very quickly,” Crouch says.
Questioning the reasoning of eliminating natural gas and propane in favor of electricity, Jeff Petrash, vice president and general counsel for the National Propane Gas Association, said in the October issue of the Butane-Propane News, “The promotion of electricity as a fuel with zero carbon emissions is very misleading. We are decades and decades away from electricity being renewable, and coal and natural gas are used predominantly to create electricity.”
He says that when coal and natural gas are used to create electricity, efficiency is much lower than heating with propane or natural gas directly. “A full 70% of the energy value disappears before the electricity powers the house,” he says. “Meanwhile, with propane and natural gas, nearly 90% of the fuel gets to the house. In these situations, an electric water heater will leave more than double the carbon footprint (of a propane or natural gas water heater).”
By most accounts, 2020 should be a strong year for hearth product sales. Everything points that way. But there is an old adage that says, Sales forecasts are only good until the ink dries.