How was business in 2011?
Things started to turn around, as far as new construction goes. The jury is still out on retail. The impact the Internet has had on pool and spa retailers nationwide is significant, I think, and I'm not sure retail will ever get back to where it was. I'm sure you're hearing that from others, too.
When you talk about losing sales, are you talking about chemicals and supplies or hot tubs?
I just mean the accessory items that go along with pools and hot tubs. I don't see selling hot tubs online to be an issue. I think most consumers are savvy enough to know that buying hot tubs off the Internet is not necessarily a wise move to make. How many people buy cars off the Internet without looking at them first? If you buy a tub off the Internet, what, are they going to have an 18-wheeler pull up to your house? For an item like a hot tub I don't see the Internet being a big threat to retailers.
We are trained in our industry, and we continuously train throughout the winter. All of our employees are Certified Pool & Spa Operators, all of our service technicians are certified. So there is a level of expertise that a consumer is not going to get off the Internet. And there are a lot of consumers that still appreciate that. For those that want to shop on the Internet for chemicals, more power to them. Our policy is that we don't test water for people unless they're a routine chemical customer. We'll charge $25 for a water test if they're not a customer and don't have any intention of buying anything.
You said the construction aspect of business is picking up?
It is. Now, the bulk of it is not financed. It's people who have the money. The desire for our products is still out there. But before the economic woes beset our country, people were still using home equity loans and things like that to purchase pools and spas, and that's all but dried up. So, people that are buying our products now typically have cash in hand.
Like I said, I think the demand is still out there for a product such as a hot tub, but I also believe that consumers are more realistic in their purchases. People are less likely to borrow money for a hot tub now, whereas several years ago they wouldn't have blinked to do it. Our hot tub numbers are way down compared to where they were five years ago, but people are still buying.
Has consumer preference changed?
Yes. I think that people are looking at more of the mid-range tubs as opposed to the real high-end tubs. We carry Baja, Caldera, Nordic and Dimension One. We've got a full price-point range.
What about chemical sales? Have they held steady?
Our chemical sales have been impacted over the past four or five years, but I think a lot of that impact has been due to conversion to saltwater pools. That's probably had more of an impact on chemical sales than anything else.Because, when you can buy a replacement cell on the Internet for less than what I have to pay for it, I mean, why is the consumer going to come back to me to buy the cell?
It sounds like you're frustrated about that.
Absolutely! Without a doubt. I read all the comments about that on your website. And who knows where it's starting? Is it coming from POOLCORP? From the manufacturers? There's just a lot of speculation.
I don't think there's much we can do about it at this point. The cat's out of the bag. I think the manufacturers are going to have to try to control it at some point, because, once again, the mom-and-pop retailers and service companies who built our industry are suffering.
On a personal note, I started this business 25 years ago by working 80 hours a week, taking good care of my customers and just busting my ass to build the business. And it was very profitable years ago. But the profitability has been whittled out of retail and service. We can't make it on service alone. The service department needs to be able to make a fair margin on the products that it's selling in order to supplement its operation. And that's going away. I'm sure I'm just echoing the same thing you've got to be hearing from everybody else.
Does MAP pricing help?
Well, in many cases with that the prices are so low on it that it's not worthwhile to even get involved in. It costs a lot to run a legitimate business, to man a phone from 8 to 5 every day, to have an office staff, to train service people, to pay them all. Plus there's workers' compensation, insurance, all the benefits. If we can't be profitable in this business, then we might as well sit at home and watch Cartoon Network. And that's what many of us are being forced to do. I would never open up a pool and spa retail store right now. I don't see how you could make it.
And all of this is happening nationwide. It's the same story everywhere. But the thing you have to understand is that recessions come and recessions go. This has been a very, very severe one, but I fully expect our great country to come out of this recession. But, that doesn't affect the way our market has changed due to online purchases. That has nothing to do with the recession. The Internet has had a huge impact on retailers and service companies in our industry. It hasn't had much effect on construction, because you can't buy a new pool off the Internet. But service companies and retailers in our industry have been severely impacted by this, and it's not looking like it will get any better soon.
People like Dan Harrison at poolandspa.com will say, "If you can't beat 'em, join 'em." Well, the problem is in order to be competitive in that arena your margins have got to be extremely low. You can't sustain a brick-and-mortar operation based on the margins the stuff on the Internet is selling for. You can have an office in some warehouse district in New Jersey somewhere in the middle of nowhere, and these manufacturers and distributors who are doing this and shipping direct to homeowners, that's how they're doing it. It's my understanding that SCP will ship to anyone, anywhere, as long as the order comes from an authorized dealer. So, John Doe doesn't have to stock a thing; he has no inventory, no staff. All he's doing is throwing a price out there, and if he can make 5 percent, and doesn't have to touch it, well, he'll do that.
And these people that are doing this don't have a vested interest in our industry. It will take several years, but ultimately it'll result in a black eye for the industry, because you're going to have a lot of consumers out there with products that don't have any service backup. And people like myself aren't going to be around 10 years from now to service it.
I should point out that I'm not picking on Dan Harrison. He was one of the first ones, and that site has done really well. You can't blame him for what he's doing. I really don't want to zero in on any one company. I just think that as a whole, I don't see how this is going to benefit our industry.
The other thing is, where do you have to go to get parts for your John Deere tractor? You have to go to a John Deere authorized dealer. It would be very easy for Pentair or Hayward to say, "To purchase our products you have to go through an authorized dealer." The manufacturers are at the top of the line. They can control their distribution channels. They say they can't, but there are manufacturers out there in other industries that do it quite well.
