Q&A with hot tub retailer Alice Cunningham

4 P 709 Aq05101. What's the state of the industry up in the Northwest?

We have a program called "Bless and Release." Now, we've always taken pride in our service techs being able to resurrect any spa, no matter what the condition. But now we say, if it's going to be really impossible, just thank it for its good service and all the wonderful times you had in it and move on. You know, get a new tub. So that's "Bless and Release."

We just had a meeting with our service techs yesterday and they said that things are really loosening up out there; that people are loosening the strings on their pocketbooks.

The service tech can be instrumental in convincing the homeowner to get a new tub. He'll give them a card and say, "Come into the store and take a look." A lot of times they'll just drive straight there. It's amazing. Then the service tech gets a $100 spiff. They're not doing it for the money, really. It's more about seeing the customer in a better situation. So anyway, last year people would say "no" to the new tub and have us go ahead and fix it. This year, as I said, the service techs tell us people are loosening up on that.

Our traffic is good, and the people that are buying spas want them right away. In the old days - ha! two years ago - people would come in, they'd look and then maybe they'd buy in three months or whatever. A certain percentage would buy right away. But now, people aren't even coming in if they're not going to buy. They don't want to put their pocketbooks in harm's way, you know? "Don't even go near the candy store. You can't be trusted!" Now, when they do come in, a larger number will buy right away. They want it yesterday. Gotta have it. But the other group of customers is very skittish and can turn off on a minute point. They're looking for an excuse: "It doesn't have a jet that's going to hit my pinkie? No pinkie jet? Whoa! That's a deal-breaker. Can't buy it."

What people are going for is something new and exciting. For example, Hot Spring has this new salt system, and it's not cheap. It's close to $1,000. But people want it. And of course you have to have a hot tub to go with it. So there you go.

Hot Spring has also redone its Hot Spot line, and it's a heck of a deal. It's got all the bells and whistles and it's under $5,000. So that's just the absolute perfect sweet spot for a lot of people.

So we're either selling the Hot Spot or the great big tubs with everything loaded. Because there are still a lot of people that are working and have money, right?

2. How has downward pressure affected your competition?

The competitors? My god, they're slimier than ever! So the sales process here is that we're having to be very slow, very careful, step-by-step, because customers are very wary. If they've gone to competitors, they come in with their arms folded: "OK. What whopper are you going to tell me?" So they come in with this defensive posture and we say, "Oh, were you just at [name redacted]?" Uh, how'd you know? "Is the sales manager still leaving for Canada in the next couple of hours?" Yes! So they laugh and we laugh and they buy from us. You get them to laugh and get them to acknowledge that they've been maltreated somewhere and to trust we're not going to mistreat them.

What's working for us is our financing. We have phenomenal financing. We're very, very fortunate. If dealers are not contacting credit unions, they're crazy. Credit unions have very different regulations from banks, and they didn't stop lending. I have one credit union that is 120 months at 8.49 percent fixed and another one that does a home equity loan at 3.25. I mean, that's practically free. And I have another credit union that does 12 months no-no for about 3 percent, which is a steal compared to what places like Wells [Fargo] want.

I think dealers are just not looking into the credit union potential.

3. Our survey respondents said consumer confidence was the biggest barrier to better sales. Do you think once that comes around and banks loosen up that things will improve?

A dealer can't wait for banks to start lending again, because every day in the paper there's something about this or that little bank being in trouble. So skip the banks and go to the credit union. They exist to loan money to their members, and for $25 you can be a member.

4. What about inventory financing?

Oh, God. That's a big one. What you have to do is carry less inventory and then you've got to turn that. So you've got to keep a real close eye on what are your sellers and what aren't your sellers. Put the sellers on the floor and don't carry the other ones. I don't care what your manufacturer says.

5. Nearly one-third of respondents told us they planned to increase spending on marketing and advertising. Any advice for them?

You're really out on a wire. You've got your income and your expenditures. Are we going to be like the federal government and run a deficit? I don't think so. So you have to make very calculated risks if you're going to spend more. And it's got to be a million-dollar sure thing.

6. Are there such things?

Well, we're putting more money on our Web site. I've got a blog at www.hottubbliss.com. I just hired a guy to help me give it a whole new look. People read the blog and they come in and buy and we'll ask them why. "Well, I read Alice's blog, and I can tell you people are really into it. You're into the lifestyle. You really know what you're talking about."

So it really works. People write letters, leave responses. I've had a good time. There are a billion things to talk about.

7. Sixty-three percent of our respondents said revenues were unchanged. What do you make of that?

I think they're lying. I think it depends on when the downturn hit them. It was more like a rolling downturn. Some parts of the country it started in the last part of 2007 and it kind of rolled through. The hard part, as a business owner, is to decide if it's permanent or just a trend. In our case we didn't act quickly enough and say, "Oh my God! This might be here for a while!" and cut our expenses. But we didn't really start to feel it until the last quarter of 2008, and then last year was like, whew, people weren't coming to the store. You know the story. I mean, how many jugs of chlorine can you sell to equal one spa?

8. Forty-two percent lost competitors. That stood out to us.

Well, a lot of people are just not financially sound. They mistake cash flow for profit, which is common in the spa industry, and some of them have gone under. But not as many as you'd think. A lot of the other ones have cut back and tightened their belts so much and they're just hanging on.

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