Q&A with spa retailer Norm Coburn

1. How have restrictive lending practices affected the industry?

The only first-hand evidence I have is our approval rate on the applications that we submit to Wells Fargo and GE, and there have been a lot more rejections. So, the approval rate is down, the number of declines is up, and my understanding is that not only do the credit ratings of the consumer need to be higher than ever, but they've probably altered their debt-to-equity ratios required to get financing, as well. So it's a lot more difficult for the consumer to get that type of paper, and it's a lot more costly for us to provide any kind of promotion. There are fees that they charge us for doing, say, a no-interest period of six months or 12 months, and those fees have doubled in the last couple of years, going from 3 to 6 percent.

2. Have you seen evidence of a turnaround for spa and pool retail?

We've seen, just in the last month, that store traffic has increased, sales have increased and while some people may get excited about doing better than your lousiest year in the last decade, it's a little difficult for me to get excited about. But it is a step in the right direction.

I think that the spa market has probably hit the bottom, but I'm told that we've yet to see the worst in terms of commercial real estate, which is exciting for those of us in the retail business. I think that means opportunities for us to expand and/or move or renegotiate our current leases and ownership positions. So that should be construed as good news for people. I think this coming year is going to be pretty bad for commercial real estate.

The business news that I read says that everything else is starting to show signs of life.

3. A lot of the survey respondents said they planned to add new lines of retail.

I did two things that were a little different starting in 2008 but they haven't done much for us. One was attempting to get back to my roots, which is in solar equipment. We tried to sell some solar pool-heating systems but the economy was horrible and the weather for swimming pools was the worst in a long time. So we failed miserably at that. We also brought in a demo unit for a swim spa. Now, we had sold a few over the years, but nothing very exciting. We thought it might be a growth category so we brought one in and it didn't do terribly well.

4. Have those experiments changed your mind-set from looking at new things to focusing on selling your core products?

That depends on the day you ask me! I like to be creative, I like to innovate and I like to try new things, so I don't think I'll ever stop. But it is humbling when you put some energy and effort into something and it doesn't show a return. You go home with your tail between your legs and go, "Well, they can't all be homeruns." Which is very true.

5. We asked whether companies had lost or gained competitors. Predictably, a small number gained competitors but almost 43 percent lost competitors. Some of those that did lamented the loss of advertising in their markets.

I think our level of competition has stayed about the same. There is some truth to that idea, though. You can stimulate more consumer awareness if there are more total dollars spent on advertising in your marketplace.

But because we've all sort of been in the tank the last two years, nobody is doing any advertising, and therefore if you lose some competitors, you'll tend to stand out a little bit more. So I would be OK if they all disappeared.

On the other hand, if you look at a home show as a microcosm, you don't really want to be the only hot tub dealer there because the consumer needs to have something to compare your hot tubs to. I've been at events where there were eight or nine competitors, and that's been enough to confuse them, so they end up not buying anything that day. So I think there's probably an optimal number of competitors - one that keeps people sharp and keeps consumers satisfied that they've done their diligence. I don't know what that number is though.

6. A large number of respondents told us they had to lay a lot of people off last year, but they expected to lay off fewer in 2010. Is that a positive sign or just evidence there's nowhere left to cut?

It relates back to the question of whether we've hit bottom. What I had to do was guess where my sales level was going to bottom out and then prepare my company's expenses and payroll to accommodate that. I didn't know how low it was going to go, but I made my best guess and laid off the number of people I laid off, doing it in stages. When I thought I was done, I did a little bit more to hedge my bet and make sure that I was going to be OK. So, yes, my sales are down from where they once were, but I'm still selling a lot in dollars, and if I can't figure out how to make a living at that level then there's something wrong with me.

So our job, as an industry, is not so much to sell more or buy better or anything, it's to balance our expenses with whatever the hell our level of sales is going to end up. It was a pretty scary time we went through. As it turned out, we did OK last year as a result of that hedging, and we're in a good position right now to kind of watch and see what's going to happen. As I mentioned, we're seeing an uptick in sales and we're able to handle it from a staffing standpoint. I know that when it gets busier the staff is going to start screaming, "Hire! Hire!" And of course I'm going to be deaf to that for as long as I can.

I think if people are not continuing to fire that's a sign that things are stabilizing, otherwise they'd be cutting some more. If things seem stable you don't mess around.

Comments or thoughts on this article? Please e-mail [email protected].