More aboveground pool dealers are buying products through distributors

Let's dispense with a detailed accounting of the last few years in the aboveground pool business, shall we? It clearly hasn't been good for dealers or manufacturers.

There is a bit of good news out there, though. As the market has faltered, distributors have stepped in to help beleaguered dealers hold onto more cash and avoid getting stuck with stacks of unsold pools.

AQUA recently spoke with two of them about the changing market: Gary Najarian, vice president of distribution for Baystate Pool Supplies, a large distributor in Cambridge, Mass., that services the East Coast, from Virginia all the way up to Maine; and Richard Smith, a sourcing manager for international distribution giant POOLCORP, based in Covington, La.

The entire pool and spa category has been in a slump, but abovegrounds seem especially hard hit. Is that an accurate perception?

Najarian: Well, ingrounds have had the same thing happen. The number of ingrounds over the last couple of years is also way down. On the other hand, because the weather has been so good this year, we're seeing a little bit of an increase in ingrounds. But abovegrounds are flat, and they're still way down from their peak of three or four years ago.

Shouldn't the weather be helping abovegrounds more than it helps ingrounds?

Najarian: Yes. Usually, if you have the weather, you will have increases in abovegrounds. So that says something about the market. They have been falling out of favor a little bit. Aboveground pools are impulse sales. If you don't have weather, you're in trouble. I would say people's preferences, the economy and the weather conspired to bring sales down. And the previous three years were all bad summers.

The biggest impact, though, and we've all suffered through it, has been the economy. Aboveground pools typically are impulse-type items. If the weather is hot and humid, as it was in many parts this year, it generally stimulates business. It's kind of like, "Let's get the family in the car and go down to, well, either the Wal-Mart or the pool store, and buy a pool, get some neighbors and friends and put it together." I think that has shrunk quite a bit.

Smith: The market has changed, and a number of big things have happened in the aboveground arena. The typical aboveground pool, which used to consist of a metal wall with a bracing system, is still available, although there have been some improvements in the support mechanism - the top rails are now being made out of resin or plastic-type materials.

Now, what I've just described is the typical aboveground pool as perceived by most people in the industry. What has happened over the last few years is that the inflatable ring pools, which you'll see at big box stores like Wal-Mart and places like that, have taken away a lot of that aboveground pool market.

And, we just aren't building above-ground pools like we used to. The ones we are building, you're seeing a lot of these coming with better equipment, better accessories, alternative disinfection systems like chlorine generators. They've managed to enhance and improve the cosmetic appearance of them as well as the materials that they're constructed out of. The problem is we just don't have enough sales to make that as lucrative as it used to be. You used to fly into big metropolitan areas and see the aboveground pools dotting the neighborhoods from the air. That's changed.

How have the new market conditions affected you as a distributor?

Smith: Let me back up a little. There was a time when if you could buy a truckload of aboveground pools, you were in the aboveground business and dealt primarily with the manufacturer of the product. If you maintained a reasonable volume you were able to "buy direct." A lot of times there may have been a bit of ego associated with it, but a lot of people seem to take pride in the fact and to advertise that "I buy direct from the factory and sell at factory prices." The prices were probably inflated to begin with and certainly the dealer inflated them a little bit on his end.

But now, if they are buying factory direct, a lot of them can't realistically inventory 20 or 25 pools. It's much more convenient and practical for them to go to the local distributor. The distributor maintains the inventory and the dealer basically sells from either a display at his place of business or what they call salesman samples, which would be a wall section and bracing. They can be sold conveniently this way and the dealer doesn't have to worry about freight issues, warranty, etc. (The warranty is generally associated with the equipment.)

Najarian: It's only been these last couple of years that instead of a dealer bringing in 30 or 40 pools a year, he's decided, "I don't want to bring in that inventory. I'll just buy from a distributor.' Even though it may be a little more expensive, now he doesn't get stuck with that inventory.

How has the aboveground pool ordering process changed?

Najarian: Usually in August or September, back before the economy changed, dealers who were buying direct would have their sales rep come in, show them the new lines, new wall patterns, then place their order, sometime in September or early October. They had to do that to make sure they'd get the pools shipped to them before the season started. That's when most pools were sold. The problem with that is, if you order X number of pools, you base that on the previous year and what you sold. But if, all of a sudden, the consumer's tastes change, you may not have the pool they want when the time comes. Or, you could be sold out of one particular item. You've got plenty of the other items in, but not what they want. And then, maybe the manufacturer doesn't have what you want in stock anymore either. That's another area we targeted. We try to make sure we've got enough of everything. When you've got multiple sites like we do you can always transfer pools back and forth to cover what your dealers need.

So now the dealer pays a little more but isn't on the hook for unsold pools.

Najarian: If you buy 40 pools, you have to pay for 40 pools. I don't know what the exact terms are, but the dealer is responsible for those pools and you've got to lay out a lot of money to pay for them. But, when you're buying onsies and twosies from a distributor, you don't have to meet the manufacturer's minimum requirements.

You can buy two or three for a little more, but that you'll sell, instead of buying 40 in a crap shoot.

Smith: A big concern an above-ground dealer has is carrying inventory, particularly if that inventory has been paid for. He's anxious to get his cash back quickly, and unless he can sell them . . . He definitely wants to sell them instead of sitting on them all winter.

Are there advantages to the manufacturers in selling through distribution instead of direct to dealers?

Smith: Of course, the risk is smaller for manufacturers, too, because generally distributors, if they have a relationship and have been around for a while, are going to meet all their obligations. They know the cycle, and in this business it's a matter of buying something, selling it, collecting your money then starting the cycle again. This cycle is smoothed out when the manufacturer sells to the distributor.

They also don't have to deal with as many vendors.

Smith: Right. One thing that this solves for both parties is when you have a guy that comes in, picks up an aboveground pool, goes out to the job and at a certain point finds out that it's missing a bag of nuts and bolts or he's missing a rail or a bottom piece, and that stops the construction process. So the distributor maintains a reasonable amount of parts. A lot of times, what the distributor would end up doing is opening a new package.

That's another value-added service that the distributor adds. The guy is literally shut down if he's dealing with the factory until the factory responds. The distributor, in most cases, is going to have what the guy needs to allow him to get back to building the pool and finishing it.

When did things start moving in this direction?

Najarian: We saw the opportunity a couple of years ago. In our talks with manufacturers and their reps, we said, "You know what? We're going to start seeing more dealers not placing early orders." Because we saw it in just regular stocking orders. We certainly saw it this year based on what happened last year. People did not want to place early buys. They wanted to make sure they could get rid of what they already had in stock. They were saying, "Let me just get regular deliveries from the distributor and let him carry the inventory." That's the model most aboveground dealers follow. They won't buy 40 in September or October. They'll buy 20 then make sure the pricing is competitive and let the distributor store the pools. That's what's happened.

When things are good, they'll buy direct. When things aren't so good, they'll pull the reins in and get them through distribution. If pool kits went crazy and we were selling thousands of kits again, manufacturers would go back to selling directly to dealers again.

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