The Best Year in History

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As crazy as it's been, financially speaking, it's been an extremely successful year. We're in business to sell pool and spa products, and in the summer of 2020, we sold a ton of them.

When the dust settles on the gravestone of 2020, and all the celebrations have ended, this year will go down as the most profitable of all time. When you look at permits pulled on new pools this year, as Bil Kennedy of Pkdata relates later on, the numbers are astronomical — in some zones, through the end of July 2020, they're up 100% from 2019. In one major pool building zone, they are up 250%.

Hot tubs sold as fast as anyone could make them. But making them wasn't easy. Many factories were closed in the shutdown, and when they reopened, they faced huge supply problems. Spa inventories sold out quickly and manufacturers fought all summer to get parts and materials, knowing if they could just get the line going, they could sell everything they made. Even with all the supply problems they faced, this will be a good year for hot tubs.

Perhaps the biggest winner was aboveground pools, a segment of the industry that at times is overlooked. Consumers were desperate for recreational water this year, and when they realized the inground builders were swamped and unable to deliver right away, they bought abovegrounds like never before.

Along with the record sales and the maddening pace, 2020 will be remembered (when anyone can bear it) as the year of great tension between enormous demand and equally enormous supply problems. Literally millions of people seeking refuge in recreational water, many for the first time, were pulling on one end. The industry's limited labor capacity, relatively low inventories and interrupted supply chains combined to create friction and drag on the other end. It was like a new John Deere tractor dragging an overloaded pallet across a lumberyard. And in the middle, the connecting rope, groaning under the strain — was every one of us.

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One would like to hope or even predict that demand stays high, supply problems are worked out (many people are working on them every day) and the industry enjoys an even greater 2021, but if this year has taught us anything, it's this: We have no idea what's coming next.

But as for exactly what happened in the frantically successful summer of 2020, we turned to a man who makes a living tracking the pool and spa industry — Bil Kennedy of Pkdata. Since 1987, Pkdata has dug deep into the data of industry performance, not just analyzing the numbers but talking to the players to come up with an accurate picture of the pool and spa market. Kennedy recently offered these insights.

Scott Webb: It seems like one of the big stories this year has been the tension between supply and demand.

Bil Kennedy: That's really the overlay for this year — the obvious impact of COVID on consumers and the supply chain. And I mean all the way through the supply channels.

For consumers, they just want something for their backyard that's wet that they can do as a family, and there's the anticipation that we'll get back into a shelter and place modality this fall, and they want to be ready for that.

And on the supply side, we've talked to manufacturers, wholesale distributors, builders, retailers. It's been a mess now for several months, going all the way back to March and April when this whole thing started to rear its ugly head and the effects became … tangible.

SW: Let's start with hot tubs.

BK: Hot tubs Hot tubs obviously faced a lockdown and a lot of the major manufacturers were just out of business for a while. They couldn't produce hot tubs, not only in the U.S. but also in Mexico where a lot of the rotomolds are made.

And they faced tremendous supply problems, particularly for electronics, but they were also short on pumps and motors, heater elements, etc. They're starting to get caught up now, starting to build inventory on parts.

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You know, this industry, like a lot of other industries, went to a just-in-time manufacturing modality back in the eighties and nineties. And it worked great then — it works great when all links in the supply chain are working perfectly. But when you're doing just-in-time manufacturing and one link breaks down, it just creates a domino effect. And that leaves you with a lot of half-finished inventory that's just waiting for a certain part that you can't get.

SW: What was that like for the hot tub retailers?

BK: We did a dealer survey during that same period. And they were hurting. They had no product to sell. And a lot of them just said, you know, we don't have enough product right now to even put out on the fl oor for display — even our display hot tubs are sold. And that was a critical situation for retailers.

Right now, manufacturers are shipping product as fast as they can make it. And in fact, I was on a conference call yesterday with a manufacturer that is pretty wired in with the industry, and he said things are far from back to normal right now, but everybody's doing what they can to push hot tubs out onto the loading dock. And that's the case across the board. So while we're certainly not caught up, at least we're starting to get back up to speed.

All in all, when this year is over, it will go down as a good year overall for hot tub sales. It will defi nitely be an up year. So that's the situation there.

SW: I've heard it was a similar situation for abovegrounds?

BK: Yes, the other manufactured product, which is aboveground pools — this year they are through the roof! They cannot make them fast enough. They've seen the same thing, the effect of COVID and "shelter in place" on consumers.

Going back to March and April, we had families with children looking at a very long summer thinking, "Okay... shelter-in-place...can't go anywhere…I give the kids about fi ve days before they start driving us through the roof. What are we going to do?"

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And a lot of people just said, "Hey, we've been talking about getting a pool. This is probably the time to do it. This is when inground pool builders started getting leads that were 200, 300, 400% of what they normally get during that period of time. Now, a lead is obviously nothing more than a phone call at that point, but the phones were literally ringing off the hook and builders were just going, "Oh, this going to be a killer year!"

So what happened in many cases is that a lead would call and they'd say, "We're thinking about putting a pool in our backyard. What do we do next?"

And the builder says, "I'll send somebody out to look at your backyard." And they go out, they measure, they see what's going to be necessary, and they write up an estimate.

At this point, some of these new COVID buyers ran into two problems. One was sticker shock. They were not prepared for the $35,000 to $45,000 price for an average backyard pool. And the other thing was the setback of finding out that there was no hope that they could get a pool started this summer, much less finished, because these builders all have limited capacity. They were running full out at that point, so they weren't booking construction starts until the fall at the earliest. And then once we got into July, they weren't even looking at 2020 anymore. They were booking for next year.

Well, homeowners were saying, "Six months or a year doesn't help me. Maybe I can afford the $30,000 for an inground pool, but I need a place for my kids to go NOW." And then they look at abovegrounds and say, "You're telling me I can have the kids swimming in an aboveground pool in the next two or three days? And it's 1/10th the price? And then on top of that, if this aboveground doesn't work out for whatever reason, we can just tear it down at the end of the season? How long do I have to think about that?"

So a lot of homeowners really went for aboveground pools this summer, because it just made sense. The aboveground pool really benefi ted from that line of thinking, which was very common. But once again, just like the hot tubs, they got into major out-of-stock issues. They could not get enough product to meet demand for the same two reasons — first the lockdown hit factories and then they had supply chain issues. So that's what happened with the manufactured products, hot tubs and abovegrounds.

SW: And ingrounds?

BK: Now for the ingrounds, the builder's situation is just very complex right now. And essentially I've characterized most of it in terms of the activity for leads.

One of the things we do is track permits. We have a full-time manager on that. We think of pool permits as a touchstone. It's not the basis of our annual pool reports, which are the builder interviews. But we do pull permit reports, and we actually look at the permits, by the way — what they're for exactly, because someone can get a "pool permit" for a lot of different activity besides building a pool. It could be renovation, or for that matter it could be demolition, so we screen for that.

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And starting in June, boy did permits really pop!

Let me give you a sample of what we saw, just from four states, Texas, California, Arizona and Florida, which constitute about two thirds of new pools. These numbers are through July of 2020 compared to through July of 2019 — so year-on-year through July. *SEE TABLE BELOW.

Best Year Table 920 Sm


So you can see what's happening nationwide. And there were other jurisdictions that had less activity, but when we put it all together, with every jurisdiction that we cover throughout the nation, as a whole pool permits were up 32%. That is steep.

Does that mean we are predicting inground pools will be up 32% for the full year 2020? No, because we expect those numbers to go down somewhat in the third and fourth quarters. Plus, a lot of those permits that have been pulled won't be acted on this year.

And as I inferred before, the second quarter permits won't go into the ground until next year. And we don't report a pool finished until it's finished. But just to give you a little context on these numbers, the highest growth we've ever seen for inground pools going all the way back to the 1970s was in 1983. That year ingrounds were up 16%. So this is truly historical.

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SW: In a situation like this, with most companies desperately trying to work out their labor problems and supply problems so they can get production going and thus grab market share, are you seeing companies doing that?

BK: Yes, there are companies that expect to see an increased market share — in one case I know of, a substantial increase in market share. It's really like what happened in the recession in 2006 - 2009, there was a lot of rearranging the furniture in the industry. And in the end, the people who were opportunistic and in a position to increase their share — basically by buying cheap assets — they were able to improve their position. But we also lost a lot of people, too. I mean, we lost 24% of builders during the recession. Well, when that happens, somebody is going to make up for that. It becomes an opportunity for a company to increase its market share.

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