The Pool and Spa sector has had a very unusual year. While some industries — such as airlines and sports — suffered catastrophe, consumers ordered pools and spas in record numbers. The word "order" is important in that sentence, as supply problems made order fulfillment another matter entirely. Still, unprecedented profits remain tantalizingly within reach as the industry works out its supply problems and gears up to meet this year's almost miraculous demand.
The concern on every retailer, builder and service manager's mind now is whether the general economy will support the boom in the tiny niche of pools and spas. A downturn could still derail what appears to be a very promising year.
So what is expected of the retail economy as a whole? In a word — healing.
Battered by the pandemic and scrambling to shore up finances, companies in general can look forward to a gradual but noticeable recovery fueled by a strong housing market, a surge in corporate profits and the successful roll out of a vaccine.
"The COVID-19 recession is over, and the economy is currently in an early-cycle expansion," says Sophia Koropeckyj, managing director of Industry Economics at Moody's Analytics, a research firm based in West Chester, Pa.
Retailers in particular should see notable gains over the next 12 months. "Our current 2021 forecast is for 6.2% growth in core retail sales," says Scott Hoyt, senior director of Consumer Economics for Moody's Analytics. Such a performance would be a substantial improvement over 2020, when the estimated 2.1% increase reflects a deceleration from the 3.9% growth of 2019.
RELATED: Dashing Through a COVID Winter
The healthier the general economy, the greater the potential for wage increases that can fuel retail sales. And Moody's expects the nation's Gross Domestic Product to increase at a 4.1% clip for 2021. That's a welcome rebound from the previous year's decline, expected to come in at 3.6% when figures are finally tallied. (The GDP, the total of the nation's goods and services, is the most commonly accepted measure of economic growth.)
"More fiscal stimulus is currently on the agenda in Washington, which will pack a punch in the coming year as aggregate demand is still recovering from the pandemic," says Koropeckyj.
Over the course of the year, most retailers should experience a gradual return to normal. During the first half of 2021, households will continue to selfquarantine as a wave of bankruptcies boosts the number of permanent job losses. By summer, says Koropeckyj, things should look different. "The economy will regain its stride in the second half of the year, when a vaccine or treatment is assumed to be widely available."
Mixed Results
Over the last year, under pressure from the pandemic, the positive growth rate for retailers in general has been driven by a change in shopping patterns, as the public has rechanneled its purchasing away from services and toward merchandise. "While consumer spending has been hammered pretty badly, retailers have not been hit nearly as hard as service businesses," says Hoyt.
Moody's forecasts a decline of 5.2% in services spending when 2020 numbers are in — a stark reversal from the 4.3% gain in 2019. "Because of people's hesitancy to travel, to go to entertainment facilities and to do things with other people, to a certain degree, they're replacing such activities with buying goods."
While some retailers enjoyed a surge, others saw demand crater, as shoppers became highly selective during the pandemic, abandoning many merchandise categories in favor of a select few that are either essential to living or enhance the enjoyment of pandemic-enforced leisure time. Also, digital shopping channels saw a tremendous boom due to their greater safety from infection — a boost that only furthered the long-term movement toward online purchase.
RELATED: How to Achieve Great Pool and Spa Store Design
"The trend that was already in place from brick and mortar towards online has accelerated dramatically as a result of the pandemic," says Hoyt. "That was the case particularly at first, when so many stores were closed, and consumers had no choice but to buy online outside of essential goods. And then I think, even now, there's a set of folks that don't want to venture near people in stores, and so they're doing more of their purchases online."
The shock of the "new" may spark innovation. "I think there's a lot of optimism and creativity coming out of the COVID-19 lockdowns," says Bob Phibbs, a retail consultant in Coxsackie, N.Y. "A hungry group of people is coming into the market with fresh ideas. It's almost like opening a new business rather than trying to get back to where a retailer was in 2018." (For advice on negotiating the new retail terrain see the sidebar below.)
Consumer Confidence
Retailers in general will applaud any return to normalcy on the part of American shoppers, spending by which accounts for some 70% of the nation's economic activity. Household spending, though, is driven by public psychology, and the most recent reports from Moody's Analytics show that the nation has a lot of catching up to do: By late 2020, consumer confidence was running as low as it was in March and April during the worst days of the pandemic.
If uncertainty about the course of the pandemic and the availability of a reliable vaccine aren't reasons enough for anxiety, there's a more immediate driver of shopper discontent: the noticeable drop in take-home pay over the past year.
"Wage and salary income, including the value of benefits, is forecast to decline 1.3% when 2020 numbers are finalized," says Hoyt. Those numbers represent a reversal in fortune from the 4.4% increase of 2019. (Wage and salary income excludes government payments, such as the 2020 pandemic relief checks).
Pandemic-related furloughs and business closings accounted for a major portion of wage declines. Moody's expects the unemployment figure to come in around 8.5% when 2020 numbers are finally tallied. That's a sharp increase from the robust 3.5% level reported as recently as last February.
This new pool of unemployed labor is an opportunity for pool and spa companies hungry for workers to help turn order backlogs into completed and profitable projects. Whether these companies will be able to turn that large force into pool and spa industry workers is an open question.
Housing Surges
Growth in the pool and spa industry has long been correlated to the sale of new (and to a far lesser extent, existing) homes. Pool and spa sales will benefit from the accelerated housing activity anticipated for 2021. "Housing demand has bounced back thanks to very low mortgage rates and the release of pentup demand," says Koropeckyj, who cites healthy builder confidence as the nation enters the new year.
Moody's expects housing starts to surge by 16.8% in 2021, after slowing to a 2.9% rate in 2020 due to the early impact of lockdown orders on construction. The comparable 2019 figure was a positive 3.8%.
RELATED: How to Make Online Hot Tub and Swim Spa Sales Easier
Median prices for existing homes are also increasing at a healthy rate, expected to top 7.6% when 2020 figures are finally tallied, which would surpass the 5% increase of the previous year. One key reason: tight supply. "Housing has been a seller's market with low inventory levels as homeowners have been reluctant to offer their residences up for sale for fear of contracting the coronavirus," says Koropeckyj.
Tight Labor
Given the current elevated unemployment rate, one might expect the labor market to help fuel an economic rebound as employers of all kinds take on new hires in response to improving revenues. The reality, though, is that job applicants are holding back. Many in the pool and spa industry have cited stimulus checks from the government as a disincentive for workers to seek employment.
Other factors, says Palisin, include "first, the portion of the workforce still on furlough will probably not take another job but will return to the one they were furloughed from. Second, there are childcare issues as students go back to school online, and it's difficult for those people to get back into the labor pool. Finally, there is some level of health concern by employees going back into the workplace, especially if they are older workers or higher risk people."
While the future of the labor market remains unsettled, the opening months of 2021 might provide clues as to whether hiring difficulties will continue. "Perhaps, as we get into the new year, people will start to feel more comfortable returning to the workforce, the childcare issues may be resolved, and a vaccine is developed," says Palisin. "But right now, there seems to be a lot of hesitancy in the labor pool. People are sitting on the sidelines to see what is going to happen."
Adding to the scarcity of choice is the level of competition for available workers. "Some sectors of the manufacturing economy, such as the food and automobile industries, are hiring quite a bit," says Palisin. "And sectors, such as construction and healthcare, are competing with manufacturers for workers."
RELATED: How to Get Into the Swim Spa Business
When the labor market gets tight, upward wage pressure can't be far behind. "To remain competitive, companies are restructuring their compensation packages to retain higher-end, skilled workers," says Palisin. "Retirements by the baby boomers and a decline in immigration are also putting higher pressure on wages." Companies aren't likely to take a wait and see while attractive people go elsewhere, he adds. "Even during this period, talent is one of the top — if not the top — factor to keep a company growing."
New Deal
For those anxiously eyeing the general economy for its role in supporting the pool and spa economy, some key indicators early in the year will determine how the year will go. Consumer confidence levels will offer insight into how freely shoppers will spend coming out of the pandemic. "Also look closely at the number of business bankruptcies," says Koropeckyj. "And the core unemployment rate, which excludes temporary layoffs, will gauge how much joblessness is attributable to permanent layoffs which leave behind long-lasting scars on the labor market."
Businesses of all kinds will be looking for increased certainty on matters, such as market stabilization, the ability to hire, and access to qualified labor pools. "All of these concerns will be on the front burner," says Palisin. "It would be good to have some kind of resolution around trade issues as well."
But perhaps the most reliable economic indicator will be the rate of progress toward a cure for the not-so-hidden elephant in the room: the pandemic. "Businesses will be concerned about the timeline of a vaccine," says Koropeckyj. "The path towards some semblance of economic normality hinges upon its development and widespread distribution."
This article first appeared in the January 2021 issue of AQUA Magazine — the top resource for retailers, builders and service pros in the pool and spa industry. Subscriptions to the print magazine are free to all industry professionals. Click here to subscribe.
