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Hearth & Home October 2014

Diversify to Survive

By Bill Sendelback

One thing all retailers should have learned from the downturn is that there’s weakness inherent in selling one product category.

Years ago a hearth shop was just that – a hearth shop. It offered fireplaces, stoves, gas logs, glass doors and other hearth accessories. It may have sold an occasional grill or other item, but most hearth shops sold only hearth products. Most of them learned to deal with the seasonality of hearth products, just as most patio and grill dealers learned to cope with the seasonality of their offerings.

But the recent economic downturn and recession highlighted the reality of selling seasonal products. Consumers tightened their purse strings, cutting back on big purchases and only buying when they absolutely needed to. Seasonal products became even more seasonal as showroom traffic dwindled and sales dropped. Remodeling and new home construction slowed to a trickle, taking another less seasonal sales opportunity from retailers relying on those markets.

Some retailers, particularly hearth dealers, couldn’t cope and closed their doors. But others saw that taking on counter-seasonal product categories could be their saving grace. Most of today’s successful hearth dealers sell everything from grills and patio furniture to greenhouses and giftware.

In a recent survey of hearth, patio and grill retailers conducted by Hearth & Home, 54 percent said they had added new product categories in the last five years. Tops among the products added were hearth by patio and grill retailers; patio furniture and grills by hearth dealers, as well as gazebos, pergolas and spas. Thirty-one percent of those surveyed are planning to add new product categories including patio furniture, ductless heat pumps, grills and awnings.

Responding retailers also listed other new product categories they now offer, including chimney services, central vacuum systems, saunas, window coverings, indoor furniture, HVAC systems, garage doors, glass, stone veneer and hardscape, closets, bath accessories, photovoltaic solar systems, pizza ovens, local art and in-ground swimming pools.

After being in the construction business for 20 years, Janet Merschat, co-owner with her husband of Rustic by Design, Morgantown, West Virginia, became a hearth dealer 14 years ago. Today, hearth still represents 75 percent of the Merschats’ retail sales, but the company has diversified into patio, grills, spas, pergolas, gazebos and even cooking oils and vinegars.

“We took on spas eight years ago and patio products four years ago,” says Merschat. “We needed to improve our consumer traffic and find products that were counter-seasonal to hearth. Patio furniture is now 10 percent of our retail business. It’s not gangbuster business for us. It takes up a lot of room and is not very profitable, but it draws consumer traffic and interest.”

Merschat also has struggled with spas that take up even more display and warehouse space. “We don’t sell that many spas, and they take away space from our hearth products,” she says.

But outdoor living areas have become big business in Rustic by Design’s locale. “Gazebos and pergolas have really taken off, and there is definite growth for us,” she says. “With our construction background, we offer design and construction for these high-end items.”

Cooking oils and vinegars have been a surprise for Merschat; she now offers 45 flavors. “This has generated profit on not a ton of sales, but it does draw foot traffic and these consumers see the other products we offer. We’re always looking for new things, totally unique things. We are expanding into more outdoor products, such as fire pits. But as a retailer, you should not be afraid to try anything.”

Schlemmer Brothers Hearth & Home in Wabash, Indiana, began 111 years ago selling farm implements and coal boilers, later expanding into custom sheet metal. Now a major hearth and grill retailer in the Wabash area, the company two years ago added a second hearth shop in Kokomo.

Neil Clifton, retail manager, Schlemmer Brothers Hearth & Home

“In addition to hearth products, we’ve been blowing through so many outdoor kitchens, fire pits and fire tables that next year we will add a new outdoor products showroom,” says Neil Clifton, retail manager. “There is so much talk about outdoor kitchens and grills now. Even though we sell pellet and charcoal grills, our sales have always been very seasonal, and we needed to do whatever we could to improve our summer traffic and sales.”

A couple of years ago, Schlemmer Brothers added chimney sweeping and servicing, an addition that Clifton says has added a lot to the company’s bottom line. “We’re always looking at new products and opportunities. We’ve tried and failed at a few things, but you can’t be afraid to try stuff or you’ll be left behind.”

With hearth products bringing in 80 percent of its business, and grills seven percent, The Stove Pipe Company in Lethbridge, Alberta, like most retailers, wanted to make its 11-year-old business less seasonal. Trying to make its store a consumer destination for Outdoor Rooms, it began offering complete turnkey installations of cultured stone for indoor and outdoor fireplaces and outdoor kitchens.

“It’s been a tough go,” says Bernie Huizing, owner and president. “Consumers go to Canadian Tire and Wal-Mart for fire pits and fire tables, and for outdoor kitchens they go to landscapers. We have access to patio furniture, but the Big Box stores offer similar items.”

So Huizing is trying indoor and outdoor “plug and play” waterfalls. Constructed of resin and ready to install in landscaping or as a table top model, he says they are “a fraction of the cost of real stone. We’re not selling that many, but it’s drawing more people into our store to see our other products.”

Huizing has tried hot tubs, but didn’t fare well against a specialty hot tub retailer in his market area. He says that everything he has tried, including grills, doesn’t bring him the profit margins of hearth products. “And grills take up more space and tie up more dollars, and my staff needs to have more technical knowledge. But grills are a good thing because they bring people to the store that might never come in. We thought the waterfalls would be a good thing, too, but the summers are short up here and people have not warmed up to the idea of a water feature.”

Gary Murphy, president Heritage Hearth Products

Hearth products are 90 percent of Heritage Hearth Products’ business in Bayer’s Lake Park, Nova Scotia. Although grills are only 10 percent of the company’s sales, “Grills are the only thing that has worked for us,” says Gary Murphy, president. “We’ve sold grills since we started 15 years ago, and it complements hearth. We’ve tried other products, but they didn’t stick. Grills don’t give me the margins of hearth, and grills require a fair amount of service, but we sell them not because of profit but because it brings in customers during the counter-season.”

Murphy has considered HVAC and heat pumps and patio furniture. “But we lack the space for patio furniture. Also, we are careful not to get into products that don’t fit with our core business and expertise. It’s a difficult issue because we need to add products that we can easily get into, considering space requirements, installation expertise, our climate and distribution.”

American Home Fireplace & Patio, West Salem, Wisconsin, sells hearth, patio furniture, grills and spas. The company started in 1988 in hearth and whole house heating, but later dropped whole house heating when owner Lynn Meyer didn’t want to be in the 24-hour service business required for this category. Since 2012, Meyer has taken on grills, patio furniture and spas.

Lynn Meyer, owner American Home Fireplace & Patio

“After February, hearth sales, which are 65 percent of our total, become very quiet up here,” he says, “and we needed counter-seasonal products.”

Unlike some retailers, Meyer realizes more gross profit on other products than with hearth. “We’re making 70 to 75 percent margins on patio furniture and 50 to 55 percent on hot tubs, but we show a lot of high-end products. Both patio furniture and hot tubs take a lot of display and warehouse space.”

Fire pits have become big summer sellers for American Home. “They took off in our second year with them,” he says, “and we had to reorder three times.” Meyer is not complaining about his hot tub sales, either, after they reached a couple hundred a year.

When it comes to dealer diversification, Hearth & Home in Fayetteville, Arkansas, may well be the poster child. After 19 years in business, hearth is now 35 percent of the company’s revenues, while door hardware is 30 percent, lighting is 25 percent and mailboxes are 10 percent. That mix must be working because owner Scott Norwood says that, “Business is absolutely insane – better than the boom of ’06 and ’07.”

With 80 percent of his business tied to new home construction, Norwood offers turnkey sales to builders on all his products but lighting, and now needs six installers just to keep up with demand.

“We’re not tied to one product,” he says, “and that helped us survive the recession. We look for niches where there are no subcontractors in our area. Builders are glad we can come in and do the whole job.”

Norwood is considering adding outdoor kitchens because they go hand-in-hand with his builder business.

Two-step distributor Empire Distributing out of Arcade, New York, focuses on hearth but now offers its dealers patio furniture, grills and outdoor kitchen grill islands.

“We want to help our dealers to diversify and help them make their business less seasonal,” says Mike Rupp, president, “so we got serious about it last September. We unveiled our patio furniture to dealers in May, and sales have gone way over our expectations. In fact, we had to stop taking orders from new dealers.”

Sixty percent of the dealers taking on Rupp’s patio furniture line are new to patio furniture. “Hearth is still 90 to 95 percent of what we offer,” he says, “but within the next 12 to 18 months, we expect our new outdoor products to be 25 percent of our sales.”

Empire has simplified offerings for its dealers with only three styles of ready-made islands, five fire tables and three collections of extruded aluminum outdoor furniture. Rupp plans to offer more shapes and sizes of fire tables and new models of outdoor chairs, umbrellas and outdoor carpets. “We’re being pretty selective because both we and our dealers have to make money.”

The bottom line is the bottom line in dealer diversification. There is a tremendous variety of product categories to choose from to make a dealer ready for more counter-seasonal business. For many dealers, those choices will be critical to their survival.

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