Reinventing a Company
By Bill Sendelback
In the late ’70s and ’80s, Fireplace Manufacturers Inc. (FMI) had a reputation of producing inexpensive, builder box, zero-clearance fireplaces. But after being acquired or merged three times, along with key management changes, FMI has become Innovative Hearth Products (IHP), a company that now offers one of the broadest lines of hearth products. The company has moved a long way from that early image.
IHP was created in 2012 with the merger of FMI and Lennox Hearth Products. More recently, Mark Klein, president and CEO of IHP and the man responsible for many of the company’s positive improvements, stepped down, and industry newcomer Dennis Allen took over in that position on October 2016. In late June, Hearth & Home magazine talked with Allen about his view of the hearth products industry and where IHP is headed under his leadership.
Hearth & Home: Tell us about the acquisition that created IHP. Why was it made and who actually purchased the company?
Dennis Allen: “There was a management buyout of FMI from a bankrupt DESA International in 2009. The management team operated it for four years. Lennox Hearth Products was purchased from Lennox International about that time by a group of private investors. Then in 2012, management-owned FMI consolidated with the private investors of Lennox Hearth Products to blend those two companies into Innovative Hearth Products, the operation we see today.”
How many employees are involved in the ownership?
Allen: “There are about a dozen employees with stock in the company, and then we have a number of private investors who have put money into the company.”
Having a dozen employees involved, including yourself and the other employee investors, shows some confidence in the company. You should be pleased with that fact.
Allen: “This is a consolidation phase for the industry, so when you see these experienced people jumping in with stock, it’s a good sign that shows strength in the trajectory of our company.”
At the time of the consolidation, Mark Klein was president and CEO of IHP. Is he still involved with the company?
Allen: “Yes. Mark elected to step down to pursue another business, but he recently agreed to stay with us on the board, so I’m able to use him as a direct coach and mentor in the strategic arena, and let him work with the board on a periodic strategic basis.”
|Dennis Allen, president and CEO of Innovative Hearth Products (IHP), sitting in front of a Fireplace Manufacturers’ (FMI) Vantage hearth.
Above Photo: ©2017 Mark Davis Photography. www.commercialindustrialphotographer.com.
Being new to the hearth industry, you must have some unique perspectives. What do you think of the hearth products industry, its challenges and the future of the industry?
Allen: “I realize that I must be the dumbest guy in the industry with less than a year of experience in it. But as a newcomer, I think the market is fascinating when you look at the variety of products, the various markets and the wide array of customers. The fragmentation in terms of regulatory challenges, in terms of competitors, in terms of product mix, in terms of geographic placement all blend to make this a really fascinating aggregation of opportunities and challenges.
“Plus, a lot of people are trying very hard to figure out how they can make a niche for themselves in this arena with so many different types of products, features and requirements to keep their market solvent. My first few days in the industry told me that, as an industry, we probably need to talk a lot because the industry has a dynamic yet foggy future as we try to figure out the direction in which government regulations are going and the direction the markets are headed.”
Tell us a bit about your background.
Allen: “My experience has been in a variety of different industries which began in the aviation arena and includes software and also, in recent years, in the building materials, plumbing, finished millwork and lumber trades. I have spent my life learning how to gather some really good people, then get out of their way, make sure they get the resources they need and then push the company ahead.”
What really convinced you to take this position?
Allen: “When the original conversations began with IHP last fall, it was a chance to help a lot of people in a very good company, to build it up bigger and stronger than it is right now. That’s really the sort of thing that I enjoy a lot. I’m a market builder and not a “business flip” guy, and also I’m not a “business strip” guy, as they say in the marketplace. What I liked a lot about IHP is its talent pool, its really good reputation, its wide product base and its good position in the market. That’s always a terrific combination to build on.”
What is your business philosophy?
Allen: “I’m sort of a one-trick pony. I’m a believer in the fact that I’m not the smartest guy. The smart people, those who run the production lines, the folks who are in the field, they all know how to make this work well. I need to listen to them and give them resources. So it’s kind of a “watch” thing. You build the chess game up, play the game, and just help them grow to improve IHP.
“The company’s basic core philosophy is that we want a safe workplace and safe product going out to the market, with the highest possible quality and fastest delivery so that everybody is happy – customers, employees, suppliers and investors – and more people are looking at our organization as a value-added company.”
|CNC fabrication cell in Russellville, Alabama.|
Currently you have a factory in Santa Ana, California, which was the original FMI operation. You also have one in Russellville, Alabama, and another up in Auburn, Washington. Plus your headquarters is in Nashville, Tennessee. Are the three plants all producing the same product or are they each making different products?
Allen: “The Auburn, Washington, facility is what a lot of people used to refer to as the old Country Stove factory. So stoves and fireplace inserts are manufactured there. Our Santa Ana facility and our Russellville factory are producing essentially the same products but on opposite sides of the U.S.”
Any thoughts about consolidating these operations or do you foresee staying with the three plants?
Allen: “I think the three plants are well- positioned geographically. One of the things that we are focused on now is developing new products and deciding which plant is best suited for which group of products. In some cases the product requires high run-rate production for the residential new construction builder markets. In other cases we need more custom and unique work. Depending on the products and the market needs, you manufacture in different facilities. So we see all three factories continuing to run, and we see three good, healthy venues as we build our distribution network.”
Years ago FMI was known as the manufacturer of inexpensive, builder box, zero-clearance fireplaces. After Mark Klein came in to FMI, that started to change, and the company has progressed since then. Have those improvements continued now that it’s IHP?
Allen: “When Lennox came together with FMI, we got the best of both operations. The Lennox people brought a great deal of technology, a great deal of research and development to the table, and IHP began a movement toward value, real value in the sense that features, price and service came together in our products.
“I think Mark’s guidance as IHP emerged was in the right direction. We want to keep expanding our product offerings and develop more products into the upper-end of aesthetic and feature offerings because we’ve got the talent and we’ve got the quality to make it work. We want to take advantage of those strengths as IHP moves deeper into upper-end products.”
A few years ago, the Russellville, Alabama, plant was expanded and reopened. Any plans for expansion of either of the other two factories?
Allen: “The short answer is yes on the expansion of the other two production facilities. The Russellville plant recently was quadrupled in the size of the plant and took the employment from 80 to the present day campus of about 350.
How many total employees does IHP have now?
Allen: “It’s about 600 across the country.”
You now have a tremendous number of brand names, such as Marco and Country Stoves, Whitfield and Earth Stove, but you’re only using four, Superior, Astria, IronStrike, and Comfort Flame. Are you going to keep the rest of them in your portfolio just in case?
Allen: “We do intend to keep them. Customers are asking us to use these legacy brands again. They are good brands, recognizable brands, trusted brands, and they are part of our family. We don’t want to lose that value. We’re actively discussing how to bring those brands back to life.”
Security Chimneys was part of Lennox and was sold off separately, so you didn’t get that brand and those venting products. But you do have the BIS high efficiency, wood-burning fireplaces formerly offered by Security. Any plans for the BIS brand and products?
Allen: “We don’t want to give away or dilute any brands or products that were valuable. So we’re taking a good look at that. Security was sold off shortly after the Lennox/FMI merger. So obviously we don’t use any of that Security moniker. But the BIS is still in our pocket, and we plan to use it.”
|Bellevue 27 by IronStrike.|
How do you differentiate Superior, Astria, IronStrike, and Comfort Flame in the marketplace? What is the difference among those four brands that are currently at the forefront of your marketing?
Allen: “The Comfort Flame brand for the retail market is a single type of product, a unique and novel line of gas logs. But when you look at the stoves and fireplaces themselves, we want to be able to make two very unique market channels to those particular customer venues. One side with the Superior brand is very showroom limited requiring very rapid delivery. The other side, the Astria and IronStrike brands have a retail feel, working in the retail market where our customers have a heavy emphasis on showrooms and sell to individual consumers.”
So you’re saying that Superior is more oriented toward builder business and Astria is oriented toward the retail specialty dealer?
Allen: “Yes, that’s right. When IronStrike was introduced a year ago, it was aimed at being the stove and fireplace insert brand for the retail market. We don’t want to get rid of Country Stoves, but we wanted to pull products in under the IronStrike name as a part of that brand campaign.”
If you take a look at all of your abilities and product categories, what do you really see as the competitive advantages of IHP?
Allen: “We were laughing yesterday about the book “In Search of Excellence,” which after studying 500 corporations said that the general motto of most companies is that, ‘We’re no worse than anybody else’ as far as competitive advantage. The discriminators and advantages I place more on the enterprise and less on the specific products, although some people would want to argue that their products are their advantage in the marketplace.
“When you look at IHP, we’re right in the middle of the market – the $50 million to $500 million companies. We have assembled a team of people who have the respect of our marketplace, and we have been blessed with customers who work with us even given some of the difficulties that we recently went through.
“For the last couple of years, it’s no big secret that IHP had quality and delivery headaches that we were offloading onto our customers. The fact that we had good relationships and that we were honest became a staple competitive advantage, and people kept buying from us because they believed in our people.
“Delivery and quality are really big competitive advantages in the marketplace, and we were lacking these a couple of years ago. We’re hearing more and more in recent months that “IHP is back.” So I would like to say that we have a group of people who have done a great job in IHP products, service and relationships. We’ve got a group of customers that are unique and really a competitive advantage for us because they are so loyal to us. In a lot of markets, these people would have moved on.”
What’s been IHP’s recent sales history such as percentage growth, decline or stable? How have things gone in the last few years?
Allen: “Over the last seven months, we’ve seen good sales growth return in the retail market. The builder area for us is just again beginning to reignite. We’ve had a nice return in the market with both the retail market and the one-step distribution builder arena.”
We recall that you got hurt a bit when the builder business went south a few years ago.
Allen:“I don’t think we did very well in 2014 and 2015 when the company was not delivering on time. That cost us a lot on the builder side. That was a real stumble for us, and it’s been nice to see those delivery days shrink down well below our target numbers and start acting like the numbers that our customers want in order to be able to service the builder market. Restoring our delivery times is helping us get back in the saddle again in the builder world.”
What about your products and your price ranges? Is IHP more economy oriented, middle range or high end? Where do you see IHP fitting into the marketplace?
Allen: “The trajectory with the IHP group was to move from a value line into that upper-middle line and launch products toward the luxury line. I like the market fundamentals of being in the middle price ranges, but we’re now looking at the mid-range and the upper range. I like the technology hurdles for that market category. I like the technology competitive advantages that we now have. So we intend to keep pushing upward with our product development and rolling out new stuff this fall and early next year.”
|Superior DRT3540 with charred oak logs and buff stacked liner.|
Do you go through two-step distributors, dealer direct or a combination?
Allen: “Today that’s a very blurry line in the industry. Classically the answer would be “yes” to all, but not in the way I’ve seen most building materials and appliance market channels. IHP serves all channels. We have one-step customers, two-step customers, retail showrooms, builders and direct relationships with all those variants.
“It’s fascinating for me to see how broad our portfolio of channels is and how blurry channel lines are becoming. But I would say that 70% of our customer portfolio is a group of people who are privately held, or close/family held, businesses that look to us as friendlier than larger big business operations.
“My point is that I’m just amazed to watch the blur between the guy who used to be just a retail showroom who is now trying to distribute to other installers and showrooms and builders. Everybody now is reaching to sell across all those avenues.”
That’s something that has gone on for years, and I don’t know if it’s unique to our industry. I even have worked with retailers that were two-step distributors and were also trying to pass themselves off as manufacturers’ reps. So you’re not looking at a unique situation, even though it might be a little shocking to you.
Allen: “It was shocking to me, and I have been in other building material trades and in other industries where this would be the curse of death if you got caught doing this. But in this industry it seems to be perfectly okay.”
(Laughing) Well, it appears to be anyway. But don’t count on it. Do you sell through factory employees or manufacturers’ reps or a combination?
Allen: “Our sales efforts are 95% our employees all over the U.S. and North America, and a few folks who are manufacturers representatives, but they are exclusively dedicated to us.”
How about countries? Is it strictly United States and Canada, or are you into other countries?
Allen: “We do sell offshore, but it’s less than 10% of our volume. Ninety percent of our volume is from North America, and then we have the occasional customer who says, ‘I’m going to buy a boat load or a couple of train car loads and take them offshore.’”
Is there anything else you would like to add?
Allen: “We’re going to be showing some interesting new stuff this summer and fall, and we’ll have some fun things to roll out to the market that will be great. We’re introducing new vent-free fireboxes, direct-vent gas inserts, a high-efficiency, wood-burning fireplace and a new outdoor linear gas fireplace in the next few months.
“We’re really proud of the way our folks have developed new, interesting things to bring to the table. I really appreciate the customers in this market, and I greatly appreciate the HPBA, especially the hospitality shown to me since I have been on board. Jack Goldman and the HPBA crew have all been really nice. It’s a very enjoyable, close industry. I’ve enjoyed getting to know folks.”
Speaking of HPBA, do you expect to exhibit annually at the trade show?
Allen: “Yes, we do. A few competitors have jumped out of the trade show, and we think that is a really bad decision on their part. We think it’s a good move for IHP to exhibit because of our ability to make it a convenient stop for customers to see what’s going on with our products, as well as seeing a rallying of the troops in a market that seems to be challenged by more and more intensive regulatory efforts than it deserves.”