By Richard Wright
First, as always, there’s the weather. Around the Toronto area, there was little snow and cold weather, while the eastern portion of the U.S. was enveloped in very cold temperatures from the beginning of September right up to today (Feb. 1, 2019).
Did you know that no snow falls in Vancouver but 75 miles away Whistler gets tons? We didn’t. Stop and consider the incredible variety of climate regions across both the U.S. and Canada. It’s staggering.
Then there are variables created by the economy, by homebuilding, by interest rates, by currency differences, by tariffs, etc. Consider the comment of Martin Miles (Valor) that he had “historic growth” in eastern Canada. How many factors had to converge at just the right time in order for that to happen?
Regency is celebrating its 40th year in 2019. Two years ago, Nibe, a publicly traded Swedish company, purchased 65% of the company. Regency just posted its best year – ever. Glen Spinelli and Robert Little should take a bow.
A year ago, Empire Comfort Systems (gas only) purchased Stove Builder International (SBI – wood only). This past year, Empire Comfort posted record sales, and 200 or so miles northeast, SBI also enjoyed record sales. Nick Bauer and Marc-Antoine Cantin should both take a bow.
For manufacturers of wood products, the past year was hectic, creating and certifying products to meet the new NSPS standards in 2020. They also had to convince their dealers to make sure to sell all their non-2020 wood products before the deadline.
Here’s the passionate pleadings of Alan Murphy of Blaze King to his dealers: “Be ready! Don’t wait! The time on the clock is gone and you’ve got to do it now!”
|Glen Spinelli||Tony James||Jonathan Burke||Alan Murphy||Martin Miles||Nick Bauer|
President & COO
Regency Fireplace Products
(FPI Fireplace Products International)
Delta, British Columbia, Canada
|Glen Spinelli with the Chicago Corner 40LE gas fireplace.|
It’s Regency’s 40th anniversary this year, as it begins its third year since Nibe, a public, Swedish, international conglomerate purchased 65% of the company. In 2018, the company’s top-line sales were the highest they have ever been.
Hearth & Home: Your company was purchased, what, three years ago?
Glen Spinelli: “It has been two years. Nibe purchased 65% of the company. Robert Little was the founder and is still a substantial shareholder, as am I and one other employee. We are shareholders in the existing company. So it’s not fully owned by our partner, Nibe, in Sweden. Nibe is a very large company that really focuses on home comfort, so they are in the HVAC business, the hearth business, and then the elements that heat water, and heat the seats in your cars.
“They also own a bunch of companies that do that. They are also in the hearth business in Sweden, in the UK, in Poland, and in quite a few countries. We’re the only North American company they own. We spent a bit of time in the past two years just looking at the products they have, testing them to see if they would fit into North America, both from a compliance perspective and from a styling perspective.
“This year we began introducing some European products to our line-up, and it is still too early to tell because, by the time we get them out in the market the season will be well upon us. They have been received well. Nibe has been a good partner. They leave us alone. We don’t have to do anything, so they are not really running the company at all. The company truly is business as usual.
“That’s because it’s not venture capital. They are from this industry. They are not just buying and selling companies; they are buying companies. They want to run companies. We work pretty well together with them.
“Our engineers collaborated on one product this year. They made part of it, we made part of it, and just getting that sorted out for the first time of who is making what, when, and how was a bit challenging, but it worked out really well.
“We actually took one of their very successful wood stoves in Sweden and turned it into a gas stove; they don’t do gas in Sweden. They just do wood. So taking a design that was a wood stove and turning it into a gas stove, using a lot of same components was a bit challenging, but it was kind of rewarding. Our engineers worked together, had video conferencing and face-to-face meetings. It was quite a unique experience.”
Talk to me about your sales in 2018 in the U.S. and then in Canada. How well did you do?
Spinelli: “First of all, I would like to mention that this is our 40th year, and I know a couple of other companies are in the same position we are. I don’t know what happened that year, but it seems like quite a few companies got into the fireplace and stove business that year.
“We actually had record sales in 2018. The company’s top line sales were the highest it has ever been. Overall it was a really good year both in Canada and in the U.S. So probably some of that has to do with the high consumer confidence in the U.S, which did transfer somewhat into Canada. That drove us really well at the beginning of the season.
“During the end of 2018 it was a bit warmer than normal, but that was pretty much offset by huge increases we had going into the season. So it was a good year. Our dealers did well. We did well. The average sale for us to our dealers, and from our dealers to the consumers, is up substantially because there is a huge consumer choice now in sizes of fireplaces.
“Consumers are realizing that they only get one chance in their life to buy a fireplace, and they should do it right. So quality and features do matter in the segments that we are in. Our dealers are doing well with the average ticket way higher than it was in the past.”
Which of your products had the most demand?
Spinelli: “Gas inserts are really strong for us. We do well in gas and wood inserts. The insert business is now a key component to the foundation of our company. We do really well. The dealer network that we have really excels in wood and gas inserts.
“The next would be fireplaces. The high-end fireplace business is developing. Those two categories really perform for us quite well and we pay attention to them. I was a bit surprised and happy that wood was a bit stronger than I thought it was going to be going into this year. We did all right. We didn’t have huge increases, but we still had an increase in wood, not major, but it was still strong.”
It is my understanding that wood was very strong in 2017 as well.
Spinelli: “Yes, it was.”
Where do you stand on getting certifications for all your wood products?
Spinelli: “We’ve got all our products done and certified. The only issue we have right now is the U.S. government shut-down and getting the certificates, but that is just a temporary thing. All of our products meet the 2020 requirements.
“Chasing the Federal government and complying with regional regulations has posed the biggest challenge for us, and I’m sure that’s true of all companies in this industry for the past several years. We’ve spent so much time and money and mental effort just trying to understand the regulations, time the regulations, meet the regulations. I hope they’re done with trying to regulate us for the next few years.”
Are you basically talking about the EPA, or other regulatory bodies?
Spinelli: “Well, not just the EPA. There is the seven-day timer, the time of the pilot in some areas. California has a requirement that you have to label your products as to whether they can cause cancer or birth defects. Anybody shipping anything, even a cup of coffee, has to say, ‘Coffee can cause cancer and birth defects.’ You have to figure out what that actually means. It was the labeling part of it that we had to get right. We have a branch in California. We ship into California so we have to be compliant.
“Just meeting those rules takes large rooms of people thinking of inventory, communications, documentation, all have to be done correctly, and it takes up a huge amount of time and effort. It is something that no one sees or maybe no one appreciates, but when you watch it happen you notice how many people are involved in making some of these decisions just to be compliant for specific countries, states, provinces. It’s almost a full-time entity that lives in national hearth product companies.
“We are also pretty large in Australia. All of our gas and wood products have to be retested for new certification in Australia. It just takes engineering time, lab time, documentation time, to get all of these things done in a very short, narrow window.”
What percent of your business is in Canada versus the U.S.?
Spinelli: “About 60% of our business is in Canada. We’re everywhere in all of North America, and all the markets are equally important to us. We are quite a strong brand in Canada, as we are in the U.S. Not in the southern states, in Florida and in Texas, areas like that. We make heating appliances. But we have just introduced electric fireplaces; that category is starting to grow all over North America. We expect to do more business in the southern states than we have done in the past.”
Are you creating your own electric fireplaces or buying from another manufacturer?
Spinelli: “One of our sister companies in the UK has done quite well. They developed their own electric fireplace and we’re purchasing from them. That company is owned by the Nibe company; Stovax and Gazco in the UK are also owned by Nibe. We have access to all of their products and they have access to all of our products, and we continuously look at what we could introduce, what would sell here, and they were doing so well with electric over there that we decided to take it on here. We just introduced it last month.”
How many dealers do you have in the U.S. and then in Canada?
Spinelli: “I can tell you how many dealers we have. I never really did the math on how many were in Canada and in the U.S. We’ve got approximately 1,400 to 1,500 dealers. Now that is in our whole network, and that includes Australia.
“Australia is a very important part of our business because it is counter-seasonal. When it’s warm here, it’s cold there, so our plant is manufacturing product for our Australian branch while it’s summer here. We’re one of the major suppliers in Australia. We have our own branch down there, and our own people down there.”
What percent of your total business does Australia represent?
Spinelli: “It’s about 15%. When I gave you the 60/40 that was only looking at North America. When you mix in Australia, the U.S. percentage goes down and the Canadian and Australian percent is about 20% Canada, 15% Australia and the rest in North America. The first number I gave you was just North America so it is about a 60/40 split in North America, but then you mix in Australia.”
Well, 15% is very significant, isn’t it?
Spinelli: “It is significant. It’s a phenomenal business because it’s counter-seasonal. That’s the part that really makes sense for a manufacturer because it keeps our plant running more efficiently in the summertime than it would if we didn’t have the Australian business.”
How many reps do you have covering North America?
Spinelli: “About 30. Our model is very involved with the dealers, so we have people visiting dealers regularly. We’re working with them on marketing programs. We’re working home shows and fairs with them. We’re conducting these weekend events and marketing campaigns with our dealers. We are very hands on with what we consider our business partners. That is part of our success.”
How financially healthy are your dealers?
Spinelli: “This year none of our customers are struggling, not one of them. We had a really good year, and they did too; I can tell based on our accounts receivable being up to date. No one owes us money. The concern I have is that some of our dealers are aging, and the succession planning for the entire industry is a concern because I don’t believe many of these people have a plan. Unless they have sons or daughters coming into the business, some of them are closing, and there are not a lot of new dealers getting into the hearth business.”
What percent of your sales were contemporary, transitional, traditional?
Spinelli: “It is about 60% traditional, about 40% contemporary, but contemporary is not just black and white, it’s contemporary/traditional, or traditional/modern. To me, modern is kind of a combination of the traditional and the contemporary rolled up.
“It’s amazing to have watched that transformation. Contemporary products seem to have a higher retail price than traditional. So it is profitable; it gives a whole new style and design to the industry.
“It has given the designers and architects a whole new way of looking at fireplaces, because now we are able to have cool touch walls so you can use any materials you would like. You can have art work, TVs are no longer an issue, clearance to combustibles is not an issue, we have now moved and changed how we handle heat, which is now a design element as much as a functional element. It has opened up new markets for us.”
The incidence of fireplaces in new construction – all single-family homes in the U.S. – is at an all-time low. The norm throughout the ’80s and ’90s was 60%, meaning six out of 10 new homes had a fireplace. Today that figure is 45%, a drop of 25%. The industry has a major problem.
Spinelli: “I’m not sure how you stop it, but I look at it a bit differently. Some of it could have to do with the rising costs of new homes, and to some extent the size of new homes. They have been getting a bit smaller.
“Our dealers do spend quite a lot of time adding new fireplaces to homes that were built without them. So, in some respects it’s actually a good thing that they didn’t have a fireplace to begin with, because it gives us the retrofit market where people are willing to spend a bit more money. When they’re building a house, most people are strapped due to rising land costs, construction costs, appliances, and flooring.
“The only concern that I would ever have to a house not having a fireplace is when they don’t run natural gas into neighborhoods. That to me is a bigger threat to our business than anything else, and they have started to do that in California.
“So from the new construction perspective it doesn’t bother me. If people don’t have fireplaces, that’s a great thing. But at some point they might want the heat, they might want to change the look of a room; they now have the money and the time to spend on buying a quality fireplace rather than the one the builder would put in, which is the cheapest one he could possibly get.”
Do you have any outdoor products at this point?
Spinelli: “Yes. The majority of what we do outdoors is all built-in for people who want a permanent solution in their Outdoor Room or outdoor patio. We have a few options for outdoors, it’s not huge, but it is about 1% of our business. We’ve got a see-through outdoor fireplace. We’ve got two sizes of stainless-steel one-sided fireplaces, and we’ve got a bunch of burners that you can tag together and make a 6-ft. fire wall, if that’s what you want to do.”
What is your forecast for 2019?
Spinelli: “I’m pretty optimistic about 2019. I’ve been doing this so long I know how important January and February are. The cold weather throughout the country will set the stage for the summer and the beginning of next year. The only concern I really have for 2019 is what’s out there in the marketplace on dealers’ floors, and whether they can sell the old wood products. I’m not sure how that is going to affect the business.”
Mississauga, Ontario, Canada
|Tony James with the Model DV36CV fireplace.|
Woodbridge manufactures gas fireplaces and inserts for indoors; gas fireplaces and fire pits for outdoors. The company’s line is long, the quality superb, and big is better.
Hearth & Home: Educate me a bit, because when I went on your website this morning and looked around, I was not aware that you were buying product from all these other manufacturers.
Tony James: “Well, we are not. Woodbridge Dealer is our manufacturing website. If you went to Woodbridge FP, which we don’t advertise, that is our retail showroom website where we supply the Greater Toronto area locally.
“Since we don’t make wood stoves, we carry Regency. Because we don’t make electric fireplaces, we carry Dimplex electrics, and since we don’t make barbecues we carry other peoples’ barbecues. In a retail environment, they are buying our product, but then we are also trying to satisfy them on other things they may need.
“Everything that we are as far as advertising in Hearth & Home and the growth of the company is all about our manufactured product only, which is woodbridgedealer.com, and everything there is gas.”
That sounds like a good way of doing business. In fact, quite a few manufacturers have created a retail presence for their products.
James: “Well, we’ve got a 7,000 sq. ft. local showroom. If you are here, you might as well flaunt it, and that helps with bringing people in from outside, because everything is displayed well.”
What kind of penetration do you have with the retailers in the U.S. and Canada?
James: “We are building our U.S. retail base. We have substantial growth in that area right now, and we’ve got a couple of distributors set up in the U.S., but other than that we are dealer-direct across the U.S. and we are just gradually adding and making sure we take care of everybody.”
In Canada, is everything dealer-direct?
James: “In Canada we are largely in the Ontario market. We handle the Greater Toronto Area (GTA) through our showroom, and we work with designers, architects, builders, etc., in the GTA market. Outside of there we are dealer-direct only.”
How were your sales in 2018 compared to the prior year, in the U.S. and then in Canada?
James: “We have seen an increase in the Canadian sales, and a little bit of a decrease in some of the U.S. sales. We have seen a big hit in the manufacturing side, with cost increases on things like steel where Mr. Trump decided he was going to play with that 25% tariff. Literally, our steel price has doubled. How do you even start to pass that on?
“So you don’t, and then everything else has crept up in price 10% or 15%. But we can’t increase our prices and be competitive. Also, we did not have a winter yet. It’s cold out there, but that is about it. There hasn’t been any snow on the ground. For some reason, over the last five years or so, the Northeast has been getting a belting, while we sit here by the Great Lakes and it misses us.”
It’s clear that you are gas only, but are you doing well with outdoor products?
James: “We’re all gas, indoor and outdoor, and we sell lots of outdoor and lots of indoor. We just don’t touch stoves, even on the gas end of it, because I don’t see it as being a market that is growing in any way. I’ve been in that market forever, and it has faded. There is less attraction to stoves.”
But is that a handicap for you when you are opening a new retailer, say in the U.S., and the only thing you’ve got are gas fireplaces and inserts?
James: “No, definitely not, because we have an extensive line of gas fireplaces and inserts, as well as outdoor products, everything from fireplaces to fire tables, and burners – many different products.”
Are there any particular regions in the U.S. where you find your strength?
James: “Definitely the Southeast and the West Coast, because of our extensive outdoor collection, those areas are less seasonal. Obviously Florida and California are strong markets for us.”
What percent of your total business is in Canada versus the U.S.?
James: “We are probably 60% U.S. and 40% in Canada. There is 10 times the population in the U.S., so I would be happy with it being 80/20.”
What about styling when it comes to your products? What’s selling best?
James: “Traditional and contemporary both, with some crossover such as contemporary having options of driftwood log type looks. Quality is the ultimate (selling point) with my products. I no longer work for a company that tells me that I need to make things as cheaply as possible, so I make things that are high quality; the gauges of materials that I use in the products are the equivalent of anything that is in the industry today, but far exceeding most of them. Workmanship: We weld everything instead of screwing it together, or tack welding it. Everything is all solid-welded.”
If I were a retailer, and you’re trying to get me to carry your products, I would guess the quality pitch would be one of your strengths.
James: “That is absolutely one of our strengths. Whenever a retailer or installer handles our product, they know it’s quality. When it takes several guys to carry a product as opposed to one that weighs nothing, that tells you right away. When you do install them, and you have no issues for years, that tells you as well.
“My background is 30 years doing this; I design things. So when retailers get their hands on our products they definitely see the quality, and the serviceability of it. I’ve been the champion of this now for 15 years, with my business partner, Bob. There are the two of us. We both have our strengths and we work well together.”
What is Bob’s strength?
James: “Well, I’m more the development, the marketing, and the industry knowledge guy, where he is more the production facility. He’s been responsible for making sure we make everything ourselves, short of logs, etc. We don’t farm out anything. Everything is made in-house.”
You mentioned outdoor products? Is that a substantial part of your business?
James: “Oh, yeah. A large part of our business now is centered around the Outdoor Room. Of our products, I would say 40% are for the outdoors. For example, I’ve got an indoor/outdoor 3-, 4-, 5- and 6-ft. stainless, beautiful, massive fireplace. I’ve got a 3-, 4-, 5- and 6-ft. single view, a 3-, 4-, 5- and 6-ft. see-through. I’ve got linear outdoor burners from 2-ft. to 8-ft. I’ve got a massive Algonquin fireplace, which is an outdoor stainless. I’ve got the Serpentine outdoor. I’ve got three different sizes of fire pits with enclosures where you buy the burner systems. We have quite a few.”
Are your retailers actively promoting the concept and reality of the Outdoor Room trend?
James: “Definitely. Displaying product well is the key, not just having it available in the showroom. The retailers who are showing it really well do very well; they show it in a complete room environment or set.”
Have you found that consumers are starting to buy more than one hearth product for the outdoors?
James: “Yes. We get people who will buy for an outdoor environment; they will buy a fire pit as well as a fireplace.”
What are some of the trends that you’ve noticed now in the hearth industry?
James: “Definitely, consumers have more knowledge of our products. The products that are higher-end, that are more dramatic, seem to be more readily sought after by the average consumer. There’s a trend to more features on a fireplace, whether it’s electronic ignition, high/low features, LED lighting in a fireplace. Larger and bigger products is definitely a trend in the market.
“We sell a lot of big, big fireplaces where they didn’t even exist a while ago. I did my first 6-ft. fireplace 10 years ago or so. There was nothing that big then. Now they’re all over the map.”
What new products are you introducing in Dallas, if any?
James: “In Dallas we will be introducing the Montana, which is our 6-ft. direct-vent fireplace, and we’ve added LED lighting for our outdoor fireplaces.”
Do you like LED lights in a fireplace?
James: “I’m not a fan of them, especially the indoor. I think it’s a nice feature outdoors where it’s more of a party atmosphere. On the direct-vents, I don’t see the purpose. What the heck are colored lights doing in a gas fireplace? I don’t know. But in the outdoors I would, because they are stainless and the reflections are amazing on these outdoor products. If you’ve got a flame that is 10 inches tall reflected off all the stainless inside, it’s amazing, beautiful, especially in the evening.”
President & CEO
Langley, British Columbia, Canada
|Jonathan Burke in the R&D department.|
While sales in 2018 were basically flat for Montigo, Jonathan Burke was not fazed. The company was focused on marketing and product development, and is now ready for the new year.
Hearth & Home: Tell me what happened with your company in 2018.
Jonathan Burke: “On the marketing side, we completely redid our website, revitalized a lot of our marketing materials, and dressed up peoples’ view of Montigo from a marketing perspective. We also hired a very senior person out of the plumbing, and kitchen and bath industries to lead our business development outreach to architects, builders, and designers to try to get our products, especially our custom commercial stuff, specified in high-end commercial applications, restaurants, hotels, etc.
“She is Sharon Murray and she is highlighted in one of your monthly news postings. We also completed our Mahana outdoor line in 2018. It’s a sealed, vent-free, outdoor unit in 100% stainless steel. We introduced a 42-inch version and a 60-inch version.
“In addition, we completed our entire Distinction line-up, which is our indoor linear residential unit. We now have the D36, D48, D53, and D72 in single-sided and see-through, all available with our Cool Wall kits. These are side or front heat management kits so you can put hardware and TVs above without any concerns for heat melting and whatnot.
“At the end of 2018, we introduced what we think is a pretty revolutionary product called the DelRay. The DelRay is a low-cost, but still Montigo frame and build quality, but an entry level, very shallow construction linear unit for the low-cost builder market. It’s available in both a stripped-down builder version as well as a fully-loaded option with lights, fans, and whatnot. It comes with a very compelling entry-level price point.
“So it’s a very shallow construction and very easy to install, and we are delivering it to dealers with the entire kit, the termination, venting, everything all packaged together in the unit.
“It has been very successful. We’ve sold our first two production runs about twice as fast as we expected, so we are producing the next ones. Actually that is pretty much it, marketing and product development was the focus, and we have been very successful.”
How were your sales in 2018?
Burke: “Overall, we were flat this past year. We didn’t see a lot of growth, but that was somewhat intentional. We saw quite a bit of competition on the custom commercial side, which we responded to in kind with our new Prodigy, which is a light commercial product.
“But we are seeing fantastic performance and spectacular sales growth on some of our newer products. Some of our products were pretty long in the tooth, and this effort we put in over the last 24 months to introduce a whole slew of new products is paying off. We’re already seeing some sales growth this year, and certainly a lot of demand for some of the new products that we have come out with.”
Was it flat in both the U.S. and Canada?
Burke: “Yes. In fact, we were down in Canada. It was actually up in the U.S. and down in Canada. Canada was softer and that is why we’ve also introduced a new two-step distributor in eastern Canada.”
Which regions of the U.S. and then Canada were the strongest for you?
Burke: “The Northeast, and we recently struck a deal with RMI, Ray Murray, Inc. in the Northeast. Before that we were shipping product all the way from Ferndale, Washington, so we weren’t terribly competitive, but with RMI we saw quite a bit of growth in the Northeast, which was fantastic. Also, in southwestern U.S. we did very well this past year, but where we saw the weakest sales was in eastern Canada. But definitely, it was the climate in Canada.”
What about contemporary styling versus traditional or transitional?
Burke: “It depends on the region, but we are seeing a gradual return to more traditional looks. In many cases, we do see the traditional to linear and contemporary to traditional kind of come and go in waves. What is the most interesting, and we see it among our competitors as well, is the demand for a contemporary traditional fireplace – a linear fireplace but with some kind of a brick or a stone lining on the inside. It is a little bit of both.”
Now, how are your outdoor products selling?
Burke: “We’re doing well, but we haven’t made a concerted effort to reach the patio/hearth outdoor retailer market. Some hearth dealers are good at selling outdoor products. They’ve got outdoor displays, outdoor barbecues, fire pits and stuff like that. But a lot of hearth dealers are just getting going on that. Whereas if you go to a retailer that is selling patio furniture, hot tubs, pools and pool installations, and stuff like that, that is where consumers are going when they are thinking summer and outdoors.”
In California, we have the Net Zero program. What do you think of that now and has it impacted you at all?
Burke: “It hasn’t impacted us directly yet, but we’re closely watching California because it’s an important market for us. We’ve had a lot of stuff on the shelf for some time around energy efficiency and whatnot, and once people are either regulated to do it, or prepared to pay, we can start introducing it to the market. We’re ready.”
We’ve already discussed a few trends facing the industry, but are there any other trends that you recognize right now?
Burke: “I think the one trend that I do know, and we’ve had it for some time on the commercial side, and we’re working on the residential side, is the ability to eliminate the screen and keep the glass temperature safe. A trend is definitely the elimination of the screen entirely, and yet meeting all the requirements of the standards in terms of keeping the glass temperature lower and safe, and yet still providing some warmth in the home.”
Let’s talk about the incidence of fireplaces in new construction of single-family homes, be it tract homes or custom homes. During the 1980s and 1990s, the incidence of fireplaces was about 60%. Two years ago it was at 51%. Right now it’s 45%. That’s a 25% drop from 60%, and that is enough to get anybody’s attention, particularly if you’re a manufacturer of fireplaces. Do you have any idea why that’s happening?
Burke: “In major urban areas in the United States and Canada, cost per square foot is going up and up and up. What do you think is going to come off the table in terms of a list of things that take up an inordinate amount of square footage for strictly decorative purposes? A refrigerator is typically not an option. A stove typically is not an option. People want their closets. They want a bedroom that is a decent size.
“If you’re paying a million dollars plus for something that is 1,200 or 1,400 sq. ft., and you’re being told by the builder, ‘Well, I need 40 sq. ft. for this fireplace and everything associated with it.’ What do you think your customer is going to say? Forget about it.
“The other thing is that electric fireplaces are emerging as an alternative that takes up less space, and they are easier to install. Builders may be putting electric baseboard heaters in as opposed to a boiler in the building, which is a much more efficient way of heating the building. The builder is saying, ‘What is the cheapest product that I can throw up quickly and still meet the minimum criteria?’
“On top of that we’ve got environmental regulations, some of which are asinine at a certain urban and state level, where environmentalists are successfully convincing people that having gas or propane is not good, but of course then you are limiting them to zero energy choices, and typically limiting them to the most expensive energy choice, which in a lot of cases is electricity. Whether it’s heating hot water or heating your home, providing a heating appliance like a fireplace is a much more cost effective way to produce heat than an electric unit.
“That being said, the other thing that I am concerned about, which seems to be emerging, is that a fireplace is less of an expectation with younger people. Some of them may not have grown up with a fireplace, and the industry has not done a good job of keeping a fireplace front and center, and stressing that a fireplace is a focal point, a gathering place.”
If we segregated residential from hospitality, where do you stand in terms of percentage of your business?
Burke: “We’re about 75% residential compared to hospitality, restaurants, commercial, stuff like that. It’s a pretty good split.”
What is your forecast for business in 2019?
Burke: “Right now we’re not being overly aggressive because we do know that the housing market is definitely cooling a little bit in the majority of North America, but we’re not saying it’s going to be a down market. Right now I won’t commit to any specific number, but we think we are going to do pretty well in 2019, especially based on some of the commercial stuff we’re working on.”
Walla Walla, Washington
|Alan Murphy standing beside the Ashford 30 in chestnut brown enamel.|
Alan Murphy is ready. He’s ready for 2020 with only one stove remaining to certify. But he certainly wants his dealers to be ready as well – all of them!
Hearth & Home: What can you tell me about your sales this year in the U.S., and then in Canada? How well did you do?
Alan Murphy: “We started off fantastic, and were showing significant sales increases in both the U.S. and Canada. Then we started to lose all that gain toward the end of the year, and the U.S. became flat. Sales in Canada remained higher. Overall, we were ahead.”
That surprises me, because up here in the Northeast at the beginning of September, it got very, very cold and it hasn’t stopped. Did you feel any of that, or do you not have much penetration up here?
Murphy: “We did, but our main markets are on the West Coast. We started a process five years ago of developing markets on the East Coast, and we saw a good gain on the East Coast this year. But it’s a smaller percent of our business.
“Actually, that’s what we’re looking for to increase our growth in the future. If we can increase our market share on the East Coast, we would be rockin’ and rollin’, and it would be phenomenal. We have a long way to go to get there.”
All I can say to that is people up here love their wood stoves.
Murphy: “Yes, they do. But as you know, gaining market share is a very slow and deliberate process, the same as getting a new dealer. The first year out basically they do nothing. The second year out they send it to a couple of friends’ homes to check things out. The third year, if they don’t see any complaints, they say, ‘Hey, this stuff is not bad.’ The fourth year they start selling them. We’re going into year five.”
Do you go through distribution or dealer-direct?
Murphy: “Dealer-direct in the U.S. We have two distribution companies we use in Canada, one in Ontario, and one for the Maritimes. All else is dealer-direct. In 2018 we opened up a new warehouse in Tennessee. We are increasing production in order to have greater stock levels for the East Coast dealers. It’s part of our growth strategy.”
What percent of your sales are for wood versus gas products?
Murphy: “We’re probably 97% wood. We’re a wood company.”
But you do have gas if somebody wants it, correct?
Murphy: “We started with the introduction of the new screen regulations. We got rid of all our old gas products; we stopped producing them. We went back to the drawing board for two reasons. We wanted to do more relevant designs. So we are introducing unique product. Not so unique that somebody would describe it as ‘weird,’ but unique to the industry, and it’s all about reflections.
“We have black glass everywhere, and mirrors everywhere within the firebox, which enhances the flame patterns; we’re keeping the technology as simple as we can so that it is reliable for the dealers. We’re trying to carve a little niche market for ourselves, and to slowly but surely build up our gas business.”
Which of your products were most in demand this year?
Murphy: “It varied by region. The West Coast is much more traditional, so it’s our old tried and true Princess models and our King models. The East Coast is going more to what I would call North American mainstream, and that’s our cast-iron Ashford models and our traditional North American looking Sirocco models. A notable change this year is we introduced our Boxer, the BX24. It has a clean and minimalist modern style. We will see more Boxer models coming in the future.”
I assume that, when it comes to the NSPS, you are very well positioned. Am I correct?
Murphy: “I think we are in the best position of any manufacturer in the industry. We have one model left to finalize. In-house testing is already done on it, and that is our King, but we are pushing the envelope on it. Currently it runs on an 8-inch flue system, but we want to put it onto a 6-inch flue system. We will know in the next week if that is viable, and if so, then it’s ready for certification and we’re done.”
I’ll bet you’re the type of guy that used to do his homework in college before it was due, right?
Murphy: “Pretty much. We had a bit of a coup recently when we tested the new version of our Princess, the model PE32, which is a freestanding wood stove. It came in at 0.4 grams with an 80% HHV (efficiency), that’s the harder one.”
It doesn’t get much better than that, does it?
Murphy: “There are units that have lower emissions. Very few have higher efficiencies, but they are not a day-to-day user stove. This is probably the lowest emissions of any user size; it has a 2.9 cu. ft. firebox. It’s not a small stove, and I think that is a coup.”
That’s what they want to hear, isn’t it?
Murphy: “Yes. And the interesting thing is that we didn’t change very much at all. When new product comes out there are always concerns about how it performs, well, we’ve been doing this for 35 years and it is the same basic technology we’ve been using for 35 years. It’s tried and tested and we’re ready.”
What percent of your business is in Canada versus the U.S.?
Murphy: “Traditionally it is a 60/40 split with Canada being 40, and last year it was 55/45.”
How many dealers do you have in the U.S. and then in Canada?
Murphy: “We have over close to 600 dealers in the U.S. and roughly 500 in Canada, but when I say active dealers as in dealers that purchase a reasonable amount of product, we’re probably looking at 300 in the U.S. and 280 in Canada.”
What about styling? It seems that you’re doing much more with contemporary.
Murphy: “Yes. The introduction of the Boxer had better results than I anticipated, so towards the end of 2019 we will have a new smaller firebox that we will be introducing. It will be like the Boxer, and the Boxer originally came as the Ashford 25, Sirocco 25 insert, which we then made into the Boxer 24 freestanding. It’s a way of using one firebox to get multiple designs. Towards the end of this year we will be introducing a smaller firebox called our 13, and there will be a Sirocco, Ashford, Boxer version on these as well.
“Now that we’re done with the NSPS, we can refocus on design and pushing the envelope. Now it’s time to start pushing the envelope. In talking with my guys in the lab I basically took the gloves off and said, ‘Okay, guys. The only limitation is your imagination. Bring it on. Let’s see if we can do something special.’”
You’re very familiar, I’m sure, with Net Zero down here and Zero Net up north. Let’s start with BC. I was just reading that they want to be 100% electric by 2050. Well 2050 is not very far away, is it?
Murphy: “I have an issue with that. We have a ready supply, a plentiful supply, of very clean natural gas here in BC. Our government is currently spending millions of dollars to help build a liquefied natural gas terminal in order to ship our beautiful reserves of natural gas to foreign markets, mainly Asia.
“They are telling us here that we are not allowed to use our natural resources because we have to clean the planet, but we are going to sell them to the Asian markets and they can dirty the planet. I have a big issue with that. That’s totally illogical.”
Now, I’ve been impressed with the way California has handled its Net Zero program. Most of the major builders have figured out how you can build a house that produces as much energy as it uses. It’s wrapping the building tightly in insulation, and using as many solar panels as the size of the house requires.
Already, there are builders throughout the country putting up Net Zero houses, from California to Maine, and every other state is looking carefully at this project. It’s an exciting project.
Murphy: “Yes, it is. This is a time of change. The Net Zero program really affects the gas side of our business, but on the wood side, we as an industry have done all the hard work getting to 2020. We are now more efficient, we are now cleaner, regardless of your technology type, whether it is secondary combustion or hybrids or catalytic stoves. Regardless of the technology, the test criteria provide a level playing field and the results are coming in. We have proven that we can do it.
“We’re at full production. We’re coming into summer and we’re not slowing down. We’re going to build like crazy. We’re going to be ready.”
Is there anything you would like to say that we haven’t mentioned?
Murphy: “No. My biggest message to our customers is just secure your business, be ready, be right. Don’t wait. The time on the clock is gone and you’ve got to do it now.”
North Vancouver, British Columbia, Canada
|Martin Miles sitting beside the LX2 Multi-Sided gas fireplace.|
It’s been 15 years since the Miles brothers took over manufacturing of the Valor brand in North America. Since that time, every year has been a growth year.
Hearth & Home: How did the year go for Valor, in the U.S., and in Canada?
Martin Miles: “We had a good year both in the U.S. and Canada. Our overall U.S. sales showed some strong growth, and it was pretty balanced across the country. Our Canadian sales continued strong, and in our eastern Canadian market we had a particularly strong fall period, and actually historic growth, particularly in October and November.
“Over the last 15 years since we started manufacturing here, we’ve seen steady growth every year. That’s what we like – Steady Eddys. We like to fill orders as we receive them, and our dealers rely on us. They are scheduling out their installs, and they rely on us to deliver to their schedule.”
How many employees do you presently have?
Miles: “Counting our direct agents, around 100 employees, but we have a lot of indirect employees through our supply chain.”
Which of your products were in the most demand this past year?
Miles: “It is fairly well distributed. We’re known for our retrofit insert products, and they did very well in the fall, and they probably accounted for a strong fall showing. But we saw a good response to the new stove design that we launched last year at the HPBExpo, and our fireplace products have done well. I would say that it was our inserts.”
Well, it has always been your inserts, hasn’t it? I seldom, if ever, hear that from other manufacturers. I wonder if you are unique in that fashion.
Miles: “I think it’s what we are known for; we’re the go-to product line for a lot of dealers. It’s also where we started in the gas products; it was really with the fireplace retrofit business. So it’s kind of core to us.”
About a week ago I had occasion to talk to Vincent Boudreau at Stûv. You probably know him.
Miles: “Yes, I know Stûv. I don’t know Vincent though.”
He’s a very nice guy, and he and his wife Nadia run it. They just put up a factory and, after two years of work, they have product coming off the line as we speak. Am I correct, that is exactly how you started? You created a North American presence for Valor.
Miles: “That is accurate. We started in 1982 in western Canada importing and introducing Valor products, and we grew from there. We grew the brand into the market and worked with them to expand the product line beyond the more traditional UK products. When the ownership of Valor changed hands, they decided to exit the American hearth market. We took over, originally as a licensee, and soon assumed the ownership of the brand rights of the Valor name for North America. We made that change to the design and manufacturing of Valor in 2002.”
Just before the big boom! That was a good time to make the change, wasn’t it?
Miles: “Yes, and speaking of the Stûv people, you get more satisfaction from doing something where you feel that you’re more the master of your own fate and in control, and you feel any success you get has been earned.”
Another one that seemed to have taken the same route was Jøtul, right? They were bringing product in from Norway, and then eventually put up their own manufacturing facility.
Miles: “Right. I’m sure Bret (Watson) argued that if the business was going to grow beyond its initial Norwegian roots, it was going to have to have more ability to innovate on the ground here in North America, and that is precisely what we found.”
So many of the other companies coming in from Europe have made, I believe, major errors where they think they just have to attend the Expo and they will leave with scores of dealers. They don’t do their homework.
Miles: “Yes. They are all good products, but to have relevance in the market you’ve got to cater to the needs of the market. Watch the way we do things, the way we build our homes, or heat our homes, our preferences for styling. We have our own hearth culture.”
Absolutely. Speaking of our hearth culture and styling, is it contemporary that’s moving best for you, transitional, or traditional?
Miles: “It depends on the region of the market. We have quite a mix in our product line, and we have designed our products to be versatile. When we design a new product – the core engine we call it, firebox, burner, etc. – then we generally have offerings that are more traditional, or more contemporary, or as you say, transitional. In certain markets we have done really well with traditional.
“We have a strong niche in, say, the Northeast with some of our retrofit products, with inserts, with cast-iron fronts, etc. But if you go to other areas, the clean minimalist look in our linear models, or some of our fireplace models, prevail. It’s really a mixed bag. Trends come and go. I have a feeling that some of the more traditional, or transitional, looks will gain strength again in the marketplace.”
Is working with architects, designers, and builders a major part of your business?
Miles: “It isn’t directly. All of our products are sold through a dealer network. We don’t have a separate contract channel, so we rely on our dealers. We do our best to try to promote to architects and contractors at shows, the HVAC show and other trade shows, to get our name out there. We have an online architect training program that we have been offering and there have been over 1,000 U.S. architects that have taken us up on it and have gone through our website for familiarization on Valor products.
“We do have a lot of specialty architects that specify our products on an ongoing basis. Maybe they are building a low energy home for specialty customers and clients. That is where we fit into the new construction market, it’s through custom builders.”
Are you watching the Net Zero for North America program in California?
Miles: “We’re watching it. What’s important is the industry helping to create a dialogue with policy makers. In Vancouver we had to put some behind the scenes pressure on in order to get a voice, but once we did, the phase-in of the regulation toward lower emission homes has not hurt the ability to put gas fireplaces in.
“As an industry, we need to be very aware that we will have to face the future. Regulators want to reduce emissions, and we can do that through lower consumption products, or products that don’t consume gas when they are not in use, or if someone is not using a fireplace in a room the fireplace senses it and dials it down or off. Those are the types of innovations that can keep the industry relevant. We have an opportunity to grab the initiative and take it, and if we don’t, we’ll have nobody to blame but ourselves.”
Are you having good luck with your Outdoor Room products?
Miles: “Certain versions of our products can be used more in a covered outdoor application. We’re not really set up for garden installation, but for covered porch or veranda installations, which in many places is part of an Outdoor Room setup. But we are promoting it and we are making some sales. From a website interest standpoint it is very high. One of the highest inquiries relates to outdoor use or Outdoor Rooms.”
It is much more exciting, isn’t it, when you start thinking about what you can do outside, just to have a roaring fire, whether it is in a fire pit or a fireplace, and to have a grill built into an island where you’ve got an outdoor kitchen. It is an exciting room.
Miles: “You don’t even need the big new home to enjoy that. A lot of people with small homes are realizing that an improvement they can make is to create a nice outdoor area. It expands their living space; it enhances the value of their home; it can be part of the garden, which a lot of people like to do. It also extends the comfort. You can make it pleasant to sit outside. Fire and outdoors have gone together for hundreds of thousands of years.”
What are some of the trends that you see in the hearth industry right now?
Miles: “Obviously, the large format, the linear products, the multi-sided products. I think our focus is going to be on improving our products, refining them, things such as control systems, smarter controls, better fires, creating really good fires with less gas, controlling the size of the flame to match the heat output to the room. Those are all things we are investing in, with more R&D staff and more time to look at improving. That is where we feel we need to be in order to be relevant going forward.”
What new products will you be introducing in Dallas, if any?
Miles: “We will have new products. I mean it is always a combination of refinements and additions to existing products. We will have a new fireplace model. We will have another new multi-sided model. We will have a new booth as well, and it will look like we’ve kicked it up another notch.”
The Empire Group
|Nick Bauer and his buddy Arlo sitting beside the DVCT40 Direct-Vent Fireplace with TruFlame Technology.|
January 2018: the Empire Group purchased Stove Builder International (SBI). At the end of that year, both Empire Comfort Systems and SBI had posted record years.
Hearth & Home: First, let me clear the deck here. Are you still manufacturing the Broilmaster grill, and if so, how is that going?
Nick Bauer: “Yes, we are still doing Broilmaster. This is the first year that we launched a stainless-steel version of the Broilmaster; we have had the Broilmaster out since 1966. It is world famous for its cast-aluminum head. The joke with Broilmaster is it lasts for 50 years, but it looks like it’s 50 years old. It is not your fancy shiny thing that your wife wants next to the pool.
“We love the features of Broilmaster. We love the story. We love everything about it, so we decided to take the Broilmaster features and incorporate them into a stainless built-in grill. Now you can have the Broilmaster features in a stainless-steel grill for your outdoor kitchen.”
All right, back to Empire Comfort. How were your sales in the U.S. and then, if you can tell me, in Canada.
Bauer: “I’m happy to report that Empire had another record year, not only for our hearth sales, but also our sales overall. This is, I think, four out of five years, or five out of six years, we have had record sales. From an Empire Comfort standpoint, we are still really U.S. based sales. Less than 5% of our sales are in Canada.
“From the Stove Builder International (SBI) standpoint, it also had a record year, so I’m pretty pleased. The first year of us acquiring SBI, and the first year of us working together, and it is really nice to see an 18-month vision come together. After the first 13 months, we can say that we have had record years. However, there is very little that Empire can take credit for. SBI is a really well-run business and their success is their success only.
“The stuff we are working on together will take two, three, four years until we really start seeing the synergies of the two companies coming together. The future is very bright at the Empire Group level.”
What kind of “stuff” are you talking about?
Bauer: “Basically it’s how do we sell their products to our customers, and how do we sell our products to their customers, and how do we provide a seamless buying experience for their customers and our customers who want to buy from both brands. Whether that involves combining some sales territories so our reps now sell their products, or eventually their reps are going to sell some of our products.
“We are going to license our gas technology and they are going to build our products in Quebec to sell to their market, as opposed to me trying to build product in the U.S. and ship it to Canada with the exchange rates and tariffs and things like that. Now they are just going to make products and they are going to sell it to their customers under their brand. Something like that just takes time.”
Have you been able, in this short amount of time, to place SBI products in Empire dealers and vice-versa? Has that worked out?
Bauer: “Oh, absolutely. We had some opportunities where SBI had U.S. based reps who actually were told by other manufacturers that they could no longer sell for SBI. So we moved our reps in, and what is the first thing our reps are going to do? They are going to try selling more product to our customers.
“What I didn’t realize was the opportunities that Empire would have in the U.S. with SBI customers. I have been pleasantly surprised by the SBI customers who now want to buy some Empire products. This (merger) is going to be really, really cool in about four to five years; it just takes time, and I’ll have to be patient.”
What percent of SBI’s business is through what we would call mass merchants?
Bauer: “Years ago they were almost fully in mass merchants. I think it is less than half now. They have done a really good job selling to their wholesalers and dealer-direct brands.”
Which of your products had the most demand this past year?
Bauer: “Our biggest driver was our heat producing products, so gas logs and vent-free and direct-vent inserts. Those categories just exploded this year. We couldn’t even build stock this year because all of the growth we had ate up the six or eight weeks of stock that we wanted to have.”
Which regions of the U.S. were your strongest?
Bauer: “We are still really strong in our backyard, so it’s the Midwest. Historically, Empire has been strongest east of the Mississippi – so the Midwest, Southeast, Northeast. Now we are growing out West, the Texas market, the Northwest and California.”
What percent of your sales were contemporary in style versus transitional or traditional?
Bauer: “We are predominantly traditional, so 80%, 85%. Very few of our contemporary products are only contemporary. Most of them will offer a log set, or a brick liner; we call that a rustic contemporary. Even our linears started taking logs 30% to 40% of the time.”
What about new construction? Do you work that end of it, architects, designers?
Bauer: “We work with some of the architects. We do not sell to national homebuilders. We sell to a couple of one-step installers for homebuilders, but that is not our main focus. We like the guy who is buying from the local dealer, builders building 10 or 20 homes a year.”
The incidence of fireplaces in new construction has fallen to 45%. In the U.S., only 45% of new single-family homes have a fireplace. Through the ’80s and ’90s, it held pretty much at 60%. That’s an enormous drop. Any ideas why that has happened?
Bauer: “Well, you have a couple of competitors chasing the national homebuilders, and fighting over who can cut the best deal on a $250 fireplace, with no features. For the vast majority of Americans, their first example of having a fireplace in their home is, literally, the worst fireplace that we produce as an industry. Then we complain, ‘How come people don’t want fireplaces anymore?’ Well, we’re selling them the worst product in the industry, and the only way that is going to get fixed is for these companies to begin selling on more than just price. They’ve got to sell up. Unfortunately, I don’t see that changing any time soon.”
You have some very lovely outdoor products. How well are they selling?
Bauer: “That’s why we were willing to spend about two years to create the Phoenix Broilmaster line. It’s because our outdoor traditional linear fireplaces and fire pits are doing very well. They are probably my favorite things to sell because wherever an outdoor fireplace is going in, it’s going to be a cool room, be it a pool or a hot tub or a grill. It is going to be great for entertaining friends. It’s a category that 10 years ago was very small; it’s still probably not over 10% of total fireplace sales. But it came from probably 1% or so 10 years ago.”
What are some of the trends that you see in the hearth industry?
Bauer: “Consolidation, for sure. Whether it be at the manufacturing level, the wholesale level, the dealer level. Consolidation and succession. A lot of folks are retiring. Three of my top 15 employees are retiring this year. We have been planning on their successions for two years.
“From a product standpoint, we have a lot of really good manufacturers doing really good stuff, so that for me is exciting because I like competition and I like people that come up with really good and cool ideas. That keeps me going. That’s why I’m excited driving to work each day.
“The industry may not be growing as much as we would like, but it’s a heck of a lot better than 10 years ago when the industry was shrinking 30% or 40% a year, people were closing plants and laying people off. Now we are launching stuff and hiring people. At this point I think we are probably getting close to the top of the cycle and we need to enjoy it while we’re here.”
What new products will you be introducing in Dallas?
Bauer: “We’re introducing a 50-inch TruFlame direct-vent fireplace; it’s our biggest fireplace and I’m pretty sure the most expensive fireplace we have ever made. The price point is about $8,000, which I thought I would never do, but there is a market for them. We also have a bunch of other ones, such as a 36-inch linear, and more vented logs. We do roughly four to six new products a year.”
What is your forecast for 2019?
Bauer: “I think we have all the positive factors pointing to a great 2019, whether it be weather, or politics, or the economy, or the stock market, or housing starts. We still sell a lot of heat for a living, and it is probably one of the coldest years in four or five. This season is the one we are going to be talking about for the next five to 10 years.”
What have I not asked that you would like to get out?
Bauer: “Here’s what I normally say as Empire enters its 87th year of business. We’re just so blessed to be able to continue to do this, year after year, generation after generation.”