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Hearth & Home November 2016

Sub or No Sub?

By Bill Sendelback

The majority of hearth dealers prefer to handle installations and service in-house.

There’s more to being a hearth dealer than just selling stoves or fireplaces. The after-sale actions, such as installation and service, can be just as important in creating a satisfied customer as the initial sales effort.

For decades, hearth dealers have been wrestling with the question of whether to handle product installations and service with in-house employees, or to farm out those chores to independent contractors. There’s no hard and fast answer to that question.

Some dealers are adamant that in-house installations and service are profitable and necessary to the success of their businesses, while others are only too glad to leave those tasks – and headaches – to others.

A survey of hearth dealers reported in the June, 2016, Hearth & Home Buyer’s Guide reveals that 52 percent of U.S. hearth products installations were done by dealer in-house employees, while 27 percent were done by subcontractors. Customer installations accounted for 12 percent of hearth installs, and nine percent were installed by “Other,” whatever that means.

“We do everything in-house because we can’t control other people’s quality and timing,” says Wayne Stritsman, recently retired owner and now consultant to Best Fire, a hearth dealer in Albany and Troy, New York. “We don’t sub anything out. We do our own framing, and gas and electrical work. Service and repair work now represent $700,000 annually for us, and our installations top $1 million in gross revenue.”

As he was growing up in the hearth business, Stritsman saw service as an obstacle. “But now I look at it as an opportunity,” he says. “We sell a lot of upgrades, a lot of replacement products, because of the efforts of our service people. Within five years, 30 percent of our retail sales will result from our service and repair efforts. Dealers must learn to use service work to help drive customers in the door.”

“For 14 years we have done everything in-house because we can control the quality and show our responsiveness to our customers,” according to Grant Falco, general manager of Falco’s in Spokane, Washington. “Our installation and service department is the greatest profit center we have. We sell Falco’s as a one-stop shop, emphasizing that we do our own installations and service work. That’s what makes us successful.”

Falco’s operates three installation crews year ’round, plus one more during the hearth season. The store’s service work is run by a service manager and includes a full-time retail parts person and two technicians, plus a third in-season.

“By doing our own work, we don’t get into a ‘blame game’ with an outside contractor,” he says. “This is our most successful department, but it’s hard to do. You have to be consistent and as efficient as possible to be profitable.” But not all hearth dealers agree that in-house installations and service are worth the effort.

“We don’t do any installations or service. All we do is sell the products,” says Scott Buzbee, warehouse manager at ABSCO Fireplace & Patio in Birmingham, Alabama. “We’re a small, family business, and we run lean. We don’t want to deal with the complaints, so we let the installers deal with those.

“The hassle of finding qualified people and dealing with local codes is more than we want to do. There’s not enough profit in it to make it worth our while.” ABSCO offers customers a list of seven installers, including certified gas fitters.

“We farm out our installations, but we’ve been working with the same installers for years, and that’s very important,” says John Ewan, owner of Pacific Energy Company in San Luis Obispo, California. “We’ve developed trust with these installers that they are very knowledgeable about our products, and we’re comfortable they will help us with our relationship with our customers. If they don’t make a good impression with the customer, our referrals go down. We push customers to use our three preferred installers who also service our products.”

Ewan used to have installation crews, but the rising costs of liability insurance in California made it uneconomical. Plus, according to Ewan, in California a dealer must give the customer a choice of installers. Ewan says that, if the dealer refers only one independent installer, the dealer then becomes liable for that installation. If the customer has a choice of two or more independent installers, the customer-selected installer is then liable for the installation.

“We do our own service work, but we use outside contractors for our installations,” says John Meeker, president of Fire Glow Distributors in Jefferson Valley, New York. “For what I pay for workers’ comp and insurance, I can’t afford to have my own installers. Using subcontractors is better for our costs, but it’s a challenge for customer satisfaction since we lose control of the timing of appointments.”

Fire Glow’s service work is handled by Meeker, and one full-time employee and one part-time employee. “We didn’t do our own service work 15 years ago,” he says, “but we brought it in-house to be more responsive to our customers. We do a lot of phone service, and even though service work doesn’t bring in a lot of money, it helps our customers. Our service quality is definitely better, and we have a better feeling for what’s going on. Plus we don’t have to worry about an outside service contractor stealing our customers.”

“When we started, we subbed everything out,” according to Tim Nissen, former owner and now consultant to Home Fire Stove in Salem, Oregon, “but four or five years ago – when we reached a certain sales volume – we wanted installations and service in-house because we realized it could be as profitable as retail. When you sell a stove, you also sell an installation.”

Nissen says there are real pitfalls in subbing out installations and service such as work quality and appointment timing. “We now differentiate ourselves from our competitors who sub out these functions.”

Nissen, who in 2000 wrote a program on managing installations and service for the Hearth, Patio & Barbecue Education Foundation, says Home Fire Stove tries to make on installations and service the same gross profit as on the company’s retail sales.

“Installations are solidly profitable,” he says, “but on the service side, it is a little less clear. There’s a lot of free service, and service can be a money loser since you don’t get adequate compensation from manufacturers.” Home Fire Stove promotes most of its service work for the spring and summer when hearth sales have slowed.

“There can be added benefits to in-house installations, but there also can be added headaches,” says Gene Butler, HPBA chairman and president of The Firebird in Santa Fe, New Mexico. “We use subcontractors for installations, such as sweeps, and that has worked well. When we used to have our own installers, we would train them, and some would leave trying to take business with them. One actually opened up a competitive store.”

By balancing some pros and cons, Butler says you can control in-house installers, but there’s still the problem of what to do with them in the off-season. “If you keep anything in-house, keep your service,” he says. Butler has one in-house service technician.

“An installer may take a different view on service work than a dealer, but whether it’s a warranty issue or not, you as a dealer may not want to charge the customer for some services. It’s easier to do that with in-house service people.”

“It might be easier and cheaper to sub out installations and service, but we’ve seen too many horror stories when using subs,” says Eric Peterson, CEO of Capo Fireside, headquartered in San Juan Capistrano, California. “We do all of our own installations and service with service people in each of our seven Southern California outlets. It’s our control of quality and delivery times that also controls our (levels of) customer satisfaction.”

Peterson says Capo sales have grown by double digits this year, even in a weak Southern California hearth market, because the company offers turnkey jobs. “This is an essential profit center for us, and it’s value-added for our customers since most customers don’t want a third party involved.”

“We insist on installing all our fireplaces,” says Don Richardson, president of one- and two-step distributor and retailer Arizona Fireplace & Patio in Phoenix, Arizona. “Ninety-nine percent of hearth products problems are installation issues, and if Joe Schmoe installs a product and the house burns down, we get sued anyway. The profitability of doing our own installations is not that great, but we need to do it to protect our backside. We do it every day, so we’re the experts. We and the builders and the consumers know that the job is done right.”

Handling installations and service with an in-house staff is the method chosen by most hearth dealers, and it appears that in-house installs can be profitable and can add to the success of the business. Hearth dealers should at least consider bringing installations and service in-house, and making those functions part of their business plan.

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