Dealing with mounting deposits on yet-to-be delivered products
Hot tubs have been flying out showroom doors at record-breaking speed. In fact, they’re often sold before they even arrive from manufacturers. It’s never been quite so easy in this industry to move stock and, while this may seem like the dream, it comes with its own set of issues. One such challenge has been what to do with deposits made on units that are likely months out from being delivered.
Dan Friedman, general manager at The Hot Tub Store in Santa Rosa, California, has put all of that money in the bank, not to be touched. “We have over $1 million in deposits,” he says. “Even though the chances of all of them cancelling is next to none, we understand it is their money and we are not spending it. We have found some slightly higher interest accounts. We set up some savings accounts and money market accounts to keep the funds out of working capital and pretend that it doesn’t exist.”
Don Riling, president of Olympic Hot Tub in Seattle is also acting as if the money is not there. “We utilize accrual accounting; we don’t realize the deposit money given to us as income until the tub is delivered and invoiced,” explains Riling. “Because of the high amount of deposits we’ve taken, we’ve chosen to put the money away into multiple savings accounts independent of our regular/daily operating checking accounts.”
Though there may be some taking full advantage of their burgeoning bank accounts, this can be a risky practice. There is no way to know for certain what is ahead for the industry or for the customers. Hans Kissmann, president of Georgian Hot Tubs in Barrie, Ontario, has seen some retailers boosting the deposit amount in an attempt to discourage cancellations and maintain cash flow. “The retailer must realize that, although the cash flow seems larger than in the past, the truth is the money that is there must ensure a cash flow for the next 18 months,” Kissmann explains, “where in the past money turned over quickly.”
The possibility of cancellations also must be considered. When customers are forced to wait six to 12 months or longer for their purchases, situations can change. Reasons for cancellation requests run the gamut from a change of heart to shifts in life circumstances.
“We have seen where the customer bought a hot tub, but then had one provided to them by a family member resulting in wanting to cancel the new purchase,” Kissmann says. “We have also seen where another retailer has promised a quicker delivery.” Employment changes also affect whether someone can responsibly purchase a hot tub, he says, adding that the best approach is to work with the customer and try to understand their situation.
Friedman hasn’t seen much change in cancellation rates this year. That said, he also believes each situation should be looked at individually.
“Our contracts say they’re not cancelable, but that doesn’t mean we don’t work with people,” he says. “We have a restocking fee. If they make a change, we can work with them. It might change the delivery time frame…they might even receive it earlier. If the reason for cancellation tears at our heartstrings, they might get a 100% refund. We had one yesterday. She wanted to change colors and when we told her it would be July before she can get the new color, she changed her mind [about changing her order].”
At Olympic Hot Tubs, clients have until the day the product is installed or 30 days from when they make the purchase (whichever comes first) to cancel their order and recover their deposit. If they cancel after the 30 days, they receive 50% of the deposit back and the other 50% stays on file for 12 months to be used toward the purchase of a hot tub, Covana cover or swim spa.
These are unusual times, and dealers are evaluating each circumstance. While no one likes to see cancellations, the market is so hot that the units are likely to sell anyway. “We should all work together to achieve a positive end result,” Kissmann says. “After all, when demand returns to normal, the customers you have built loyalty with will come to you to maintain their hot tub or swim spa.”