Pricing for Protection

How the hot tub industry is dealing with across-the-board increases

You don’t have to look hard to find news about the various factors contributing to ballooning costs across many industries. And yet for both dealers and manufacturers in the hot tub industry, the most obvious option — passing on price increases to customers — often comes with trepidation.

“Prices are continuing to go up, and as a dealer, you have to up your prices, too,” says Brian Johnston, owner of Atlanta Hot Tub Center in Roswell, Georgia. “That’s just the nature of the beast.”

Johnston says it’s industry standard for manufacturers to increase prices 3% to 5% each spring — but last year, his store faced about five price increases at well over 10% each time, from each hot tub manufacturer he carries.

Johnston expects three to four more increases this year as the cost of materials continues to go up on the manufacturer’s end.

Yet in Johnston’s view, “It is what it is.”

“It’s important that everybody in the industry continues to raise prices accordingly,” he says. “Everything is going up around the world.”

Johnston has talked to other dealers around the nation, many of whom say they’ve absorbed manufacturers’ price increases without in turn increasing prices for their customers.

“You have a lot of dealers trying to figure out what to do because they’re scared,” he says. “And I don’t blame them.”

Johnston says some dealers are worried about raising prices because they fear they won’t sell as many hot tubs. But if they’re concerned that upping a price by $3,000 on an already-high-ticket item, they’re not marketing properly and may be bringing the wrong people to the table, he says.

If dealers have a quality product their customers will expect to pay a premium price anyway, Johnston says.

“We haven’t slowed down as we’ve raised prices,” he says.

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Another financial challenge dealers face is retroactive price increases from manufacturers due to supply-chain and delivery costs continuing to rise. But if dealers were already locked into contracts with homeowners, they lost profit.

One such dealer is Cole Taylor, owner of Texas-based Southern Leisure Spas.

Taylor says he lost substantial profit in 2021 due to retroactive price increases. “It’s frustrating,” he adds, “but I know the manufacturers are getting hit just as hard as the dealers, if not harder.”

As a result, Taylor’s store started padding pricing at the beginning of the year to allow for 3% to 5% increases that might occur suddenly from the manufacturer. Thus far, he has raised prices by 15% to 20% overall this year. Southern Leisure is also limiting the number of spas sold months in advance by informing customers that the final price may change if a spa is purchased more than three months ahead of the final payment. He says one way to protect his store’s gross profit margin is to not presell hundreds of units.

“We haven’t added any kind of surcharge or material escalation clause to our contract at this time,” he says, “but it is something we are considering if prices continue to rise on a quarterly basis.”

From the manufacturer side, Jake Ricks, director of marketing at Bullfrog Spas, says several factors impact the way the company fine-tunes its price points.

“We consider the competitive environment, manufacturing costs, manufacturing capacity, availability targets and margin targets,” he explains. He points to manufacturing costs as one factor that has been challenging over the last few years. Material and labor costs have changed dramatically — many times and often without warning, he says, and that’s primarily what’s driving prices up.

Ricks says Bullfrog Spas has raised its wholesale prices a handful of times over the past few years and applied the new price to orders in the queue. The company used to be able to lock in pricing a year or more in advance on almost all materials and supplies, but not anymore.

“Over the last two years, we’ve had hundreds of price increases across almost all suppliers, many citing force majeure clauses,” he says. Bullfrog pushed off or just absorbed most of these increases along the way, “but some have been too large, too abrupt or both, like those caused by the Texas freeze,” Ricks says.

Ricks adds that Bullfrog has also seen many single-material price increases that compound within a short period. “These scenarios have caused us to have to fall back on our last resort: passing an increase along to dealers,” he says.

Thankfully, though, Ricks says Bullfrog Spas’ dealers continue to be true partners. “No dealer ever wants an unexpected increase and, of course, we’ve had many conversations about pricing,” Ricks says. “But we’ve had very respectful interactions and have experienced a tremendous amount of understanding from dealers.”