Is Exclusivity Gone?

Retailers and manufacturers look for a post-COVID path forward

In many ways, COVID leveled the playing field — suddenly everyone was in the same boat. When pandemic demand began exerting pressure on all sides of the hot tub industry, suppliers, manufacturers and dealers could only build and sell as many as the link behind them could provide. The global supply chain has been stressed beyond its capabilities, as was the hot tub dealer and manufacturer relationship.

“If you’re a retailer, the most heartbreaking thing is when someone comes in to buy something you don’t have,” says Audra Johnson, a partner at Johnson Pools and Spas in Owego, New York. “That’s happening all over the country.”

Likewise, hot tub manufacturers are dealing with the same disappointment from their dealers who wish to purchase more spas.

“Every manufacturer is in the same position, we’ve built more product than we’ve ever built in the first quarter — and we’ve upset more dealers than we’ve ever upset,” says Steve O’Shea, vice president of sales and marketing at American Whirlpool. O’Shea says since sales are great all dealers want two or three more spas or truckloads a month, but the problem is that he has hundreds of dealers. “It’s not possible to meet all their needs,” he says. “We can’t build anymore spas due to raw material limitations and headcount, to name a few.”

Communication: The Good, Bad and Ugly

In a time where a record number of hot tubs have been sold, lots of bad news of missed deliveries, long lead times and allocation programs has been delivered. And sometimes that bad news was not well received.

Michael Lahay, owner of Spas and More in St. Louis, has been an exclusive Master Spas dealer for more than 20 years. Throughout the pandemic, he’s remained exclusive to the brand — though he wasn’t happy with all its decisions. For instance, Master Spas regulated how many events he could hold since sending out truckloads of extra spas wasn’t feasible. But Lahay says Master Spas was transparent about its decision, and while he was disappointed, he knew it was the right choice.

“Master Spas was out there with personal phone calls, with visits, emails letting us know what was going on,” he says. “I think a big part of that was that they treat us like family, they always have.”

Though travel is reduced and restricted, most retailers never communicated with their manufacturer reps and factory as much as they did in 2020. Steve Stigers, vice president of marketing for Watkins Wellness, says dealer/manufacturer relationships have largely been strengthened by that increased communication since COVID hit.

“The notion of partnership has never been more valuable,” he says, “on both sides. Transparent communication has been needed to manage the uncertainty. Trust has also been a big factor during the pandemic. Honest, straightforward communication matters, whether the news is good or bad. Retailers have had to rely on the best possible information to manage their customer expectations.”

Tracine Marroquin, vice president of marketing for Jacuzzi brands, says the company is sending more memos to its dealers, and the information in them is much heartier than in the past.

She spends more time on the phone with dealers than before, and adds that the company’s account managers, while not traveling physically to see dealers, are spending more time in communication with them.

O’Shea says he and the company’s president, John Johnson, have also spent increased time on the phone. “We have personally returned every single call from a dealer who had any questions about our program,” he says. “We have taken those calls, or we have returned those calls, which is the right thing to do.”

Audra Johnson at Johnson Pools says her manufacturers, Nordic Hot Tubs and PDC Spas, have both been good at communicating production times and ship dates, which in turn means upfront and transparent communication with anxious customers. “It is vitally important to maintain a close relationship with those [suppliers],” Johnson says. “If it wasn’t for them we wouldn’t be successful, and if it wasn’t for us they wouldn’t be either. We have to work hand in hand.”

Supply, Demand and Who Ordered First

Though the industry will have the good fortune of coming out ahead post-COVID, there will still be winners, losers and hurt feelings. Stigers says he feels trust between manufacturer and dealer has likely been injured in some regards.

“Making promises and not being able to fulfill them or allowing new dealer customers to come onboard when a manufacturer cannot even adequately supply existing, loyal customers,” he says, “has likely weakened some relationships.”

Rumors of if and how manufacturers brought on new customers during COVID have spread across the industry. Knowing your supplier isn’t moving an order back in the queue to make room for someone new is important to many retailers.

“Our manufacturers have been good about giving us every advantage they could in the face of the pandemic and the shortages,” Audra Johnson says, adding that she has no reason to believe they have sought orders outside their existing retail client base during the pandemic. “Loyal customers like me,” she says, “who’ve maybe dealt with these people for decades and decades — we’re not pushed back to the end of the line.”

Marroquin sees passion and excitement from manufacturers and retailers right now, which she says shows that everybody is committed to getting more people excited about hot tubs. “We want to come out of this having had record years, but we want that same success for our dealers,” she says. “We’re trying to be as fair and consistent and open in our communication as possible to help them maximize success.”

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Despite the best efforts of manufacturers, not every decision can be accounted for — and that will sometimes be a hard pill for retailers to swallow.

“Most of our dealer family trust that we’re telling them the truth,” O’Shea says. “However, social media has changed the visibility of other dealers. So, when a dealer sees another dealer who sells the same product or any other brand and they’re advertising a big parking lot sale, they ask, ‘How did that happen? How did they do that?’ That’s how [that dealer] wanted to do it. It doesn’t mean anybody is being treated unfairly or with special treatment.”

O’Shea says to keep in mind that how another retailer chooses to advertise or run their business may not accurately reflect what’s going on between that retailer and its manufacturer behind the scenes.

“Since the onset, our approach has been to be fair and equitable with our entire base,” Stigers says. “Easier to say and harder to achieve, but that’s been our approach — let’s communicate.”

Supply Versus Relationship

Retailers shopping for a new manufacturer with better lead times will likely be disappointed. Even if a dealer could find a manufacturer with shorter lead times than its current supplier, chances are they’re not taking new business. Any retailer able to get in the queue with an additional supplier is undoubtedly lucky, because no matter where they’re coming from, more tubs mean more sales.

Southern Pools and Spas in Bristol, Virginia, has been an exclusive Watkins dealer for two years, but picked up Dream Maker Spas, a brand it had previously carried, when the pandemic began. “If Watkins could come to me and say they could supply me with an infinite number of hot tubs, I’m with Watkins,” says general manager Josh Arnold. “If we plan to sell X number of hot tubs and [Watkins] can only supply us with half, I’m not just going to settle for that. I’m going to look for another avenue.”

That sentiment is hard for manufacturers to argue with right now. Manufacturers say retailers who brought on additional brands during the pandemic have not damaged their relationship in any way, but most manufacturers also insist that the benefits of being exclusive will soon outweigh supply-chain issues.

Stigers says that traditionally a single focus on one brand not only simplifies doing business but also makes it easier for a dealer’s marketing and sales. “Dealers who are exclusive also save money and realize operational efficiencies as they are able to enjoy a one-stop shopping experience,” he says, “as well as leverage volume to buy in larger quantities per order, often achieving full truckloads.” He says this helps with pricing and minimizing shipping costs, plus minimizing backend costs when fewer parts are required for service.

Each hot tub manufacturer offers different benefits to dealers, sometimes based on exclusivity. Marroquin says exclusive Jacuzzi brand dealers get tangible benefits like more co-op dollars, better flooring terms and first dibs on events. There are also intangible benefits like more attention from sales reps and managers.

Lahay is part of the APEX program of top-tier Master Spas dealers. You must be exclusive to be in the APEX program, and right now those are the only Master Spas dealers getting access to tubs to do any events, which typically requires extra truckloads of hot tubs.

“Over the years, dealers who have tried multiple brands for the most part return to one brand, as the perceived benefits of being multi-branded do not seem to come to fruition,” Stigers says. “Unequivocally, we can say that our best and most successful retailers are exclusive.”

When Will the Goodwill End?

Across the industry among suppliers, manufacturers, dealers and consumers, there has been a certain level of patience, grace and compassion as everyone has coped with the hand COVID dealt.

“To be as efficient as possible with suppliers, you have to let down some guards you would typically have,” Marroquin says, pointing out that calls tend to be more personal with vendors than normal. “And as a result, end up creating more meaningful relationships — with dealers as well.”

With any hope, deeper relationships forged in the pandemic will create opportunities for better partnerships going forward, regardless of whether they are exclusive. 

Stigers predicts this diversification will be temporary and that most dealers will return to any exclusive relationships they had before COVID — especially once their manufacturer can meet demand again.

“Retailers want to capitalize on current demand, and if their manufacturer cannot cover all their needs, a short-term play to help them maximize the here and now is reasonable,” Stigers says, “as much as manufacturers don’t like it. But in the long-term, hot tub retailers run more efficiently, and likely realize larger profits, by being single sourced.”

Until supply can catch up with demand, the question of exclusivity and brand hopping will continue to swirl. Though there have been challenges and more will come, dealers and manufacturers will focus on catching up and keeping up. “Exclusivity is a loyalty factor for both,” O’Shea says. “The dealer only sells our product and we only sell to that dealer, it’s an exclusive relationship between two different businesses. However, every manufacturer in our industry has said if you need more product and you can get it from somebody else, by all means do so. We don’t want to limit their opportunity. I do not believe that exclusivity will end, because this will right size at some point and those relationships will then be restored. Until then, you have to do what you have to do.”