Ordering Inventory to Meet an Unknowable Demand

In March 2020, the world was forever changed when a deadly respiratory virus forced millions indoors, and in a bizarre twist, the hot tub industry saw an unprecedented rise in sales from homeowners desperate for a recreational escape inside their own homes. The ripple effect of this increase forced many dealers to up their orders from manufacturers, who then had to increase their output to keep up with the demand. Today, however, it can be harder to gauge what the correct supply is to meet the demand of tomorrow.

Retailers must find a balance of not overestimating demand by over-ordering inventory, nor underestimating demand, by ordering too few — a mistake many retailers made during the outset of the pandemic.

“That’s always the tightrope of inventory,” says Jarrett Dahlberg, who serves as Phoenix Hot Tubs’ company manager. “You gotta walk it for a while there to know what you’re doing.” Dahlberg has been walking that tightrope for nearly 20 years. It may have been those two decades of experience that helped him recognize earlier than some others what the pandemic would mean for the industry, and take decisive action. 

“When the pandemic hit and order and lead times went way up, we put in a bunch of loads immediately to just try to stay ahead of it,” Dahlberg says. “And then you just have to try to sell that off and stay ahead of it.” Phoenix Hot Tubs, which is based in Tempe, Arizona, sells only Master Spas manufactured hot tubs. Dahlberg credits Master Spas’ quick turnaround with helping his store never have to turn away a customer. “I didn’t always have every single model available,” Dahlberg recalls. “But there was never a time I didn’t have a swim spa or a hot tub or two. We were never completely sold out.”

According to Master Spas’ vice president of sales and marketing Kevin Richards, keeping up with those orders was no small feat. In 2019 the manufacturer saw order numbers unlike any it had ever seen — that was until 2020, which Richards says surpassed even the 2019 order numbers. The day he noticed the sudden uptick was April 1, 2020. “It was almost like it was an April Fool’s joke,” Richards says.

For Mark Dabney, owner and CEO of Tropical Spas and Pools in Panama City, Florida, if the rise in demand was a joke, he wasn’t sure whether he should be laughing or crying.

“It was overwhelming. Just overwhelming,” Dabney says, who took over ownership of the more than 36-year-old dealership exactly 10 years ago, after retiring from a lengthy career in the railroad industry. “It was huge. I am in a resort town, so it was especially huge.”

While Dabney’s experience may have not given him the foresight Dahlberg had regarding sales, working in the railroad industry did give him firsthand understanding of the kinds of problems that can slow down a supply chain, such as shortage of materials and labor — but even he was surprised by the dramatically increased lead times, noting that many customers were forced to wait on average eight months for their new hot tub, and in some cases, up to 12. What was particularly difficult, however, was the strict allocation some manufacturers had to enforce.

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 “One manufacturer gave me five tubs for the whole year [of 2022],” Dabney says. “Five regular tubs and five swim spas. I had to walk away from about 28 sales.”

Today he estimates that the loss of those 28 sales meant losing nearly half a million dollars in revenue, but he says that with Maax Spas, which manufacturers American Whirlpools, opening a 90,000 square foot plant in Ottumwa, Iowa, and other manufacturers like Nordic becoming more flexible in their output, the supply is finally meeting the demand. By now, however, he says that the demand has almost returned to 2019 levels. Though not for everything.

According to Dabney, the impact of the pandemic is still being felt in chemical and equipment sales. Countless new spa owners mean more customers with long-term maintenance and equipment needs. This means that while Dabney is now ordering hot tubs at 2019 levels, he is still struggling to order chemicals for treatment of those newly sold tubs.

 “It has become a problem,” Dabney says. “I’m having to go to different wholesalers to get chemicals because my main ones just don’t have the stuff.”

It’s like the stock market. People ask you for a quote and I gotta go, ‘I can’t tell you.’ I have to call [manufacturers], because they are changing it all the time.”

Mark Dabney, Tropical Spas and Pools

The other issue is ordering spa equipment, which may not be as difficult to order as the chemicals, but Dabney says the prices seem to increase day-to-day. “It is like the stock market,” Dabney says. “People ask you for a quote and I have to say, ‘I can’t tell you.’ I have to call [manufacturers], because they are changing it all the time.”

Now, whenever determining what amount of hot tubs, chemicals or equipment to order, Dabney says he uses caution. Given the amount of time between ordering a truck of new units, which can average two-to-three-weeks, it can be difficult to guess what supply or market changes will suddenly cause an unexpected shortage or price increase in an era when a war in Ukraine, or a container ship getting stuck in the Suez Canal, can change everything for a business on the other side of the planet. “I’m really careful about it,” Dabney says. “If I’m ordering tubs, I’ll order about an extra eight tubs that aren’t intended to be sold, just for display, and order custom tubs for any new customers who come in. They buy a tub; I order it and they have it by the end of the month.” If the customer requests one of the tubs on the floor, he says they are out of luck. “I have to sell them something else.”