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The COVID Coaster

The steep plunge and historic rise of the 2020 hot tub industry

The panic started to seep in the last days of February. Warnings about the coronavirus grew, and early signs from countries like China and Italy foretold of a deadly and little-understood disease. North Americans waited to see if it would cross the pond and when. In early March, cases started popping up in Seattle, California and New York. The NBA shut down, with a player testing positive right before game tipoff. State by state, city by city, officials ordered people to stay home, close schools and shelter in place.

Historically, none of this would bode well for the hot tub industry. In a flashback to the recession, manufacturers and dealers saw sales plummet in March and early April. They moved quickly, laying off or furloughing staff, prepping for what most expected to be a bloodbath.

But then, the unthinkable.

Below, an oral history from a number of hot tub manufacturers, suppliers and retailers across North America on how the pandemic impacted their business, where they are now and what this means for the industry going forward. They were interviewed separately throughout August, and their comments have been edited for length and clarity.

What Happened — Preparing for the Worst

Brent Conver, CEO, Clearwater Spas, Woodinville, Washington: We were [the] first [manufacturer] to be shut down, and probably had the longest shutdown from what I’ve been told [early March until mid-June]. That’s a long time. We furloughed a large percentage of the company during the shutdown.

Willy Spears, CEO, Waterway Plastics, Oxnard, California: California was one of the earlier states hit with shutdowns. We had letters from customers we supply that stated that they are essential, therefore as a supplier of their goods, they need us. But especially at the beginning, we had a lot of government workers come in here saying, “Are you guys essential? Should you be working? We got complaints.”

Kevin Richard, vice president of sales and marketing, Master Spas, Fort Wayne, Indiana: A few of the [Master Spas] executives were traveling the week of March 9. We were flying home on the 12th, and it was a different world than four days earlier. As an executive team, we started meeting March 14, a Saturday, to discuss what to put in place to keep all of Master Spas safe, healthy and moving forward. We were meeting every day, and we shut the factory on the 23rd [right before] our governor’s mandate.

SHUTDOWN TIMES
Core Covers (Tijuana, Mexico)
Shutdown length: 6 weeks
Clearwater Hot Tubs (Redmond, Washington)
Shutdown length: 11 weeks
Marquis (Independence, Oregon)
Shutdown length: 2 weeks (voluntary)
Bullfrog Spas (Herriman, Utah)
Shutdown length: None
Balboa Water Group (Tijuana, Mexico)
Shutdown length: 5 days
Master Spas (Ft. Wayne, Indiana)
Shutdown length: 6 weeks
Coast Spas (Vancouver, British Columbia)
Shutdown length: 5.5 weeks
MAAX Spas (Chandler, Arizona)
Shutdown length: None
Waterway Plastics (Oxnard, California)
Shutdown length: None
Nordic Hot Tubs (Grand Rapids, Michigan)
Shutdown length: 6 weeks

Jim Johnston, vice president of marketing, Marquis, Independence, Oregon: The first mandate that came out of the state was to have social distancing in the factory. And that was a significant pronouncement because putting people next to each other was part of the [manufacturing] process. The first thing we did was close the factory for a day to do some planning.

Willy Spears: While we never shut down, we did have a fairly big slowdown through March and April. The pool industry kept rolling; the spa side almost came to a standstill. Most of our big customers shut down for those two months. There were a few that stayed open, but I would say 90% of the spa companies we supply were shut for a month or two. We had to do some layoffs and were sitting back thinking, “Man, this year might be toast.”

Steve O’Shea, vice president of sales and marketing, MAAX, Chandler, Arizona: Sales dropped for all manufacturers dramatically, immediately. We went into April like a lot of manufacturers, probably building 90% inventory, 10% sales. We did not have a shutdown in Arizona. We built a lot of inventory and met the needs of the dealers throughout the world who were still open. Some of the shutdowns didn’t happen right away. Canada was a little slower than America, but they [eventually] shut down hard and fast. The UK, which is the biggest European region for hot tub sales for American companies, didn’t shut down until later April and then they shut down pretty hard as well.

Patricia Diamente, CEO, Coast Spas, Vancouver, British Columbia: We wound up shutting down around the third week of March — and this was full shut down, so no manufacturing,

Jake Ricks, director of marketing, Bullfrog Spas, Herriman, Utah: There was considerable fear in our workforce and people not wanting to come to work, not wanting to even try. We immediately made all kinds of changes on our line to space things out, mandating PPE, masks, shields, and things like that. But in those first weeks we did have a lot of people calling in sick, just out of fear.

Jim Johnston: Though we knew the plant was being laid out in a way that would work and could be as secure as we could make it, people were still freaking out. They were going home, their spouses were freaking out, the kids were at home, day care wasn’t available. We gave everybody two weeks’ paid time off. Everybody needed time to recalibrate, so we shut down the manufacturing operation.

Jean-Pierre (JP) Parent, executive vice president of sales and marketing, Balboa Water, Tijuana, Mexico: The pandemic in Mexico has been pretty bad. The peak was delayed as compared to the United States, by three to five weeks. We had to take precautions and implement social distancing, but we only shut down for five days.

“We all keep each other safe” says the banner hanging in Core Covers’ partitioned break room. The company hopes it inspires healthy choices outside the workplace.

Jerry Greer, CEO, Core Covers, Tijuana, Mexico: It was difficult to navigate how to get an essential permit assigned to us — that whole process took about six weeks. We make a safety product — there are international codes that include safety covers for hot tubs — so luckily there’s a lot of documentation. In Mexico, basically the employers provide the unemployment insurance. So immediately our employees are mandated to be at home, and we are mandated to make payroll.

Sky Matula, president, The Hot Tub Store, Sonoma, California: In March, our sales fell off a giant cliff. We thought we might close our doors for good. We cut costs. We postponed paying rent and other bills to pay our people.

Jake Ricks: In March, orders tanked as dealers had to shut down stores. But instead of wholesale layoffs, we allowed people to voluntarily reduce their salaries to keep as many employed as possible. We figured it would be a short-term bridge strategy and well over 100 people committed to do that. We cut some limited temporary labor, but we were able to keep everybody who was employed directly.

Jim Johnston: Simultaneous to that, all of our dealers across the country were increasingly being told they had to close their stores and everyone was being locked down. Though we continued to pay their health insurance, we furloughed half the factory floor because we just couldn’t get that many bodies in the building.

Steve O’Shea: During April, we did have to right-size our production staff based on what we were building, which lowered our production capability. We weren’t able to build as many spas for inventory as we would’ve liked.

Jerry Greer: There are times as a business owner where you’re faced with choosing money or choosing people. Most of the time, individual belief systems drive that decision and it’s easy to do the right thing. It’s been galvanizing in that way. Early on you went, “This could turn out bad financially no matter what, so why not get through this without regret? You’ll end up broke, but at least you did the right thing.” You have the paycheck of integrity at the end of it. To some degree, isn’t that all we have at the end of it anyway?

Kevin Richards: At that stage, the initial reaction [in the industry, specifically dealers] certainly seemed to be, “Is my business going to be able to survive this?”

Kelly King, owner, Mountain Hot Tub, Bozeman, Montana: In March, when we got the shelter-in-place order, we went into protection mode. We sent people home on furlough, cut salaries, cut hours, reduced store hours, etc. 

Jerry Greer: We all saw our lives flash before our eyes. How long will this last and will there be enough demand to support the overhead? Both could take you out. If you’re shut down too long, you’re out. If you’re shut down for a short or manageable period but now demand is so low, then you’re coming back with limited cash flow. We’ve got this immediate problem, and then how devastating will this be for the category? There was such a degree of powerlessness, so much out of my control as a businessperson, that it was actually pretty peaceful.

Getting Restarted

Jim Johnston: About a week and a half into that stay-home period, we had quite a few people calling in going, “Can I come back to work?” We knew we were going to get a workforce when we reopened the doors. Initially, our daily production rate was probably 50% of what we would normally do. That aligned pretty close to what we were doing with staff, but orders weren’t even at that level. Because most of the stores were closed, no one knew what was going to happen in retail. We made contingency plans with our production planning until demand picked up again.

Brent Conver: It’s not just that we didn’t want people sick, but it was important that people felt safe to come back to work. It’s one thing to implement [policies], but people have to feel like it’s taken seriously. Communication turned out to be an important step.

Kevin Richards: As employees came in, we set up tents and hand wash stations, and areas for supervisors to meet staff to make sure they were feeling OK.

Jerry Greer: We have sanitization tunnels, basically an alcohol chamber every employee goes through, which kills any external bacteria or virus. Nursing staff do a health audit of every employee, every shift. Their temperature is taken twice. Anyone registering a high temperature or experiencing symptoms is isolated. We test them with a 15-minute rapid test, which is a prick of blood on a testing device. If positive, we immediately take them to the clinic where they get a more formal blood test. We have a sanitization staff come in between shifts. And anyone considered high-risk is at home, getting paid. We still have 12 to 13% of the employee base at home.

Kevin Richards: Once you’re in the building, we have many more hand wash stations set up throughout, we have signage plastered everywhere. We rerouted traffic flow, and sanitizer and face masks are required, which is not an easy thing when it’s 90 degrees outside and you’re working in a warm factory. We hired a nurse to walk around to make sure everybody has their masks on — that’s management’s duty as well, to make sure everybody keeps their masks up and social distancing as much as possible in each of our four buildings.

Brent Conver: Distancing is the hardest. I thought it would be mask wearing, but they’re fine wearing masks if it’s not an annoyance. Before, the bell would ring at 5:30 or 6 and everybody would take a break at the same time. That’s gone. It’s staggered; we ring people in every 15 minutes.

Willy Spears: A lot of what we do is already somewhat naturally social distanced. For our injection molding machines, you’ve got one operator per two machines, but we’ve got full assembly tables where we have people standing next to each other. The assembly doesn’t work quite as well when they’re not handing the part from one person to the next, but we’ve just had to spread everybody out. We started removing [some] tables and chairs in the lunchroom. We can’t control every move they make, but we try to prevent as much as possible.

Patricia Diamente: We’ve changed our shift hours and the way they function. We’re at two shifts instead of one. We stagger when employees come in, and we stagger as they leave and the next shift comes in. We try to make it work for the family reality of kids, babysitters, parents at home, grandparents at home, second jobs — things of that nature.

Kevin Richards: [The changes] cut down on our production capacity. One reason is the elements — the social distancing, the masks — that didn’t necessarily used to be in the facility. But the other thing is, if you give people six weeks off, it’s going to take time to get back into the flow of things. You gotta brush away the cobwebs.

Patricia Diamente: The one model that we live by is, you’re only one COVID case from shutdown, because that’s all it takes. We’re very on top of the rules.

Order Influx

Jim Johnston: And then the shit hit the fan.

Steve O’Shea: Our sales grew dramatically over a very short timeframe. We went from shipping in three days to a five-week backlog in fewer than 10 days. It grew rapidly from there. Every time we sent out a communication to discuss lead times, it was old news by the time dealers got around to reading it because they were so busy. We’ve had record days of orders, and we’ve had record months of orders. I’ve never seen this industry move this fast, and I’ve been in it for over 30 years.

Jake Ricks: We fired up ways for dealers to do online sales presentations with customers. [We were] quickly exploring how to improve video conferencing, phone sales and business over SMS. We came up with cool solutions, just better ways for retailers to communicate with customers. Since then, we’ve been swimming against a massive flood of orders. We’ve got demand at levels that we’ve never seen as a company.

Kevin Richards: It was like watching The Wave in a stadium.

Jim Johnston: It was just phenomenal. Historic. Normally, we try to operate on a two- to three-week backlog on production, and each day we were taking more orders than we could produce in three days. We were adding a week of backlog time every two days. It was incredible.

Pete Westfall, president, Nordic Hot Tubs, Grand Rapids, Michigan: Never dreamed we would see demand for hot tubs like we have seen. We have received more orders this month than we received all last year.

JP Parent: The entire world got on fire. Our biggest competitor has always been the travel industry. People either cannot travel or are not interested in traveling, so they want to feel more comfortable at home. In the last week of April, our orders shot up worldwide.

Don Riling, owner, Olympic Hot Tub, Seattle: Initially, I’d laid off 17 people. But within a week or two, things blew through the roof. My sales manager and I were selling every lead we could. In the last two-and-a-half months I’ve sold over 50 tubs myself. There’s something cruel and ironic about the fact that we’ve been trying to raise awareness for so long. Now everybody wants one, and we can’t get them fast enough.

Core Cover employees are sprayed with disinfectant before entering the building each shift.

Shortages

Steve O’Shea: We started bringing people back in May, as quickly as we could. During that time, a number of suppliers kept us from having a smooth production rate on a daily basis. It went from, “Are we going to have enough to build for the month?” to “Are we going to have enough to build all of our products for the week?” to daily evaluating our inventory. We had to shut down production for different periods to unload trucks to have enough raw materials to keep production flowing. Our procurement and production departments did a fantastic job keeping plates spinning during this time.

Kevin Richards: Those parts and pieces have been our biggest issue the past few months. If you have product going down the production line in anticipation of X, Y, Z parts showing up Thursday but they don’t show up, workers get frustrated.

JP Parent: It trickles down the entire supply chain. Our OEM customers would like to get more components from us the same way they’d like to get more acrylic and more skirt panels. There’s easily 150 components on one board. We’re dealing with many suppliers to get all those components on time, and the lead times in electronics are [normally] very, very long. It’s not just a question of capacity — it’s a question of being able to have our suppliers keeping up with us right now. It’s probably even a bigger challenge than ramping up our capacity, which we’ve done quite successfully.

Willy Spears: If we had known what was coming in May and June, we would’ve never slowed down, we would’ve never laid anyone off. We would’ve been hiring instead. Now we’ve gotten more orders than we know what to do with. Even though all of our assembly lines were designed to change fast, we weren’t designed for a 150% overnight increase in sales. Every day is a battle to put fires out.

Patricia Diamente: We’ve had a few moments of creativity and slowdowns. The supply material is rolling in, and it goes right off the truck into manufacturing. We work with our dealers and say, “We know you ordered this model with all these configurations, but can I give it to you this way?” You have to figure out how to get things out the door with what we have so as to not further extend lead times and be realistic about the current constraints. If your topside isn’t oval but square, that’s not the end of the world. If I can’t give you brown cladding but I can give you gray cladding, that’s still alright.

JP Parent: We are creative. If the manufacturers cannot respond with the electronic components, we find inventory at the distribution level. I’m not kidding — in Germany, the UK, Korea, anywhere — but of course, at a higher price. We’re incurring extra costs, and we have to fly them in to keep going. The logistics are a nightmare.

Willy Spears: It’s hard for us to supply when our demand is double, and it’s hard for our suppliers to handle us ordering double. For one plastic part we previously purchased, we ended up making a mold. It was either that or not ship.

Jake Ricks: We’ve got a lot of pieces in place, but labor has been a really hard one. The enhanced unemployment benefits did not do us any favors. The very day those started running out, we were seeing more response to our job ads.

Pete Westfall: We have increased our production output a little, but not near what we would like, yet. We had plenty of space to make the needed adjustments for social distancing and to add work stations. The supply chain has been a big hurdle for us. However, the biggest hurdle has been filling out our staff, we started a second shift late June/early July to work toward increasing production. No one wants to work. It’s crazy.

Willy Spears: We actually had people wanting to be laid off. We had anonymous reports of us being in violation of safety codes. Internal workers were trying to get us shut down because if they quit, they wouldn’t be able to collect unemployment. It wasn’t until about three weeks ago we had people lined up, sometimes 50, outside the door. They knew those checks were coming to an end. But with kids not being in school, I’m sure that had something to do with it, too.

Patricia Diamente: [Our office staff are] going to remain remote for the foreseeable future, and we still have our operation people in the building to produce hot tubs. The idea of remote work isn’t just for safety and maximizing the number of people who can be in our manufacturing footprint; it’s also for our employees who have family constraints. We want to be flexible.

Jerry Greer: Thank God we have demand. This is hard, but I am so grateful. I’m grateful for myself and my own family, and clients both big and small. I’m grateful for my employees. I’m so grateful these are the problems we have right now.

Where Are We Now

Jim Johnston: We’re in the process of transitioning to doing things differently, but in the absence of more moves to increase production, on paper today if I get another order — and we will — it will be a year before that unit would be made. Among the things we started to do was to add a second shift.

Jake Ricks: We are taking orders for 2021. Demand is already coming back down, and I think when we get beyond Labor Day we’ll see some of the regular seasonality kick in and somewhat decreased demand, but I do think things will stay strong well into 2021.

JP Parent: I haven’t had face-to-face meetings in five months, but at the same time I have never felt as close to my customers as I am now. We talk over the phone or on Zoom calls more than we used to; I have a better understanding of their needs. I was concerned about not traveling anymore and not having those meetings that I thrive on, to be honest. We try to help each other meeting that challenge, realizing it’s a huge opportunity that nobody wants to miss.

Steve O’Shea: One thing everybody in our industry should understand is that manufacturers aren’t building a lot more than they’ve built before and some will build less. But their costs will go up. We’ve already seen that. We’re trying to build every unit we can to get them out to customers, and we are looking at how to grow our daily production. It starts with head count and then raw materials; if both of them align we can grow, but that’s not necessarily the case right now.

JP Parent: I work 18 hours a day, and I’m not the only one. I spend time with vendors and customers, and spend a lot of time internally scheduling and expediting. It’s a lot of stress, but I wake up every morning and tell myself it’s a good problem.

Jim Johnston: We had two kinds of dealers: one was looking at the situation, listening to us and starting to place orders every week — even though they didn’t have sales every week — because the backlog was growing. They trusted us when we said this is an industry-wide problem and it’s going to hit all the brands. Those people started ordering, which only added to the backlog, but at least they were in line. A continuous flow of products were coming to them for weeks and months. The others were selling showroom models off the floor, living in the moment. In this backlog, they’re the ones who are furthest out. It’s a real mess. We have a particular concern for our exclusive dealers because they don’t have an alternative to also fill their floor, and they need to make good decisions to keep their businesses. We’re trying to figure out ways to balance availability for the exclusive dealers as well as for those following the rules even if they have multiple brands. In candor, there are some of the weakest dealers who are getting terminated because we can’t take care of people who aren’t engaged in a way that makes sense for success down the road.

Jake Ricks: We’re working on strategies to help dealers plan better and be more predictive in what they can tell customers. If we can nail down some of those programs, dealers will be able to promise a range of dates that are not going to change. We’re trying to give our dealers the best tools possible to predict accurately when they will have spas.

Manuel Viveros, plant manager for Balboa Water Group’s Mexico factory, wears a mask and face shield made by Balboa for its employees, customers and front line workers

Patricia Diamente: The one thing everybody is realizing now is you’ve got to start forecasting and planning to make sure you’ve got your orders in the queue if you want them within a reasonable lead time. [Ordering] just in time isn’t in the cards for the foreseeable future.

Jim Johnston: We have seen a behavioral change from the dealers. After ’08/’09, nobody wanted to carry their own inventory and we were a just-in-time provider. But selling what you own is a more secure business model than selling what you hope to source. Retailers are doing better every month with training salespeople to sell their inventory rather than taking orders and waiting for the factory to build that custom piece.

JP Parent: In the U.S., [the pandemic and order influx] re-exposed the product to a much broader audience. In my community, an unbelievable number of hot tubs have been installed in the last three months. Three on my street alone. The buyers are fairly young, which is what the industry needed to create a second wind.

Don Riling: Virtual selling is still part of our mix. From this point forward, we all need that skillset. We have people in new demographics looking at our product for the first time who may have otherwise waited 10 years to get a tub. Thirty something’s who make a lot of money and were dining out, going on trips, to concerts, to theater, taking Uber and Lyft rides — all of them are now home with their kids, significant others or spouses. Now you’re reeducating them on how much good hot tubs cost, and why it’s important to spend that money. We have a golden opportunity to stretch our demographic down into the 30-year-old range.

Jim Johnston: We are grateful we made moves [expanding our manufacturing footprint] when we did. Now we’re looking at where to go from here. The next generation of this business is scale. How do we sustain what we get? We don’t know if this volume of activity is sustainable for the marketplace, but let’s assume it is. We can ramp up to where we can dial back the backlog to a more palatable pace. But if it persists, what are we going to do for the next level of expansion of the company? On paper, we’ve got next year booked, which is craziness.

What Comes Next

Jake Ricks: Sales will continue to be well above what’s normal for this time of year until travel and vacations become a thing again. We are starting to see it level off to some degree, but interest is still strong.

Steve O’Shea: Through 2021 and well into 2022, sales are going to be strong for the leisure industry. Everybody is pulling a number out, but I believe we will plateau near a 30 to 40% increase over 2019, and it could be higher. However, there will be a point where anybody who thought about getting a hot tub has gotten one. What do we do then? People want to spend money on something that benefits their life — and if they can’t get a spa in the right timeframe, they’re going to look at a pool. If they can’t get a pool in the right timeframe, they’re going to look at an RV. They can’t get an RV in the right timeframe…they’re going to spend their money somewhere else.

Don Riling: If September/October rolls around and we have another coronavirus wave, sales are going to explode again. Everyone we talked to in March who decided to wait the first time around — now this is coming back to haunt them. I hope I’m wrong; I hope this virus goes away, but if anything spikes, it’s going to cause our business to explode.

Jim Johnston: In the future, I think we could lose some companies in the industry. We certainly could lose some retailers. The category, however, seems to have been elevated in people’s thinking by how their lives have changed, so ultimately maybe it doesn’t fall off a lot.

Jake Ricks: One of the factors we watch is that a high percentage of hot tub buyers are previous hot tub owners, and this is going to create a bunch of hot tub owners that four to seven years from now will get back into the market. Additionally, a lot of hot tub sales come from referrals. We can take advantage of this time and use it for the growth of the industry long term. It will also reenergize parts of the industry and change some practices. Market events like this generally have a tendency to be refining.

Kevin Richards: My biggest fear is that we pop our own bubble because some people don’t look at this as a long-term run. They’re looking at it as today I can get this much, tomorrow I can get this much.

Patricia Diamente: We’re not thinking that COVID is a spike — this is a generational long-lasting trend. Everything that we’re putting in place, this is not for a short period of time, this is the new way of working. We are adjusting our business model saying these are going to be fixed costs. This is a new reality, let’s accept it and get better and smarter about how we deal with it.

Jerry Greer: A wide spectrum of demographics wanted a hot tub, and the pandemic matured that desire to a purchase. There’s some momentum when three people on the street get a hot tub. It exacerbates that demand curve.

JP Parent: Even though the travel industry will somewhat recover in two years, the exposure the product is getting now is going to sustain demand.

Jerry Greer: The best nugget I take away from this is a large group of people wanted hot tubs. It was on their desire list somewhere. JP Parent: I think this changed our life forever.

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