Under Coleman brand, maybe hot tub maker can de-stress
The hot tub business is in the tank.
About 60 spa manufacturers have closed over the last six years, and experts say sales have dropped by as much as two-thirds over the same period.
But at a time when its competitors are pulling back and trying to diversify, a Pomona company is hoping to stave off the continuing decline by gambling on a well-known name.
Hot tub manufacturer LMS Inc. has paid an undisclosed amount for the right to make free-standing spas under the name of the popular outdoor supply company Coleman.
Having survived the downturn in part by diversifying early -- adding gazebos and barbecues at a time when competitors were still making mostly spas -- LMS says it plans to add 90 jobs at its 1-million-square-foot plant by year’s end to build new hot tubs. About 250 jobs over the next two years should be added if the Coleman-brand spas sell well, said Casey Loyd, LMS’ president.
But LMS has no guarantee of success. The company faces a marketplace harshly tested by changing consumer tastes and the evaporation of the luxury market.
“They’re pretty sure of themselves to be taking this all on,” said David Wood, publisher of SpaRetailer magazine. “They’re the ones taking on the risk here, not Coleman.”
Sales of aboveground spas have been so poor in recent years that the big home improvement chains rarely stock them. Home Depot sells hot tubs only on its website; Lowe’s doesn’t carry any. Wal-Mart and Sam’s Club sell spas online and in a small number of stores. Small specialty retailers are making the shift from selling mostly hot tubs to selling a variety of outdoor furnishings and supplies, Wood said.
Kathryn Gallagher, a spokeswoman for Home Depot, said the retailer moved to online-only spa sales two years ago as consumers moved away from luxury items.
With little return on an item that takes up so much floor space, retailers are reluctant to stock hot tubs in-store, said Lauren Stack, a spokeswoman for the Assn. of Pool & Spa Professionals. Selling spas takes significant effort, Stack said, and few large retailers are willing to invest in the necessary staff and training.
“When you do see hot tubs sold in stores, they’re usually put on top of shelves in the back of warehouses,” she said.
Small retailers tend to do better because they have trained staffers who can take a long time to make a sale, Stack said. But such stores’ ranks have been thinned by the crash in demand.
The market for hot tubs isn’t the only one suffering.
Consumers aren’t spending money on many luxury items right now, said Craig Kennison, an analyst with Robert W. Baird & Co. And until the recession is long gone, spending on high-end goods is likely to stay low, he said.
“Luxury markets tend to be a harbinger for the broader economy,” said Kennison, who specializes in the similarly slumping market for recreational vehicles. “We go into the recession much before the overall economy. The boat market, the motorcycle market, pool tables, spas, RVs -- all of these luxury markets are impacted the same.”
Another problem is that when it comes to hot tubs, consumers don’t really think about the brand, said Wood of SpaRetailer magazine. So the Coleman name won’t necessarily spur any sales, he said.
“We ask consumers all the time, ‘What brand do you buy?’ ” he said. “Almost 62% of people don’t even know what brand of spa they own. There is virtually no brand recognition in the hot tub industry.”
Coleman has had hot tub licensing agreements in the past, with only moderate success, Wood said.
The backyard and camping company has not had a spa on the market in three years -- and its last licensee went out of business before a single tub could be made, said Jason McClintock, Coleman’s senior director of product and licensing.
But Coleman and its parent company, Jarden Corp., were impressed with LMS’ ability to build and market its existing brand, CalSpas, at a time of turmoil, McClintock said.
Jarden executives think LMS will be more successful in building Coleman Spas than previous manufacturers, but they won’t be expecting sales to take off immediately, he said.
“We certainly don’t expect glorious results in the first 12 to 18 months,” McClintock said. “I think by 2012 we expect it to be up and running with a lot of growth ahead.”
Hayley Wolff, an analyst who covers Jarden for Rochdale Securities, said the LMS deal is part of a broader strategy by Jarden and Coleman to set up licensing arrangements with manufacturers and distributors. The company hopes to bring in $50 million a year from licensing deals.
“Licensing, if done right, is a great way to increase brand visibility,” Wolff said. “You get someone to build a product with your name on it. It’s almost all profit, and there’s very little expenses.”
Wolff said she thinks there’s a good chance the Coleman name will get the LMS hot tubs into big retail chains.
“If you can walk in at the selling point and say you’re affiliated with the No. 1 brand in outdoors, well, it opens doors because they’re in specialty retail, they’re in big-box retail, and they’re in the big warehouse stores,” she said. “But I didn’t really even know Coleman was in the hot tub business or had been. So that says something too.”
Loyd, the LMS president, said he hopes to build up the Coleman name by offering the hot tubs as special-order items in big-box stores. LMS’ CalSpas tubs are custom-made and sold in smaller stores.
The company is in a position to invest in a new hot tub line now because of its earlier move into backyard and patio products, Loyd said.
Other spa makers have recently done the same.
Major competitors such as Clearwater Spas and L.A. Spas have begun building gazebos in the last few years, Wood said.
Leisure Concepts, a hot tub accessory company in Spokane, Wash., started making motocross accessories last year in an effort to look outside the spa industry for a more stable revenue stream, Vice President Eddie Wood said. The company makes a plastic deck designed to go under hot tubs -- and now also markets it as the MotoPad, which racers can use as a work surface at dirt tracks.
Despite hope for a recovery, few players are floating all their hopes on hot tubs.
LMS will also distribute other Coleman products and continue to sell tubs under its CalSpas brand.
“We’re easing into this,” Loyd said. “With the recession the way it is, it’s going to take a couple years to build Coleman Spas up to where we want it.”
But the Coleman name, he said, is strong enough that if marketed properly, mass retailers will stock the tubs and consumers will buy them.
“You’ve got to have a brand, that’s why I did this deal,” Loyd said. “I bought the brand.”
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