Inflation in the Pool Industry
You have all heard about and experienced the inflation that we have been experiencing over the past two years, especially in 2021 and thus far in 2022. Bloomberg reports that the inflation rate for 2021 was 7%. Obviously, some sectors did not experience 7% inflation rate, while other sectors experienced much more than 7%. One of the sectors that experienced much more than 7% is the pool industry. I have heard several pool industry experts state that inflation for the pool industry is between 25% and 60%, depending on the region of the country and the segment of the pool industry. We believe that the inflation that we have experienced in the pool industry is the highest that we have seen in our company’s 64-year history.
Most companies, us included, do not like raising prices—especially for same services rendered. Most companies will do their best to absorb gradual cost increases. But at some point, due to increased costs, there is no choice—companies are forced to raise prices in order to survive.
Why did these costs increase? Well, there has been a confluence of several factors which truly caused the perfect storm. I will address what we have seen/experienced.
The Pool Industry was Already Strained, Then the Pandemic Occurred
Prior to the pandemic, the pool industry was already very busy—primarily due to the booming economy and the migration of people to the southern, warmer states, including Texas. But once the pandemic started shutting things down in March of 2020, demand went to a new level. People starting asking themselves—Is my home the way that I want it? What improvements can be made to improve the quality of my life at home? As you can imagine, this has considerably increased the demand for swimming pools.
Prior to the increased demand, the skilled labor pool was already stretched. If you have tried to have home repairs or remodeling done over the past few years you are probably already aware of how difficult it can be to find someone to do the project, especially of the high-quality variety—from plumbers to electricians to HVAC to masonry contractors to pool equipment technicians, as well as many other trades. The bottom line is that there is simply not enough workers to get the work done, and it does not appear to be getting any better. This labor shortage has resulted in an increase in wages across all industries, not just the pool industry.
Pool Equipment Shortages
Pool equipment (pumps, filters, heaters, etc.) manufacturers, although very busy and stretched, were doing a good job of keeping up with demand until the pandemic occurred. Then after the pandemic starting shutting down things, there were a few weeks where no one, especially the manufacturers, really knew what was going to happen to the pool industry. Would demand for pool equipment completely dry up until the pandemic was over? The answer ended up being that it substantially increased demand, but the few weeks of uncertainty and preparing for the worst certainly didn’t help the situation. Some manufacturers canceled ordered components, some even shutdown plants or reduced staff due to spacing requirements. This combined with the fact that manufacturers do not have a large surplus of products read to ship, it got bad fairly quickly.Then the unthinkable happened:
The Freeze Damage in Texas due to the Power Outages
What a debacle that caused for the pool industry. According to PK Data, Texas has between 600,000 and 700,000 of swimming pools, and estimates are that 15%-25% of them had some type of freeze damage, oftentimes pumps, filters, heaters, etc. This further created shortages which resulted in price increases in order to increase production.
To further complicate matters, a new Department of Energy regulation went into effect July of 2021. The regulations require a minimum energy efficiency of pool pumps, which means that most single speed pumps do not comply. Moving forward, pool pumps above 1 horsepower must be variable speed pumps. As you can imagine, rolling out a new product during a time of shortages created more problems for the manufacturers as most of them were unable to keep up with the demand.
Pool chemical manufacturers have also struggled to keep up with demand due to issues caused by the pandemic. Not only shortages of chemicals, but also the plastic containers to put them in. It was a difficult situation already, and then in August of 2020 a disaster occurred: one of the largest chlorine manufacturing plants in North America was destroyed by Hurricane Laura—it was a trichlor tablet manufacturing facility in Lake Charles, Louisiana. All of the sudden there was simply not enough chlorine for the pools in the United States. This has caused 3” tablets prices to double in price almost overnight.
In order to fill the void, several US based chemicals companies attempted to purchase from overseas manufacturers, but they were simply not ready to supply the needed increase in demand.
Not only were the overseas manufacturers backed up due to increased demand and safety protocols, but you have heard about the delays in unloading ships. Some of the ports were closed for a short time in March of 2020 which backed up shipments, but it just continued to get worse. Shipments that typically took weeks now took months or more. Even products that are made in the USA oftentimes have components that are made elsewhere (very common in the pool industry). As you can imagine, this has resulted in an increase in the cost of shipping.
Per Marketplaceplus.com: The average price to ship a 40-foot container from China to the U.S. West Coast ports increased from $1,500 at the start of 2020 to over $20,000 in September 2021 (the average price includes premiums and surcharges). By the end of 2021, the rates started to drop, but only to $15,000. So far, in 2022, the rates remained at the $15,000 level.
We have all been impacted by the price of fuel. As you can imagine, companies that have trucks on the road continually have been substantially impacted. In just over two years, gas prices have increased from under $2 per gallon to over $4 per gallon.
In conclusion, the world changed in 2020 and many industries have been impacted, but few have been hit as hard as the pool industry. As you can tell, it is a bad situation and it might be a 2-3 year journey for it to get back to “normal”. For now, this appears to be the new reality for the pool industry.