Living the Home Spa Life
Shopping CartThe news came out a couple weeks ago that the largest Hot Tub maker purchased one of the smallest companies in the industry.
Why?
A couple reasons, Freeflow Spas are roto-molded and thus, they are less expensive to make. Therefor Hot Spring now can offer their dealers an entry level price point. Rumors have it that many Hot Spring dealers were starting to sell the Freeflow product over the last two years, so in sense they bought the company that was starting to give them competition for floor space.
The second reason is Costco. In 2011, the major portion of the Freeflow volume was sold to Costco. The type of product Freeflow makes is perfect for mass merchants, light, durable, and lower priced. By buying Freeflow, Hot Spring now has a product that is well suited to the channel and has the best mass client for hot tubs, Costco. The mass channel is important in a time where traditional brick and motor is still shrinking.
Time will tell if Hot Spring is really committed to the mass channel as they might be just waiting for the new product to grow with their current dealer channel and then pull out of Costco when they no longer need the sales to justify the purchase.
What is logical to assume is they (Hot Spring) will be in Costco for 2012 for they need the revenue in the short term to justify the big money they paid for Freeflow. Rumors have Hot Spring/Watkins paying about $6+ million for the company which allot for a company that did less than $10 million in sales . The numbers quoted here could be wrong as no one is talking openly, so these are just an educated guess.
The bottom line is this is good for everyone, Hot Spring will increase the volume, Costco will enjoy having a bigger supplier with better marketing support. The dealers will enjoy having a entry level product from the mother ship. Consumers will enjoy the confidence they are buying a product from the biggest and the best in the industry.
Dear Jack,
With the ruthless decline in the hot tub market, most manufacturers who used to be doing 10,000+ units in better times are doing 5k or less today. Freeflow manufactured over 4k tubs in 2011 which I hardly think would put them in the “smallest” category today. Additionally, $6m is not a lot of money to pay for a company doing $10m in sales if the company either has a lot of assets or, makes a lot of money. I look forward to seeing what Watkins does with this company but I bet the sky’s the limit. Cheers.
-Joe
-Joe-
Sounds like your insight is greater than mine. Based on the couple words that sparked your pen, I’m guessing the topic is personal. Thanks for the perspective.
Jack