Straight from the hearth

Propane retailers interested in expanding their focus should consider selling hearth products – fireplaces, stoves, inserts, gas logs and more – for a profitable companion business, says a hearth products industry expert.

Fireplaces offer tremendous appeal to homes and a great opportunity for propane marketers to add a profitable companion business.

Warren Hanselman, the former president of Lennox Hearth Products and a consultant to the Hearth, Patio & Barbecue Association, says sales of gas fireplaces are surging again despite last year’s high gas prices and post-Sept. 11 conservatism.

“My hypothesis is that things have normalized and we’re back to (wanting) convenience, back to aesthetics, back to efficiency, which means we’re back to gas,” he told audience members during the National Propane Gas Association’s Pinnacle conference in June in Las Vegas.

Hanselman

With profit margins averaging 38 percent, Hanselman says, propane dealers have an opportunity to capitalize on an industry that is related to their existing business and still shows room for growth.

“It’s a mature market at this point in time, and a good business with nice profit margins and a lot of attractive appliances,” he says.

The $5 billion-a-year industry includes sales of fireplaces, freestanding appliances, inserts, logs, grills and more. Hanselman says there are about 70 million fireplaces across North America, and about 1.4 million new fireplaces are installed each year in the United States.

About 65 percent of new homes are built with fireplaces, and 95 percent to 97 percent of those are manufactured units – an insulated firebox inside a steel cabinet that requires no need for additional footing or structural supports, unlike the traditional masonry chimney.

“Manufactured fireplaces greatly expanded the opportunity for consumers to have fireplaces,” he says.

Although wood fireplaces traditionally ruled the market, the convenience of gas combined with better technology and aesthetics to more closely resemble a wood-burning flame have made gas products king.

Hearth Products Dealers Annual Sales Profile

Today, about 60 percent of all fireplaces shipped are gas, with propane fueling 15 percent to 20 percent of those products. That rate is heavily influenced by the fact that large new housing developments typically are serviced by natural gas lines.

The newer direct-vent units are replacing B-vent fireplaces, which take room air and exhaust it up a traditional chimney, because they can be placed almost anywhere with only a small, coaxial vent. They also are gaining popularity because they are more fuel efficient (about 40 percent), and the flame is visually more attractive, Hanselman says.

Sales of unvented fireplaces, introduced in the early 1990s, have begun to dip over safety concerns but they are 100 percent efficient because all of the air stays in the room.

Gas appliances – A large market

Hanselman says his “flame of choice” comes from a set of gas logs placed inside an existing fireplace, even though they make relatively inefficient heaters.

“I can pump 100,000 Btu into my fireplace and get roaring flames. The fact of the matter is, 80,000 of those (Btu) are going up the chimney, but it looks nice, and it warms up the room, and I only have it on for a short time so I might as well have it look nice,” he says.

In addition to appliances, propane retailers can also make money selling chimneys and installing units. While fireplaces often are discounted to lure customers, most do not cut prices on installation, he says.

“It’s a nice, nice business,” he says. “For the most part, once you understand how to put it in, once you get the installation skills, this is the back end of the business where you can make some money. The appliances draw you in – that’s the sizzle – but the chimney and the installation (are) where you can make some money.”

Propane retailers also find a profitable margin on fireplace accessories, such as glass doors, screens, tool sets, wood holders, irons and grates. Although most of these items are unnecessary with gas fireplaces, many homeowners want them to help set the ambiance of the traditional wood fire.

“Right next to their gas fireplace they have a tool set and wood holder with logs in it they have to dust,” he says.

Mantels and surrounds complete the look, but Hanselman recommends hiring subcontractors to handle the carpentry side of the business – and add a healthy markup for being the general contractor.

Getting started

Propane retailers who choose to sell hearth products typically need 1,900 square feet to display in-season products, with the “core products” burning in the showroom to draw more attention, Hanselman says.

Hearth dealers often have 10 wood-burning stoves on display, with two burning. They also have four pellet stoves, seven unvented gas stoves with five burning, and 15 direct-vent units with 10 burning.

“You’d better have good air conditioning, because with all of those appliances burning, it gets hot in your shop,” he advises.

Dealers can work with suppliers for discounted rates on showroom equipment, and many manufacturers offer “burning credits” if you choose to operate their appliances.

Retailers should plan to remodel their showroom every three years, at a cost of roughly $35,000, to stay current, he says.

Off-season products, including high-end barbeque grills, also are hot items, with customers willing to spend from $700 to $10,000 for a premium product.

“The industry can’t make them fast enough,” he says. “I don’t know what’s driving people. Right now there is a tremendous bubble going on in upper-end stainless steel appliances…(and) there is not much discounting.”

How profitable?

The average dealer reports $500,000 in hearth-product sales each year, but many make much more than that, Hanselman says.

“It’s traditionally a small business, a nice niche business, because you can make a nice piece of change doing it,” he says.

He advised retailers to be sensitive to their market, because what sells in Miami will not appeal in Seattle. The target audience is people building in rural or suburban areas looking for supplemental heat, or those building second homes, he says.

To get started, he offered the following advice:

• Visit other hearth shops for ideas. Talk to the owners for advice.
• Contact other propane dealers already in the hearth product business.
• Join the Hearth, Patio & Barbeque Association, and attend its trade show in March in Nashville, Tenn.
• Subscribe to Hearth & Home magazine, which serves the hearth products industry, for six months to understand the industry.
• Get to know the manufacturers’ representatives.
• Dedicate an employee to this arm of the business who can become familiar with the industry.
• Allocate about 7 percent of sales for advertising and promotions, with the bulk spent on ads in newspapers and in the telephone book’s Yellow Pages. Don’t forget in-house mailers included with invoices.

“The bottom line is, consumers want hearth products, (sales are) growing in an area of your strength, and I think it’s a good business opportunity for you,” he says.