Swimming Pool Industry's Future in an Uncertain Economy

Current Market Trends in the Swimming Pool Industry

Despite economic challenges, the swimming pool industry shows resilience with strong demand for pools and outdoor projects. The market is stabilizing, with opportunities emerging. Companies like POOL and MAS are managing inventory effectively and expect modest growth, indicating a positive trend in the industry.

""Despite the recent trends dampening discretionary spending, we continue to believe that the desire for swimming pools and outdoor living projects remains strong, which allows our industry to grow over time as new pools are added to the installed base every year."" --- (POOL, press release, 2024/06/24)

"And so the industry in our business has declined at a decreasing rate. And what we're seeing is, some favorable trends, not only stabilization, but some opportunities." --- (MAS, conference, 2024/05/15)

"We reduced net inventory levels compared to March 31, 2023 by $189.7 million, or 11%, to $1.5 billion, consistent with the trends stemming from our inventory management efforts executed over the 2023 swimming pool season following strategic buys in prior years." --- (POOL, sec filing, 2024/Q1)

"You continue to expect to outperform the market this year overall by 1% to 2% this year, Sales down slightly year over year in the first half versus a modest growth outlook in the back half." --- (MAS, conference, 2024/05/15)

"So there we expect the demand to increase as the product flows through the market and pools are opened in the seasonal markets." --- (POOL, earning call, 2024/Q1)

Consumer Spending and Demand Fluctuations

Macroeconomic factors such as high interest rates, inflation, and a shift towards spending on services are pressuring consumer demand for home improvement, including swimming pools. Retailers like Lowe's and Home Depot report decreased transactions and pressured selling prices, indicating a slowdown in discretionary spending.

"Now I'd like to provide a quick update on our view of the macro. Uncertainty around interest rate cuts, stubborn inflationary pressures and a consumer still showing a preference towards spending on discretionary services and experiences continue to weigh on the DIY home improvement demand." --- (LOW, earning call, 2025/Q1)

"The decrease in comparable customer transactions reflects the impact of macroeconomic factors, including the continued shift in consumer consumption trends away from goods and towards services and the impact of a high interest rate environment, pressuring home improvement demand." --- (HD, sec filing, 2024/Q1)

"So I guess the question is and this is happening at a time when other retailers are maybe doubling down on opening price point and are not seeing a stable consumer. So I guess my question is, how do you maintain the balance of being known for price and value and convenience too, but also welcoming these higher income consumers? And is that a delicate balance that you think about?" --- (WMT, event transcript, 2024/06/07)

"Average selling prices remain pressured as we cycle the reintroduction of pre-pandemic promotions across the industry as well as the continued slowdown in discretionary demand." --- (LOW, earning call, 2025/Q1)

"If it's clear that we need turnover now for stronger demand? And if you can talk about demand in regions of the country where pricing is more noticeably going up than others seeing if there is a real lock-in effect that can happen." --- (HD, earning call, 2024/Q1)

Supply Chain Challenges and Solutions

Companies in the swimming pool industry are addressing supply chain challenges through various strategies, including supply chain finance programs, value engineering initiatives, and strategic pricing actions. These efforts have helped manage costs, improve efficiency, and mitigate potential disruptions, such as labor negotiations and import taxes.

"We also facilitate a voluntary supply chain finance program (the "program") to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions." --- (MAS, sec filing, 2024/Q1)

"Gross margin in the first quarter of 2024 included a benefit of $12.6 million, or 110 basis points, related to a reduction of estimated import taxes previously recorded in the fourth quarter of 2022. Gross margin benefited from ongoing supply chain management initiatives. We realized a higher cost of product in the first quarter of 2024 compared to the first quarter of 2023." --- (POOL, press release, 2024/04/25)

"So, purchasing overhead absorption and doing better issue with that, value engineering initiatives that we've kicked off and then managing our new assets that we're bringing online with regards to our Serbian plant and our new paint plant to be as efficient as we can as we bring those up." --- (MAS, earning call, 2024/Q1)

"We still anticipate full year gross margin to approximate 30%. We look for the increased activity across the industry to moderate some of the pre-season pricing activity combined with our supply chain and pricing strategic actions underway to realize the favorable seasonal benefits in second quarter." --- (POOL, earning call, 2024/Q1)

"There's a pending labor negotiations in the East Coast. So those are the types of things that we watch, and we're uncertain where those may go and if they will result in headwinds, but I think we've demonstrated the ability to manage those with our pipeline of productivity, initiatives and cost out as well as the strength of our brands and innovation and ability to get price where we need to." --- (MAS, earning call, 2024/Q1)

Competitive Landscape and Strategic Positioning

The swimming pool industry is highly competitive, with companies like Masco and Pool Corporation focusing on professional services and strategic long-term growth. They are capitalizing on market challenges, maintaining competitive gains, and managing economic uncertainties while aiming for improved margins and labor retention.

"It's a competitive environment. I think what I would say is there's an increased amount of focus on the Pro really across the board." --- (MAS, conference, 2024/05/15)

"In summary, we are focused on continued discipline in managing our business through this time of economic uncertainty, while investing in areas of strategic long-term growth." --- (POOL, earning call, 2024/Q1)

"being able to not just capitalize on some challenges more broadly that the market saw in terms of some of the competitors out there, but hold on to those gains, which is equally as impressive." --- (MAS, conference, 2024/05/15)

"Just your thoughts on the competitive dynamic of how that will be impacted maybe ability to retain labor other considerations we may not be thinking of." --- (POOL, earning call, 2024/Q1)

"Great. Shifting to margins, your long term goals for margins for the company, plumbing at and Decorative at roughly 20% to 19% to 20%, respectively, which is approximately 100, 150 bps above our 24 estimates." --- (MAS, conference, 2024/05/15)

Innovations in Business Models

Companies like POOL and MAS are innovating their business models through increased investment in technology and automation, restructuring efforts, and strategic portfolio management. These innovations include commonized components, new product designs, and cost-effective strategies, all aimed at enhancing efficiency and customer satisfaction.

"In recent years, we have increased our investment in technology and automation enabling us to operate more efficiently and better serve our customers." --- (POOL, sec filing, 2024/Q1)

"Certainly, driving technology changes into the component sets and our component set strategy with regards to how we can have commonized components, as I mentioned, where the customer doesn't see it and then we can have unit volume that can lead to price down." --- (MAS, earning call, 2024/Q1)

"In terms of performance, what I would say is the team, over the last couple of years has done a tremendous job, really, restructuring the business and positioning the business for success." --- (MAS, conference, 2024/05/15)

"So for example, a little bit more price elasticity that we're seeing in China, a little bit more sensitivity, that's a little bit more volatile in other areas with new products and new designs that we launched that are particularly attractive to the consumer." --- (MAS, earning call, 2024/Q1)

"And some of that's driven based off of decisions that are made. For example, Kichler has done a really nice job at taking some restructuring actions with regards to cost and price, but also portfolio exiting some lines of business that weren't as profitable." --- (MAS, earning call, 2024/Q1)

Future Outlook and Industry Predictions

POOL Corporation's management remains optimistic about the swimming pool industry's future, emphasizing strategic, operational, and capital allocation plans. They project positive earnings and financial performance, considering industry, economic, and regulatory conditions, with a favorable outlook for 2024 and beyond.

"Our forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of earnings and other financial performance measures, statements of management’s expectations regarding our strategic, operational and capital allocation plans and objectives, management's views on industry, economic, competitive, technological and regulatory conditions and other forecasts of trends and other matters." --- (POOL, sec filing, 2024/Q1)

"Our discussion, comments and responses to questions today may include forward-looking statements, including management's outlook for 2024 and future periods." --- (POOL, earning call, 2024/Q1)