Doubling Down on our Commitment to a Carbon Positive Business

- Andrew Pullen, CEO Vortex Leisure, owners of Spa World

Could you give AQUA readers a brief overview of the history of Spa World?

The current owners have owned the business for twelve years. Over that time, Spa World has gone from a small regional spa retail group to the largest spa retailer in the world by revenue – according to two of our American suppliers who know the industry worldwide. So it has been quite a journey and that has most recently been amplified by the impact of COVID as the whole industry world-wide has benefitted by it also.

So Spa World has a total of 15 stores across Australia and New Zealand, in all the capital cities of Australia except Darwin. In New Zealand, we are in Auckland, Christchurch and Nelson. We have plans to open another five stores over the next couple of years, so we are expanding. Total team size in our retail distribution business is 87 staff, spread across four countries – Australia, New Zealand, Canada and China. We own all of our stores except for two in Tasmania that are run by a licensee. We are truly integrated vertically in that we control our factory in China which is run on a joint venture basis. We own all our own retail stores, so we import products and sell them through our retail stores. We service clients through our spa store online parts and consumables business post-sales. Many of our clients have been dealing with us for more than a decade.

The Spa World brand has been around for thirty-five years, but our growth has come primarily over the past twelve years under the current ownership structure. In that time, we have grown by a factor of ten and that trajectory is showing no signs of slowing down.

And how about your journey within the pool & spa industry?

I always say that I started in the industry in 1979 when my parents became one of the first retailers of Hot Springs Spas in New Zealand. They had a spa business based in West Auckland called Hot Spot. I was nine at the time, so right through my teems, my after school job was installing spas and vinyl-lined swimming pools. I was involved in pools and spa from a very young. I then went and did an ‘Overseas Experience’ and came back to New Zealand in the mid-nineties and was involved with a company called 4 Seasons Home and Leisure, which still exists today. I became the General Manager of that business in the year 2000. We originally sold LA Spas out of the US through 4 Seasons, then moved into spa manufacturing through the early 2000’s. I then got into the sauna business for a couple of years, then came back into the spa industry with Monarch spas, then Spa World.

In 2009, I became the General Manager of Spa World, then the CEO of the parent company Vortex Leisure in 2015.

What are the challenges of being a supplier?

We’ve got the retail side of our business, which is Spa World, and we’ve got the product side which is Vortex and Fisher. We distribute Vortex and Fisher products to around 20 countries around the world, right through Europe, Scandinavia, the UK, Canada and North America.

At the moment, absolutely! We follow the supply chain that starts with raw material production. The demand for spas has more than doubled in the past year and that puts tremendous pressure on the raw material suppliers, because the spa industry is competing for raw materials with other producers of consumer and industrial goods. The boat manufacturing industry for instance is many times the size of the spa industry, and the spa industry has to compete for resins and other plastics products with the boating industry, amongst others.

So we’ve got competition in our supply chain, we’ve got shipping problems from the raw materials supplier to the point of manufacture. For example, a big part of our manufacturing happens in China, but a number of the components are produced in America. So that product needs to be shipped from America across to China, and in some cases we have been air freighting raw materials to meet production demand.

We’ve also got capacity issues at the point of manufacture, wherever that is in the world. So increasing the size of production facilities to accommodate the extra demand.

There are also significant challenges with shipping the product from point of manufacture to point of sale. In our case, from either North America to Australia or New Zealand, or China to the rest of the world. Freight prices have increased six fold over the last year, so that has put real pressure on pricing. We have seen a lift in prices across the industry by 5-10%.

And one of the biggest challenges is predicting how long all of this is going to last, because you don’t want to go and make a capital investment on creating new production capacity – as we are doing – only to have that come online at a time when demand starts dropping. So a big part of what we, as an industry, are looking at at the moment is how do we extend this rainbow that we are all experiencing once borders open up again. We have a number of strategies in place around that, some commercially sensitive and some already released, but we are racing the vaccine, because my view is that once everyone is vaccinated and travel gets back to normal, it will be good for some people but not necessarily for the spa industry! So we are predicting that things will start to cool off within the year, however we don’t think that things will go completely back to normal because there a such a lot of people out there now enjoying their spa pools and success brings success in that regard.

When someone gets a new spa, they generally invite friends and family members over to try it out, then those people say ‘we should get one too’. We’re seeing a lot of referral business right now as more and more people understand the benefits of spa ownership.

What opportunities are there currently in the marketplace?

One is that swimspas are becoming a much bigger percentage of our market. In some months, our swimspa revenue exceeds our portable spa revenue. As block sizes get smaller and temperatures get hotter, we’re seeing a move away from the traditional swimming pool towards a more compact swimspa. That’s the trend that we’re seeing, and it’s really starting to accelerate in the US. Australia really pioneered swimspas in a big way. The Australian market for swimspas really grew before other markets, but now other markets around the world are picking up. We are definitely seeing an increase in demand world-wide.

We’ve also seen more sales through larger retail groups, and not the tradition mum and dad network. When I came into the industry 15 years ago, the bulk of spas was sold by small, independently owned retailers. And that is less and less the case today. There are more larger players coming into the market such as ourselves, the Costco’s, the Bunnings, the Poolwerx Group in the US, Home Depot and Bauhaus in Europe. I think there is a trend away from the small, independent operators.

The other thing we are seeing at the moment due to COVID is that the smaller guys are getting squeezed out of supply. We are approached almost daily by small retailers that can’t get supply, but we just can’t help them because we are struggling to keep up with the demand through our own networks, let alone adding new retailers right now. Although there is opportunity due to the demand, there are supply constraints. It’s a really bad time to get into the spa industry right now unless you are already established. We’ve known of a couple of importers go to new factories in China because they are so desperate for supply, without doing adequate due diligence on them. And we’ve seen some very poor quality product come into the market in Australia and New Zealand of late, and that is a real risk to the industry as a whole because it gives spas a bad name. I’ve seen some product on showroom floors that really took my breath away how bad it was, and I’m very concerned about that.

One piece of advice I would give to AQUA readers - who are industry based – is that’s it’s hugely risky to get into bed with a new manufacturer without the ability to go and see the product first. The only major change we have made to manufacturing recently is about two years ago we partnered with Jacuzzi, but they are the largest manufacturer in the world. We visited their plant and did all of our due diligence. We’ve been very happy with the relationship. But outside of that, it would be very risky going to a supplier that you can’t even visit, as you just don’t know what you’re going to get or what might happen with their products down the track. We survey every client post-sale about their experience and what we hear is that the biggest advantage of swimspa ownership is that it’s somewhere for the kids to play. I think a lot of people buy it with the view that they will exercise in it, but it’s just like buying a home treadmill that ends up in the spare bedroom.

With swimspas, people may think they are buying it for exercise but actually it is just hugely entertaining for kids. They can literally play in it all day, and it has the flexibility of being able to be used for hydrotherapy spa pool as well.

If I had to define the point of a swimspa, I’d say hydrotherapy, exercise and play. Two out of three of those reasons, traditional pools don’t offer. We just need to figure out as an industry how to make them look more attractive.

I’m really excited about additional products that we can sell to compliment spas. I think shade solutions are quite exciting and that’s something we are looking into.

Even once COVID goes away, I think there will still be a trend of more time spent at home. With temperatures rising, within two years the experts are saying that there will be several days each year in Sydney, Melbourne and Adelaide that temperatures will exceed 50 degrees. So having a place where you can relax and unwind outside without getting fried will be a definite trend.

I’m really excited about that, and I’m also excited about more people being introduced to the concept of spas and how they can improve their health, wellbeing and happiness. It’s wonderful to work in an industry where you can be responsible for selling products that legitimately improve health, wellbeing and happiness.

How do you see the industry changing in the future?

I think that we will continue to see a trend towards swimspas, but not at the sacrifice of portable spas. I jut think they will become more of a household item. I can see there will be consolidation of retail. With a move towards online marketing, a lot of the smaller players won’t be able to survive. There will either be a trend towards either independents coming together as a buying/ marketing group, or larger retail players getting into the industry. We are close to a $100 million business and we can afford to have our own dedicated marketing and customer care team that operates seven days a week, and these are things that the small retailers just can’t achieve.

What’s on the horizon for Spa World??

We are definitely looking at geographical expansion, so more Spa Worlds around Australia and New Zealand. But also stepping out into new markets with our Spa World retail brand.

We’ve already got a joint venture going in Canada and we’ve opened a store in Vancouver. It’s amazing what you can achieve without travel. Two of our largest distributors I’ve only visited once, but I speak to them every second day. They are multimillion dollar accounts. I don’t think I am losing anything by not travelling there.

We were the first spa business to become carbon neutral, so we are very aware of our carbon footprint, and spas are already quite carbon heavy, so if I can cut international air travel, it helps our cause. So I’m in no hurry to get back on a plane.

When it comes to what does the future hold, I think that doubling down on our commitment to going from a low carbon business to a carbon positive business.