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Last Word

Rethinking Priorities in Today’s Economy

The economic slowdown prompted Lennox Hearth Products to make changes that have improved operations throughout the company.

With so much doom and gloom being reported about today’s economy, it would appear that no business is doing well these days. One company that is doing better than merely surviving is Lennox Hearth Products, based in Orange, Calif. Even for this leading manufacturer of indoor and outdoor fireplaces, fireplace inserts, freestanding stoves, gas log sets, accessories, and venting products, however, the going has not been easy.

Bob Dischner, director of marketing, says, “The continued slump in the housing sector, combined with staggering cost increases for steel, fuel, and other commodities, has certainly presented unprecedented challenges.”

Weathering the Storm

To meet these challenges, LHP has implemented a number of initiatives to improve efficiency and control costs while keeping customer service a priority. The company is relying on just-in-time manufacturing to control inventory and is taking a lean approach to purchasing.

“We’re changing the way we get work done to get the best possible deals,”  Dischner says, adding that LHP has worked to improve its purchasing effectiveness by leveraging the buying power of Lennox Industries, “which is a big advantage for LHP.”

In addition, the company closed its Lynwood, Calif., fireplace-manufacturing plant earlier this year and has consolidated its manufacturing in its Tennessee facility. These initiatives, coupled with new high-end fireplace product introductions for the still-active custom market, have helped LHP stay the course. Dischner says, “The long-term forecast for housing demand is favorable, and we are committed to the market for the long run.”

Like that of everyone else, LHP’s business was hurt by a drop of more than 60 percent in single-family housing starts from 2005 levels. Nonetheless, Dischner says, “Our retail sales have been good the past couple of years, and especially this season.” Dischner, a 30-year veteran of the industry, has spent the last 12 years with LHP.  He adds, “We are growing our presence in this segment and plan to continue to put resources to bear in both new products and programs for the retail hearth channel.”

With residential new construction down, the company’s custom home business is helping to sustain the company. “We have a solid presence throughout the United States and Canada, and with the high-end part of the market holding up the best, it’s helping us along with retail sales,” Dischner explains, predicting that the market will continue to struggle through 2009.

“So much of the hearth industry is driven by fireplace sales in new construction. There is a remodeling element, too, but a recovery in that market is essential. A fireplace is sort of the fountainhead for all kinds of things in our industry, and we’re looking at a tough 2009,” Dischner adds.

The Green Side

The bright side of this news is actually green. Dischner says, “Green can play to our advantage, and with all of the interest in sustainable construction, I think hearth products have a real place at that table and are not being leveraged as well as they could be. I see that as an upside.”

LHP has gone green with its Burn Smart™ program, which provides a framework for customers and consumers to see which of LHP’s products meet the requirements of established third parties like Leadership in Energy and Environmental Design, the U.S. Environ­mental Protection Agency, and National Associ­ation of Home Builders® Green Building Guide­lines.

As Dischner explains, “There is no Energy Star® category for hearth products, so there is a real void out there that we think Burn Smart can help address. Hearth products—especially those using alternative fuels—have a place at the green table, with a strong message of clean combustion, efficiency, and zone heating.”

Clearly, the green table is set for LHP. Lennox Industries’ strong offering in Energy Star-rated heating, ventilation, and cooling products has opened the door to several opportunities in many show homes and green projects. For example, LHP was invited to provide the gas fireplaces for Good Housekeeping’s third annual Green House project, a state-of-the-art, LEED-certified home in New York’s Harlem neighborhood.

A Renewed Focus

Dischner says, “There’s a diversity of products out that border on wall art and use fire in imaginative and efficient ways. This has a lot of possibility for us. Going forward, buyers will want modern products that are clean burning, use alternative fuels, and serve a basic need for a gathering place. We just have to get the word out.”

To that end, LHP has renewed its focus on the retail hearth market. In October 2006, LHP acquired Country™ Stoves (Auburn, Wash.) and its line of retail-oriented stoves and inserts. In addition, LHP’s Members Program for retail hearth dealers provides a platform to expand the company’s presence in this channel aggressively. Launched in 2006, LHP’s DaveNet® Fireside Program has provided a unique online business-to-business tool that lets LHP customers order products, process warranty claims, design custom brochures and ads, and more.

LHP’s Security® Chimneys group expanded its industry-leading offering in EPA-certified wood-burning fireplaces with several new models (most recently, the Nova™ and Ladera™) that are sold under both the Security and Lennox brand names. LHP’s contemporary catalytic gas fireplaces—the X-Fires™, Radium™, and Scandium™—have been well received by the market, have won awards from Home™ magazine, and have garnered press coverage in the Wall Street Journal.

Selling Off Season

Helping specialty retailers/dealers with their merchandising efforts has been integral to LHP’s approach to business. As part of its Members Program, LHP is offering additional consumer promotions both in season and during the off season. A Sizzling Summer promotion focused on wood/pellet stoves and gas inserts, and it promoted free goods and sales-performance incentives to retail salespeople.

“A 2006 Hearth, Patio & Barbecue Association consumer study showed that the retail sales floor person has tons of influence on the consumer,” Dischner notes, “so getting that person’s attention is important to us at a time of the year when things are slow.” In season, LHP is focusing on EPA-certified fireplaces. One program builds on LHP’s Burn Smart campaign and uses point-of-purchase materials, sales-performance incentives, and free-goods offers to get attention on the showroom floor. In 2009, LHP will roll out expanded merchandising materials that will help retailers better leverage the Lennox brand name on showroom floors.

The challenge, for most retailers, is stocking the wealth of offerings available, due to cash or space constraints. That’s where LHP’s Members Program can help. “It allows the dealer to purchase product either directly from LHP or through our local specialty hearth distributor. That means that dealers have access to LHP’s extensive product line, stocked locally, without having to tie up their own cash, so they can be sure they can address individual consumer preferences.”

To enroll in the Members Program, LHP retail customers sign an agreement that defines what each side is going to do and outlines the support that LHP offers. “We overlay that with the two-step distribution program, so any dealer has a choice of buying directly from us or from the local distributor,” Dischner explains. “Our program is a blended program that gives a lot of flexibility to the dealer.”

All of these strategies will be needed in the near term to weather the economic storm that is bearing down on the country, yet Dischner says that the outlook may not be quite so bleak. He says, “While there remains some tough sledding in the residential new-construction market, we feel that the overall outlook for hearth products, and especially LHP, is bright. Modern hearth products offer a unique package of comfort and ambience, and we feel that LHP is uniquely positioned to thrive by providing quality products, great service, and flexible programs to serve our customers.”

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