By Nathan Peck | MiBiz
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GRAND RAPIDS — When the recession wiped out nearly 70 percent of the domestic market for hot tubs, Viking Spas looked to growth in foreign markets.

Overseas markets have contributed to growth at Viking Spas, said director of sales and marketing Tom Kneeshaw. PHOTOS: NATHAN PECK

In an industry that shrank from annual sales of 450,000 units to 120,000 over the course of the last five years, Viking Spas grew because 60 percent of its sales come from exports, said Tom Kneeshaw, director of sales and marketing.

In an exclusive interview, Kneeshaw spoke with MiBiz about Viking’s strategy as it pursued foreign markets.

The hot tub and spa industry grew and shrank with the housing industry and with homeowners’ access to easy credit. Homeowners who barely batted an eye when considering moving up to a tub with additional features for another $10 or $20 per month were starting to take a harder look at their finances.

“When buyers started to dry up, they started realizing that it was not a $10 or $20 a month upgrade, it is another $1,000 or $2,000” over the course of their payments, Kneeshaw said. Much of the trouble in the domestic market is “due to the way that banks lend money. We marketed based on the payment, now it is hard for dealers to get financing.”

Kneeshaw joined Viking Spas six years ago to help the company build out its export markets. Today, the $20 million company exports to 30 countries from Scandinavia to South America and Australia, and it is on pace to have a record year. Hot tubs are a seasonal product, with the majority of sales occurring in spring through early fall. Selling in the southern hemisphere will help even out demand for the company, though the company is working with local companies to help avoid the 50 percent import duties in areas such as Brazil.

“Our product is very attractive to Canadian and Scandinavian customers. Scandinavians understand the lifestyle,” he said. “Selling to the southern hemisphere could be very beneficial for us. Their winter is our summer and vice versa.”

Building on reputation

Kneeshaw recalls that 20 years ago, he would see buyers from overseas coming to pool and spa trade shows in the United States to buy American products. Overseas buyers sought out American products for their quality, as few foreign companies could match the standard U.S. manufacturers could offer. Buyers eventually discovered American-made spas and began exporting them in small numbers to Europe.

“We grew our exports from seeds of knowledge I gained at a previous employer. We had a sound base, but (we) had to build on it,” Kneeshaw said.

Viking had room to grow, with just 1 percent of sales going to Canada and a single dealer in the Netherlands responsible for all of Europe. Today, Viking Spas expects to manufacture nearly 9,000 spas in 2011. The company splits 50 percent of its sales approximately among large dealers and small “mom and pop” dealers in the U.S. Twenty-five percent of the company’s sales go to Europe, while another 25 percent go to Canada.

Building capacity

In 2008, Viking picked up a contract with Club Piscine, a Montreal, Quebec-based dealer with 40 stores. The company quickly realized it had more orders than it could handle. Lead times quickly exploded from two weeks to eight weeks or more for Canadian orders. Lead times for U.S. orders grew to six weeks. Despite being nearly a $7,000 purchase, hot tubs are still an impulse buy, and customers were unwilling to wait that long for their orders. Viking worked with Club Piscine to stage orders so dealers could sell the spas right off the trucks.

“Things had become so dire, we were fearing we would be losing significant business. I was sitting in Montreal thinking, ‘Am I going to keep my new customer who could go away tomorrow? I could be losing my existing customers as well,’” Kneeshaw said. “They staged orders so they were selling into the trucks as they came in. We had a great rep that worked with the individual customers to stage orders.”

Amid the worst of the credit crisis, Viking found it difficult to find the financing to fill orders. The company turned to the U.S. Small Business Administration’s exporter loan program to help fill the capital gap. The company streamlined its manufacturing process, incorporating TPS to ensure product flows smoothly. In a manufacturing environment where lean practices dominate the conversation, Viking Spas takes an alternative view, limiting its product offerings to three colors and a limited number of options.

“We are anti-Deming,” Kneeshaw said, referring to the lean manufacturing guru W. Edwards Deming. “For us to provide to our customers the ability to ship in a timely manner given the seasonality of our business requires us to maintain an inventory year round. We are not like GM who can plan production six months out.

“Sometimes we will have enormous number of orders one week, a quarter of that the next. People who ordered a spa want it in two weeks. How are you going ramp up production without an inventory?”