Waveline 79: After COVID-19

Sep 15, 2020 | Waveline™

Waveline Newsletter Issue 79: After COVID

The pool and hot tub industry, like the rest of the world, is very much changed since this past February. Will it last?

The human suffering and economic hardships created by Covid-19 are by now well known and do not need to be reemphasized. So, too, have been its effects on the swimming pool and hot tub segments. Business is booming. And we have every reason to believe that this will carry well into next year.

But then what? Is this the boost the pool and hot tub segments needed to relaunch a significant recovery, long overdue since the last recession? Or is this, like the run-up to the last recession, just another bubble?

Here are some ways to think about where the industry goes from here.

“Through the roof!”

Last spring, pool builder phones were ringing off the hook as worried families looked ahead to a dismal summer with then-current shelter-in-place mandates going into effect. Leads turned into contracts and contracts turned into permits. As of the end of July, places like Palm Beach, Dallas, and Phoenix were up as much as 50-100% over their 2019 year-to-date permit totals.

Much of that business will carry forward into next year, so we believe that 2021 is shaping up to be another robust year for the pool construction industry. Similarly, hot tubs, beset by production delays owing to the spring lockdowns at many factories, posted a strong rebound since then and current expectations are for a growth year going into 2021.

​But then what?

First, understand that forecasting is very dangerous, especially in this business. Who saw the last recession coming? Or Covid? Rainy spring seasons, wildfires in the west, drought… all can have a significant impact on the course of pool and hot tub sales. 

So, with that disclaimer out of the way, let’s look at some potential outcomes. (Footnote: We’ll probably regret this in a couple of years…)

Caution: math ahead

In the charts that follow we consider a best-case and worst-case scenario for both new pool construction and hot tub sales. ​

Figure 1. Best-case forecast for new residential inground pool construction, 2021-2025.
Figure 2. Worst-case forecast for new residential inground pool construction, 2021-2025.

All of the charts presented here are based on a form of regression utilizing exponential smoothing. (There’s a very long explanation as to why this particular method was chosen, but we’ll spare you this time.) The shaded areas representing the forecast period depict the range of expected outcomes, with the solid line in the middle being the most probable case. The range of expected outcomes has a prediction interval of 95% confidence, meaning that the model expects values falling outside the shaded area to only have a 5% probability. We selected 2009 to 2019 as baseline because 2009 was the first year after the last recession.

Both the best-case and worst-case forecasts assume that 94,000 new inground residential pools will be built this year.  That is currently the projection based almost solely on permit data through July. (Pkdata, of course, will not have final numbers until we complete our annual builder survey at the end of the year.)

The best-case assumes that 2020’s pool builds are the start of a renewed interest in backyard pools, and that the trend will launch from there on a trajectory similar to pre-recession years. In contrast, the worst-case says that 2020 was a bubble and that the business will return to its previous post-recession lethargy. ​

Figure 3. Best-case forecast for new hot tub sales, 2021-2025.
Figure 4. Worst-case forecast for new hot tub sales, 2021-2025.

In a similar vein, the five-year forecast for hot tubs are depicted above. The assumed starting point for 2020 is 275,000 new hot tubs, a roughly 19% increase over 2019. Again, the 2020 number is only an estimate based largely of anecdotal evidence obtained thus far. As with pools, we will know a lot more at the end of the year when we complete our dealer survey.

And as with pools, the best-case for hot tubs envisions a return to the segment’s pre-recession sales trajectory, while the worst case (like pools) also assumes an artificial spike with sales returning to their post-recession malaise. ​

Where’s my crystal ball?

The problem with any forecast, especially with this industry, is (to paraphrase Donald Rumsfeld) too many unknown unknowns. How long will Covid last? What effects will the election have on the industry? When will the economy finally tank and how far south will it go? What effect will climate change have on new pool and hot tub sales over the next five years?

The graphs presented above are simply our model’s statistically most-probable distribution of outcomes given the assumptions we baked into the analysis. It is ironic that in 2025 both best-case scenarios have their potential peaks at just over 180,000 new pools and 400,000 hot tubs, almost exactly what each segment recorded during their pre-recession apex in 2004.

Here’s hoping.​

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