When Vortex Spas New Zealand distributor, the BBQ Factory, went into liquidation late in 2011, Vortex Spas, makers of portable spa pools and swim spas were left wondering whether there would be a future for their brand in the New Zealand spa pool market.
For years, the two companies had had a close relationship with the BBQ Factory selling and servicing a large number of spas and swim spas. However with the viability of bricks and mortar retail waning, and the BBQ Factory losing out to big box retailers in their mainstream BBQ business, the relationship came to an end when the BBQ Factory was put into receivership by Inland Revenue in October 2011.
Vortex is the hero brand of the same Australian based business behind Spa World, Australia’s largest spa and swim spa retail group. Spa World has been selling spas and swim spas in Australia for over 25 years and the company considered bringing the Spa World brand to New Zealand by opening their own chain of spa pool specialty stores. But as Andrew Pullen, the group’s General Manager, points out they believed that this would be a backward step. "Even within the Australian market, we are finding it harder and harder to make our physical store locations stack up financially. We are growing strongly again after the GFC, but the growth is coming from online and off site events such as home shows and exhibitions."
As such, the decision was made to take their Vortex Spas brand of spas and swim spas direct to the market through a combination of online and direct phone sales, along with attendance of home shows and other events. To date, the gamble has paid off with their first year’s sales budget exceeded within seven months. According to Patrick Scott, Vortex Spas New Zealand’s General Manager, even he has been taken aback. “During the initial business planning, I believed that home shows would be our greatest sales opportunity for spas and swim spas. But what has surprised me is the public’s willingness to buy spas and swim spas online, sight unseen”. He believes that the secret is in the public’s growing awareness that traditional retailers add extra cost, but little value. “By cutting out the retailer’s layer of margin, not only could we reduce the price to our customers by 20-30%, but our customers can receive their information, post sale follow up and service straight from the horse’s mouth so to speak.”
Traditionally, spa and swim spa retailers have provided the after sales support and warranty back up for spa and swim spa products, but with so many retailers going to the wall in recent years, the customer is left with no ongoing support. Vortex Spas alleviated this by training a team of factory authorised spa and swim spa service technicians nationwide who have the added benefit of utilizing factory direct authorised replacement spa and swim spa parts.
In order to overcome any concerns from customers not being able to touch and feel the spas and swim spas, Vortex decided to implement a no questions asked, 60 day money back guarantee. Gareth Lawes, the company’s marketing director feels this is essential for any businesses seriously looking at a move to online. “In the first 10 months of our operation, we have had just 1 client exercise their rights under our money back guarantee. That’s less than 0.3%. From the client’s point of view, it’s not the right to return the product that is the attracting proposition;
This guarantee has been so popular in New Zealand that the Spa World group has decided to implement the same program in Australia for the spas and swim spas that they sell. And this is not the only lessons that the Australian business is learning from its NZ subsidiary. “It has been a revelation to us just how accepting the New Zealand public has been of our online direct model. What this new business is proving to us is that if your customers can see true value in your business model, they will be willing to change their buying behaviours to take advantage of the benefits” Says Mr. Pullen.
But it is worth noting that not all manufacturers or distributors can adopt this new way of doing business overnight. For Vortex Spas, it took the catastrophic failure of their retail network to bring about this new business direction. Most suppliers that are distributing through traditional retail networks would not have the ability to make the necessary changes without taking the hugely risky step of abandoning their retail partners. “It is really a move for either start-ups, or the extremely brave” Says Mr. Pullen.
Even those vertically integrated supply chains that have company owned retail operations, are either locked into long term leases, or must sell or re lease company owned real estate. As Mr Pullen points out, “You can’t sell direct to the end user at near wholesale prices, whilst still distributing through a traditional retail chain. Your retailers would mutiny. At all levels of the organisation, we have seen the benefits in only having to consider what’s best for our customers, and not what’s best for a third party retail network. Everyone wins in our business. The customer gets a fantastic price on high quality spas and swim spas and get’s to deal directly with the company that’s actually making the product, whilst the company now has very low fixed overheads, improving its financial security.”
With over $3 billion dollars being spent online annually in New Zealand and over 2 million kiwis signally their intention to buy online, the example of Vortex Spas should be of interest to suppliers and retailers alike. For retailers especially, if you are not providing true value to your customers in order to justify your profit margin, watch out, your suppliers may be planning to cut you out of the occasion and become a competitor instead.