The President’s Perspective: April 2025
The President’s Perspective: April 2025
David Kuhfahl
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Surviving in Chaos
In my 30 years at HearthStone, the hearth industry generally—and the solid-fuel sector specifically—has seen many cycles and changes. Global insecurity, bad winter weather events, and financial stress have always impacted sales in our category (usually favorably). As a relatively small industry sector (70-90,000 units/annum), any market pressures have caused feast or famine. Events like Y2K, the financial meltdown, fuel price spikes, ice storms, Katrina, and political malaise have created demand—counter to many other sectors. We sell “nesting” products that keep us warm.
Our industry has been through a firestorm over the last few years that was fueled by the EPA, COVID, war, and political uncertainty.
I learned that the nature of our economy is no longer America-centric—it is global. Energy and materials flow in every direction, and these raw materials and energy have specific geographic sources. Communication and lifestyles are international. American influence is international and visible everywhere we go.
Looking at the last six years in a little more detail reveals some of the rides we have endured and perhaps serves as an indicator of things to come.
EPA Shockwaves
The EPA shocked us in 2015 and again in 2020. This impacted all manufacturers differently, depending on how well we invested and prepared for the coming storm. I do not believe this had much impact on order quantities as it was not the “consumer’s problem” to deal with. HearthStone and others made the investments, believed these rules were coming, and maintained a full product line that met the requirements. With the addition of catalysts and more components to satisfy the new designs, costs rose. Products became obsolete, and many went away.
What does a product change-over cost?
When we change or renew a product, it impacts the design. All the existing inventory of components becomes obsolete. The order cycle is about a year for major components (soapstone and iron), and all must be stopped, and changes must be made, sampled, and approved.
Soapstone comes from abroad via containers. It always requires some amount of inspection and rejection, so buffer inventory is needed. Our prime supplier disappeared during COVID. All the inventory that was not full sets became landfill. Expected containers did not arrive—ever.
Cast iron has its own complexities. Fortunately, HearthStone has its own foundry and, therefore, good, direct communication. Patterns (molds) have a useful life and need renewing or replacement when they are worn out or when we introduce a newer model.
I also shared this estimate with the EPA. When they imply that we can change over product design in 90 days, it is beyond ludicrous. The cost can also be crippling. This is an estimate of cost data, not specific to any one product.
These are estimates from my time as president, based upon history, but these costs continue to rise.
This amounts to an amortization cost of $45 to $110 per stove sold. This swings wildly, depending on the success of the model and its longevity on the market.
COVID Challenges
When COVID hit, we closed for a few weeks and then reopened with many people deciding it was time to retire and few wanting to show up to a factory environment. We had more expenses keeping our employees safe and had to raise pay to attract new employees. You cannot pay a new employee more than an existing one, so all salaries went north by about 25%. Our health care insurance costs increased by double digits annually and will continue to. (For this manufacturer, this was a much more dire issue than the price of a gallon of gas.)
COVID clogged ports and challenged shipping. Container costs doubled, and surcharges of $20,000 or more were applied. As stimulus monies flowed in, demand for durable goods rose, exacerbating the global shipping carnage.
Economic support arrived in the form of stimulus checks. The economy was infused with $814 trillion in new cash, which created unprecedented demand for durable goods. We were stuck at home, could not travel, and had money in hand. What should we buy?
Pick-up trucks, appliances, home improvement materials, stoves, and all durable goods saw a fresh market pressure that compounded the difficulty of supply. After the pandemic, demand for durable goods lowered, and travel and experience purchases replaced some of it.
Wars Abroad
On February 22, 2022, Russia launched its second invasion of Ukraine in recent history. They have been doing this for centuries. This time, they gave it their all. There were many ripple effects here as the war progressed. Much of the world’s iron ingot supply came from Azovstal, Ukraine, which Russia obliterated. We, along with the rest of the world, had to scramble, as our foundry uses hundreds of tons of iron.
Platinum, rhodium, and palladium prices skyrocketed. These active ingredients in catalysts were also affected by sanctions. The EPA says we must retest each model to switch to lower-cost options. Retesting is expensive and has proven to be irrelevant.
European gas came from Russia; much electricity comes from gas. Spain’s gas suppliers focused on supplies from Morocco as northern supply shut down. Casting and enameling iron uses mass quantities of energy. The electric cost at our foundry in Spain went up by a factor of 10 from what it was pre-invasion. Iron component prices and steel prices soared.
Wheat and other grain prices went crazy.
The war in Ukraine is not just about a struggling democracy full of real people who live and dream like us. It is also a war for raw material supply.
Supply and Demand
Suddenly, it seemed all was on backorder. Shelves were empty of Chinese products. One of our gas log suppliers decided to supply other, bigger customers and cut us off. Small components shut down production. There was a global scramble for all raw materials. Soapstone quarries struggled with social distancing and employee retention. Gas and diesel prices soared. Employees did not want to return to work. Salaries and incentives rose quickly globally. We had nine months of backorders on many products.
Managing the procurement process and costs through this time was like a game of “wack-a-mole.” We bought what we could get when we could get it, leading to higher-than-normal inventory, along with the inability to produce anything at times. Planned costs were irrelevant, and while we tried to avoid see-sawing retail prices, we had to make increases along the way. Many dealers requested “priority,” which we did not do, and insinuated we gave it to others or price gouging. Integrity and transparency got us through that.
Manufacturers’ margins are much lower than any other step in the supply chain. As such, there is little room to absorb drastic changes.
While the demand returned to a pre-pandemic normal, manufacturers were still ramping up to the COVID demand. Suddenly, warehouses were full, cash was low, and dealers stopped ordering. The “snake had its meal” and was not hungry, at least for now. As inventories decreased, demand edged towards a “normal” pre-pandemic level. Only time will tell what the new administration’s policies will deliver, but the long-term for an industry that provides home comfort can only be solid.
Looking Forward
Costs have stabilized, with some decreasing, but they remain high overall. Prices will likely never go down. We need to look forward, adjust mentally to the new normal, and move on. The current instability—with half of our population euphoric and the other half terrorized—will likely drive consumers to want to improve or nest. Either way, solid-fuel products will thrive.
I have stepped away from HearthStone now, but I will always be grateful to the owners for their trust and the incredible support our employees and sales reps have given me through the years. Our dealers and distributors felt my passion for “doing it right “and supported us, and I thank you all. Having the opportunity to serve on the HPBA Board and the Executive Committee gave me great business insights and connections. Dealing with the EPA, DOE, ANSI, the EU, and other “authorities having jurisdiction,” along with staying ahead of the requirements, was a race that we became very good at!
The gift of being part of a “right-size” industry for my career is priceless.
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David Kuhfahl
David was the president of HearthStone from 1995 to 2024.
