Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Halloway. Tracy, do you
Speaker 1: remember our episode from I guess it was probably a
Speaker 1: little over a month ago now about how how difficult
Speaker 1: it is to buy or to build a home in
Speaker 1: America right now. Um, I know there's a lot going on,
Speaker 1: but yes, I remember the episode from a month ago.
Speaker 1: It was a great episode. Yeah. So I kind of
Speaker 1: think of like housing as the culmination of so many
Speaker 1: different themes right now. And of course we talk about
Speaker 1: lumber shortages, and the lumber lumber markets actually cooled back
Speaker 1: off quit but since we talked about it, but land
Speaker 1: constraints and interest rates and demographics and of course labor,
Speaker 1: like everything kind of rolls up into housing. I would say, yeah,
Speaker 1: that's exactly right. And I remember one of the themes
Speaker 1: that emerged in that conversation was just the idea of
Speaker 1: how difficult it is to build new supply at the moment.
Speaker 1: So you had the ongoing um lumber shortage, which had
Speaker 1: sent prices really really high. They've come down a lot
Speaker 1: since we had that conversation, actually, But beyond lumber, there
Speaker 1: were all these sorts of other components that go into
Speaker 1: a house that we're also in short supply, so things
Speaker 1: you might not necessarily even think about as you're building
Speaker 1: a house. But I remember one thing in particular mentioned,
Speaker 1: and that was bathtubs. Yeah, exactly right. And of course,
Speaker 1: you know, you can have everything. You can build the
Speaker 1: build the frame of the house. You can have the sink,
Speaker 1: and you can have the windows, and you can have
Speaker 1: everything else, but you know, obviously every little, every last
Speaker 1: piece needs to be there for the house to actually
Speaker 1: um sell, for the house to actually be ready to
Speaker 1: move into all its ages. Is one one thing missing,
Speaker 1: like say a bathtub or a sink or any other
Speaker 1: piece of plumbing, and it's impossible to move into the house.
Speaker 1: And so when you have shortages in everything all at once,
Speaker 1: which our guest Ellie Wolf pointed out, that basically means
Speaker 1: major headaches for the homebuilders. Yeah, and tight supply and
Speaker 1: higher prices for what is actually out there. I would say,
Speaker 1: though I would pay a higher price for a bathtub.
Speaker 1: I haven't had a bathtub in like the apartments that
Speaker 1: I'm renting for years now, and I really miss it. Yeah,
Speaker 1: bathtubs are pretty great, well, that's so. Actually, at the
Speaker 1: end of that episode, I think we have joked that
Speaker 1: we're like, well, let's do a bathtub episode, and let's
Speaker 1: just really drill down into one. And it took us
Speaker 1: a while, but I think we're finally ready to do
Speaker 1: the bathtub episode. We might expanded a little bit too
Speaker 1: all of plumbing per se, but I think we're ready
Speaker 1: to really drill down because this is an area. It's
Speaker 1: not commodities per se, it's not land, it's not labor,
Speaker 1: but it is a critical component. And I think we
Speaker 1: can learn a lot by drilling down into one specific
Speaker 1: component and learning about how this extraordinary moment of the
Speaker 1: economy and supply chains is really affecting that totally. Um
Speaker 1: Not only do I feel passionately about bathtubs, I feel
Speaker 1: passionately about supply chain issues that manifest themselves in housing shortages.
Speaker 1: So let's do it. I am very excited. We have
Speaker 1: the perfect guest today who knows the space very well.
Speaker 1: We're gonna be speaking with Trey Northrop. He's the America's
Speaker 1: leader of the company LIXEL, which operates under multiple brands
Speaker 1: including American Standard Grower d x V. He's a long
Speaker 1: time veteran of the industry. Previously he was at Whirlpool
Speaker 1: doing appliances, and he is going to speak to us
Speaker 1: about bathtubs and plumbings and in this extraordinary year and
Speaker 1: a half of selling those things in the middle of
Speaker 1: this crisis. So Trey, thank you so much for joining us. Sure,
Speaker 1: thanks Joe, Thanks Tracy. Uh, I'm really excited to be here. Absolutely,
Speaker 1: So what are you just start? Uself? What? What don't
Speaker 1: you tell us? What is lixil? What is it you sell?
Speaker 1: Who are your customers like? Give us started the basic
Speaker 1: overview of your business. Sure, we're We're fully integrated end
Speaker 1: to end supplier of plumbing products, anything from toilets to
Speaker 1: bathing two shower systems, faucets, vanities, et cetera. If it
Speaker 1: has to do with plumbing, it exists in your bathroom
Speaker 1: or your kitchen, we provide it. So I guess just
Speaker 1: to step back for one second, is the business of
Speaker 1: um bathroom supplies and plumbing is that unique in any
Speaker 1: way to other manufacturing businesses? Are there specific aspects of
Speaker 1: the business that make it unique? Sure? Certainly, right, it's
Speaker 1: all about water and whether that's conservation or getting water
Speaker 1: to the right places. In the house at the right
Speaker 1: times to ensure that we're making better homes and reality
Speaker 1: for everyone everywhere. That's that's primary really what we do now.
Speaker 1: If I look at some of my other roles in
Speaker 1: previous experiences, I think as it pertains to housing in total,
Speaker 1: is you can't complete the house, you can't get a
Speaker 1: certificate of occupancy without those products. And they're vital not
Speaker 1: only to closing a home but to any homeowner. So
Speaker 1: what is what is the the customer mix in terms
Speaker 1: of what you sell? How much is sort of the
Speaker 1: home's first bathroom, how much has sold through the home
Speaker 1: builder itself versus say renovations in existing home. Someone wants
Speaker 1: to install a new bathroom or new bathtub, or just
Speaker 1: replace an existing thing, like give us this sort of
Speaker 1: like the breakdown. Sure, yeah, that's a great question, Joe Um.
Speaker 1: I think what's interesting is the evolution and it really
Speaker 1: only accelerated over the last year and a half of
Speaker 1: the pandemic. So previous to the pandemic, quite often the
Speaker 1: average consumer would rely on a plumber or someone to
Speaker 1: install these products in their house. And really what we
Speaker 1: saw over the last year and a half was do
Speaker 1: it yourself. Begin to really take off because of the
Speaker 1: concerns people had over health and safety and allowing people
Speaker 1: into their homes. So we've really seen a transition there.
Speaker 1: And if you look today, the general route to market
Speaker 1: for a consumer is either to go to a distributor
Speaker 1: call up their local plumber, or go to a d
Speaker 1: I y like a Menard's allows or a home depot
Speaker 1: to purchase the products. Now, what we are seeing is
Speaker 1: a transition more in this environment to online purchasing and
Speaker 1: online behaviors. So just based off of that, maybe you
Speaker 1: could walk us through what happened over the past year
Speaker 1: or so. How extreme are the supply shortages that you're experiencing,
Speaker 1: and how much of that is demand for components as
Speaker 1: people you know, stay at home and decide to upgrade
Speaker 1: their bathrooms versus actual supply shortages like use in your
Speaker 1: supply chain. Sure, I think it was a perfect storm
Speaker 1: of events right the pandemic hit us, we all took
Speaker 1: a step back, um, certainly just as consumers, but also
Speaker 1: as business leaders and said, hey, we don't know how
Speaker 1: long this is gonna last. We want to make sure
Speaker 1: we preserve cash and capital. We want to make sure
Speaker 1: we keep our employees safe and engaged and what we
Speaker 1: need to do in that space. And I think the
Speaker 1: first reaction was to make sure we had the right
Speaker 1: levels of safety and place for for our employees, and
Speaker 1: then second make sure we had enough resources to sustain
Speaker 1: our business and and be profitable until this was over.
Speaker 1: And I think not only did you see that in
Speaker 1: the plumbing industry, you saw it in terms of raw
Speaker 1: materials and almost in any other business. And because of that,
Speaker 1: we saw a sharp drop in demand initially right and
Speaker 1: then everybody took a couple of weeks, and then what
Speaker 1: we saw was is people stayed at home, um they
Speaker 1: started to work on their houses themselves or their apartments.
Speaker 1: And what happened was then a huge rush and spike
Speaker 1: in demand. And so we kind of had a whipsaw
Speaker 1: effect and our factories and certainly from our third party
Speaker 1: suppliers and trying to preserve preserve our business to oh wow,
Speaker 1: there's a significant amount of demand. And so with that spike,
Speaker 1: certainly what we saw was an increase in lead times
Speaker 1: to get the raw materials we need to produce our
Speaker 1: products or from third party suppliers. And then when you
Speaker 1: start to add logistics into this, because our products come, um,
Speaker 1: primarily from North America, but we also do source from
Speaker 1: all around the world. You started to see constraints within
Speaker 1: the logistics chain, so whether it were not enough ships
Speaker 1: or not enough containers, and then huge spikes and inflation
Speaker 1: in those And then once we kind of got that
Speaker 1: whole predicament sorted and settled out, then what we saw
Speaker 1: was a huge change in labor. So now you didn't
Speaker 1: have enough plumbers. Um, Now we didn't have enough qualified
Speaker 1: truckers once the products were here to get them to
Speaker 1: the right places in the right times. And then we
Speaker 1: didn't have enough people to do the work necessary to
Speaker 1: bring a lot of this to life. And so um,
Speaker 1: just when you think you've figured it all out and
Speaker 1: you've got your supply chain ready and up and rolling,
Speaker 1: something new kind of jumps in front of us. So
Speaker 1: so it's really given us an opportunity to be more
Speaker 1: agile and effective and really position ourselves better for the
Speaker 1: future through this. Sorry, I just want to back up
Speaker 1: and clarify a previous questions. So you mentioned this sort
Speaker 1: of the shift from the consumer. Okay, more d I Y,
Speaker 1: But how much of a sort of the total sales
Speaker 1: mix is a consumer doing something to their house, upgrading
Speaker 1: their bathroom or whatever, versus say a new installation at
Speaker 1: an apartment or a new home construction. Sure, so I
Speaker 1: think in the total business, you'd be looking at a
Speaker 1: d I Y which has grown significant only again over
Speaker 1: the last year and a half, but it's probably up
Speaker 1: in the industry just somewhere in the neighborhood of thirty.
Speaker 1: But how what percent of a new we say, bathtubs
Speaker 1: or showers are not sold to the consumer doing an upgrade,
Speaker 1: but just an original installation within a home. Right, that's
Speaker 1: the other six percent is done whether it's in new construction,
Speaker 1: whether it's in remodel through a distributor, or remodel through
Speaker 1: got it. I'm just curious in terms of shortages, are
Speaker 1: there is there a variation across your products, Like are
Speaker 1: some things more available than others? So I was reading recently,
Speaker 1: for instance, that bathroom vanities apparently had been impacted by
Speaker 1: a shortage of acrylics. So I'm just curious, like, are
Speaker 1: you seeing a variation or is it sort of across
Speaker 1: the board. It is primarily across the board, But you're
Speaker 1: right in terms of acrylics, and that's a big part
Speaker 1: of bathing um in bathtub ubs, and there is a
Speaker 1: shortage there as well. I think you are also seeing
Speaker 1: shortages in anything that takes copper at the moment right,
Speaker 1: which is primarily our faucets and a lot of instances.
Speaker 1: So raw materials is having a huge effect not only
Speaker 1: in terms of what we can procure, but also in
Speaker 1: terms of the price increases we've seen from from our
Speaker 1: suppliers UM to get those products today. I think even
Speaker 1: if you look at containers, containers are a huge huge
Speaker 1: issue for us from a logistics standpoint today as well.
Speaker 1: Let's let's back up even further a little bit. Actually,
Speaker 1: let's just talk about normal times. What's in a bathtub?
Speaker 1: If someone buys a bathtub, what what goes into it?
Speaker 1: And where is it likely where would it be manufactured?
Speaker 1: Most of our bathtubs are produced here in the America's UM.
Speaker 1: We do source some products from overseas, but primarily here
Speaker 1: and so generally when you talk about bathtubs, you have
Speaker 1: SMC or acrylic are the primary components and they're formed
Speaker 1: to create the bathtub that you're used to seeing today.
Speaker 1: Now you certainly have drains, so there's steel is a
Speaker 1: piece of that um. But but in total, that's primarily
Speaker 1: what you see. Now. You may think a little bit
Speaker 1: about whirlpools in total that pushed the water around, but
Speaker 1: that segment in total is really declined quite a bit
Speaker 1: over the last year. Is people transition more into showers
Speaker 1: than they do into tubs and total, and so you're
Speaker 1: seeing that kind of move. What's SMC. It's a more
Speaker 1: value raw material that we use. It's a little bit
Speaker 1: cheaper than acrylic and creates more value in the market.
Speaker 1: It's less durable by the way as well. And where
Speaker 1: are your products mostly manufactured? So we have a few
Speaker 1: different manufacturing plants in the US, so Ohio, Dallas, and
Speaker 1: then we also produce quite a bit of Mexico and
Speaker 1: that those the SMC or the acrylic. Where where would
Speaker 1: that typically be sourced from? So so we do a
Speaker 1: bit of that in Ohio, and then we sourced it
Speaker 1: from other manufacturers in the US, but also overseason Asia.
Speaker 1: So I guess we're trying to pinpoint specific issues in
Speaker 1: your supply chains. So I think we're all familiar with
Speaker 1: this idea that COVID through a bunch of businesses off guard.
Speaker 1: People thought there would be a big drop in demand
Speaker 1: for various goods, and instead we saw a surge and
Speaker 1: businesses had cut back on production and so they had
Speaker 1: to ramp it up very very quickly. But I'm just curious,
Speaker 1: in terms of your supply chain, were there particular pressure
Speaker 1: points that you weren't expecting as that that dynamic unfolded. So,
Speaker 1: for instance, would you have expected an acrylics supplier to
Speaker 1: ramp up supply but then they weren't able to do
Speaker 1: that because I don't know one of their suppliers had
Speaker 1: also experienced issues. What I guess what surprised you the
Speaker 1: most out the supply chain shortages? Yeah? Sure, so, so
Speaker 1: I think what's really interesting about this and I look
Speaker 1: at the supply chain in total um, The first impact
Speaker 1: that hit us that maybe a lot of people don't
Speaker 1: think about is safety. Right. So if you're used to
Speaker 1: being in a facility where the person if you're an
Speaker 1: operator and the person next to you is working within
Speaker 1: two feet, they needed to be distanced to six ft, right,
Speaker 1: and so that's going to really affect your yield. So
Speaker 1: if you were producing what you thought was going to
Speaker 1: be twenty thou toilets a day, you've got to cut
Speaker 1: that in some instances by a third right and just
Speaker 1: to create the right safety because safety is and continues
Speaker 1: to be paramount for us at LIXEL, for every one
Speaker 1: of our employees, even when we return to the office,
Speaker 1: it will be the same way. So that might be
Speaker 1: one of the first things that impacted us. And so
Speaker 1: we might have had the ability to produce more or
Speaker 1: able to procure enough raw materials to produce more, but
Speaker 1: we didn't have the space. And so that kind of
Speaker 1: leads you to the next piece that says, should we
Speaker 1: make bigger capital investments to our plants to create more
Speaker 1: space inside of them? And what what does that mean? Right,
Speaker 1: Because if we're going to do that, that's a large
Speaker 1: investment and we're just going to go back to distancing
Speaker 1: people two feet. Well, now you've got all this extra
Speaker 1: space that you might not need. And we're very conscious
Speaker 1: about how we how we do that and how we
Speaker 1: look at it. And so from a first standpoint, that
Speaker 1: was kind of the first bottleneck that we saw. Once
Speaker 1: we were able to change our factory master plans and
Speaker 1: aligne everything, we felt really comfortable there, right, and we
Speaker 1: got our outputs up. And so the next big thing
Speaker 1: that hit us is we we change our mix in
Speaker 1: plumbing based on production needs UM and spikes in that
Speaker 1: supply chain, and we start with the America's first, because
Speaker 1: it's the easiest for us to get and move all
Speaker 1: around the America's itself UM. From there we go overseas
Speaker 1: UM and generally we happened to excess capacity we have
Speaker 1: in other regions, being a global manufacturer, and so we
Speaker 1: had all of our plans set up for that. Well,
Speaker 1: the next big surprise we had was we couldn't get
Speaker 1: enough containers. I think there's a round about two and
Speaker 1: a half million containers in the world at the time.
Speaker 1: That two and a half million were all full, like
Speaker 1: within a week, and so now we had all of
Speaker 1: this extra product that we couldn't get on a container,
Speaker 1: and prices for containers went from about three to four
Speaker 1: thousand a container to bring them over here to now
Speaker 1: today somewhere between depending where you get it on the market,
Speaker 1: thirteen to fifteen thousand. So that's created a huge spike
Speaker 1: and costs there. So once we were able to understand
Speaker 1: in in align the containers that we needed, guess what
Speaker 1: the next problem is, not enough boats and not enough
Speaker 1: ships to get tost containers here, and because what you'll
Speaker 1: see what's really interesting is getting them from Asia to
Speaker 1: here is a big issue. Sending them back. Many things
Speaker 1: are going back empty right now, right and so it's
Speaker 1: just not as efficient as anyone would like it to be.
Speaker 1: And so kind of my point earlier was as we
Speaker 1: start to whack them all, all of these new things
Speaker 1: come up that we just never anticipated before. Maybe part
Speaker 1: of that's on us, but part of it is is
Speaker 1: a bit of the nature of this beast as it evolves.
Speaker 1: I want to go back to the raw materials question
Speaker 1: for a second. So you mentioned shortages of say just
Speaker 1: even basics like acrylic. What happens when you go to
Speaker 1: one of your acrylic suppliers and you say, okay, we're
Speaker 1: but we need this much for this many tubs or
Speaker 1: whatever it is, or or or sinks, and they come
Speaker 1: back to you they talk about either higher prices or
Speaker 1: longer lead times. What are they saying. What are they
Speaker 1: saying is the cause of their own constraints, their own
Speaker 1: inability to get you supply as fast as you'd like. Sure,
Speaker 1: the biggest issue is capacity in total. And again, as
Speaker 1: we talked earlier, everybody kind of took a second took
Speaker 1: inventory of where they were when this started and in
Speaker 1: many instances really went into preservation mode. And because of that,
Speaker 1: you just can't ramp back up fast enough. And so
Speaker 1: UM we have a lot of great partners, a lot
Speaker 1: of great third party suppliers, and we really try to
Speaker 1: work with them UM to create when when scenarios for
Speaker 1: everybody UM. And certainly they have passed along pricing to us,
Speaker 1: and we've tried to mitigate that in every effort and
Speaker 1: instance that we can through efficiencies, but that's not always
Speaker 1: the case. And so the kind of conversations that we
Speaker 1: have with our suppliers are how important is the relationship,
Speaker 1: How how much can we stretch what we can produce
Speaker 1: without putting risks to our commitments to our consumers and customers?
Speaker 1: And then what can we do and how fast can
Speaker 1: we increase capacity knowing that at some point you're going
Speaker 1: to reach the top end of the capacity needed and
Speaker 1: you don't want to create extra capacity that you then
Speaker 1: have to wean off of over time that can be
Speaker 1: an additional cost as well. And we're still having those
Speaker 1: conversations today in many instances across a lot of our products.
Speaker 1: This is something that I want to ask you about so,
Speaker 1: in terms of raw materials, does it feel like you
Speaker 1: have to compete in order to get your hands on
Speaker 1: those supplies? Um. And the reason I asked that is
Speaker 1: because we've spoken a lot about the container shortage over
Speaker 1: the past year, and one of the things that comes
Speaker 1: out from those conversations consistently is that if you're a
Speaker 1: big ship or you know, someone like a Walmart or
Speaker 1: an Ikea, you can probably still source some supply of containers.
Speaker 1: But if you're a smaller player, that's going to be
Speaker 1: more difficult. Yeah, I don't I don't think we've really
Speaker 1: seen an issue procuring raw materials, containers, things like that,
Speaker 1: as long as you're willing to pay the premium for those, right,
Speaker 1: And that's driven up the cost. And I think not
Speaker 1: just in plumbing, but I think everywhere you're seeing inflation
Speaker 1: start to to take hold, and a lot of it
Speaker 1: is because of that, right, there's excess demand and there's
Speaker 1: a shortage of supply. Now, I think we've also seen
Speaker 1: in lumber that's coming back to normally even crashing back
Speaker 1: to normal in some instances. We haven't really seen that
Speaker 1: in the raw materials that we have used yet. And
Speaker 1: I don't think we will see relief from that, certainly
Speaker 1: within the next twelve months, and I could see it
Speaker 1: being elevated longer than that, only because there's still really
Speaker 1: high demand for housing as well as do it yourself
Speaker 1: based on the projections that we're seeing. What you know,
Speaker 1: you mentioned the surging price of containers. Of course, there's
Speaker 1: something we've discussed. But okay, so it goes from three
Speaker 1: thousand two in the teens thousands. What is the I
Speaker 1: don't know the value of what's being shipped, like how
Speaker 1: much of this sort of how much does that eat
Speaker 1: into the total the gross the gross value of what's
Speaker 1: in that container. Yeah, it is significant enough that we
Speaker 1: can't offset it through other measures, um within our own business,
Speaker 1: and so that's why we've had to pick pricing in
Speaker 1: the market ourselves, and we've tried to minimize that to
Speaker 1: the extent we can to ensure that we're creating value
Speaker 1: for our customers and for the consumer. But it's something
Speaker 1: we just haven't been able to offset in total, and
Speaker 1: it's it's a large number, um when you add up
Speaker 1: all of the products that we sell on the containers
Speaker 1: that we purchase. So on that note, can you maybe
Speaker 1: describe what's happened to your margins over the past year
Speaker 1: and if there's anything you're doing to offset that. Yeah, well,
Speaker 1: we're trying to be as efficient as possible and as
Speaker 1: as the world's changed, we've it's been all about give
Speaker 1: and take, right. Um, So we've seen a lot of
Speaker 1: our budgets that were allocated towards traveling and those types
Speaker 1: of expenses really come down and that's been able to
Speaker 1: offset some of the inflation and higher production costs that
Speaker 1: we've had. As we've had the social distance within our facilities. Um,
Speaker 1: we found new ways to market, new ways to partner
Speaker 1: with our customers, and for us, we've been able to
Speaker 1: remain stable throughout this time. But again we've also had
Speaker 1: to take pricing to be able to do that. One
Speaker 1: of the ironies, and this has come up before on
Speaker 1: previous episodes, is with people flying less, there's less air cargo,
Speaker 1: and so everyone cuts back on travel expenses, and then
Speaker 1: there's less air uh, and then there's less air travel
Speaker 1: and there's less air cargo, and then more even more
Speaker 1: demand for shipping, and so people end up paying the
Speaker 1: price at the other end. You know you mentioned, Okay,
Speaker 1: we we've seen this crash and lumber, but you don't
Speaker 1: really see it elsewhere. Why do you think that is? Like,
Speaker 1: do you have any why have we not seen the
Speaker 1: sort of supply and demand reaction that we've seen in
Speaker 1: this one specific area across other across the commodities that
Speaker 1: you deal with, Joe, this is a great question, and
Speaker 1: so I'm sure I'm not doing anything different than other
Speaker 1: business leaders in yourselves. I'm listening to the quarterly reports
Speaker 1: of a wire houser and and basically what I've surmised
Speaker 1: is that they were able to increase capacity much faster
Speaker 1: than maybe some other areas. And maybe there is less
Speaker 1: complexity and lumber than there is in a faucet um
Speaker 1: or a toilet or or a bathtub um, and maybe
Speaker 1: that makes a little easier to react when there's less
Speaker 1: inputs right in terms of raw materials than than there
Speaker 1: are for us. So this gets into a question that
Speaker 1: I wanted to ask you, which is you mentioned in
Speaker 1: the in the beginning of the conversation, this idea of
Speaker 1: a whiplash effect. So everyone underestimated demand and then they
Speaker 1: had to scramble to ramp up production. And now we
Speaker 1: are seeing various industries respond to higher prices and higher
Speaker 1: demand by increasing their output. Do you worry about an overshoot?
Speaker 1: I guess another way of saying it is, do you
Speaker 1: worry about the bull whip effect? Um? This idea that
Speaker 1: we're going to get extremes in terms of imbalances of
Speaker 1: supply and demand. Absolutely um. And if you're not, I don't.
Speaker 1: I don't think as a business leader, you're being fiscally responsible,
Speaker 1: right I'm the easy thing right now would be to
Speaker 1: react to this industry and react to the pandemic and
Speaker 1: just invest heavily in capacity and production because we are
Speaker 1: at the top levels of that today as an industry.
Speaker 1: I don't think that exists into the future, and I
Speaker 1: would be concerned that any investments that we'd be making
Speaker 1: today we wouldn't get a payback on longer term. And
Speaker 1: that's why it's so important for us to make sure
Speaker 1: we're being as efficient as possible with that inventory UM
Speaker 1: and trying to understand when do we pull products from Asia,
Speaker 1: when is it not worth it? UM? Do we add
Speaker 1: capacity within the Americas that we could use longer term?
Speaker 1: Certainly tariffs play play a play into this, as well
Speaker 1: as the inflation, but I also don't want who's in
Speaker 1: office to determine our strategy, right um. I think when
Speaker 1: you do that, you may be having to change your
Speaker 1: strategy every four years, and I don't think that's sustainable either.
Speaker 1: And it's really trying to create this balance, um across
Speaker 1: everything that we do to make sure we're prepared as
Speaker 1: we can be, but really agile enough to uh to
Speaker 1: make changes to any surprises that that we didn't anticipate. Well,
Speaker 1: this gets back to like a broader theme that we've
Speaker 1: touched on too. So obviously expectations of the future play
Speaker 1: an important role in thinking about your capital investment plans.
Speaker 1: I've aslee. Prior to the pandemic, and especially in the
Speaker 1: years after the Great Financial Crisis, the home building industry
Speaker 1: was in pretty terrible dire straits and there was a
Speaker 1: lot of I guess maybe d investment or a hollowing
Speaker 1: out of capacity, and people just saw this very sluggish industry.
Speaker 1: And I know you weren't at looks all at the time,
Speaker 1: but you're a whirlpool and you probably saw it from
Speaker 1: the pure appliance side. It's like very slow housing for years, etcetera.
Speaker 1: How much do you see that now that that period
Speaker 1: the years following the Great Financial Crisis, the sort of
Speaker 1: hollowing out of capacity, shrieking of the supply side is
Speaker 1: having come back to bite us now as we enter
Speaker 1: as we have like this period of rapid growth. Yeah,
Speaker 1: that's a that's a great question. And certainly I lived
Speaker 1: through that recession, and I think that hangover is a
Speaker 1: lot of what drove the whiplash of UM tightening your
Speaker 1: belt really quickly and not reacting fast enough to the
Speaker 1: change because of what we all lived through in the past. Now,
Speaker 1: I don't believe it had any effect on where we
Speaker 1: were when the pandemic started, because I think many companies
Speaker 1: had made the necessary of investments to keep up with
Speaker 1: the market and where we were going, and and it
Speaker 1: was far enough in the rear view mirror UM that
Speaker 1: people felt good about adding capacity. I think now for
Speaker 1: fiscally responsible organizations, you're asking yourself, should we be investing
Speaker 1: in capacity? And the answer in certain areas is yes,
Speaker 1: by the way, UM. But the question is more about
Speaker 1: where do we do it, when do we do it,
Speaker 1: and how big an investment do we make when we
Speaker 1: do that. So I realized we haven't spoken much about
Speaker 1: labor issues. Although you briefly mentioned them earlier. Are you
Speaker 1: seeing trouble You always read my mind. You always read
Speaker 1: my mind with where you got now we're all pulling
Speaker 1: in the same direction. It's great. But are you experiencing
Speaker 1: labor shortage? And I guess could you maybe just provide
Speaker 1: some color on what labor actually means to your business?
Speaker 1: So on the one hand, you have people making goods,
Speaker 1: but on the other hand, the sales of your products
Speaker 1: also kind of depend on plumbers who are able to
Speaker 1: install them. Sure, Tracy, that's a wonderful question. The answer
Speaker 1: is yes. I mean, depending on whether you're talking about
Speaker 1: within our facilities, whether you're talking about logistics, whether you're
Speaker 1: talking about sales folks, whether you're talking about executives. I
Speaker 1: think there is pressure on labor everywhere within our system, um,
Speaker 1: and I think it's a healthy pressure, quite frankly, and
Speaker 1: it's required us to really look at our business and
Speaker 1: think about what kind of organization do we want to
Speaker 1: be going forward. Um. I think you've read plenty, certainly
Speaker 1: enough journals and newspapers and seen enough shows about return
Speaker 1: to work and what does that look like? And maybe
Speaker 1: we'll just start there and we can work our way back,
Speaker 1: but when we start there is we really want to
Speaker 1: envision the future of Lixel being a place where individuals
Speaker 1: can own their own day on where they're empowered to
Speaker 1: be successful, and that doesn't necessarily have to require that
Speaker 1: they're in the office five days a week. We and
Speaker 1: many others have learned to be successful with a remote
Speaker 1: work culture that allows us um to really focus not
Speaker 1: only on the employee and what they bring to the business,
Speaker 1: but also their personal lives. And because of that, our
Speaker 1: business is thriving and our employees are thriving, and they're
Speaker 1: able to link their personal purpose with the overall Lixel
Speaker 1: purpose to make better homes a reality for everyone everywhere.
Speaker 1: And for us, that's great, and I think it's going
Speaker 1: to unlock an opportunity for us to acquire talent because
Speaker 1: we are in the growth mode and we are hiring,
Speaker 1: and it's going to allow us to tap into a
Speaker 1: market that we might otherwise not have been able to
Speaker 1: do previously. What about at the sort of pure the facilities,
Speaker 1: and you mentioned the Dallas that you had a facility
Speaker 1: in Dallas, which is interesting because I know Texas is
Speaker 1: one of the states where you know they've pulled back
Speaker 1: on the unemployment insurance expansion. Can you just talk a
Speaker 1: little bit about staffing, say that facility, what that's been like,
Speaker 1: the challenges of hiring their etcetera. Sure, Um, And I'll
Speaker 1: talk a little bit about Dallas, and I'll talk a
Speaker 1: little more more broadly as well. Dallas specifically, we really
Speaker 1: struggled in the middle of the pandemic getting our yield
Speaker 1: up because we were struggling to add labor within the facilities.
Speaker 1: Now we've seen that come back wholeheartedly and really, um,
Speaker 1: we're at a great level today. And and maybe a
Speaker 1: piece of that is pulling back on the stimulus and
Speaker 1: the aid has had people come back to work. But
Speaker 1: I'd also like to believe it's the kind of environment
Speaker 1: that we're creating at Lexel and the opportunities that we're
Speaker 1: offering it really helped drive that as well. And so
Speaker 1: I really don't see labor as big of an issue
Speaker 1: today in our production facilities as it was in the past.
Speaker 1: Now when I transition and I talk a little bit
Speaker 1: about our d C s UM as well as our
Speaker 1: logistics and truckers, we have a bigger issue there, right,
Speaker 1: And so their bottlenecks they're all over and we're seeing
Speaker 1: line rates go up pretty significantly because of that, and
Speaker 1: you're seeing a lot of our partners in the trucking
Speaker 1: space have to move away from certain lanes they used
Speaker 1: to use. Can you just talk what's it? I mean
Speaker 1: the pay scales at a manufacturing facility versus a DC
Speaker 1: a distribution center. I assume that's what it means at
Speaker 1: a distribution center. How do they compare and how might
Speaker 1: that Where do they stand on this sort of pay scale,
Speaker 1: and how might that be? How might that be explaining
Speaker 1: some of the challenges and hiring. Sure, they're they're pretty
Speaker 1: comparable from an entry level standpoint. I think what what
Speaker 1: you see in our facilities in terms of production and
Speaker 1: versus the d cs is that many of the individuals
Speaker 1: in the dcs are seeing opportunities within trucking that you
Speaker 1: don't normally see in a production facility. What about plumbers?
Speaker 1: We we've spoken a lot about truck drivers on a
Speaker 1: previous episode, but what's the supply of plumbers like at
Speaker 1: the moment, I really have no idea. Sure, thank you
Speaker 1: for using that question. It's it's very concerned. Um, And
Speaker 1: so what we're seeing depending on what you read and
Speaker 1: what we're actually experiencing is you're seeing plumbers retired at
Speaker 1: a faster rate than they can be replaced today. And
Speaker 1: in some instances, uh, it's five to one is what
Speaker 1: we're reading. In other instances it's just half. But either way,
Speaker 1: that's not enough plumbers for the future. And I think
Speaker 1: the one stigma attached to plumbers by the general public
Speaker 1: is that it's not a great job and it's not
Speaker 1: a high paying wage, which couldn't be further from the truth.
Speaker 1: And and we're really spending a lot of time investing
Speaker 1: in something we call a trade up program to help
Speaker 1: them individuals within a trade space understand the value of plumbing,
Speaker 1: and then fostering partnerships with other other organizations to really
Speaker 1: get the message out for us because it is a concern. Now.
Speaker 1: We can't just rely on plumbers coming back to the
Speaker 1: industry in total. We've got to figure out ways to
Speaker 1: lighten or at least release pressure on plumbers and total
Speaker 1: and our need for them going forward as well. And
Speaker 1: that's through innovation primarily. Yeah, what does they look like? Well,
Speaker 1: what is the you know, is there is it? Is
Speaker 1: it going to be that in five years or maybe
Speaker 1: today versus twenty years ago. Is it easier or faster
Speaker 1: to install a bathtub than it would have been? Yeah,
Speaker 1: that's that's really the hope. Right. A lot of the
Speaker 1: innovation doesn't have to be a connected bathtub or a
Speaker 1: connected toilet, and quite frankly, I'm sure everybody wants that anyway.
Speaker 1: I think it's making easier to install products. It's creating
Speaker 1: content that also makes it easier to install UM for
Speaker 1: the general lay person. And not to be afraid of
Speaker 1: plumbing is maybe many of us have grown up to
Speaker 1: be nervous about. I have a non supply chain slash
Speaker 1: supply shortage question. But you know, I mentioned at the
Speaker 1: beginning of our discussion this idea that, Um, I haven't
Speaker 1: had a bathtub in the apartments that I've rented for many,
Speaker 1: many years, and I'm just wondering, why do bathtubs seem
Speaker 1: to have fallen out of favor UM, at least with
Speaker 1: landlords in large cities. Great question, Um, I think it
Speaker 1: has a lot to do with constraints. Right. It's easier
Speaker 1: to put a shower into a home than it is
Speaker 1: a bathtub. It takes less space. I also think just
Speaker 1: the way that our lives have evolved in total. Is
Speaker 1: those days of laying in the tub and soaking for
Speaker 1: hours on end, maybe with a glass of wine, just
Speaker 1: isn't what the norm is today, and I think we're
Speaker 1: seeing a move away from it now. A great question is,
Speaker 1: now that people are spending more time in their homes,
Speaker 1: will we see a transition back? And I think the
Speaker 1: answer could be yes, and we need to be prepared
Speaker 1: for that now we we haven't seen it. I think
Speaker 1: bathtubs in general are increasing with the industry, so they're
Speaker 1: they're not outpacing it, but I think that's something we
Speaker 1: should all be mindful of. Hotels don't really seem to
Speaker 1: have as many bathrooms as they used to either, do
Speaker 1: they No, You're right, they don't. Um. I've noticed that
Speaker 1: in in my travels as well. Certainly when we look
Speaker 1: at our projects and going forward, many large hotels aren't
Speaker 1: projecting bathtubs and what they're planning to build over the
Speaker 1: next two years. You know, one of the big questions is,
Speaker 1: you know, continue to have this debate, well, what's going
Speaker 1: to change pre impost pandemic. And you mentioned that obviously
Speaker 1: you had to figure out ways to get up yield
Speaker 1: within the production facilities even with increased spacing. And I'm
Speaker 1: curious if you've learned or discovered sort of like productivity
Speaker 1: gains that you will keep with you regardless of the
Speaker 1: sort of health and public situation that will last. Like,
Speaker 1: what kind of productivity enhancements have you seen? Definitely, Uh,
Speaker 1: it's all about agility and efficiency, honestly, and it's how
Speaker 1: do we create, certainly within our manufacturing footprint, the ability
Speaker 1: to produce anything anywhere at any time to be able
Speaker 1: to react to these global changes that that we couldn't anticipate.
Speaker 1: So an example would be for us making sure that
Speaker 1: we are qualifying as many different products to be produced
Speaker 1: and as many different facilities as possible, so we have
Speaker 1: the ability as we see things change in terms of logistics, costs, tariffs,
Speaker 1: to produce similar products in different places, to take advantage
Speaker 1: of what we're doing. And I think the same by
Speaker 1: the way it goes for our office workforce is how
Speaker 1: do we create a space that allows us to be
Speaker 1: flexible and agile enough to take advantage of any of
Speaker 1: the changes in the environment. What about automation, Is that
Speaker 1: something that you've been investing in over the past year
Speaker 1: given issues with things like labor given these unexpected disruptions
Speaker 1: to the way people are actually working, or is it
Speaker 1: something that you hold off on just because you're uncertain
Speaker 1: about the future business environment. So today some of our
Speaker 1: products are manufactured with more automation than others. I don't
Speaker 1: think that in the shorter term that will try to
Speaker 1: overcompensate with the concerns of labor or the pandemic with automation,
Speaker 1: because we do realize how vital our employees are to
Speaker 1: what we do and what we create, and in many
Speaker 1: instances you really need a skilled labor force to do
Speaker 1: some of the things that we do that automation just
Speaker 1: can't do and can't can't handle. So I think for us,
Speaker 1: we'll automate where it makes sense and where we can
Speaker 1: gain efficiencies um but not at the risk of losing
Speaker 1: some of our most skilled and artistic labors. You mentioned
Speaker 1: this is something I was thinking about when you talked about, Okay,
Speaker 1: the future of plumbing and maybe making items easier to install.
Speaker 1: And also I thought about this when you were talking
Speaker 1: about making factories such that they could be flexible and
Speaker 1: produce anything. And this might be a very uninformed question,
Speaker 1: or maybe a stupid question, but you know, when I
Speaker 1: think about like certain technologies, I think about like the
Speaker 1: rise of standards and idea of like, okay, a USB cable.
Speaker 1: Everybody knows what it is, and numerous different UM players
Speaker 1: can produce the USB cable and we just know that
Speaker 1: it will work. And of course I'm sure obviously there's
Speaker 1: a lot of standardization within plumbing and certain size of
Speaker 1: pipes and so forth. But is that something that you
Speaker 1: think about sort of advancing in the future. I guess
Speaker 1: like more plug and play, so to speak, when it
Speaker 1: comes to these sort of irregular items like faucets and
Speaker 1: bathtubs and shower heads and faucets, more things that people
Speaker 1: just know how to fit them together in an easy
Speaker 1: manner such that they require less specialization of knowledge. Sure. Yeah,
Speaker 1: today things are pretty standardized regionally, I'll say, I think
Speaker 1: when you start to globalize or where you start to
Speaker 1: have some differences. And that's something that we're working on
Speaker 1: today UM to really try to make us more efficient
Speaker 1: than we've been in the past. And one thing that's
Speaker 1: really important that I think a lot of people don't
Speaker 1: anticipate or plan because here in America there's a less concern.
Speaker 1: But it's water conservation and it's coming. I think you
Speaker 1: see it as we look out on the West Coast
Speaker 1: now and the droughts that we have in the really
Speaker 1: high heat and the global warming. Is how do we
Speaker 1: create products, specifically faucets, showers, bathtubs that are standardized for
Speaker 1: us to really be able to be sold anywhere in
Speaker 1: the world, but also anywhere regionally within the US as
Speaker 1: the standards begin to change in terms of water converse conservation,
Speaker 1: excuse me, and what's allowed and so, Joe, I don't
Speaker 1: think it was a dumb question at all, and those
Speaker 1: are the kind of things that we're trying to get
Speaker 1: ahead of. So we're not reacting and we're being proactive
Speaker 1: and being able to deliver for our consumers and our customers.
Speaker 1: Is that the big technological um development in bathtubs then,
Speaker 1: because I think a lot of people, or at least me,
Speaker 1: and again I'm probably not a good person to ask
Speaker 1: about this because I haven't had access to a bathtub
Speaker 1: for a long time. But when I think about bathtubs,
Speaker 1: there's sort of the static home appliance that don't seem
Speaker 1: to change very much unless you get a very very
Speaker 1: fancy one with you know, whirlpool jets and things like that.
Speaker 1: But what's the next big thing in bathtubs? Is it
Speaker 1: water conservation? Is it the standardization aspects that you are describing,
Speaker 1: or is there something on the horizon um that's very
Speaker 1: very different. Sure, Tracy, I'm the exact same way. I
Speaker 1: don't remember the last time that I took a bath personally,
Speaker 1: and so maybe I'm not the best person other than
Speaker 1: the fact that we sell them to have the discussion.
Speaker 1: But but we are looking at innovation across all of
Speaker 1: our products. Bathtubs included on how can they conserve water
Speaker 1: and how can we ensure that they're safe and that
Speaker 1: we're creating an environment where we're not opening ourselves up
Speaker 1: for damage. So bathroom overflows, how do we ensure that
Speaker 1: doesn't happen? Right, So that's a big deal, and that
Speaker 1: would certainly solve the conservation issue one, but to also
Speaker 1: additional repair costs that that might come from that standpoint.
Speaker 1: But but in total, you're going to see over the
Speaker 1: next five to ten years water become much more of
Speaker 1: a scarcity, not only the America's because it is and
Speaker 1: it's happening on the West coast, but all over the
Speaker 1: world and products that can really deliver a great experience
Speaker 1: with less water are going to win in the market.
Speaker 1: My kids splashed at the bathtub too much and then
Speaker 1: some leak down into the downstairs neighbor apartment and they complained,
Speaker 1: as they should have. So if you could solve that
Speaker 1: a bathtub that my kids could splash it without annoying
Speaker 1: the neighbors, I would be very very appreciative of that.
Speaker 1: Maybe a shower that fills up. How's that? That's a
Speaker 1: that's an interesting idea. I guess the big question is, um,
Speaker 1: how long would you expect these issues to last and
Speaker 1: what's going to be the change that finally brings the
Speaker 1: market back into balty. So I think housing is going
Speaker 1: to be a real big piece of this. And we're
Speaker 1: even seeing housing begin to slow down. It's it's comping
Speaker 1: previous year, which was a huge spike, but we're not
Speaker 1: seeing a huge spike on a huge spike, So you'll
Speaker 1: see that come back into line, and then I think
Speaker 1: you're going to have an affordability issue for the general
Speaker 1: public when it comes to housing, which will also slow
Speaker 1: down this train a little bit and help things right
Speaker 1: size themselves and get back in line. Now saying that
Speaker 1: I would expect for the next twelve months, we will
Speaker 1: still be in this environment and you'll see it slowly
Speaker 1: start to subside, and you'll start to see with US
Speaker 1: and other manufacturers begin to add capacity back in and
Speaker 1: be able to meet the demands. The demands that that
Speaker 1: you'll see less pressure and ability to find the exact
Speaker 1: products you want instead of having to purchase the product
Speaker 1: it's on the shelf um not necessarily the one that
Speaker 1: you want. And so I think for the next year
Speaker 1: you're gonna see it start to lighten up, and then
Speaker 1: after that, I think in general, as an industry, we
Speaker 1: should be able to manage any of the demand headed
Speaker 1: our way. You know. The one the one thing that
Speaker 1: came up during this crisis is the idea of just
Speaker 1: in time inventory and the lack of buffers, and I
Speaker 1: think people were pretty surprised. Obviously the PPE equipment was
Speaker 1: a very stark example of this. But people are just
Speaker 1: at toilet paper and all kinds of things. It's like, well,
Speaker 1: we get we run into a shortage very fast. Well
Speaker 1: that change your planning going forward? Or will that not
Speaker 1: necessarily the risk of another pandemic? Though I guess that
Speaker 1: could happen. But thinking about supply contingencies and how you
Speaker 1: have backups and so forth, does that something that will
Speaker 1: factor in permanently into your thinking. Definitely? And I think
Speaker 1: it's for us. It's making sure we have the right
Speaker 1: partnerships with the right customers that understand that same value,
Speaker 1: because it's going to be incumbent on all of us
Speaker 1: to make sure we have the right inventories, um, not
Speaker 1: just in our dcats but in our customers dcs right
Speaker 1: to be able to buffer that and that that's an
Speaker 1: investment that we all need to make together to deliver
Speaker 1: for the consumer in total. And and so ensuring you
Speaker 1: have the right strategic partnerships is paramount to winning. You know,
Speaker 1: I mentioned toilet paper. Our bid day is ever going
Speaker 1: to be a thing in the United States? They should be,
Speaker 1: They really should be. Um, we've got great innovation there
Speaker 1: and we've seen great strides and innovation there, but for
Speaker 1: some reason America, Americans in general are reluctant. But it
Speaker 1: is growing. Sorry, what does the innovation look like? They're
Speaker 1: uh So, the innovation could be anything from heating the water, uh,
Speaker 1: certain air drying techniques as well incorporating them all in
Speaker 1: one having heated seats, uh, seats that open and close
Speaker 1: as you will to them. So it really is going
Speaker 1: to be quite a change to the toilet in total
Speaker 1: in the coming years. Tracy, I think that's a good
Speaker 1: spot to leave it on the days. Yeah, sure, day
Speaker 1: Innovation Trade Northrope, thank you so much for coming on
Speaker 1: Odd Lots. Yeah, Joe, Tracy, it was an absolute pleasure.
Speaker 1: I'm really passionate about not only plumbing products but the
Speaker 1: supply chain and I really enjoyed this time together. That
Speaker 1: was great. Thanks Trade, Thanks True that was so interesting.
Speaker 1: I hope bathtubs come back in a big way. Thank you. Well.
Speaker 1: I'm glad we finally did the bathtub episode. There was just,
Speaker 1: once again just so many like different interessecting parts to
Speaker 1: the story that of course now I have like five
Speaker 1: more episodes in my mind that we have to do,
Speaker 1: including definitely the Future of Plumbers one. How about Acriylics
Speaker 1: and the plastic shortcrylics Future of Plumbers one, Plenty plenty
Speaker 1: of to talk about. I mean it does say a
Speaker 1: lot doesn't have like one supply shortage or supply chain issue.
Speaker 1: Episode kind of leads into another because you just keep
Speaker 1: identifying problems further down the chain, and of course supply
Speaker 1: chains are so long and complicated and everything is so
Speaker 1: interconnected nowadays, um that you can just keep going forever.
Speaker 1: But on that note, so one thing that I found
Speaker 1: pretty interesting was this idea. I guess it's obvious in retrospect,
Speaker 1: but I hadn't really thought about it before that you
Speaker 1: can't actually sell a house without the plumbing in place,
Speaker 1: because I mean, just because of restrictions on what you
Speaker 1: can sell, right, like the the whole plumbing has to
Speaker 1: be done in order to make it habitable for people,
Speaker 1: and so this plumbing issue ends up being a real
Speaker 1: obstacle to new housing supply totally. The other thing that
Speaker 1: I keep thinking about is like, so much really does
Speaker 1: seem to just come down to containers. And you know,
Speaker 1: some of our first episodes that we did very early
Speaker 1: in the year, I think maybe even like in January
Speaker 1: or February, were we started with the container and since
Speaker 1: then containers have only gotten more expensive, and it really
Speaker 1: does seem to be like the choke point of everything. Yeah,
Speaker 1: but again, like if you think container shipping is sort
Speaker 1: of at the center of globalization, and we've had this
Speaker 1: discussion before almost everything gets shipped in a container, although
Speaker 1: as we know from previous episodes, we also have great
Speaker 1: bulk shipping and things like that. But then if you
Speaker 1: have any issues in the transport method, then of course
Speaker 1: it's going to filter out into everything else. We got
Speaker 1: to solve that. We got we got, we got we
Speaker 1: either we gotta make more containers, that seems to be
Speaker 1: the issue. We gotta fly more so that people can
Speaker 1: ship more via via air cargo, and we need to
Speaker 1: buy less stuff so that there's just less physical goods.
Speaker 1: How does it needs to slow down on a little
Speaker 1: bit so that there isn't quite so much demand and
Speaker 1: we need more containers, And then I think everything will
Speaker 1: be solved. We just need to do all those things.
Speaker 1: So two things. I hope there's someone well. First of all,
Speaker 1: I hope people are taking you know, people are listening
Speaker 1: to all thoughts while taking a bath in an actual bathtub.
Speaker 1: That is my hope. And I hope that they're also
Speaker 1: thinking about how to increase the world's supply of containers
Speaker 1: and that will get a good outcome from this episode.
Speaker 1: This is our long national nightmare, will be Okay, let's
Speaker 1: leave it there, because this is getting weird. Let's leave
Speaker 1: it there, all right. This has been another episode of
Speaker 1: the All Thoughts podcast. I'm Tracy Alloway. You can follow
Speaker 1: me on Twitter at Tracy Alloway and I'm Joe Why
Speaker 1: Isn't All? You can follow me on Twitter at the Stalwart.
Speaker 1: Follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson.
Speaker 1: Followed the Bloomberg head of podcast, Francesca Levi at Francesca
Speaker 1: Today and check out all of our podcasts at Bloomberg
Speaker 1: unto the handle at podcasts. Thanks for listening,