Odd Lots - The Bathtub Episode: How the Pandemic Disrupted Plumbing

Episode Date: July 29, 2021

When you think about building a new home, obviously you think of various constraints regarding land, labor, and raw materials. But, of course, you can't build a new home without other basics, like windows, sinks, and bathtubs (or showers). And, just like everything else, these are now in short supply. On this episode, we speak with Trey Northrup, leader of the Americas at LIXIL, which sells bathtubs and other plumbing basics under various brands, including American Standard, Grohe, and about the stresses on the industry and when they're expected to ease.See omnystudio.com/listener for privacy information.

The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gurra. Join us every Saturday and Sunday for the new Bloomberg this weekend. I'm Christina Rafini. We'll bring you the latest headlines, in-depth analysis, and big interviews. All the stories that hit home on your days off.

And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful, enlightening conversations about business, lifestyle, people, and culture. On Saturday mornings, we put the past week's events into context, examining what happened in the markets and the world. That on Sundays we speak with journalists, columnists, and key political figures to prepare you for the week ahead. Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television.

Listen on Bloomberg Radio, stream the show live on the Bloomberg business app, or listen to the podcast. That's Bloomberg this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, radio. and wherever you get your podcasts. Oh, and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall.

And I'm Tracy Allaway. Tracy, do you remember our episode from, I guess it was probably a little over a month ago now, about how difficult it is to buy or to build a home in America right now? I know there's a lot going on, but yes, I remember the episode from a month ago. It was a great episode. Yeah. So I kind of think of like housing. as the culmination of so many different themes right now. And of course, we talk about lumber shortages

and the lumber markets actually cooled back off quite a bit since we talked about it, but land constraints and interest rates and demographics and, of course, labor like everything kind of rolls up into housing, I would say. Yeah, that's exactly right. And I remember one of the themes that emerged in that conversation was just the idea of how difficult it is to build new supply at the moment. So you had the ongoing lumber shortage, which had sent prices really, really high. They've come down a lot since we had that conversation, actually. But beyond lumber, there were all these sorts of other components that go into a house that were also in short supply. So things you might not necessarily even think about as you're building a house. But I remember one thing,

particular, it got mentioned, and that was bathtubs. Yeah, exactly right. And of course, you know, you can have everything. You can build the frame of the house. You can have the sink and you can have the windows and you can have everything else. But, you know, obviously every little, every last piece needs to be there for the house to actually sell, for the house to actually be ready to move into. And so all it takes is one one thing missing, like, say, a bathtub or a sink or any other

piece of plumbing, and it's impossible to move into the house. And so when you have shortages in everything all at once, which our guest, Ellie Wolf, pointed out, that basically means major headaches for the home builders. Yeah, and tight supply and higher prices for what is actually out there. I would say, though, I would pay a higher price for a bathtub. I haven't had a bathtub in, like, the apartments that I'm renting for years now, and I really miss it. Yeah, bathtubs are pretty great. Well, so actually at the end of that episode, I think we have joked. We were like, well, let's do a bathtub episode. And let's just, like, really drill down into one.

And it took us a while. But I think we're finally ready to do the bathtub episode. We might expand it a little bit to all of plumbing, per se. But I think we're ready to, like, really drill down. Because this is an area, it's not commodities per se. It's not land. It's not labor. But it is a critical component.

And I think we can learn a lot by drilling down into one specific component and learning about how this extraordinary moment and the economy and supply chains is really affecting that. Totally. Not only do I feel passionately about bathtubs, I feel passionately about supply chain issues that manifest themselves in housing shortages. So let's do it. I am very excited. We have the perfect guest today who knows the space very well. We're going to be speaking with Trey Northrop. He's the America's leader of the company Lixil, which operates under multiple brands, including American Standard, Growa, DXV. He's a longtime veteran of the industry.

Previously, he was at Whirlpool doing appliances, and he is going to speak to us about bathtubs and plummings and in this extraordinary year and a half of selling those things in the middle of this crisis. So, Trey, thank you so much for joining us. Sure, thanks, Joe. Thanks, Tracy. I'm really excited to be here.

Absolutely. So what do you just start us off? What do you tell us what is Lixil? What is it you sell? Who are your customers? Give us sort of the basic overview of your business. Sure. We're fully integrated end-to-end supplier of plumbing products, anything from toilets to

bathing to shower systems, faucets, vanities, etc. If it has to do with plumbing, it exists in your bathroom or your kitchen. We provide it. So I guess just to step back for one second, is the business of bathroom supplies and plumbing, is that unique in any way to other manufacturing businesses? Are there specific aspects of the business that make it unique? Sure, certainly, right? It's all about water.

And whether that's conservation or getting water to the right places in the house at the right times to ensure that we're making better homes a reality for everyone everywhere. That's primarily what we do. Now, if I look at some of my other roles in previous experiences, I think as it pertains to housing in total, is you can't complete the house. You can't get a certificate of occupancy without those products, and they're vital not only to closing a home, but to any homeowner.

So what is the customer mix? in terms of what you sell. How much is sort of the home's first bathroom, how much is sold through the home builder itself versus, say, renovations, an existing home. Someone wants to install a new bathroom or new bathtub or just replace an existing thing. Give us the sort of like the breakdown. Sure, yeah.

That's a great question, Joe. I think what's interesting is the evolution, and it really only accelerated over the last year and a half with the pandemic. So previous to the pandemic, quite often the average consumer would rely on a plumber or someone to install these products in their house. And really what we saw over the last year and a half was do it yourself, begin to really take off because of the concerns people had over health and safety and allowing people into their homes. So we've really seen a transition there. And if you look today, the general route to market for a consumer is either to go to a distributor, up their local plumber or go to a DIY like a Menards, a Lowe's, or a Home Depot to purchase

the products. Now, what we are seeing is a transition more in this environment to online purchasing and online behaviors. So just based off of that, maybe you could walk us through what happened over the past year or so. How extreme are the supply shortages that you're experiencing? and how much of that is demand for components as people, you know, stay at home and decide to upgrade their bathrooms versus actual supply shortages, like issues in your supply chain? Sure. I think it was a perfect storm of events, right? The pandemic hit us. We all took a step back, certainly just as consumers, but also as business leaders, and said, hey, we don't know how long this is going to last. We want to make sure we preserve cash and capital. We want to make sure we

keep our employees safe and engaged. And what do we need to do in that space? And I think the first reaction was to make sure we had the right levels of safety in place for our employees. And then second, make sure we had enough resources to sustain our business and be profitable until this was over. And I think not only did you see that in the plumbing industry, you saw it in terms of materials and almost in any other business. And because of that, we saw a sharp drop in demand initially, right? And then everybody took a couple of weeks. And then what we saw was, as people stayed at home, they started to work on their houses themselves or their apartments. And what happened was then a huge rush and spike in demand. And so we kind of had a whipsaw effect

in our factories and certainly from our third party suppliers and trying to preserve preserve our business to, oh, wow, there's a significant amount of demand. And so with that spike, certainly what we saw was an increase in lead times to get the raw materials we need to produce our products or from third-party suppliers. And then when you start to add logistics into this, because our products come primarily from North America, but we also do source from all around the world, you started to see constraints within the logistics chain. So whether it were not enough ships or not enough containers and then huge spikes and inflation in those. And then once we kind of got that whole predicament sorted and settled out, then what we saw was a huge change in labor.

So now you didn't have enough plumbers. Now we didn't have enough qualified truckers once the products were here to get them to the right places and the right times. And then we didn't have enough people to do the work necessary to bring a lot of this to life. And so just when you think you've figured it all out and you've got your supply chain ready and up and rolling, something new kind of jumps in front of us. So it's really given us an opportunity to be more agile and effective and really position ourselves better for the future through this. Sorry, I just want to back up and clarify a previous question. So you mentioned the sort of the shift from the consumer, okay, more DIY. But how?

How much of sort of the total sales mix is a consumer doing something to their house, upgrading their bathroom or whatever, versus, say, a new installation at an apartment or a new home construction? Sure. So I think in the total business, you'd be looking at a DIY, which has grown significantly, again, over the last year and a half. But it's probably up in the industry to somewhere in the neighborhood of 30 to 35%. But how, what percent of a new, say, bathtubs or showers are not sold to the consumer doing an upgrade, but just an original installation within a home? Right. That's the other six, seven years. I see. I see.

Is it done whether it's in new construction, whether it's in a remodel through a distributor or remodel through a product. I'm just curious. In terms of shortages, are there, is there a variation across your products? like are some things more available than others? So I was reading recently, for instance, that bathroom vanities apparently had been impacted by a shortage of acrylics. So I'm just curious, like, are you seeing a variation or is it sort of across the board? It is primarily across the board, but you're right in terms of acrylics, and that's a big part

of bathing and bathtubs. And there is a shortage there as well. I think you're also seeing shortages in anything that takes copper at the moment, right, which is primarily our faucets in a lot of instances. So raw materials is having a huge effect, not only in terms of what we can procure, but also in terms of the price increases we've seen from our suppliers to get those products today.

I think even if you look at containers, containers are a huge, huge issue for us from a logistic standpoint today as well. Let's back up even further a little bit, actually. let's just talk about normal times. What's in a bathtub? If someone buys a bathtub, what goes into it and where is it likely? Where would it be manufactured? Most of our bathtubs are produced here in the Americas.

We do source some products from overseas, but primarily here. And so generally when you talk about bathtubs, you have SMC or acrylic are the primary components and they're formed to create the basics. bathtub that you're used to seeing today. Now, you certainly have drains, so there's steel is a piece of that. But in total, that's primarily what you see. Now, you may think a little bit about whirlpools in total that push the water around, but that segment in total is really declined quite a bit over the last year as people transition more into showers than they do into tubs in total. And so you're seeing that kind of move. What's SMC? It's a more value raw material.

that we use, it's a little bit cheaper than acrylic and creates more value in the market. It's less durable, by the way, as well. And where are your products mostly manufactured? So we have a few different manufacturing plants in the U.S., so Ohio, Dallas, and then we also produce quite a bit in Mexico. And then those, the SMC or the acrylic, where would that typically be sourced from? So we do a bit of that in Ohio and then we source it from other manufacturers in the U.S., but also overseas in Asia. So I guess we're trying to pinpoint specific issues in your supply chain.

So I think we're all familiar with this idea that COVID threw a bunch of businesses off guard. People thought there would be a big drop in demand for various goods. And instead, we saw a surge and businesses had cut back on production. they had to ramp it up very, very quickly. But I'm just curious, in terms of your supply chain, were there particular pressure points that you weren't expecting as that dynamic unfolded? So, for instance, would you have expected an acrylic supplier to ramp up supply, but then they weren't able to do that because, I don't know, one of their suppliers had also experienced issues? I guess, what surprised you the most about the supply chain shortages?

Yeah, sure. So I think what's really interesting about this, and I look at the supply chain in total, the first impact that hit us that maybe a lot of people don't think about is safety, right? So if you're used to being in a facility where the person, if you're an operator and the person next to you is working within two feet, they needed to be distance to six feet, right? And so that's going to really affect your yield. So if you were producing what you thought was going to be 20,000. toilets a day, you've got to cut that in some instances by a third, right? And just to create the right safety, because safety is and continues to be paramount for us at Lixil for every one of our employees, even when we return to the office, it'll be the same way. So that might be one of the first things that impacted us. And so we might have had the ability to produce more or able to procure enough raw materials to produce more, but we didn't have the space. And so that kind of lead you to the next piece that says, should we make bigger capital investments to our plants to create more space inside of them? And what does that mean? Right? Because if we're going to do that,

that's a large investment. And we're just going to go back to distancing people two feet. Well, now you've got all this extra space that you might not need. And we're very conscious about how we do that and how we look at it. And so from a first standpoint, that was kind of the first bottleneck that we saw. Once we were able to change our factory master plans and align everything, we felt really comfortable there, right? And we got our outputs up. And so the next big thing that hit us is we change our mix in plumbing based on production needs and spikes in that supply chain. And we start with the Americas first because it's the easiest for us to get and move all around the Americas itself. From there, we go overseas. And just,

Generally, we tap into excess capacity we have in other regions being a global manufacturer. And so we had all of our plans set up for that. Well, the next big surprise we had was we couldn't get enough containers. I think there's around about two and a half million containers in the world at the time. That two and a half million were awful, like within a week. And so now we had all of this extra product that we couldn't get out on a container. And prices for containers went from about 3 to 4,000 a container to bring them over here to now today, somewhere between, depending where you get it on the market, 13 to 15,000. So that's created a huge spike in cost there.

So once we were able to understand and align the containers that we needed, guess what the next problem is? Not enough boats and not enough ships to get those containers here. And because what you'll see, what's really interesting is getting them from Asia to here is a big issue. Sending them back, many things are going back empty right now. And so it's just not as efficient as anyone would like it to be. And so kind of my point earlier was as we start to whackamol all of these, new things come up that we just never anticipated before. Maybe part of that's on us, but part of it is a bit of the nature of this beast as it evolves. I'm Francine Lacquha, an award-winning journalist, and I've got a new podcast, Leaders with Francine Lacqua from Bloomberg Podcasts.

I've interviewed everyone from Heads of State to fashion icons about the news of the moment. But I've always been curious, who are these people as leaders? I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow leaders with Francine Lacois wherever you get your podcast. I want to go back to the raw materials question for a second. So you mentioned shortages of say, just even basics like acrylic. What happens when you go to one of your acrylic suppliers? And you say,

okay, we're, we need this much for this many tubs or whatever it is or fought or or sinks. And they come back to you and they talk about either higher prices or longer lead times. What are they saying? What are they saying is the cause of their own constraints, their own constraints, own inability to get you supply as fast as you'd like? Sure. The biggest issue is capacity in total. And again, as we talked earlier, everybody kind of took a second, took inventory of where they were when this started, and in many instances really went into preservation mode. And because of that, you just can't ramp back up fast enough. And so we have a lot of great partners, a lot of great third-party suppliers, and we really tried to work with them to create win-win,

scenarios for everybody. And certainly they have passed along pricing to us, and we've tried to mitigate that in every effort and instance that we can through efficiencies, but that's not always the case. And so the kind of conversations that we have with our suppliers are, how important is the relationship? How much can we stretch what we can produce without putting risk to our commitments to our consumers and customers, and then what can we do and how fast can we increase capacity, knowing that at some point you're going to reach the top end of the capacity needed, and you don't want to create extra capacity that you then have to wean off of over time. That can be an additional cost as well. And we're still having those conversations today in many

instances across a lot of our products. This is something that I want to ask you about. So in terms of wrong, materials, does it feel like you have to compete in order to get your hands on those supplies? And the reason I ask that is because we've spoken a lot about the container shortage over the past year. And one of the things that comes out from those conversations consistently is that if you're a big shipper, you know, someone like a Walmart or an IKEA, you can probably still source some supply of containers. But if you're a smaller player, that's going to be more difficult. Yeah, I don't think we've really seen an issue procuring raw materials, containers,

things like that, as long as you're willing to pay the premium for those, right? And that's driven up the cost. And I think not just in plumbing, but I think everywhere, you're seeing inflation start to take hold. And a lot of it is because of that, right? There's excess demand and there's a shortage of supply. Now, I think we've also seen in lumber, that's coming back to normal, even crashing back to normal in some instances. We haven't really seen that in the raw materials that we have used yet. And I don't think we will see relief from that, certainly within the next 12 months. And I could see it being elevated longer than that, only because there's still really high demand for housing, as well as do it yourself, based on the projections that we're seeing.

You know, you mentioned the surging price of containers. Of course, there's something we've discussed. But, okay, so it goes from 3,000 to in the teens, thousands. What is the, I don't know, the value of what's being shipped? Like, how much of the sort of, how much does that eat into the total, the gross value of what's in that container? Yeah, it is significant enough that we can't offset it through other measures within our own business. And so that's why we've had to take pricing in the market ourselves. And we've tried to minimize that to the extent we can to ensure that we're creating value for our customers and for the consumer. But it's something we just haven't been able to offset in total.

And it's a large number when you add up all of the products that we sell and the containers that we purchase. So on that note, can you maybe describe what's happened to your margins over the past year? And if there's anything you're doing to offset that? Yeah, well, we're trying to be as efficient as possible. And as the world's changed, it's been all about give and take, right? So we've seen a lot of our budgets that were allocated toward traveling and those types of expenses really come down. And that's been able to offset some of the inflation and higher production costs that we've had as we've had to social distance within our facilities. We've found new ways to market, new ways to partner with our customers. And for us, We've been able to remain stable throughout this time. But again, we've also had to take pricing to be able to do that. One of the ironies, and this has come up before on previous episodes, is with people flying less, there's less air cargo. And so everyone cuts back on travel expenses and then there's less air travel and there's less air cargo and then more, even more demand for shipping.

And so people end up paying the price at the other end. And, you know, you mentioned, okay, we've seen this crash in lumber, but you don't really see it elsewhere. Why do you think that is? Like, do you have any, why have we not seen the sort of supply and demand reaction that we've seen in this one specific area across other, across the commodities that you deal with? Joe, this is a great question. And so I'm sure I'm not doing anything different than other business leaders and yourselves. I'm listening to the quarterly reports of a wirehouser. And basically what I've surmised is that they were able to increase capacity much faster than maybe some other areas.

And maybe there is less complexity in lumber than there is in a faucet or a toilet or a bathtub. And maybe that makes it a little easier to react when there's less inputs, right, in terms of raw materials than there are for us. So this gets into a question that I wanted to ask you, which is you mentioned in the beginning of the conversation, this idea of a whiplash effect. So everyone underestimated demand and then they had to scramble to ramp up production. And now we are seeing various industries respond to higher prices and higher demand by increasing their output. Do you worry about an overshoot? I guess another way of saying, it is do you worry about the bullwip effect, this idea that we're going to get extremes in terms of imbalances of supply and demand? Absolutely. And if you're not, I don't think as a business leader, you're being fiscally responsible, right? The easy thing right now would be to react to this industry and react to the pandemic and just invest heavily in capacity and production because we are at the top levels of

that today as an industry. I don't think that exists into the future. And I would be concerned that any investments that we'd be making today, we wouldn't get a payback on longer term. And that's why it's so important for us to make sure we're being as efficient as possible with that inventory and trying to understand when do we pull products from Asia. When is it not worth it? Do we add capacity within the Americas that we could use longer term? Certainly tariffs play into this as well as the inflation. But I also don't want who's in office to determine our strategy, right? I think when you do that, you may be having to change your strategy every four years. And I don't think that's sustainable either. And it's really trying to create this balance

across everything that we do to make sure we're prepared as we can be, but really agile enough to make changes to any surprises that we didn't anticipate. Well, this gets back to like a broader theme that we've touched on too. So obviously, expectations of the future play an important role in thinking about your capital investment plans. Obviously, prior to the pandemic, and especially in the years after the great financial crisis, the home building industry was in pretty terrible dire straits. and there was a lot of, I guess, maybe de-investment or a hollowing out of capacity. And people just saw this very sluggish industry. And I know you weren't at Lixol at the time, but you're a whirlpool and you probably saw it from the pure appliance side. There's like very slow housing for years, et cetera. How much do you see that now, that period, the years following the great financial crisis, the sort of hollowing out of capacity, shrinking of the supply side is having come back to.

bite us now as we enter as we have like this period of rapid growth. Yeah, that's a great question. And certainly I lived through that recession. And I think that hangover is a lot of what drove the whiplash of tightening your belt really quickly and not reacting fast enough to the change because of what we all lived through in the past. Now, I don't believe it had any effect on where we were when the pandemic started because I think many companies had made the necessary investments to keep up with the market and where we were going. And it was far enough in the rearview mirror that people felt good about adding capacity. I think now for fiscally responsible organizations, you're asking yourself, should we be investing in capacity? And the answer in certain areas is yes,

by the way. But the question is more about where do we do it, when do we do it, and how big of investment do we make when we do that. So I realize we haven't spoken much about labor issues, although you briefly mentioned them earlier. Are you seeing problems? Trace, you always read my mind. You always read my mind with where you're going next. We're all pulling in the same direction. It's great. But are you experiencing a labor shortage? And I guess could you maybe just provide some color on what labor actually means to your business. So on the one hand, you have people making goods, but on the other hand, the sales of your products also kind of depend on plumbers who are able to install them. Sure, Tracy, that's a wonderful question. The answer is yes.

I mean, depending on whether you're talking about within our facilities, whether you're talking about logistics, whether you're talking about sales folks, whether you're talking about executives, I think there is pressure on labor everywhere within our system. And I think it's a healthy pressure, quite frankly, and it's required us to really look at our business and think about what kind of organization do we want to be going forward. I think you've read plenty, certainly in enough journals and newspapers and seen enough shows about return to work and what does that look like? And maybe we'll just start there and we can work our way back. But when we start there, we really want to envision the future of Lixil being a place where individuals

can own their own day, where they're empowered to be successful. And that doesn't necessarily have to require that they're in the office five days a week. We and many others have learned to be successful with a remote work culture that allows us to really focus not only on the employee and what they bring to the business, but also their personal lives. And because of that, our business is thriving and our employees are thriving. They're able to link their personal purpose with the overall elixal purpose to make better homes a reality for everyone everywhere. And for us, that's great. And I think it's going to unlock an opportunity for us to acquire talent because we are in a growth mode and we are hiring and it's going to allow us to tap into a market

that we might otherwise not have been able to do previously. What about at the sort of pure the facilities? And you mentioned the Dallas that you had a facility in Dallas, which is interesting because I know Texas is one of the states where, you know, they've pulled back on the unemployment insurance expansion. Can you just talk a little bit about staffing, say, that facility, what that's been like? the challenges of hiring there, et cetera? Sure.

And I'll talk a little bit about Dallas, and I'll talk a little more broadly as well. Dallas specifically, we really struggled in the middle of the pandemic, getting our yield up because we were struggling to add labor within the facilities. Now, we've seen that come back wholeheartedly, and really we're at a great level today. And maybe a piece of that is pulling back on the stimulus and the aid, has had people come back to work, but I'd also like to believe it's the kind of environment

that we're creating at Lixil and the opportunities that we're offering. It really helped drive that as well. And so I really don't see labor as big of an issue today in our production facilities as it was in the past now. When I transition and I talk a little bit about our DCs, as well as our logistics and truckers, we have a bigger issue there. right? And so there are bottlenecks there all over. And we're seeing line rates go up pretty significantly because of that. And you're seeing a lot of our partners in the trucking space have to move away from certain lanes they used to use. Can you just talk what's the pay scales at a manufacturing facility versus a DC, a distribution center. I assume that's what it means. At a distribution center,

how do they compare and how might that, where do they stand on this sort of? of pay scale and how might that be, how might that be explaining some of the challenges in hiring? Sure, they're pretty comparable. Okay. From an entry level standpoint, I think what you see in our facilities in terms of production versus the D.C.'s is that many of the individuals in the D.C.s are seeing opportunities within trucking that you don't normally see in a production facility. What about plumbers?

We've spoken a lot about truck drivers on a previous episode, but what's the supply of plumbers like at the moment? I really have no idea. Sure. Thank you for asking that question. It's very concerned. And so what we're seeing, depending on what you read and what we're actually experiencing, is you're seeing plumbers retire at a faster rate than they can be replaced today. And in some instances, it's five to one is what we're reading. In other instances, it's just half. But either way, that's not enough plumbers for the future. And I think the one stigma attached to plumbers by the general public is that it's not a great job and it's not a high paying wage, which couldn't be further from the truth. And we're really spending a lot of time investing in something we call a trade up program to help them individuals within a trade space understand the value of plumbing and then fostering partnerships with other, other organizations. organizations to really get the message out for us because it is a concern. Now, we can't just

rely on plumbers coming back to the industry in total. We've got to figure out ways to lighten or at least release pressure on plumbers in total and our need for them going forward as well. And that's through innovation primarily. You know, what does that look like? What is the, you know, is there, is it going to be that in five years or maybe today versus 20 years ago, is it easy? or faster to install a bathtub than it would have been? Yeah, that's really the hope, right? A lot of the innovation doesn't have to be a connected bathtub or a connected toilet.

And quite frankly, I'm not sure everybody wants that. Anyway, I think it's making easier to install products. It's creating content that also makes it easier to install for the general layperson and not to be afraid of plumbing as maybe many of us have grown up to be nervous about. I have a non-supply chain slash supply shortage question, but, you know, I mentioned at the beginning of our discussion, this idea that I haven't had a bathtub in the apartments that I've rented for many, many years. And I'm just wondering, why do bathtubs seem to have fallen out of favor, at least with landlords in large cities? Great question. I think it has a lot to do with constraints. Right. It's easier to put. a shower into a home than it is a bathtub. It takes less space. I also think just the way that our lives have evolved in total is those days of laying in the tub and soaking for hours on end,

maybe with a glass of wine, just isn't what the norm is today. And I think we're seeing a move away from it. Now, a great question is, now that people are spending more time in their homes, will we see it transitioned back? And I think the answer could be yes, and we need to be prepared for that. Now, we haven't seen it. I think bathtubs in general are increasing with the industry, so they're not outpacing it,

but I think that's something we should all be mindful of. Hotels don't really seem to have as many bathrooms as they used to either, do they? No, you're right. They don't. I've noticed that in my travels as well. Certainly when we look at our projects and going forward, many large hotels aren't projecting bathtubs and what they're planning to build over the next two years. You know, one of the big questions is, you know, continue to have this debate about what's going to change pre and post-pandemic?

And you mentioned that obviously you had to figure out ways to get up yield within the production facilities, even with increased spacing. And I'm curious if you've learned or discovered sort of like productivity gains that, you know, you've learned. you will keep with you regardless of the sort of health and public situation that will last. Like what kind of productivity enhancements have you seen? Definitely. It's all about agility and efficiency, honestly. And it's how do we create, certainly within our manufacturing footprint, the ability to produce anything, anywhere at any time, to be able to react to these global changes that we couldn't anticipate. So an example, would be for us making sure that we are qualifying as many different products to be produced

in as many different facilities as possible. So we have the ability as we see things change in terms of logistics, costs, tariffs to produce similar products in different places to take advantage of what we're doing. And I think the same, by the way, goes for our office workforce, is how do we create a space that allows us to be flexible? and agile enough to take advantage of any of the changes in the environment. What about automation? Is that something that you've been investing in over the past year, given issues with things like labor, given these unexpected disruptions to the way people are actually working? Or is it something that you hold off on just because you're uncertain

about the future business environment? So today, some of our products are manufactured with more automation than others. I don't think that in the shorter term, it will try to overcompensate with the concerns of labor or the pandemic with automation because we do realize how vital our employees are to what we do and what we create. And in many instances, you really need a skilled labor force to do some of the things that we do that automation just can't do and can't handle. So I think for us, we'll automate where it makes sense and where we can gain a efficiencies, but not at the risk of losing some of our most skilled and artistic laborers. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris.

And I'm Karen Moscow here to tell you about our new on-demand news report delivered right to your podcast feed. Bloomberg News Now is a short five-minute audio report on the day's top stories. Episodes are published throughout the day with the latest information and data to keep you informed. Yes, there are other products like this from a variety of news organizations, but they usually rerun their radio newscasts throughout the day. That's not what we do. We create customized episodes that can only be heard on Bloomberg News Now. And we don't wait an hour to publish breaking news. When news breaks, we'll have an episode up in your podcast feed within minutes, so you're always getting the latest stories and developments. Get the reporting and the context from Bloomberg's

3,000 journalists and analysts were all over the world. Listen to the latest from Bloomberg News Now on Apple, Spotify, or anywhere you listen. You mentioned, this is something I was thinking about when you talked about, okay, the future of plumbing and maybe making items easier to install. And also I thought about this when you were talking about

making factories such that they can be flexible and produce anything. And this might be a very uninformed question or maybe a stupid question. But, you know, when I think about like certain technologies, I think about the rise of standards and the idea of like, okay, a USB cable, everybody knows what it is, and numerous different players can produce a USB cable, and we just know that it'll work. And of course, I'm sure obviously there's a lot of standardization within plumbing and certain size of pipes and so forth.

But is that something that you think about sort of advancing in the future? I guess like more plug and play, so to speak, when it comes to the sort of a regular. items like faucets and bathtubs and showerheads and faucets, more things that people just know how to fit them together in an easy manner such that they require less specialization of knowledge. Sure. Today, things are pretty standardized regionally. I'll say, I think when you start to globalize or where you start to have some differences. And that's something that we're working on today to really try to make us more efficient than we've been in the past. And one thing that's really important that I think a lot of people don't anticipate or plan

because here in America, there's a less concern, but it's water conservation. And it's coming. I think you see it as we look out on the West Coast now and the droughts that we have in the really high heat and the global warming is how do we create products, specifically faucets, showers, bathtubs that are standardized for us to really be able to be sold anywhere in the world, but also anywhere regionally within the U.S. as the standards begin to change in terms of water conservation, excuse me, and what's allowed. And so, Joe, I don't think it was a dumb question at all. And those are the kind of things that we're trying to get ahead of so we're not reacting

and we're being proactive and being able to deliver for our consumers and our customers. Is that the big technological development in bathtubs then? Because I think a lot of people, or at least me, and again, I'm probably not a good person to ask about this because I haven't had access to a bathtub for a long time. But when I think about bathtubs, there's sort of this static home appliance that don't seem to change very much unless you get a very, very fancy one with whirlpool jets and things like that. But what's the next big thing in bathtubs? Is it a it water conservation? Is it the standardization aspects that you are describing or is there something on the horizon that's very, very different? Sure, Tracy. I'm the exact same way. I don't remember the last time that I took a bath personally. And so maybe I'm not the best person other than the fact that we sell them to have the discussion. But we are looking at innovation across all of our products, bathtubs included on how can they conserve water and how can we ensure that they're safe and that we're creating an environment where we're not opening ourselves up for damage.

So bathroom overflows. How do we ensure that doesn't happen? Right? So that's a big deal. And that would certainly solve the conservation issue, one, but two, also additional repair costs that might come from that standpoint. But in total, you're going to see over the next five to ten years water become much more of a scarcity, not only in the Americas, because it is and it's happening on the West Coast, but all over the world. And products that can really deliver a great experience with less water are going to win in the market. My kids splashed at the bathtub too much and then some leak down into the downstairs neighbor apartment.

and they complained, as they should have. So if you could solve that, a bathtub that my kids could splash it without annoying the neighbors, I would be very appreciative of that. Maybe a shower that fills up. How's that? That's an interesting idea. I guess the big question is, how long would you expect these issues to last? And what's going to be the change that finally brings the market back into balance?

Yeah. I think housing is going to be a real big piece. to this. And we're even seeing housing begin to slow down. It's comping previous year, which was a huge spike, but we're not seeing a huge spike on a huge spike. So you'll see that come back into line. And then I think you're going to have an affordability issue for the general public when it comes to housing, which will also slow down this train a little bit and help things right size themselves and get back in line now. Saying that, I would expect for the next 12 months, we will still be in this environment and you'll see it slowly start to subside and you'll start to see with us and other

manufacturers begin to add capacity back in and be able to meet the demands that you'll see less pressure and ability to find the exact products you want instead of having to purchase the product that's on the shelf, not necessarily the one that you want. And so I think for the next year, you're going to see it start to lighten up. And then after that, I think in general, as an industry, we should be able to manage any of the demand headed our way. You know, the one thing that came up during this crisis is the idea of just in time inventory and the lack of buffers. And I think people were pretty surprised. Obviously, the PPE equipment was a very stark example of this, but people just had toilet paper and all kinds of things.

It's like, well, we run into a shortage very fast. Will that change your plan? planning going forward or will that, not necessarily the risk of another pandemic, though I guess that could happen, but thinking about supply contingencies and how you have backups and so forth, does that something that will factor in permanently into your thinking? Definitely. And I think it's for us, it's making sure we have the right partnerships with the right customers that understand that same value because it's going to be incumbent on all of us to make sure we have the right inventories. not just in our DCs, but in our customers' DCs, right, to be able to buffer that.

And that, that's an investment that we all need to make together to deliver for the consumer in total. And so ensuring you have the right strategic partnerships is paramount to winning. You know, I mentioned toilet paper. Are bidet is ever going to be a thing in the United States? They should be. They really should be. We've got great innovation there, and we've seen great strides in innovation there. but for some reason Americans in general are reluctant, but it is growing. So what does the innovation look like there? So the innovation could be anything from heating the water, certain air drying techniques as well,

incorporating them all in one, having heated seats, seats that open and close as you walk to them. So it really is going to be quite a change to the toilet in total in the coming. years. Tracy, I think that's a good spot to leave it. On bidet's? Yeah, sure. A bidet innovation. Who knew? Trey Northrop, thank you so much for coming on odd lots. Yeah, Joe, Tracy, it was an absolute pleasure. I'm really passionate about not only plumbing products, but the supply chain, and I really enjoyed this time together. That was great. Thanks, Trey. Thanks, Trey. That was so interesting. I hope bathtubs come back in a big way. Thank you. Well, I'm glad we finally did the bathtub episode. There was just, once again, just so many like different intersecting parts to the story that,

of course, now I have like five more episodes in my mind that we have to do, including definitely the future of plumbers one. How about acrylics and the plastic shortage? Acrylics? We'll do acrylics one, a future of plumbers one, plenty to talk about. I mean, it does say a lot, doesn't it, have like, one supply shortage or supply chain issue episode kind of leads into another because you just keep identifying problems further down the chain. And of course, supply chains are so long and complicated and everything is so interconnected nowadays that you can just keep going forever. But on that note, so one thing that I found pretty interesting was this idea, I guess it's obvious in retrospect, but I hadn't really thought about it before that you can't. actually sell a house without the plumbing in place. I mean, just because of restrictions on what you can sell, right? Like the whole plumbing has to be done in order to make it habitable for people. And so this plumbing issue ends up being a real obstacle to new housing supply. Totally. The other thing that I keep thinking about is like so much really does seem to just

come down to containers. And, you know, some of our first episodes that we did, very early in the year, I think maybe even like in January or February, were we started with the container. And since then, containers have only gotten more expensive. And it really does seem to be like the choke point of everything. Yeah. But again, like if you think container shipping is sort of at the center of globalization, and we've had this discussion before, almost everything gets shipped in a container.

Although, as we know from previous episodes, we also have break bulk shipping and things like that. But then if you have any issues in the transport method, then, of course, it's going to filter out into everything else. We got to solve that. We got to make more containers. That seems to be the issue. We got to fly more so that people can ship more via air cargo. And we need to buy less stuff so that there's just less physical goods. Housing needs to slow down a little bit so that there isn't quite so much demand and we need more containers.

And then I think everything will be solved. We just need to do all those things. So two things. I hope there's someone, well, first of all, I hope people are taking, you know, people are listening to All Thoughts while taking a bath in an actual bathtub. That is my hope. And I hope that they are also thinking about how to increase the world's supply of containers and that will get a good outcome from this episode.

It's a long national nightmare will be over. Okay. Let's leave it there because this is getting weird. Let's leave it there. All right. This has been another episode of the Odd Lots podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts at Bloomberg, under the handle at podcasts. Thanks for listening. This is Tom Keane, inviting you to join us for the Bloomberg

surveillance podcast. It's about making you smarter every business day. I'm Paul Sweeney. We bring you complete coverage of the U.S. market open. We cover stocks, bonds, commodities, even crypto, all the information you need to excel. And I'm Alexis Christophorus. Bloomberg surveillance also brings you the analysis behind the headlines. We do that through conversations with the smartest names in economics, finance, investment, and international relations. We do all this live each and every weekday, then bring you the best analysis in our daily podcast. Search for Bloomberg Surveillance on Apple, Spotify, YouTube, or anywhere else you listen. On the East Coast, listen at lunch. And on the West Coast, listen as soon as you wake up.

That's the Bloomberg Surveillance Podcast with Tom Keene, Paul Sweeney, and me, Alexis Christophores. Subscribe today, wherever you get your podcasts. Bloomberg's Surveillance, Essential Listening, each and every business day.