Features

May 12, 2003 – The realities of a slower growth environment

When we got into this business way back in 1998, the powersports industry was enjoying about its seventh straight year of 20% annual growth. That long record of growth was a powerful inducement when we studied the industry. I can’t deny it. At the same time, we realized that double-digit growth couldn’t go on forever. Just this once, I wish I wasn’t right.
In the last couple of years it’s become apparent that double digit growth can’t be taken for granted. In our own experience, sales growth of 100% and more over the last four years has leveled off and the reality so far this year is that we’ll have to increase productivity and efficiency even more just to stay ahead of last year’s sales volume. Fortunately, we’ve made a few changes and worked a lot harder and seen some decent results so far.
All that got me to wondering how other dealers were responding to the “slower growth environment.” I call it that because I recognize that while industry growth seems to be slowing, interest in the industry’s products is still expanding. Other industries in the country have seen dramatic declines, sometimes major declines, in sales and profits over the last three years. Now it may be our turn.
First quarter national sales data indicate that total powersports deliveries have indeed declined from the first quarter of 2002.
But powersports dealers are an optimistic bunch. It’s telling that many deny much of a possibility that sales levels will actually decrease.
Some do allow that profits might take a hit while others simply plan for a lower than normal rate of growth. Everyone agrees that things have changed. Some recognize that growth may only come at the expense of their local competitors and others see improved sales and service operations as the answer to the current situation.
Dealer responses are mixed
While every dealer or manager I talked with recognized the tougher business environment, his or her responses to that reality ranged from doing nothing new to getting increasingly creative. A few, because of fortunate geography, strong local economies or just plain stubbornness, planned to forge right ahead as planned.
“We’re not participating in the recession,” Mitch Marqui, owner of Cycle Riders of Orlando told me, even as he detailed some well-thought out adjustments to current market conditions. “I expect to do better in total sales this year,” he said. “We’re off to a good start. I think we’re doing better than other dealers who are focusing on discounting product. That’s just like a cancer.”
Russ Englund, the owner of Al’s Cycle Service in Hamilton, Mont., said the changing demographics of his location about 40 miles outside Missoula protected him from the nationwide economic downturn. “We have new, young people moving onto this valley from across the country. They are just trying to get away from the big cities and they are the kind of people who buy acreages and all the toys.”
In Pierre, S.D., Roth Petersen of Petersen Motors said his area also was protected from the boom and bust cycles more prevalent elsewhere. “We will grow this year, unless something awful happens with the war or terrorism,” he said. “Our small town has pretty stable employment. The agricultural buyers have quit buying ATVs for work, but while needs are down, wants are up!”
local employment is key factor
In talking to dealers around the country, it seems clear that the unemployment situation in a given community is the main driver for powersports business fortunes, more so than geopolitical turmoil or the overall economy.
“I’m not planning on growth,” said Carlo Hansen, owner of Riverside Yamaha just outside of Boston. “If I do as well as last year, I’ll be lucky. I expect a couple of years of this. There are still major new layoffs in the Boston area.”
Other dealers agreed that the impressive growth of previous years didn’t look likely in 2003. “We’ll sell close to the number of units we did last year,” said Mark Edwards, a dealer in Harrodsburg, Ky. “But profits may be down.”
Larry Koch, president of Tousley Motorsports in suburban St. Paul, Minn., echoed that comment. “Well, we won’t be buying any corporate jets this year, but if we play it right we should have the same level of sales in motorcycles and ATVs as last year.”
dealing with manufacturers
Dealers across the country acknowledge the importance of the OEM financing programs in helping to keep business going. One large dealer in the mid-west called it “our salvation” while others were grateful for the help, but also complained about lowered F&I income opportunities and the possibility of training customers to buy only when such programs are offered.
Only a few dealers reported undue pressure from their OEM’s to purchase more product than they felt prudent. A few reported their annoyance that OEM offers of non-current floor plan help are often predicated on ordering full allocations of new models, despite already high inventories. At Colorado Powersports, we’ve decided it is best to just say no.
Most dealers I spoke with said they had ordered fewer major units for this year, both as a result of lower expectations and because of higher than normal inventory levels of previous years’ models. They also reported some changes in the mix of units they were selling, with several reporting noticeable increases in scooter sales. That surprised me. The news on snowmobile inventories did not.
“The sled business is way down,” Larry Koch said, repeating something I heard (and have experienced) a lot. He suggested that snowmobile manufacturers would be better off raising the price of new sleds and reducing production runs, keeping the OEM’s profit high while protecting the value of the non-current product. He said unchanging retail prices and production stability meant a dealer had to aggressively discount leftover product or go out of business.
Dealers also are concentrating on managing their P&A inventories in a more conservative fashion and in making sure a stronger sales effort is made in order to keep sales going. “It takes a little more show and tell,” Mitch Marqui said. “You’ve got to show the customer the benefits, you can’t just hang it on the wall.” The extra efforts seem to be working; for the most part, dealers reported that P&A sales were in better shape than unit sales.
managing the money
At Colorado Powersports, we have always been dedicated to effective cash management and slower growth has made us even more so. We’ve also focused much more intently this year on expense management and control. Talking with dealers, I did not find much change in their business practices, except for a slightly more conservative attitude about using cash. For the most part, existing accounts payable, credit, vendor, banking and expense management practices remain solidly in place.
On the employment side of the house, quite a few dealers planned to limit new hiring in 2003, but few said they were considering laying off any employees. One company has reduced all employees to a 35-hour workweek and another told me they had asked their managers to prepare a list of potential personnel cutbacks, just in case.
However, dealers reported that try to find enough good people to hire was still a reality in the powersports business. And not just for service technicians, either, but for quality managers, talented salespeople and solid parts people.
“Despite the unemployment rate in our area, it is still tough to find good employees,” Carlo Hansen said. “The high-end people laid off from IT jobs won’t work and the low-end applicants can barely read, so I can’t hire them. We’re always short one or two people.”
generating more revenue
Advertising around the country is becoming more and more price-oriented, emphasizing discounts. Hardly anyone wants to cut back on advertising, but some stores are trying to find new ways to reach customers; ways that don’t emphasize discounting.
“We’ve gotten out of the areas where we go head-to-head with the discounters and have gotten into some real niches,” said Frank Mininni, general sales manager at Schaumburg Honda outside of Chicago, speaking of newspaper and magazine advertising.
Others are fighting fire with fire. “We mention prices now,” Mark Edwards said. “We didn’t do that before, but now we have aggressive pricing in our ads.” Others, like Tom Wicker, sales manager at University Honda and Yamaha in Seattle, feel they can best compete by taking a different tack. “There are more competitive pricing pressures. We see lots of car dealer type price advertising, but we try to educate customers and treat people well.”
Several dealers reported success in cutting back on traditional advertising and, instead, concentrate on getting closer to their customers. “We are interacting with our customers more than any other Harley-Davidson dealer I know”, said Marshall Dowell, owner of Richmond Harley-Davidson in Virginia. Carlo Hansen agrees with that approach. “We do more trade shows and less radio, more direct mail and more track days. We want to have more involvement with the customer.”
Roth Petersen also looks for stronger relationships with customers. “Since 9/11, there is a new local recreational focus and more family-oriented activity like dirt bikes. Our clubs are booming and more and more women are buying motorcycles. And, we make sure the flag is out everyday,” he said.
Several dealers said they have increased sales and customer service training for their staffs, in an effort to increase productivity and professionalism, but no one told me they had changed selling systems, management structure or their fundamental approach to the business as a response to the slower growth environment.
time to make changes
Despite challenges, some do see opportunity in the current environment. Larry Koch thinks this is the perfect time to get your business expenses in line. “Tough times are the mother of invention,” he said. “Now you have to ask yourself if you really need something. Or if you used to have four of something, maybe you could get by with two. When times are really good, we don’t think of that.”
Dealers and managers tell me their biggest concern during the next 12-18 months remains the day-to-day challenges of running their dealerships. To be sure, war, unemployment and the economy are real concerns, but the powersports dealer/manager seems to be more occupied with matters like sales, customer service, inventory management, staffing, OEM relations and everything else that comes with running a small retail business. Paying even more attention to the blocking and tackling is probably a good thing.
“All of us are blessed to be in the motorcycle business,” said Marshall Dowell. “When you concentrate on what you’re doing, you don’t have time to make a mental list of what could be the major challenges down the road.”
I’ve told the managers in our stores to look inward for improvements in productivity. When the outside environment is positive, that’s great. But when it’s not, it makes sense to me to concentrate on the fundamentals of the fun of this business, professional selling techniques, quality customer service and tight expense control. I guess some things never change.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button