NEWS – Fox Cautious About Growth

MADISON, Wis. - Fred Fox, chairman and founder of Parts Unlimited and Drag Specialties, said the huge distributor is taking a conservative look at its growth prospects over the next 18 months because of possible storm clouds on the economic horizon. Still, the Parts/Drag operation is expected to post sales increases of close to 10% for this year and next.
At the same time, though, Fox told a group of aftermarket executives at the annual Parts Unlimited/Drag Specialties National Vendor Presentation and Showcase event here that the company is moving ahead with major warehouse expansions in Nevada and Canada and that it has taken options on pieces of property in Europe and has discussed expansion plans with several companies there.
Despite increased gas prices, disruptions caused by the Iraq situation, and increased competition for consumer disposable income caused by recent automotive promotions, Fox says there still is plenty of profit opportunity in the powersports business. “We just have to work harder for it,” he says. Fox said recent aggressive auto promotions have caused many consumers to divert money from normal purchases of motorcycles.
Nearly every Parts/Drag supplier who sells expensive products for more than $1,000 is feeling softening in the market, says Fox. “It's not uniform across the nation, and it's spotty,” he says, “but it's happening.” Fox tempered his remarks by saying that consumers might be conservative minded for the next few months, “but I don't see this as a long-term handicap (for the industry).”
The solution for aftermarket manufacturers, Fox told the gathering, is to innovate. “Don't sell the same product three years in a row,” he said. Change at least 25% of the product lineup each year, he told the manufacturers. And try to price products so that dealers can make good margins, “hopefully 40% and more.”
Business can be very, very good for companies with the right products, he emphasized, pointing to his own company's Icon apparel brand. The two-year old Icon brand has done more than $50 million in volume to date. “People have money for what they want to do,” says Fox. “People might be conservative with their money until the impulse hits them, and then they spend. Why do people buy an exhaust pipe every two years? Because they get tired of it or want something fresh. The business is out there, but you can't sell last year's product line.”
“We're looking seriously at Europe,” Fox said, adding that the company has taken options on land. He declined to be more specific about locations or time during conversations with Powersports Business magazine at the show. “Originally,” he said, “we thought we had a plan we could implement quickly. But in the last few months, we've had three companies approach us, saying, 'We don't want to be on the outside looking in when the train goes by.'
“I'm willing to talk with anyone, but we're not planning to partner with anyone. We're not interested in partnering; we're too big for that. We'll talk acquisitions, and we have talked with several companies about that.”
Fox told suppliers to be prepared to discuss which of their products they may want Parts to handle in Europe because the time is getting close.
Fox, who spends most of his time on facilities development, said the company is building warehouses in Reno, Nev.; Calgary, Alberta; and London, Ontario, Canada. It operates six warehouses in the United States and two in Canada. The Reno facility sits on 20 acres and will have a 400,000 sq. ft. footprint. Shelving will run four stories high. The facility, scheduled to open late next year, will replace a smaller leased building in the area.
Reno will take some of the pressure of a smaller facility in Southern California, Fox said. Slower moving “C” products will be moved from California to Reno. Product that comes from Asia will go to Reno, and California will carry a two-week supply of product instead of 90 days.
Fox said he also might be willing to lease space in the new Reno facility. “We might put in an extra 150,000 sq. ft. and lease it for five years, if people are interested,” he said. While there has been some discussion of building bonded warehouses for imports by suppliers, Fox said that's probably not going to happen. “It's difficult to figure out our own future requirements. I'm just not too much in the mood to (build a bonded warehouse).”
The 160,000 sq. ft., London, Ontario, warehouse is expected to open in September. It will have four stories of shelving, the standard height for new Parts warehouses. The site is large enough to enable Parts Canada to double the size of the facility. Calgary, scheduled to open in 2007, is the same size and layout.
On the operations side, Fox noted that Parts/Drag has more than 1,500 employees, down from more than 1,700 over the last couple of years because of increased efficiencies. One of the most obvious is the increased use of the company's Internet-based ordering system for dealers. Close to 5,000 of the company's 12,000 dealers now regularly order online. This system speeds service and cuts costs.
The company ships 20,000 orders per day, taking less than one hour to process an order from acceptance to shipment.
Fox said the company now has 30 buyers and is adding three more. The buying function is divided into six groups, each headed by an experienced, senior buyer. Each product line is reviewed every 14 days, and purchasing decisions are adjusted based upon inventory and demand. The company's goal is to stock each supplier's full product line, he said. “If you have 16 items, our buyers are instructed to place all those items in the catalog, unless it absolutely doesn't make sense.” The lead buyer has to approve any exceptions.
Parts/Drag has made a decision not to set up any new dealer-customer that doesn't have a service operation, Fox said, in an effort to service only active dealers.
Neither will the company sell direct to consumers. “We're not going to sell to consumers,” Fox said emphatically. “We're not going to open a chain of retail stores. You're not going to see a Parts Unlimited store. You won't see us in the retail business.”
Parts/Drag now has six semi-trucks on the road doing promotional tours; they'll participate in 73 events this year. “We feel like we're in the circus business,” he said, “because we have so many people out there. But we are totally convinced that this is the way to do business.”
Fox also commented on these subjects:
-Government regulations covering noise and air emissions will affect the powersports industry sooner than many believe, especially in the area of noise emissions. “There are not going to be loud pipes making lots of noise. Our choice is this: Either we let the government do it or we get our arms around it. Bottom line: don't be in denial. We know that we are going to have to meet noise (regulations) on a national level and emissions on a federal level. It's not going away.” In Europe, Fox noted, a rider can lose his bike for running with loud pipes.
Parts and Drag are taking an active role in solving this problem. As of Jan. 1, 2007, most companies won't sell any pipes that don't have baffles, Fox said.
-The Motorcycle Industry Council (MIC) has nearly completed its work on developing an industry standard for data communications similar to that used in the auto industry. The program, dubbed Powersports Standard Protocol (PSP), will enable a participating dealer to communicate easily and quickly with suppliers from his dealer management system, saving time and money. Fox said major OEMs are backing the program and have spent millions of dollars on the project. Fox predicts that the program will gain widespread acceptance within two years. (See the Sept. 26, 2005, issue of Powersports Business for details on this program.)
-Consolidation will take place within the aftermarket segment, he said. Typically, in other industries, there are only a handful of suppliers in each product category. In powersports, however, there are often two dozen or more, he said. But this is changing. “Over the last two or three years, we've seen the number drop by two or three each year. Soon, we'll be under 20. You won't have 20 choices of brake pads; two or three companies will control 75% of the market and you'll have a few more specialty firms.”
More than 185 suppliers participated in the four-day event, which was attended by close to 500 dealers.

- Joe Delmont

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