Feb. 8, 2010: A market share tug of war

By Neil Pascale

It could be the beginning of a definitive change in the marketplace or simply a byproduct of the recession. Whatever it ends up being, a new study on a key segment of the industry certainly marks a shift in a key profit area for dealers.
For the first time in years, according to the study conducted for Powersports Business, OEMs are capturing a larger portion of the aftermarket market share supplier business than distributors, according to the study by ADP Lightspeed.
The study showing this tug of war of aftermarket market share delves into four years of data that includes more than $2 billion in consumer aftermarket purchases from more than 550 ADP Lightspeed dealerships from across the nation. For each one of those purchases, the study identifies the aftermarket supplier as either an OEM or a distributor.
Last year marked the second time in the past three years the OEM has gained market share and more importantly, the first year the OEM captured a larger portion of the overall market at nearly 51 percent.

The results of the study, however, are questioned by some familiar with the aftermarket.
Greg Blackwell, vice president of sales for the LeMans Corp., the parent company of Parts Unlimited and Drag Specialties, says his company has not seen the shift in the market that the study’s results describe.
“Are the OEs being aggressive?” Blackwell said. “The OEs have always been aggressive.
“Do I see a shift in the total distribution network, more business in the whole accessory market going to the OEs? No,” Blackwell said.
Others in the marketplace see the study’s results as merely a temporary impact of the challenged economy and the resulting reduction in new unit sales, which feed aftermarket sales, especially those common to distributors.
The ADP Lightspeed study includes sales of parts, accessories and garments. The survey mainly consists of franchised dealers, although it does have a very small percentage of nonfranchised dealers. Its findings are grouped into two buckets: for the industry at-large and for the traditional V-twin market. The latter has seen little change during the past three years as the OEM remains the overwhelming market share leader in that sector. However, the industry at-large, which includes metric and North American OEMs like BRP, Polaris and Arctic Cat, has seen a marked change in dealer suppliers of parts and accessories, according to the study. In that arena, the study finds OEMs have gained nearly four percentage points in the past three years.
“If you’re factoring in accessories and apparel and all that, wow,” Bret Snider, Yamaha Motor Corp. U.S.A.’s accessory product planning department manager, said of the study’s results. “It is a bit surprising, to be honest.”
Certainly, OEMs are relying heavier on aftermarket sales to improve their bottom line. Others, like Yamaha, have rapidly expanded not only their parts and accessory lineup but also the distribution of those products.
That trend isn’t lost on national distributors.
“We’ve certainly seen over the past five years an increase in OEM interest in aftermarket-type products, whether that would be apparel that aligns with their bike models or OEM-branded luggage,” said Richard Kimes, Helmet House’s director of marketing.
That trend is noticeable in OEMs’ quarterly earning statements. For its first three quarters of its recent fiscal year, Polaris Industries reported parts and accessories revenue of more than $224 million, or 20.5 percent of its total revenue. That chunk of the company’s total sales is significantly larger than in 2006 when it made up just 16 percent. Perhaps as a result of that difference, Polaris has been active in building its parts and accessory offerings, adding more than 200 new accessories to its portfolio for its model-year 2010 vehicles, according to the company’s earnings report.
Arctic Cat has shown similar reliance on its parts and accessory sales. Those sales through its second quarter of its current fiscal year represented 16 percent of the company’s total revenue, whereas that number was only 12 percent in 2006.
Both Arctic Cat and Polaris show their current-year PG&A sales have dropped between 10-15 percent compared to the year-ago period, a percentage that is much better than the industry as a whole. A separate ADP Lightspeed study of same store sales, published monthly in
Powersports Business, showed parts department sales down nearly 27 percent nationally year-to-date through October.
Although distributors have seen this increase in OEM PG&A business, they’re not necessarily sold that the dominant market supplier of parts and accessories to the dealer has changed.
Steve Johnson, president of national distributor Tucker Rocky, believes the study merely reflects the economy’s impact on the industry.
Johnson believes the OEM remains the primary source of replacement parts for dealers but that distributors play a dominant role in the parts, accessories and garments that riders tend to buy at the time of a new unit sale. However with the challenged economy, the vehicle sale is occurring much less frequently, meaning a larger percentage of aftermarket sales are tied to replacement or repair parts now than in the past.
“We’ve seen a real mix shift ourselves in what is being sold,” he said.
Although Johnson has seen some OEMs be more aggressive in the aftermarket, he doesn’t see a “massive shift” in the dealer aftermarket supplier occurring.
“The fact is the industry was growing. We were growing. We believe we were growing faster than the industry,” he said of the past few years.
More than one OEM found the study’s results surprising. Danny Fujimori, American Honda’s manager of motorcycle accessories, said he was “surprised that OEM sales are so strong compared to the others, but hope we can continue to offer good products that the consumer wants/needs.” He said Honda was not currently doing any new dealer aftermarket programs, although he did note the OEM does have a couple of discount programs that are tied to dealers’ prior-year sales performance.
Others, however, see the potential for additional change in the market share on the behalf of the OEM.
“I do,” Snider of Yamaha’s accessory product planning department said. “We started this program (Distributed by Yamaha) at the request of our dealers. I’m confident that the trend will continue because our dealers are requesting more product and for more applications.”
Yamaha even is considering adding to its already growing distribution program. Last year, the OEM began distributing non-Yamaha branded items to its dealer network for the first time. This year, Snider says the company is considering taking it a step further by carrying parts and accessories for other powersports brands. “That’s certainly on the table right now,” he said.
All of which points to the possibility for the aftermarket market share tug of war to continue.
Kimes of Helmet House believes the increased interest in this area of the market from both supplier sides points to the aftermarket’s potential. “I think it’s certainly in response to a true understanding and appreciation to what makes dealers more profitable,” he said, “and there is certainly more profit in aftermarket soft goods and that sort of thing than there are in new motorcycles.”

For more information on ADP Lightspeed’s survey on the market share of aftermarket suppliers, contact ADP?Lightspeed’s Dave Johnson at 801/519-7552.

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