February 7, 2011-What we’re headed for

Helmet House leaders discuss impacts of recent aftermarket conditions
CALABASAS, Calif — The retail malaise of the past two years figures to catch up to the aftermarket — as well as a number of other industries — in the form of sticker shock.
Bob Miller and Phil Bellomy, two longtime veterans of the industry, identified a likely cause and effect that dealers will be experiencing in their parts and accessory departments this year and possibly into 2012 over new product MSRP.
The two leaders of national distributor Helmet House also discussed other lasting impacts from the recession in an interview with Powersports Business, including how the downturn has affected their aftermarket business and what key economic metrics they’re watching.
“Our way of doing business, and we created this years ago, really hasn’t changed that much,” Miller, the president of Helmet House, said. “The dealers have changed more than we have.
“What we’ve seen is their buying habits have changed. They’re buying very cautiously, which in turn makes us buy cautiously.”
The distributor’s buying habits are part of a retail cause and effect that is quickly catching up to the industry. Miller and Bellomy, Helmet House’s vice president and co-founder, described it like this: Reduced dealer ordering has resulted in distributors likewise cutting down on production, which in turns makes it more difficult to find manufacturers willing to fill these smaller orders. So the smaller pool of manufacturers often results in cost increases.
Plus, some companies will be making substantial orders for the first time in three years as noncurrent inventory is likely to be at a much more manageable level on both the dealer and distributor side today than it has been in the recent past. However, because a substantial time has passed, these orders, in terms of their costs, are likely to look much different on the balance sheet.
“We have found product made abroad, at least in China or in Asia, the raw materials and the labor cost have increased significantly,” Miller said. “Where the same product that you sold over the past two years, specifically at closeout prices, will be now potentially double and triple” in price.
Miller cited an example of a jacket that may have cost $50 to manufacture in 2008 is now likely to be at least $80-$90.
Bellomy noted the change in the value of the Chinese currency also is impacting this price, as is the amount of product that is being ordered.
The Helmet House leaders noted the company has not had to change its internal policies in relation to dealer ordering.
“We’ve always offered the dealers’ liberal dating programs, liberal exchange policies, virtually no risk to carry our product line because we know it’s going to sell,” Miller said.
“As long as we are still selling the product and it’s properly returned, we have no problem supporting the dealer that way. It’s not a consignment deal by any means, but it’s a deal where, ‘Hey, put this in (the store) and I’ll show you it will sell.’ And it does. For every 1,000 helmets we put out there, we may get 30 back. So everybody wins.”
What has changed, Helmet House Director of Marketing Richard Kimes notes, is who in the dealership is having a discussion over order and business policies.
“It’s happening more at the general manager level,” Kimes said, rather than at the parts and accessories manager level since all expenses clearly are getting looked at more closely by dealership management.
What is Helmet House advising dealers to do to get the most of their area’s parts and accessory consumer spending? That advice hasn’t changed either, Miller notes.
“The dealers that are good merchandisers and the businesses that are consistently buying (inventory) — and there are those out there — they’re doing OK,” he said. “But if consumers walk in and don’t see what they want, they’re going to go back to their computer and buy.”
Selection is key, Miller said.
“If you walk into Macy’s and see two pants on the rack, you’re not going to buy,” he said. “But if there are 20 pairs of pants, you’re going to walk out with what you need, and that’s just the way it is. If you don’t give a customer variety, they’re not going to buy anything.”
Bellomy, who spoke to Powersports Business on the eve of the New York City IMS, visited a couple of larger New Jersey dealerships before the show and saw considerable enthusiasm from those staffs about consumer activity and the upcoming spring season.
“What we’re hearing from a lot of dealers, from the ones who are doing well, is they are picking up business from weaker dealers or dealers who are going out of business altogether,” he said.
Both Miller and Bellomy said they’re watching two economic metrics to gauge how the upcoming riding season will be: the increasing gas prices and how aggressive retail lenders will become.
“The committed enthusiast is still there,” Kimes said. “What has changed is his buying process has become a whole lot more considered. They are assessing any potential risks to a purchase vs. at the heights of 2007 and 2008, when they were just whipping out the credit card and away we go.”
Despite a more cautious consumer, Miller noted Helmet House remains active in key business areas.
“We continue to market and advertise,” he said. “It’s not at the level it was before, but it’s still fairly strong and it’s based on sales volume. We will continue to do that this year as well. There are still consumers out there and there are still people that want to buy stuff.
“You drop some business, but you’ve been at that level so you know how to operate,” Miller said. “You just have to acclimate yourself to it and realize we know how to get there. We’ve tasted the sweet stuff, now we’ve just got to get back there.” PSB