Walking The Tightrope On Inventory

As I write this, marine dealers, business people in all industries, and the American people are faced with major uncertainties and have been for quite some time. The stock market has been volatile for months. There are constant threats of terrorist attacks. Consumer confidence is up then down. And then there are the situations with Iraq and North Korea. Plus, winter boat show attendance was down about 15 percent.
All of this has made most dealers very cautious in their buying and reordering, and justifiably so. No one wants to get stuck with a heavy load of inventory if the market declines because of the economy, the war, terrorism — or all three. As a result, many dealers are really playing it close to the vest with inventory and reorders.
Some Builders Are Pressuring Dealers To Load Up!
Numerous dealers from around the country are reporting that they are getting pressure from boat builders to load up heavily on boats. There have even been reports that some dealers have received casual threats that if they don’t place a large order for boats that the builder(s) might look for additional representation. Many of these threats have been made to quality dealers who have successfully represented their boat lines for years.
If such threats were to be carried out, it would only create a mess in the market and ultimately hurt the industry. The result could be too many dealers in a given market selling the same boat brands, which would lead to price wars and huge margin losses.
Boat builders are being very shortsighted if they are trying to load dealers with more boats than they want or need. This not only has the potential of hurting dealers financially, in the long term it would hurt the builders as well. Fortunately there are many builders who are not resorting to such tactics.
I can certainly understand boat builders wanting to move more products and also level their production schedules. But this should not be done at the dealer’s expense. Dealers should only buy what they feel is right for their dealership.
It can be a real tightrope when it comes to knowing how many boats to order of each brand that dealers handle. It is important to have enough boats in inventory to be able to offer shoppers a good selection. But it is also important not to be loaded with boat inventory when the summer dealer meetings and new product introductions (both of which should really be in the fall) start in July.
As dealer meetings approach, many builders become annoyed that dealers slow down on ordering new boats a month or two before these in-season intros. Dealers don’t want to have a large inventory of new boats that become non-current in the middle of the selling season. Nor do they want a large inventory in uncertain times. Delaying dealer meetings until the fall would alleviate some dealer reluctance in April, May and June. The big concern of most builders is that if they have a dealer meeting later, their competitors with earlier meeting will load dealers with product.
Walk The Tightrope
You have to have inventory to be in business. The tough trick for dealers is having the right inventory to support sales goals, but not so much inventory that they have carry over into the next model year. That is the tightrope dealers have to walk. It is a tough call.
My advice is for dealers to use their best judgment on what to stock based on factors like the consumer trends that were spotted at the winter and spring boat shows, local economies and employment, conversations with other dealers, dealership sales history and a little bit of “Kentucky windage.” Use what I call “optimistic caution” in buying. The old saying, “you can’t sell from an empty wagon” is very true. But you can’t afford to be loaded with too much inventory without sales. Walk the tightrope carefully!
Take a long and hard look at all of the deals boat builders offer dealers to stock up on their boats. Take advantage of some of the sweeter deals while being extremely careful not to let them overload you. Don’t succumb to the veiled threat from some builders that, “you better buy a load of boats now because we might run out in a month or two.” However, I do think that dealers have an obligation to help their boat builders to move product — as long as they don’t buy more than they need. This helps builders keep their production schedules level and efficient.
There Is Business Out There!
Despite all of the negative factors that the media reports to us daily, there is business out there. As Larry Russo, Russo Marine, Medford, Massachusetts, said, “Despite unemployment and other factors, people who have secure jobs are buying luxury items like boats, RVs, upgrading to pricier houses and cars and more. They are spending money on these things instead of investing surplus income in the stock market.” He added, “Attendance at the Boston show was down about 5 percent but we had one of the best shows ever for Russo Marine. Much of it was due to gaining marketshare.”
Larry is right. People who have jobs are spending their surplus income on property, houses, and new cars, RVs, boats and other luxury items instead of investing in a shaky stock market. And I have heard reports from dealers all around North America who had excellent boat show sales this past winter and spring. But most of them succeeded in their shows because, like Russo Marine, they worked and promoted harder and gained sales and marketshare from less aggressive dealers as a result.
We Need More “Pull Through” Promotions
Phil Keeter, president of MRAA agrees. Phil said, “Aggressive dealers are still getting business. Those who are less aggressive are suffering a bit. I think the manufacturers need to do more to help dealers move inventory out the door. We need more ‘pull through’ promotions.” He added, “It would be a big help if manufacturers offered rebates on boats that dealers sell. Don’t give rebates on what they buy but on what they sell. A registration rebate and other incentives are what I’m talking about. If manufacturers just keep pushing dealers to load up on product, I can see the ‘wheels coming off the wagon’ down the road as a result.”
Phil continued, “Some dealers create their own ‘pull through promotions.’ I know one dealer in the Tulsa show who put together a sales bonus pot of $18,000 for his sales people. He offered them incentives like $100 for the first boat sold each day, $100 for the first pre-owned boat sold, a big bonus for selling a boat that had been in inventory for a long time and things like that. As a result, that dealer sold almost $4 million worth of boats at the show.”
Working Together To Promote Boating
Phil Keeter went on to say, “Dealers need to work together with their boat builders as closely as possible to make sure they get programs that will help move boats through the dealership. Dealers need to be conservative on inventory at this time and not spill over into the next model year with a lot of carry over inventory. Builders can be a big help on this by giving dealers marketing help to ‘pull through’ sales of boats.”
“This industry also needs to put together a strong, creative, national marketing/advertising campaign like the RV industry has done so successfully. The major boat and engine manufacturers now seem to be in favor of doing something like this. It can work.
“For example, two dealers who were in the Tulsa Boat show are also RV dealers who are involved in the ‘Go RVing’ campaign. I know that one of them sold 67 RVs in the show. He attributes about 25 of these sales to the ‘Go RVing’ campaign. The dealer got a lot of phone calls and leads from customers as a result of the campaign. Some who he couldn’t get to come to his showroom he was able to get to come to his exhibit at the show by giving them free show tickets. And when they came to the show, he sold them an RV.”
Larry Russo agrees. “The Recreational Boating and Fishing Foundation, (RBFF) ‘Water Works Wonders’ campaign is great for us. We follow that concept. We sell ‘family not fiberglass’.”
There Is Light At The End Of The Tunnel!
That’s right. There is light at the end of the tunnel and it is not a train coming toward us. I have seen this industry survive the war in Vietnam, the Gulf War in 1991, recessions, energy crisis and more. Sales continued during all of these upheavals. Not always as briskly as we would have liked. But sales continued. And many dealers not only survived those times over the years, many even thrived by working and promoting harder than their competitors. So don’t shut down your buying. Just buy cautiously. But don’t slow down your advertising and promotion. Work harder and sell harder and you can thrive. Hopefully the industry will get its collective act together to help dealers and the industry to grow like the RV industry did so successfully.