MAXimum exposure

Boat retail giant MarineMax Inc. clearly has not been insulated from the industry downturn.

Not only did it reduce its workforce by 10 percent earlier this year, it appears the second quarter was another in a series of disappointing earnings seasons, featuring higher than expected losses.

But with the company’s Lean Six Sigma team working to drive an ever higher level of efficiency into its operation, its continuing market share gains and its focus on selling the boating lifestyle, MarineMax is well positioned not only to survive the downturn, but to rebound from it stronger than before.

Boating Industry magazine recently sat down with MarineMax Chairman and CEO Bill McGill to discuss how the company is handling the downturn. Here’s what he told us about his company’s strategies.

Editor: In tough times like these, how do you keep the people that you need, how do you motivate them, how do you keep them focused on, and excited about, what they do?

Bill McGill: It is a challenge. No one likes to see things slower. If you’re commission-based or bonus-based, based upon performance, and business is down, that means your personal income is being impacted as well. With that being said, I think that most everyone in our company understands this is just a temporary thing. I’ve been in the business since 1973, and been through a bunch of these. When I got in, the Arabs cut off the oil. That was pretty severe. Then in 1991, we had the luxury tax. I’ve been through 20 percent interest. I’ve been through difficult recession-type times and Gulf Wars and that type of thing.

But this one is different, and we all know that from the standpoint that the housing market got out of control, it became almost ridiculous, some of the values and some of the appreciations. No one really believed the bubble was going to burst, and I think a lot of people got caught. We hear that credit card debt is up. We hear that foreclosures are up on homes. This is not going to be a switch that gets turned and it’s fixed overnight. I don’t think there is a silver bullet that’s going to fix this next week or six months from now.

All that being said, we continue to take market share. Even though our business is down some, we’re able to go out and get that share. And we’re getting it because we understand what boating is. Boating is a recreation, and it really addresses the needs of the individual and the families. Of course, our big focus is families. The good news is we had over 1,000 getaway events in the past 12 months, which is a record for us.

The message there: People are still boating, and in our estimation, they’re actually boating more. When times get tough, whether it’s in business or in the economy, whatever the pressures are, people seek a release, and boating gives you a release. You go out and forget it all. We’ve got our team focused on, it’s about what does boating do for you and for your family. We’re there to help you make it a lifestyle you can enjoy. Why do we take market share? We focus on people that are boaters, our sales team are boaters, and I can also tell you that we focus on education of the customer, teaching them how to do it, servicing them, both mobile and emergency or at our facilities. And the big one is showing them how to have fun at our getaway events. When you do all of that together, that’s a winning combination, and it meets the needs the customer expects, which is ‘Hey, show me how to do this, and if I can have fun with it, I’ll stick with it and grow with it and at the same time, I’ll tell my friends.’

We took a lot of market share, substantial gains in market share. So then, my message to the team is ‘OK, this is great, we’re taking market share because it’s an investment in future business, but there’s nothing more important than what we do with these customers after we get them.’

So, we have put a full-court press on an initiative based upon a book called “The Ultimate Question,” [by Fred Reicheld] which describes the right question to ask your customers. The right question is not the CSI garbage. Garbage is a strong word, but CSI scores are basically – you beg, threaten or buy them. Dealers that get 9.5s or 10s – there’s only one way you get that. I don’t care how good you are. And it’s tied in with the boat. That’s a problem in itself. If there’s an issue with the engine, people have a hard time putting the dealer at the top.

What we do – we do this at two weeks after delivery, six months after delivery and one year after delivery and we just expanded it to year two, three, four and five, and we’re using Avala, an independent company. They’re surveying first through an e-mail, and if no response they’re calling them. And they’re asking “the ultimate question,” which is, ‘On a scale of zero to 10, would you recommend MarineMax to a friend or associate?’ It’s that simple. And then there is one follow-up question after that. ‘Would you share with us why you gave the score you gave?’

We’re drilling that down in a pay plan that [was] launched April 1 for our senior people, like our regional presidents and district managers, and down into the store level right after that. And we’re going to carry this score as part of their pay plans down to service advisors, service managers, captains that are delivering the boat, etc., so that we can truly measure it and find out what’s going on. When we look at the data, when we start seeing in a given store that there’s a problem with customers not being communicated with or they’re not perfectly happy with something going on, it usually comes back to one person. If they know you’re looking at them, that they’re being reviewed, they do something about it.

Editor: Earlier this year, you reduced your workforce as a result of a streamlining of operations. How else are you creating efficiencies at MarineMax?

Bill McGill: We’ve reduced boat show expenses by being a lot more efficient in what we’re doing and how we set them up. We create a little more space between the boats where you can actually see them better, but you’ve spent less to get them there. In most cases, the displays are actually looking better, and we’ve spent less on them.

Boat shows are not working the way they used to. But it’s a necessary evil. What I don’t like about boat shows is God kind of creates everyone equal, and as you know from your efforts and your company’s efforts, not everybody is equal. But at boat shows, you don’t know. You see the lights shining on the boats, and the carpets are out and the boats look good and the team is dressed. What you don’t see is: Is there a mobile service truck? Are there captains to teach you how to use it? Do they do getaway trips? Is it a gravel lot facility? It’s a little confusing to the customer. The good thing about our industry is that there’s an emotional attachment to this thing called boating. People get emotionally involved at boat shows, and we lose some deals we shouldn’t lose because everyone else looks pretty good too.

If you’re spending $100,000 to go to the boat show, if you spend $50,000 on a very nice display and invite people back to the showroom and take the other $50,000 that you saved and go out and wow your customers, I guarantee you you’ll get a better return on investment.
Editor: Let’s talk a little bit about partnerships with your boat builders. How do they change when times get tough?

Bill McGill: We’re fortunate that we’re dealing with good partners that can financially weather this storm without probably any major issues and also that are empathetic to what’s going on. [They understand] pushing extra product on dealers is not the answer. It’s a short-term solution to their needs, which creates a nightmare later on. We’ve had a lot of communication with our various manufacturers, and they’ve gone very well and the adjustments are being made. What caught everybody a little off guard is what we went through last year and we went into the fall, and it was pretty bad. And everybody kept saying it’s going to get better, and it got worse. The housing market got worse and worse, and I don’t have a crystal ball. I mean, is it at the bottom yet or will it go further? I don’t know. People’s feelings of their net worth and their ability to make larger purchases comes from what equity do they think they have in their house or their second house or their condo. If they feel it isn’t there, then they don’t feel as comfortable. We’ve got to get through there. I think the banks — we read this in the Wall Street Journal — they’re probably going to give a get-out-of-jail card for people that get into a credit trouble right now, realizing that some of these mortgages that were done, you know zero down payment and pay no principle, all these things were done to really get people in a fix.

Editor: One of the things we hear about is the importance of innovation right now. Why should someone trade in their boat? How are we doing as an industry at pushing that innovation envelope?

Bill McGill: That’s true. I think that the pods, whether it’s Zeus or IPS or the Axius steering that Brunswick has or the Neptune for docking on command, are probably some of the more important innovations that are just starting to roll out in our industry, from the standpoint that boating will really be a lot easier. If I — and I probably will one day — have a 75- or 80- or 100-foot boat, the one thing I wouldn’t want, in doing that, is to have a captain and crew. I like to do my own thing. I can dock a 100-foot boat, but do I feel comfortable with my wife docking a 100-foot boat in a busy marina with current and the wind blowing? No, I probably wouldn’t. You would need help. With Zeus or with IPS, my wife can dock the boat and I’ll get the lines or I can dock the boat alone and throw a switch and the thing will sit there until I get the lines tied. That’s a game changer. I think that’s one of the greatest innovations that is occurring as we speak that is changing the game. In Europe, some countries require you to have a captain. So this captain and crew scenario, in boats 50 feet and up, is kind of a way of life and they deal with it. But most of our customers do not want it. We have customers that are looking at buying 70-, 80-, 100-foot boats. This will change it for them. Plus, an 8-year-old can dock a boat.

There are fuel economies that go with it. Another big one is insurance rates go way down because when you take a larger boat that has inboards, and you ground it in the Bahamas, you may sink it too. Or you may fill it with saltwater. And these sheer off. You’ve got the exposure of losing the pods, but you haven’t exposed everything else in the boat to severe damage. What hurts insurance companies are the big losses, and the big losses are pretty well minimized, so it has actually reduced insurance premiums.

Editor: Let’s talk a little bit about vision. How do you adjust your vision in times like these?

Bill McGill: If you go back two years ago, we laid down our short- and long-term plans. We’ve had to adjust those a little bit because of what’s going on out there. And you know we made a very concerted effort to spend the extra marketing dollars and in some cases even given up some gross margins to get market share, and that’s future business. So that was a change in our course. Our strategy long-term is still value price. We believe you display the price, and we do, and really we believe you don’t negotiate on it. You pre-negotiate on it and if you show up at the dock with your 34 and there’s a 34 sitting there, one of you doesn’t get upset because you find out you spent more for it than the other one did. We think there is a lot of merit in getting back on course with that. We deviated on it some because we let our inventories get up too much. We weren’t selling through at the same rate because of business slowing so much. We also got our team a little too focused on rebates because the manufacturers were helping us to make the difference. Long-term, we’ve got to get back on course. We’re boaters so we’ll help you select it. We’ll show the entire family how to use it. We’ll service you second to none. And we’ll show you how to have fun. It’s that simple. If you do all of those things right, it’s not about price. Everyone wants a fair price, but no one believes they’re entitled to a better price than someone else on the same boat. That’s not fair.

As far as acquisitions are concerned, we are in discussions with dealers. And when it makes sense, we will make some more acquisitions. We did the two large ones, now it’s been two years, but there were some pretty big integrations going on there. I can tell you it’s gone very, very well. Matthew Barbara wears a MarineMax hat and shirt like no one would believe it. He’s as passionate as ever about the business and enjoying it. It’s working very, very well.

We’ve looked at some international opportunities, and we’ll continue to look at them. At this time, it’s not in the cards.

Editor: One strategy would be to go and scoop up those that are struggling right now. But it seems like MarineMax has gone after businesses that are really solid, that have a strong foundation underneath them. Does that mean that now is not a time that’s any more ripe for staying on the acquisition path than another time?

Bill McGill: I would say you described that very well. Being our focus is on premium dealers with a similar culture to what we have, you have to limit your numbers. While there’s 5,000 dealers out there, maybe there’s a couple hundred that might fit our model. The hardest thing to do is to change culture. It takes years, not months. Even though there’s opportunities and we get the calls every day — ‘My business hasn’t made money in two or three years. Would you be interested in my business or property?’ We may be interested in the property, but it’s about the people. So, if you don’t have a good team that’s focused on the customer, that understands what our focus is, it’s really hard to teach it. I’d say the opportunities for those dealers going out of business —and there will be more that I think will go out of business — will be more from a facilities standpoint than a business standpoint.

Editor: Is that something you’ve done much of?

Bill McGill: We’ve done a little bit of that. We’re looking at maybe some greenfield approaches in some larger cities we’re not in right now, and maybe it’s even without some of the brands we have right now. We’re continually looking at new product opportunities because we love to keep our customers in our family. We do a great job from 18 to 60 feet. But then we don’t really have the great migration boats right now for those customers that want to keep growing, so we lose some of those. So we’re looking at what we can do in the meantime until Sea Ray or Meridian come up with some larger boats. We’re kind of tired of waiting. If you’ve got a family that have bought 3, 4, 5, 6 boats from us, and they go on our getaway trips, and they own a 55- or a 60-foot boat and they want a 75 or an 80 or 90, it kills us to say, “Sorry, we don’t have it.” Even though we sell Hatteras, which is a fabulous boat, they really don’t fit that Sea Ray customer as well. And even though we sell Ferretti Group, which are more high-end product, we’ve got some opportunities there. We’ve seen some of that in New York and Connecticut with the Surfside acquisition because Sea Ray customers are buying the Azimuts, which is more of a migration. We’ll continue discussions as to where we go there.

We’re still having fun. Our team is still as passionate as ever. When it comes back, it’ll really come back super strong. I think probably the most frustrating thing I’ve seen in the 30, 40 years I’ve been in the business is that through all the downturns, some people get out, and it’s just so easy for them to get back in. Somebody else will just step back up, give them a product line, they’ll go get a lot somewhere and put themselves in business and not properly serve the customer. That’s frustrating. I’ve challenged the manufacturers that we deal with: You’ve got to change the barriers to entry so that you just can’t have 1,000 manufacturers. Because if you’ve got 1,000 manufacturers, you’ve got to have a lot of dealers, and not everyone is set up to properly serve the customer, and that’s what runs a lot of people out of boating.

Editor: So you think the manufacturers should do a better job of reducing the number of brands that their dealers can carry?

Bill McGill: No, I think they need to come up with expensive manufacturing techniques so that not everyone can afford to be a manufacturer.

Editor: So you think on the manufacturing side we need fewer brands?

Bill McGill: A lot fewer brands so we can better serve the customer. If you pick up the directory for [the Miami Boat Show], just start looking at manufacturers. It’s scary.

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