With 15 years as a dealer under his belt, Duffy Stenger knows what it takes to operate a marine retail business.
The Regal Marine vice president of sales and marketing also understands that his current company’s success is hinged on the success of its dealers. And much of dealers’ success comes back to inventory management.
“If you look back historically,” Stenger says, “inventory is what takes dealers out.”
History is exactly what the industry is making today. As the impact of this economic downturn reverberates throughout the marine industry, inventory management is the arbiter, determining which businesses survive and which fail. Already, once-thriving dealerships have succumbed to market conditions, declaring bankruptcy with millions in inventory liquidated to pay off their debts. Boat builders have closed plants, laid off workers and taken prolonged furloughs as inventory has piled up outside their plants. And hopes for a peak season rebound have come and gone.
“In terms of operational factors,” explains Bruce Van Wagoner, president of the Marine Group of GE Capital Solutions’ Commercial Distribution Finance division, “our customers that have not paid close attention to inventory turn, and associated inventory aging seem to be getting hit the hardest by the down cycle. A truly lean and well-run business can survive a prolonged down cycle and is in a great position to take advantage of the eventual industry upswing.”
But no matter how well a business is run, without the right partners, excelling at inventory management is near impossible. Dealers need boat builders that encourage them to order at levels that make sense for their business — not the manufacturer’s business — and can provide support and tools to help them turn noncurrent inventory. In turn, boat builders need dealers that communicate their market conditions and inventory levels and continually seek out aggressive strategies to move old inventory and make way for new models. With some marine businesses’ revenue down as much as 40 percent, those that struggle in this area may find themselves unable to remain in business.
Boat builders like Regal Marine, Cobalt Boats, Sea Ray Boats, Grady-White Boats and Stingray Powerboats understand how critical it is to partner with their dealers in an effort to keep the pipelines clear. That message came through loud and clear in the results of Boating Industry magazine’s first Dealer Satisfaction Survey on Inventory Management. These five brands were among those survey respondents ranked highest in dealer satisfaction in the area of inventory management.
Boating Industry launched this survey series this summer in an effort to accelerate improvement in this and other vital aspects of dealer/boat builder relations by sharing strategies for success. Increasingly, market conditions have awoken those boat builders and dealers that have lacked true partnerships to the realization that the time for change is now.
Moving to improve
The spirit of partnership seems more alive today than at any other time in the industry’s history. The challenges of current market conditions appear to be uniting dealers and boat builders, rather than further dividing them.
Not only are those independent builders known for their close, personal dealer network relations continuing to bring innovation to their partnerships, but even industry giants like Brunswick Corp. have taken a dealer-friendly position on inventory management, suggesting its boat companies wouldn’t ask dealers to take boats they’re not comfortable accepting, despite the impact on earnings.
With that said, survey results suggest there is still plenty of room for improvement. Of the more than 500 boat brand ratings filed by the 270-plus dealerships that participated in Boating Industry’s Dealer Satisfaction Survey, the average dealer rated its boat builders 6.9 out of 10 for overall satisfaction with its inventory management policies.
A separate question asked survey respondents to rate their satisfaction with their boat builder partners in seven key areas related to inventory management, including boat order fulfillment, boat order incentives, boat inventory requirements, new boat sales marketing, new boat sales incentives, floor plan support and facilitation of inventory sharing amongst its dealers. Leading the average satisfaction ratings among those categories was boat order fulfillment, which received a 7.8 out of 10, followed by boat inventory requirements, which received a 7.3. New boat sales marketing received a 6.6, while floor plan support followed closely behind with a 6.5. Receiving the lowest average scores were new boat sales incentives with a 5.9 and facilitation of inventory sharing with a 4.9.
While Boating Industry didn’t ask respondents to rate the importance of these categories in their overall satisfaction with their manufacturers’ inventory management practices, it was interesting to note that at least three of the leading boat builders offered their dealers online tools to facilitate inventory sharing.
Survey results also suggested that most boat builders keep a running log of their dealers’ inventory levels, a tool that allows them to better adjust their production levels. But still 22.6 percent of dealer respondents reported that their boat builder partners don’t track their inventory levels.
To maintain healthy inventory levels in a downturn, dealers need boat builder partners that allow them to adjust their ordering to fit the market. It was clear from the survey results that boat builder flexibility in this area was a significant factor in dealer satisfaction.
One dealer respondent commented that his boat brand “allows cancellation of orders if the economy doesn’t support the initial plan. An incredible assistance!” That feeling was echoed by dealers throughout the survey. Not only does this help dealers run a better business, but it also gives manufacturers a dealer network that isn’t bogged down with outdated models so they can take advantage of a market rebound.
“If we push all this product out, we run the risk of it coming back home,” comments Bruce Hawkins, Stingray Powerboats vice president of sales and marketing. “No one usually gains in the long run from burying a dealer in inventory.”
Other dealers expressed frustration at their manufacturers’ policies. “I have two major problems with this manufacturer that greatly affects our inventory level control, turn-over and profitability,” a dealer commented. “Number one is that we are required to order at least as much as last year in order to retain our discount level. That is good as long as sales are going up ... very difficult when sales are going down.
Secondly, they demand orders each quarter starting in May. This manufacturer forces long lead times for building efficiently but forces the dealer to order and take inventory so far in advance that it cannot be predicted, adjusted or managed properly or profitably.”
Those boat builders that provide tools and strategies to help dealers sell their current inventory will see an even greater benefit. At the very least, their dealers are much more likely to be satisfied with their relationship. Of the 43.9 percent of dealers that reported their boat builders provide them with tools or information to help them maintain healthy inventory levels, the average level of satisfaction reported was 8 out of 10, a big jump up from the overall average of 6.9.(See chart, page 32)
In addition, those dealers that had access to tools and information from their boat builders had a higher average inventory turn rate and a smaller year-over-year increase in their inventory levels. (See chart, page 38)
“Our district sales manager keeps us informed on the sales and inventory conditions of other dealers within a 150-mile radius,” commented one survey respondent. “This helps us in deciding what methods of sales seem to be working and what models seem to be selling the best.”
The average CSI score reported by dealer respondents was 94.6 percent, and it was clear that those with higher CSI scores also were more satisfied with their boat builder partners. That suggests those dealers with the strongest boat builder partnerships are perhaps better able to serve their customers.
“If the dealer feels good about the relationship they have with the manufacturer, and the manufacturer treats them with respect and develops a good relationship and our dealers are completely satisfied, it has a trickle down effect,” explains Regal Marine’s Stenger. “If you have a customer come into your store and you have a product that is negotiable on the price, do you feel better about giving the customer who pays you more better service than the customer who pays you less? Relate that to the amount of inventory you sell and at what price. It becomes a vicious cycle. High volume and low service tend to go hand in hand.”
It’s worth pointing out that dealerships provided a CSI score for only 297 of the more than 500 ratings filed. Most of the respondents that left this field blank said they didn’t know their score. Many noted that their manufacturer partners didn’t track it — or if they did, didn’t inform the dealership of how it performed.
The longer a dealership has carried a boat brand, the more satisfied they are likely to be.
That survey finding seems obvious: After all, few businesspeople would stay in a relationship in which they were unsatisfied. But it also supports the notion that the best dealer relations strategy is the pursuit of low-term partnership. The leaders in inventory management dealer satisfaction have the highest percentage of dealers reporting they’ve carried their brand 10 years or more. In other words, they’ve signed up quality dealers and formed long-term relationships with them.
Another factor to consider is the time and investment necessary for a dealership to establish a brand in its market.
“Certainly a big part of dealer satisfaction is the ability to sell the product very profitably,” says Paxson St. Clair, CEO of Cobalt Boats. “When signing a new dealer, often our brand is not very well known in that market, and it takes time to get the volume up. In the fourth or fifth year, when they’re selling 40 or 50 boats, the dealer is much more satisfied at that point.”
In the survey results, there also was a strong correlation between the percentage of their new boat sales that consisted of that brand’s boats and a dealer’s satisfaction with that brand: not surprisingly, the higher the percentage, the higher the satisfaction.
“I think that comes down to focus and being in step with the philosophy a manufacturer has,” explains Stenger. “If you’re in a dealership that sells 10 different kinds of boats, do you ever adopt one manufacturer’s way of doing business? If you have a mentor, you don’t want to have 10 of them. But if you have one you believe in, and you’re spending a majority of your time with that entity, you’re more likely to adopt their way of business.”
Paving a new path
Ultimately, those dealers and manufacturers that work closely together to keep the pipeline flowing will likely outperform those that don’t during this downturn and will go on to ride the wave of the market rebound.
It’s clear the marine industry has made major steps forward in inventory management in recent years, from its innovative use of the Web and its tracking and analysis of retail sales and inventory data to a more customized approach to boat inventory requirements. And as demonstrated by the leaders in inventory management practices, with the right focus on partnership, there is room for more improvement ahead.
“We know the industry is not growing right now,” says Stenger. “You either have to contract along with it, or if you don’t want to contract as much, take more market share from the competitors. That will happen as some of the weaker or more highly leveraged companies fall out. Regal just needs to be very responsible in how we look at our output, our production levels, and stay in step with a realistic estimate of what our dealers will sell, not what they’ll buy.”