Preventing a blood bath

It’s essential for those marine businesspeople that want a future in this industry to focus on positioning their companies for the recovery. However, there are still many survivors who don’t have the luxury of looking that far ahead. Their business’s fate will be determined by its ability to endure the next six months, as will the size of the opportunity for those companies that emerge on the other side.

Industry experts are predicting this winter will be a critical period during which many boat businesses will likely fall. The question we’ve been asking ourselves is to what extent those failures can be prevented, now that the boating season is over in many regions of the country. We decided to pass that question along to members of the Boating Industry LinkedIn.com Group to gain their perspective. In late August, Editor-in-Chief Matt Gruhn posted the following discussion: “A dealer told us that this winter would be a “blood bath” of marine industry companies going out of business. Do you agree, and if so, can it be prevented?”

Two weeks and more than a dozen comments later, the consensus seems to be that while more failures are inevitable, those most likely to survive this winter will not only need to have a business plan and cash flow budget in place, but also must be focused on servicing current boat owners and capturing what little boat sales demand there is, such as for pre-owned and repossessed inventory. Here is what industry professionals had to say.

Mike Eiffert, financial and operations consultant
For many boat dealerships, the next few months and up until the major boat show season starts are some of their slowest months historically. This, coupled with the current challenging economic environment, is going to make cash management/conservation more important than ever. Those dealers who make a plan and then work their plan will make it through.

Chris Ruisi, CEO at The Coach’s Zone
Mike — you are “spot on” with your comments. While the term “blood bath” is overly dramatic, the end result will be the same for those who have believed that the good times would never end. While this recession has been severe, it has also uncovered many poorly constructed management and leadership issues in many companies — it is these issues that are generating much of the pain we see. That is why we must continue to stress that now is not the time to cling to “business as usual” solutions.

Matt, it is naive to think anything can stop this revolution in this industry. Despite all of the press releases, financing help is hard to find and the consumer is not spending — very real money has been lost and we are moving from a splurge mentality to one of being frugal. Small employers unfortunately will not be quick to hire new people until they have replenished their cash reserves. As a “discretionary” product, the boating industry may lag behind a general recovery (12 or 18 months or longer). I hope I am wrong, but the risk is too great to ignore the possibilities.

Joe Lewis, owner, Mount Dora Boating Center
More failures are inevitable. The peak selling season has come and gone, which means cash flow will continue to get tighter and tighter as 2009 comes to an end. Right now is the time dealers should be assessing their financial performance to date, making the necessary changes in their business plan to ensure survival.

For many, this will mean making some really hard decisions. Financing at all levels will continue to be the key. It’s hard to find, especially at the wholesale level. The irony here is even dealers who have managed their business well throughout the turmoil and got their inventory in good shape may find they lack the credit needed to restock for the 2010 selling season. Without these orders to keep manufacturers busy over the winter months, many will find it difficult to cash flow their businesses as well.

Yes, more failures at all levels are coming. Call it a “Blood Bath,” “Slaughter,” “A _ _ Kickin,” or whatever you like, we’re in for a rough 6 months. Can this be prevented? The answer is yes and the well managed businesses will do so.

Chris Ruisi
Joe, you hit the nail right on the head. No one can avoid what is taking place. Leadership and proven systems will help the better ones weather the storm better than most. I am sure you have heard the expression – “Good weather makes for bad sailors” – we have had too many sailors get used to just good weather without making preparations for the storm, which is here. Unfortunately, these events “purge” any industry of the weaker players, those who cannot adapt.

Stan Underwood, managing director, Sanctuary Marinas International
I don’t think there’s enough blood left for anyone to take a bath. The already-drained corpses will continue to drop. The used boat market will no doubt be the most active segment. And if fuel goes back up, perhaps used sailboats will be a good bet.

Chuck Guthrie, president, Lynnhaven Marine
I hate to use the word blood bath. A lot of good dealers will go down due to inventory and no secondary source of income.
The consumers who bought from those dealers will have another reason to find other fun activities for their families. Credit, if you can find it, will be costly to the consumer, dealer and manufacturer.

We are already an expensive hobby. This economy and cost will price many consumers out of the sport, never to return. You do not need an MBA to know the average cost of a boat will balloon with a 50-percent smaller demand.

I plan on staying the course. But I keep thinking what my dad said once: “When you are dumb you better be tough.” Who will be the last man (lady) standing?

Jerry Brouwer, president, Action Water Sports
If a plan has not been in place and worked aggressively in the last several months, my best guess is it will be too late to recover. Sales volume will not change for some time to come and if a business has been living on even keeled, wishful thinking, nothing around the corner will save them. One of the issues every dealer is grappling with is the loss of necessary margin. Sales are off, however, what’s worse is the inability to create revenue with proper margins. The massive amounts of excess inventory have brought on an unprecedented dumping of product that took away most dealers ability to create revenue to make it thru the upcoming winter.

Matt, to answer your question; The only possible way to survive is to find every possible revenue stream a business can dream up with the customer base it currently serves. I am not one to recommend straying from your core businesses mission, vision and value statement. However, I am a huge advocate of implementing efforts to build every possible revenue stream from your current customer’s wallet. It’s surprising what you will find when it becomes a focus.

Stan Underwood
Marinas are getting hit now as well. Many of them are heading to foreclosure or bankruptcy. I’ve been testing the bank-owned, foreclosed marina liquidation business with investors. But I have over 30 years background in commercial real estate, prior to getting into marina management.

Each of you have a list of abilities and past experience that you can draw on. To make lemonade out of lemons, how about working with lenders and getting into the repo business? Some folks are doubling and tripling their repo business and making piles of $$$.

I hate to sound so negative. But there really are new and developing fields you can get into. It’s not our fault the economy is what it is. The smart thing, I think, is to make the most of it.

Gary W. Druckenmiller, Jr., Internet strategist and marketing consultant, OpenSea.com
I will add a different, but equally important perspective here: The necessity in maintaining the customer base you have and not losing what you already own is critical to survival. Yes, new customers may be fleeting, but for goodness sake, don’t lose what you worked so hard to gain. With that comes the question of how to manage loyalty and continue to retain your base of ambassadors.

Most above stated the need to be more frugal and cut costs, and not doing “business as usual.” That last one is my favorite and speaks the loudest in a manner of getting marine businesses alike to take some low-cost risks. I mean, what do you have to lose? If you think you’re going down the toilet anyway, get creative, try something radically new.

Some of this newness stems around how marine businesses communicate and continuously engage with their customers. Most marine businesses are absolutely abysmal at this. I mean, downright terrible. And at this level, customers in a piss-poor economy will just leave if they don’t hear from anyone. No squeak, no grease.

What are some of the things marine businesses can do to converse more efficiently with their customer? I’ve heard of this newfangled thing called social networking. Ummmm, maybe that’s a way. Cost = $0, easy to use, huge outreach, great marketing tools, etc. Some of the tools available out there now could make a huge difference retaining current customers and maybe, just maybe, grabbing a couple of new ones. Problem? It’s new. But at a $0 cost of entry, who cares? It’s better than sitting there and waiting for the inevitable.

Noel Osborne, owner, Osborne & Associates
Interesting comments, all of them! I agree that it is probably too late for those who do not already have a plan in place. We have been preaching the importance of having a business plan in place, but unfortunately many dealers have ignored the call. I see no way that a dealer without a plan will be able to make it through the winter. Most of the phone calls I am receiving for help are from dealers who have waited too long to become proactive. They are already bankrupt and do not have any positive cash-flow to get them through until sales improve.

Those dealers who will survive probably have a minimum of 20 percent service content in their total sales number. Service continues to be one of the few bright spots, however, if you do not know what your service efficiency level is then you will not be able to capitalize on it. Let’s face it: Service can produce gross profits in the 70-percent range while sales is lucky to see 10 percent in today’s economy. There are significant service opportunities out there if the dealer has some imagination.

Our dealers are going to have to completely rethink how they are going to do business in the future. Bruce Van Wagoner was right on when he recently said, “I think that the single most important thing anyone in this business can do is to develop a plan — a well-written plan — that guides business decisions.” He also said that “It (the plan) shows what is important to your business, it identifies what you (and your workforce) should be focusing on, and it removes much of the ambiguity or emotion in decision-making.”

For those who still have some cash in the bank I would suggest that you carefully digest what Bruce is telling us. Get your employees together, discuss ways to improve your operations, and put it in writing. If your employees don’t buy-in to your future plans, you are not going to make it. If they do buy-in, then you have a chance to avoid a blood-bath.

Dan Dougherty, president, DoughertyTombras at The Tombras Group
It seems the commentators wish to blame the dealers and their lack of a business plan as the reason for their failures. Yet, what of General Motors, Chrysler, AIG, Fannie Mae, Lehman’s Brothers, federal and state government and other huge firms with plans developed and refined by the best of the best? I can tell you from working with boat dealers that most have plans that are reasonable. Their plans are based on certain industry norms including floor plan financing, consumer credit, manufacturer support and historical demand.

The business plans commentators speak of must ask the question, “What if the entire industry changed and stuck you with months of inventory, no consumer demand or credit, and no floor plan?” It’s absurd. Worst case scenario planning typically leaves the infrastructure of the industry intact. Even if this type of plan is suggested, the boat industry lacks the margin at any level to cover expenses and set aside a year or two’s worth of capital to weather the perfect storm.

Prevention comes from government intervention like in the auto industry.

Noel Osborne
Dan, I want to make it clear that I am not placing the total blame on the dealers for their current predicament. I was a dealer for over 30 years and certainly appreciate the fact that they were and in some cases still are suffering from a one-sided arrangement with certain manufacturers. Notwithstanding this, every businessperson who is operating professionally should have a detailed plan in place that projects at a minimum their income, cost of sales, and expenses by month. I have been part of the Yamaha dealership training team for the last 10 years and I can tell you that less than 10 percent of all attending dealers had a comprehensive business plan in place that could be used to manage their dealerships. This fact is based on a show of hands at each symposium and seminar.

Is this totally the dealers fault? Heck no, why did the manufacturers elect to do business with dealers that did not have a plan in place and why did lenders give them their floorplan money without a plan in place. There is plenty of blame to go around.

My point is that dealers will not survive in the future unless they operate their dealerships in accordance with a comprehensive plan in place that can be used to measure their performance on a daily basis.

Chuck Guthrie
1. I am glad Dougherty said “industry.” We are all the industry and must equally share the blame if someone is looking to blame anyone. If you seek to blame anyone, you must first point the finger at yourself.

2. I am sure Noel did not mean it is all the dealer’s fault.

3. Gary makes a key point about trying your best to keep a customer base. Try the best you can, but you got to be around to serve them.

4. Still a lot of inventory left to clear. A lot more people who own boats who will still need to dump them next spring. Do not buy what you cannot sell. Even if you have no inventory; have you thought about trying to sell at the new retails!!! It will not be easy, especially after all the low 2009 sales prices. Where will your market be?

5. Dealers without major secondary sources of income, regardless of worst case scenario plans better plan to get out if you cannot last to 2011. It is a pipe dream to even think 2010 will be any better then 2009, and it might be worse.

6. For the average dealer, there is no comprehensive plan that will really work for a successful 2011 in sales. Plan to minimize your losses, seek alternatives sources of income and decide today if you are willing to lose more money. A controlled exit will make a return easier in 2011/12.

7. For now, I look at the continued loss in sales as an investment in the future.

Mike Eiffert
Re: the discussion of “whose fault” it is for the current state of the industry, there is plenty of blame to go around: manufacturers who force-fed their dealers to the point of choking; lenders who didn’t do their thorough due diligence; dealers who just couldn’t say “no.”

But the challenge here is not to determine who’s to blame. The challenge, and only thing dealers can control right now, is what they are going to do about it. That’s where the need for an effective plan comes in.

Start with determining three sales/revenue scenarios on a month-by-month basis for the next 12 months. Best case, most-likely, and worst-case. Now that you’ve done the first two, discard them (wishful thinking). In today’s environment, you need to set your cost structure for the worst-case scenario.
Starting with zero (e.g., no cost, expenses, employees, etc.), design your dealership’s cost structure that, when subtracted from your worst-case revenue scenario, generates positive cash flow (note this is cash flow, not net income). Determining your company’s fixed and variable cost components and the associated break-even point will help here.

Now, when you arrive at the cost structure that aligns with the worst-case revenue scenario, this will no doubt result in some very hard decisions that have to be made (e.g., releasing good employees). You must make these hard decisions in the interest of protecting the whole company. If you don’t make them, you risk everyone’s jobs and the very existence of the dealership. Resist the thinking that says “we can’t possibly cut lower than X.” The reality of what you face is that you will do what you must do to survive (or you will perish).

That’s what I meant by making a plan and then working that plan. Either you take control of your destiny, or someone else will.