The 2009 Top 100 Dealers

With all the doom and gloom that the marine industry endured in 2008, it is easy to overlook the successes.

The calendar year 2008, for most marine businesses, represented the worst business conditions ever witnessed. It began with gas prices that skyrocketed and caused discretionary spending to screech to a halt. Consumer confidence was battered. The housing market collapsed. And by year’s end, a credit crisis unlike any seen before rattled dealerships, their customers and the banks that served them.

The boat business suffered, and dealers were up against the ropes. And that was before 2009. But like a prizefighter with dignity and pride on the line, the best dealers retaliated with a flurry of change. This fight was about much more than pride, though. It was about their very survival.

“The last six months of 2008 were brutal,” explains Joe Hoffmaster, president of Hoffmaster’s Marina (Ranked 68). “Nothing was selling, and nothing was working. We lost a bunch of money. So we changed.”

In hindsight, use of the word “change” might grossly understate the actions required to make it through 2008. The economic landscape, which caused even the average Top 100 Dealer to endure a double-digit decline in overall revenue, demanded nearly an entire overhaul in how dealers approach their businesses. To cope with those conditions, the successful dealers transformed almost every aspect of dealership operations, from budgeting and staffing to cash and inventory management.

It hasn’t been easy, even for the best of the best. Those who had the willingness to adapt also needed the ability to make some incredibly tough decisions — about expenses, personnel, boat lines, inventory, marketing and much, much more.

“Two-thousand-eight was a year of change,” summarizes Michelle Ham, owner of Lockwood Marine (Ranked 91). “We found many cost-savings techniques that will improve our business for many years into the future. We learned what things the business needs to survive. Many changes were difficult, both financially and emotionally, but we will be a better business for them.”

Today, those dealers who made the right decisions are also financially and emotionally better off for it. They reacted aggressively and decisively. They adapted. They innovated. They overcame the doom and gloom. And their businesses are emerging stronger than perhaps ever before.

Adapting to the downturn
From a purely numerical standpoint, however, that picture has yet to fully develop. The numbers show that the Top 100 suffered along with the rest of the industry last year.

The Top 100 Dealers accounted for $1.4 billion of the marine industry in 2008, or more than four percent of the $33.6 billion marine market. Their total revenue, which was generated out of 269 individual locations, declined, on average, 11.3 percent when compared to 2007.

The decline in revenue was followed by a precipitous reduction in expenses. Perhaps Paul Terzian, partner at Causeway Marine (Ranked 45) best explained the typical dealer’s response to the sales slowdown: “The first thing we did was to cut costs. And that was followed by trimming expenses, and then a reduction of overhead.”

The overstated redundancy, he says, is blatant because “it has been that important.

“We had already been on the penny-pinching bandwagon, but we went to the next level by hitting things that were previously hands-off. It’s really surprising sometimes, that you could look at a line item a dozen times over any length of time, and see no savings opportunity, but then one day it just jumps up and hits you right in the nose.”

What was perhaps a little less subtle were the financial lessons that the downturn taught even some of the best dealers. Cost-cutting may have been critical for survival, but the long-term value they found in repositioning their companies for the future greatly outweighs the short-term reward of profit preservation. These Top 100 Dealers uncovered numerous ways to adapt their budgeting, their cash flow management and their operations to strengthen themselves for the future.

Last year, for instance, there was one Top 100 Dealer — The Sportsman (Ranked 41 in 2008; and 27 this year) — who created an innovative Plan B budget in case the market took a turn for the worse. This year, not only did The Sportsman use this strategy again, but owner Rob Youker also created a “Plan C” contingency to help ensure the company’s survival. He was fortunate. After downshifting from his original budget to a Plan B early in the year, the local market finished stronger than he expected. Year-end profits ballooned.

Similarly, Sail & Ski Centers (Ranked 1; See Top 5 Profile, page 38.) created a contingency plan to help it adapt to the downturn. The dealership’s hometown of Austin, Texas, while perhaps not as hard hit economically as other regions of the nation, suffered greatly due to a series of droughts and floods that had the local lake at incredibly low levels, then up to flood stage and, more recently, back to record-low levels.

In the late summer of 2008, however, the downturn in discretionary spending and the sudden change in lending practices began to take its toll, creating an uncertainty in predicting near-term sales volumes and profitability. Leading indicators suggested the possibility of depressed sales from that point forward and extending into 2009 or 2010.

In response, Sail & Ski executives employed what they learned at a strategic planning workshop to “strategically plan for a specific mission or circumstance, and that was ‘how to deal with the imminent downturn’ in business.”

“As the downturn has persisted, we think that our proactive planning early in the cycle is helping us minimize the effects of the downturn on our business and our profitability,” explains President Rod Malone. “As a result of the planning, we developed a concept that we articulated as: ‘We need to examine our assets, real and human, and any that don’t sell something or fix something should be examined as an opportunity for revenue production or expense reduction.’ ”

Sail & Ski complemented its annual SWOT analysis and action plan with the seven steps taught in the workshop, employing numerous tactics to make the plan work, and then launched nine additional initiatives as a direct result of the economic challenges.

Similar initiatives were found throughout the Top 100. Buckeye Marine (Ranked 5; See Top 5 Profile, page 46), for example, created a multi-faceted “recession business plan.” It focused intensely on reducing expenses and inventory while holding margins — which sounds a lot like the mission statement of every marine dealer in 2008 — but it also incorporated numerous operational efforts such as realigning its banking partnerships and supplier relationships, new inventory management strategies and a revamped marketing plan, among other things.

“We felt that by preparing ourselves in advance for the worst, it would either help to further grow our business … or would help us to weather some turbulent economic times,” explain Gary and Chris Poole, owners. “At this point in our 2009 year, looking back at a very turbulent ’08, we are very fortunate to have taken the kind of action and advanced planning that we did. It has put us in a much better financial state than many other dealers in the industry, not to mention many other local businesses outside of the marine industry.”

Galati Yacht Sales’ (Ranked 2; See Top 5 Profile, page 40) reaction to the downturn made the company stronger than perhaps ever before. Faced with the discovery that its historical expense structure could not be supported by the retail revenue levels of 2008, Galati created a system of even better financial controls. Through a series of planning meetings, the company implemented a more stringent budget and strategy plan for each of its locations.

“Our belief is that our team knows their market better than anyone, and we needed their insight to ensure we made the best decisions for all,” explains Carmine Galati, principal. “As we attacked our profit and loss statement, we determined one of the best methods was to utilize a line-item approach, discussing each category, reviewing prior history and sharing best practices to approach each area we could conserve. This led to allowing our teams to contribute their own strengths and share among the best ways we could save without diluting our value proposition.

“We firmly believe our business will be better prepared in the future as a result of the quality ideas that have been promoted from today’s economic conditions,” he continues. “We are proud of our team’s ability to adapt, overcome and perform at the levels they continue at, and it is vital to our business plan to provide our customers with the best possible experience, regardless of the economic challenges that we are confronted with.”

Therein lies the challenge. It was relatively easy to look over a budget and begin trimming costs. The decisions became increasingly difficult as the numbers began affecting people. The further challenge to business owners became one of making the right cuts while not taking away from the customer’s experience.

At Woodard Marine (Ranked 9), the company and its employees united to overcome the economic challenges. Management decided early on that it would not lay off any employees, and in order to do so, they brought all employees together to engage them in problem solving and brainstorming ideas.

During the meetings, the team analyzed each department in its business and focused on how to make it more efficient and save money. And at every meeting, each team member was asked to make a suggestion on how the company as a whole could become more efficient and save money.

“The amazing thing about these meetings,” explains President Robert Woodard, “is that sometimes the simplest items were the answers to some of our questions.”

The employees then implemented each idea into their daily routines and into the company budget. During quarterly meetings, employees were given an up-to-date profit and loss statement, showing year-to-date financials side by side with the previous year and its forecasted budget. Management then sat down with the employees, and the group worked together to make sure they were on track or ahead of what they had forecasted as a team.

“If we were behind in an area, then we would dig further and put together promotions as a team and money saving events as a team,” Woodard explains. “This team building event has made our dealership stronger as a whole, and our team members know that Woodard Marine has nothing to hide. This shows that we are here for the long haul, and our employees know that their ideas and thoughts will make a difference to the future of their company.”

What does the future hold?
The future of the marine dealership is a widely debated topic. There are many opinions and beliefs on what the dealership of tomorrow will look like and how it must be structured. Industry insiders provided commentary on the topic in the October issue of Boating Industry magazine and much of the talk at the 2009 Marine Dealership Conference & Expo surrounded this subject.

No matter what the long-term projection may be, the short-term outlook suggests new unit boat sales will continue at levels that are nearly half what they once were, at least for the immediate future. As suggested above, the dealership operations strategies of the past will no longer cut it. And while more stringent financial management and budgeting are of utmost importance, so is the diversification of revenue streams.

For many boat dealers, when new unit sales slowed, they turned their focus to two main revenue centers: pre-owned (and distressed) product and their service departments.

On the service front, there is a new strategy sweeping the industry, and it’s good for boaters and therefore good for boating. Marine dealers that once sought to service only those customers who bought boats from them are now opening up their shops to take care of all boaters in need.

Prince William Marine Sales (Ranked 4; See Top 5 Profile, page 44), which operates one of the top service departments in the industry, has always focused its sevice efforts on its boat buyers. In 2008, though, the exclusive Sea Ray dealer made the decision to begin taking selective service work “off the street” to supplement the work from its existing customer base.

Quality Boats of Clearwater (Ranked 13) bolstered its service department in an effort to strengthen itself amidst the downturn, as well. “We have become more focused on our service business,” explains Daniel Bair, CEO, “and have not only added another highly trained technician but also have expanded our equipment and tool schedule and have serviced more customers that bought their boats elsewhere than we ever have.”

The strategy makes sense from an operational standpoint as well. Most dealers operate at an efficiency level that could accommodate additional customers. Most dealers, aside from the peak weeks of the summer season, can’t keep their technicians as busy as they would like, and the service department represents one of the highest-grossing profit centers in the dealership. Now, couple all that with the downturn in new unit sales, and the need for additional revenue streams make the service department appear to be the lowest-hanging fruit.

“Due to the economic downturn, we realized quickly that we wouldn’t be able to run the same service department and expect the same results,” says Shaun Sorensen, president of MasterCraft Dealer Services, (Ranked 22). “We also knew that even though sales would drop off, our customers still needed to service their boats, so we wanted to make sure we captured that revenue. Our service departments have been the shining star this past year, carrying us many months when we needed them most.”

MasterCraft Dealer Services used a trio of initiatives (among others) to help maximize profitability and, at the same time, improve the customer experience. The first was a customer marquis, which lists each customer who is scheduled for service on that day. The second step was to hire sales-focused service writers at all the stores and then to put them on a performance-based pay plan that rewards them for billable hours, warranty dollars submitted, parts sold and details/warranties/prepaid maintenance programs they sell. And the final piece was to create service menus for customers to select from. The idea was taken from a successful template in the F&I department, and the company says it has been wildly successful with spring prep, winterization and summer service packages.

“We are averaging much higher numbers per customer,” Sorensen explains, “and the customers are happier than ever.”

To grow its service business, Port Harbor Marine (Ranked 12) incorporated a winter work program in 2008 and tied the program to its technicians’ return-to-work date. Each technician was charged with the responsibility of building their book of winter service work, and the more work they had “booked,” the sooner they got to return to work after the winter break.

In years past, the company would bring the techs back with only a handful of jobs to do and pay them for doing a lot of non-income-producing jobs. The new program produced some great results as many techs completely embraced it.

“The techs that bought in and built their book of winter work benefited from the early return date as well as additional service commissions during a period they normally only earned their straight pay,” explains President Rob Soucy. “The dealership benefitted from the earlier cash flow and efficiency gains. The customer also benefitted as their boat or engine was repaired prior to the boating season and at a slightly reduced winter work rate.”

Similarly, Rob Youker at The Sportsman implemented a trio of tactics to strengthen his service department. First, he supplied all technicians with their own laptops, which he says not only improved morale, but also immediately increased efficiency by allowing individual techs to access suppliers’ Web sites, find resource materials, create their own parts pick lists and update repair orders. Then, to further increase efficiency, he introduced an efficiency-based pay plan that was designed to increase billable hours, reward technicians for their efficiency and provide better service to customers with quicker turnaround times. Finally, he raised his labor rate by $10 per hour, which allowed the company to raise compensation packages, set aside more money for training and pay for newer hardware and tools.

South Shore Marine (Ranked 41) also increased its focus on the service department. The company tightened the reins on its service department leaders by asking that they report their departmental profitability daily.

“The timing of looking at monthly results seemed too risky for this market,” explains Tom Mack, president. “Daily information was vital.”

To help drive business in the service department, the company marketed its services much more aggressively throughout 2008, focusing on promotions to existing customers that had not been solicited for specific services. Meanwhile, as its competition laid off their service workers, South Shore remained fully staffed in this department, keeping the business consistent and, in some cases, better than previous years.

While it worked hard to bolster its service department, Mack says the company also became its own “best customer for service” through growing its presence in the wholesale liquidation sector of the market. The company jumped at opportunities to purchase and re-sell repossessed boats, and at the same time, used its service department to officially certify each unit.

“The team has come to view each distressed unit as a unique opportunity,” Mack explains. “Each unit had almost every service area’s talent engaged in making lemonade from lemons.”

Making more lemonade
Throughout 2008, the issue of distressed inventory became a growing concern. Failed dealerships began to mount as the year progressed, and their inventory was redistributed to dealerships, liquidators and auction houses around the country. Meanwhile, aging units continued to grow older on dealership show floors, and dealers sometimes used drastic measures such as price reductions and selling outside of their territories to rid themselves of the expense.

Savvy dealers, however, learned to work within the system and outsmart their competition when it came to distressed inventory. Companies like Texas Marine (Ranked 63), SunDance Marine (Ranked 51), and Woodard Marine (Ranked 9) have taken advantage of dealer repos, auctions and other alternative inventory sources.

Lodder’s Marine Sales (Ranked 65) worked hard to reduce its own boat inventory so that it had room to take advantage of deals that became available, and the strategy “worked out better than we anticipated,” says Matt Lodder, general manager. Three weeks prior to its local boat show, Lodder’s purchased the inventory of an area dealer that had gone out of business, giving them the opportunity to go to the show with some of the best deals the company had ever offered.

Lodder’s increased its show space while its competition was pulling back, and wound up doubling its sales from the year prior. This provided so much momentum that Lodder’s continued buying and selling distressed inventory well into 2009.

A number of Top 100 Dealers took the opportunity to capitalize on the down market in other ways, as well. Woodard Marine and other Top 100 Dealers that found themselves in a position to purchase distressed inventory were able to preserve new boat sales by doing so. They bought the discounted product from banks or auctions then cost-averaged them with new units they had purchased from the manufacturers and were able to maintain respectable margins all the while countering the many other dealers who were sacrificing margins — and often even profitability — with deep discounts.

Galati Yacht Sales, like a few other Top 100 Dealers, increased its interaction with its lending partners. The company developed a best practice approach to the solution, discovering a true win-win opportunity that allowed the lenders to sell through their distressed inventory and to recapture the majority of their return on investment.

The company’s four-part process allowed it to relocate the vessels to a Galati location, assess individual unit needs to refit and recondition them to the best possible condition, increase consumer visibility by docking the inventory at one of the company’s marina facilities, and market and sell the product through its enhanced brokerage channel.

“We believe our efforts are supporting our industry’s need to sell this product at retail, recapture our lenders’ investment and support our balance of supply and demand,” says General Manager Darren Plymale. “As we have continued to be successful with our inventory reduction plan, this has increased our available dock space for new opportunities.”

Already in 2009, Galati has expanded its bank-owned program to additional lenders and opened the program to manufacturers that are sourcing their ability to increase visibility in markets where they no longer enjoy representation.

“This program will continue to reshape our business over the next few years,” Galati explains, “and allow our adaptability to the market conditions to support our revenues allowing us to remain profitable in the most adverse conditions.”

The adverse conditions had all dealers scrambling and rethinking how they could achieve profitability. Dealers employed a number of tactics to preserve their margins. One of the most effective was that which Texas Marine (Ranked 63) and Crystal-Pierz Marine (Ranked 80) employed — the Costline Pay Plan taught by Spader Business Management whereby the sales structure focuses the team’s attention on a specific dollar amount desired for each inventory unit. The sales team focuses on selling the boat for that amount or higher. The more they sell the unit over the “costline,” the higher percentage their commission.

“The sales team is focused more on selling the customer,” explains Texas Marine’s Mike Hebert, “rather than selling the management team on giving a lower price for the customer. And this program also motivates the sales team to sell the oldest inventory first.”

Investing for the future
Throughout 2008 and well into 2009, there has been a focus among marine dealers on the past. They’ve worked hard to downsize, some to the point where they can operate with the resources of a start-up. They’ve focused on ridding themselves of inventory they purchased as late as three years ago. And they’ve decreased their product line offerings in an attempt to focus on what they’ve always been the best at.

When it’s all said and done, however, these changes have been as forward-looking as they have been corrective of ways of the past. All in all, the changes that the Top 100 Dealers made during the tumultuous year of 2008 served to invest in their future. For many of them, the thought of not investing wasn’t even an option.

“Look, enough is enough,” says Mike Hoffman, president of Marine Center of Indiana (Ranked 19), in response to a question about the strategies he used to cut expenses. “It’s time to talk about what we are doing to be more successful and take advantage of opportunities to grow our business. This question sounds like it came from my competitors, who are sitting around talking about how bad it is in this business. We did not use strategies to cut expenses. We used our time to figure out how we are going to do more business, sell more boats, do more service, and sell more parts and accessories. Do we add another location? Do we add more lines? How do we better sell what we have and do it at a better margin?

“This may be the toughest time in the boat business, but it is definitely the best time I have ever seen to take advantage of the dealers and manufacturers who are spending their time strategizing how to cut expenses while we are strategizing how to knock them out of our market.”

Hoffman did exactly as advertised. His company took over the local Sea Ray dealer and sold more Sea Ray boats in the first few months of operation than the past dealer had sold the entire year prior.

MasterCraft Dealer Services spent time incorporating a new location into its business in 2008, as well, solidifying its position in the Seattle area as it continued growing.

“We have spent more time in 2008 improving our business than any other year in our company’s history,” says Shaun Sorensen, president. “We felt that if we simply ran the same business, we would not survive the downturn without some serious repercussions. We knew that if we made dramatic improvements and worked smarter than ever, we might be able to stay in the game and gain valuable market share. And that is exactly what we’ve done.”

Even those dealers who weren’t taking over their competitors strengthened their businesses over the course of the year.

“Two-thousand-eight was a year of immeasurably colossal change for our company,” says Robert J. Pappajohn, president of M&P Mercury Sales (Ranked 18). “We could probably detail more than 100 pages of information outlining the improvements and changes made to our operation. Every single function, operation, policy and procedure was reviewed, analyzed, redefined and documented. The result is that we have significantly enhanced our capabilities to react quickly to changes in our market place, to eliminate costs from the system, implement changes and track the results, and more precisely define areas of the business that need additional attention.”

The Top 100 Dealers Program is all about recognizing, celebrating and sharing best practices from the best our industry offers. And to use Pappajohn’s apt description, the “immeasurably colossal change” we’ve all witnessed and endured has most definitely continued well into this calendar year. Despite this, Boating Industry applauds the incredible passion, dedication and business savvy that saw our 2009 Top 100 Dealers successfully through the highly tumultuous 2008. Emulating the countless strategies and survival tactics adopted by these companies will no doubt increase any dealer’s survival rate now and in the future.

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