Strategy 2010: Builders share their plans

When Boating Industry recently asked dealers how we could help them succeed in
2010, they requested insight into boat builders’ plans for the future. We contacted
a cross-section of manufacturers and invited them to share their strategies. Here are the responses we received.

How do you expect your sector of the boating market to perform during this boating season and why?

Duane Kuck, president, Regal Marine: Boat show sales are up somewhat from last year, and we expect the sales that will come from leads generated at the shows will also be up. The prospective boat buyers who are attending the shows are more positive than they were last year. The confidence of the buyer is better, which is reflected in consumer confidence. We think our segment will be up for the year in retail sales but not necessarily dramatically up over last year. One of the factors is just plain supply.

Right now, the component part supply, and in some cases even engine supply, is quite challenging for the boat builder. We’re all experiencing the challenges of that. None of us are able to really run manufacturing the way we would like with uninterrupted supply of parts. That affects our ability to ramp up manufacturing like we would have been able to in the past.

We’re certainly trying to utilize strategies to cushion ourselves from that. We’re stocking component parts when we can get them, so we have increased stock levels, and that’s helping some. And it’s going to smooth out some. But this first and second calendar quarter are going to challenge all of us in regards to supply, both at the component part level and the ability of boat builders to build completed products. We’re going to have some shortages on certain models. Maybe that’s not all bad in the end because it helps to sell some of the dealer inventory that might be overlooked if consumers could get everything they wanted to order.

While there are negative aspects to the parts shortage, I don’t think it’s a super negative that we’re not all building lots more boats. Getting dealer inventory healthy is our top priority – and it is getting there. In a lot of cases, dealer inventory is low. But there is some dealer inventory out there throughout the industry that has some age to it that needs to get sold. We’re thankful that for the most part we’ve made the progress to get the Regal dealer inventory healthy.

Bill Yeargin, president and CEO, Correct Craft: We expect the entire market, including our segment, to be pretty close to last year. However, there is still a lot of uncertainty.

Last year the market, while down significantly, was fueled by dramatic discounting that should be much reduced this year with lower inventories. The key will be whether the industry can get people to buy at profitable margins. The discounting the industry experienced last year is unsustainable and it will be interesting to see what the market will be like without it.

For Nautique, we expect to outperform the market primarily based on the response we have had to new product we introduced this year. Additionally, we have re-engineered our business model to bring down our break even and be profitable at lower unit sales. Our team is excited about this year.

Dave Wallace, vice president, Scout Boats: I believe the coastal fishing sector in general will be flat at best for 2010. Although consumer confidence is improving, it is still very fragile and the sheer hint of something negative could reverse this trend quickly.

Rob Parmentier, president, Sea Ray Boats: At Sea Ray, we expect to see retail decline vs. 2009 as dealer inventories decline and there is less pressure on the dealers to push distressed products. At the same time, we also expect to start to see dealer margins improve.

Skip Braver, president and CEO, Cigarette Racing Team: Cigarette Racing Team expects that the high-end performance sector will continue consistent sales as it is part of the luxury market, where pent-up demand is evident.

Jeff Behan, president, Bayliner Boats: We expect market retail activity in 2010 to be slightly off in comparison to 2009 as consumers continue to be impacted by challenging economic conditions.

Rick Gasaway, chief sales officer, Nautic Global Group: Overall, we expect price point boats will continue to drive sales and consumers will seek the best possible deals across all segments. As old inventory clears out of the market, the consumer will need to make adjustments in expectations regarding pricing and the new norm, and dealers will need to replenish inventory to meet demand. This will have a positive impact on production as demand will need to be met with current product.

The aluminum sector, as well as outboard boats, have outperformed the market and should continue to have positive consumer demand. As a result, we expect our pontoon product, aluminum fishing boats and outboard deck boat sales to remain healthy.

Conservative consumer spending and access to credit will impact demand for larger runabouts, cruisers and other luxury fiberglass models. Wholesale financing constraints, as well as lingering non-current inventory, will also limit sales. While we anticipate a slower recovery in this segment domestically, our international demand continues to be strong for the fiberglass stern drive segment.

Our product development initiatives have centered on value and price point as this will more than likely continue to be the segment of the market that is attractive from a retail perspective. As economic indicators such as home sales, unemployment and consumer confidence improve, we believe recovery in most segments of our market will follow.

Greg VanWagenen, director of marketing and communications, Manitou Pontoon Boats: The pontoon market will show increased sales over 2009. We are confident that our market will begin to feel an uptick in units sold. Consumer confidence is much higher than a year ago and in the early boat shows we have seen that people are extremely careful with their money but beginning to spend it again. The pontoon market has also seen an increase as pontoons have become much more of a dual-purpose vessel, almost the SUV or crossover of the marine industry. With better performance and handling, along with improved styling, the pontoon segment has grabbed a larger and ever growing demographic of buyers. A customer no longer needs two boats, they can purchase a pontoon boat that does a little bit of everything.

What is your strategy for responding to market conditions?

Skip Braver: Continue to build boats that are the best in the market, utilizing high technology, innovative materials, improved design and excellent service. By striving for perfection in our product, we will maintain the quality level that our customer expects and new customers covet.

In addition, continue to pursue global diversification. Cigarette’s international dealer network is larger than its dealer group in the U.S. and that international reputation and market has made a big impact in Cigarette sales. Sportmer Marine in St. Tropez is the longest-standing dealer from the ‘70s and is joined by dealers in Greece, Italy, Germany, Russia and the Middle East.

Rick Gasaway: Consumers have changed, and we continue to be focused on providing the right product for today’s boat buyer. Whether you’re talking about a $10,000 boat or a $310,000 boat, consumers want to feel like they are receiving good value for the money. Our brands are very nicely positioned given this paradigm. New business is won by smart product development, and we’ve invested heavily in this area and will continue to do so, with a focus on continuous quality improvements. Further, our company has chosen to focus on our core strengths when it comes to product, and to consolidate our offerings in some areas. We will remain nimble as a company and operate an infrastructure that will allow us to make changes quickly if needed.

Although we will support the industry’s efforts to recruit new boaters, we are focused on building existing customers’ brand loyalty. Tactics include improving our communications with existing owners, interacting with them directly at the brand level in ways that they like to communicate, and expanding our online communications infrastructure. We will also take advantage of the many online marketing tools available in today’s world in order to expand brand reach globally.

Beyond this, we are a company that is relentless in support of our global dealer network. We will continue to work in tandem with them to keep them healthy. Whether we’re talking about programs, promotions, marketing, lead generation or product development, our dealers are fundamental to our success and we are focused on their needs. Beyond a healthy level of communication with our entire dealer network, we utilize our dealer councils to make sure we are in touch with their needs throughout the year.

Bill Yeargin: We believe it will be a long time before our industry gets back to the unit sale levels of just a couple years ago. Therefore, we have re-engineered our business model to be profitable at a “new normal.” We are working on applying Lean Six Sigma principles to our sales process to make it as effective and informative as possible for potential buyers. We are revamping our marketing to be more future focused and shed some of the tired old ways of marketing. We are investing heavily in product development, which is paying off for us. We are working to develop and support our dealers to help them be as effective as possible. We have developed a business model that makes us a much better company.

Dave Wallace: Scout Boats’ strategy for responding to these market conditions has been very simple. The first thing we did was offer our dealers in 2009 the most aggressive retail incentive in the history of our company, which resulted in our dealer inventory being sold down by 70 percent.

We then changed our model year changeover date to Sept. 1 to enable our dealers to sell off their aged inventory without competing with early 2010 product. Our independent, debt-free financial stability has allowed us to ramp up our R&D department, which resulted in us bringing nine new revolutionary, cutting-edge designs to market that our consumer is looking for today when they make an investment of this scale.

We have continued our presence in boat shows and have even increased our presence in the recent Miami Boat Show.

Scout Boats, Inc. has also aggressively been seeking additional strong dealer representation to partner with in territories in the U.S. and abroad that can sell and service to our customer.

Jeff Behan: Bayliner is continuing the strategy we initiated late in 2008, which is focused on improving the health of our dealers and exceeding the expectations of our consumer. We are doing this in several different ways: 1) assisting our dealers in adjusting their inventories to levels appropriate to current retail demand; 2) adjusting our business to better align production with retail size and seasonality; 3) aggressively engaging consumers and connecting them with our dealers; and 4) introducing affordable, exciting new product.

Rob Parmentier: We are focused on building the right product for the marketplace. For example, we have added many new graphics, which we believe will appeal to consumers. We will continue to support our dealer network with the programs they need to accelerate their inventory turns to ensure consumers have the products they want. We will also continue to invest in new products with the latest technology and designs.

Duane Kuck: We’re increasing production dramatically because now, with dealer inventories lower, we find ourselves in a situation where we need to produce at the same level as retail sales. That’s quite a change if you think about it. For the past 12 months, we’ve been producing at dramatically lower than retail sales. We have about 450 Regal team members today. One of our strategies was to maintain a very solid core workforce through the downturn, and we did that, which will benefit us going forward.

We’re also prioritizing retail sales. We want to do everything we can to help our dealers get a boat delivered to the retail customer. That includes getting a new boat produced from us and relocating boats from one dealer to another dealer. That’s a whole area of opportunity that we think has a lot of potential going forward. We’re going to prioritize retail sold units at the manufacturing level and then work within our dealer network to generate dealer exchanges to help get boats where they need to go to in the event that there is a retail “sold” vessel that they can’t get quick enough from the factory.

We have our dealers’ inventory in a database, which our dealers can access by logging onto our system. Then, they can search other dealers’ inventory to see what’s available. We also help to facilitate a dealer-to-dealer exchange within the floorplan company.

We have introduced our Regal Factory Showroom, which supports a couple of different ideas. One is that if dealers’ volume is down, they can’t afford to stock the number of boats they used to and still achieve the inventory turns necessary to have a successful business model. The showroom helps to support our dealers because they know every model we build is on display here. We like to think about it as their second showroom down here in Orlando.

Part of the whole picture is the idea of increasing the number of boats we’re building that are already sold at retail. This is a good objective for all of us – for our industry. If more boats are sold retail before they are built, then ultimately it’s going to help the dealer’s inventory turns, which is going to help the profitability of the dealer and the boat builder, and the showroom plays into that a little bit, particularly in the case of larger boats that the dealer might not have in stock.

I do think we need to change consumer expectations. I believe we should work as an industry to make it normal that you purchase your boat ahead of the season or earlier in the year. The advantage to consumers is that they can order the boat exactly as they want it. Maybe there are also some financial or equipment benefits they could receive. Building boats in the off-season just to sit in dealer inventory so you can have them in the spring is a necessary part of the puzzle today. But if we can reduce that because some of them are sold, the consumer could benefit, and the boat builder and the dealer. I think we can make progress on that, but I don’t think it’ll be easy. It’s not easy to change the seasonality of our business or the paradigms that we all look through. But it’s worthwhile, we should all go after it, and Regal is going after it.

Greg VanWagenen: As the economy slowed, the demand for less expensive products increased. Approximately a year ago, we completely redesigned our entry-level Aurora model, while keeping the price at the same level as the previous year. We redesigned everything, including the captain stand and furniture, to give this model a little more curb appeal. We also introduced a new VP performance package. The conventional flat-bottom triple tube has been retired from the Manitou line-up and the last of this style of boat has been replaced with the new VP. The VP incorporates similar hull characteristics of the SHP but is designed for more moderate speeds and lower horsepower ratings. Along with the standard Teleflex SeaStar hydraulic steering, the VP provides the maneuverability you expect from our V-Toon hull. The VP is a surprisingly competitive value directly competing with standard entry-level, triple-tube pontoons on the market.

What changes do you expect to occur in your dealer partnerships this year and why?

Jeff Behan: As we work with our dealers in 2010, we will be focusing on expanding relationships with consumers. Our new Bayliner Web site and social media initiatives are designed to attract consumers to our brand and then link these consumers with the local Bayliner dealer. Similarly, our promotional efforts in 2010 will drive consumers to the Bayliner dealer in their area. Working with our dealers to capitalize on increasing consumer interest in the brand will be a priority.

Rob Parmentier: We expect to continue to work closely with our dealers to build their businesses and capture share. We are uniquely positioned to do so. Dealers can avail themselves of the support Sea Ray and Brunswick are offering to improve and grow their business. Sea Ray will continue to evaluate all dealer performance as well as our own to ensure that together we are positioned in the best possible way to take advantage of market opportunities as our industry comes out of this recession.

Rick Gasaway: Our objective is to provide better tools for our dealers. Tools to help them improve lead-response rates and times, to help them engage with longer-term prospects in more meaningful ways, and to help nurture prospects down the sales funnels. Tools to improve brand loyalty and, quite simply, tools to help them operate in partnership with our company better. These are investments that will help our dealers capitalize on the recovery as it occurs.

Greg VanWagenen: We do not anticipate any changes with our dealer partnerships. We have always believed that supporting our dealers before, during and after the sale is the best way to nurture long and prosperous relationships. While many builders have cut costs by not paying co-op and warranty claims, we continue to pay all of our dealers according to our programs. Providing dealers an industry leading product mix and real-time personal support will continue to be our dealer relationship strategy.

Skip Braver: Cigarette, as a luxury brand, has a small group of hard-working and well-financed dealers, with loyal customers and long-term relationships. They continue to stress the services they provide and the strength of the brand. We expect that our dealers will continue to sell boats, but their biggest challenge is trade-ins, which are devaluated, as well as the difficulties in bank lending.

Dave Wallace: Unfortunately, we will be forced to make a few changes in our dealer partnerships this year primarily because of the economic climate we have been faced with. Our philosophy has always been to work with our dealers the best we can and only make changes as a last resort. Our dealers are an extension of our family and we want them to know that.

Duane Kuck: Communication and efforts to work together between a boat manufacturer and a dealer becomes increasingly important going forward because we don’t have the luxury of being inefficient or not meeting the customer’s expectation. We as boat manufacturers have to work closer with our dealers than ever before. They’re on the front line, and we have to do things together to deliver a great experience to the consumer.

Regal is a lot like our dealers in the sense that we’re both owner/operators. My brother Tim and I, and my sister – who is not active in the business – own Regal. What that means is that it’s very easy for us to relate to a dealer. We report to work everyday. It really encourages us to focus on teaming up with our dealers and doing things together. I’m spending a very significant part of my time with Regal dealers. And I think it’s exactly the right thing to do. If you have a great boat brand and great dealers and you put those two together, you can really accomplish just about whatever you’d like to together. We’re real excited about the future from that standpoint.

Bill Yeargin: We expect to continue developing the already great relationships we have with our dealers. We want to continue developing programs that will make them more effective. We understand that we are only as good as our dealers and we value our relationships with them. We want them to survive and flourish, and we want to work with dealers in tough markets, not just cut them off. Relationships in general are important to us, and dealer relationships are very important.

What do you expect your biggest challenges to be this year and how will you overcome them?

Greg VanWagenen: One of the biggest challenges we foresee is our ability, and our suppliers’ ability, to meet the increased demand for product. Manufacturers and suppliers have ramped down production considerably in the last year and this cannot be turned around by simply flipping a switch. We feel that the warmer weather and pent up customer demand will cause a significant increase in pontoon boat sales this spring and it will take time for the supply chain to adjust to this increase. Sales are not going to hit the level they did a few years ago, not this season, but even a modest increase will cause enormous issues for suppliers, manufacturers and dealers.

Skip Braver: We need to maintain the integrity of our luxury brand and the service level we provide. We can do little about lending, but are fortunate that most Cigarette customers are not reliant on banks for their boating budgets.

Dave Wallace: Our field inventory levels are down to the lowest levels in the history of our company. I believe the biggest challenges this year will be how we will be able to satisfy the demand of our product with the limited inventory at many of our dealerships and the reduced production levels we have adjusted to. In general, the dealer’s ability to stock the amount of inventory and multiples of the same models that they historically did is over.

At Scout, we are very strategically watching our dealer inventories, and work in process, and have unveiled a program at our dealer meeting that enables dealers to trade or purchase from each other’s inventory if necessary.

We believe that our production levels will need to adjust to just-in-time requirements and we will do what is necessary to fulfill our dealer’s needs.

Rob Parmentier: Our biggest challenge will be production. Last year, we drastically lowered our production to help dealers reduce inventory, which was financially painful, but necessary for the health of the industry. Among our challenges this year will be to build the right volume of product to better match dealer and customer demand. We do not want to increase dealer inventory, rather, we want to build to retail customer orders. We have changed our thought process on production to better accommodate this need. We have increased our workforce and line rates to meet spring and summer demand.

Jeff Behan: Our biggest challenge in 2010 will be adjusting boat production to the proper retail demand level, and working with our dealers to match orders with specific retail activity during the selling season. Overall, our dealer inventories are very lean, and we are closely monitoring retail activity to make sure we adjust production to the appropriate level.

Duane Kuck: I think the biggest challenge will be the availability of parts, components and production. The other is wholesale and retail finance, which continues to be a challenge. We don’t have a particular solution for that. I know the NMMA is working to try to improve the SBA plan to help possibly on the wholesale finance side. We hope that some of the efforts that are being put forth out there will ultimately help to ease retail finance and wholesale finance. On our part right now, we need to concentrate on the other strategies I mentioned earlier.

Bill Yeargin: We all know that the manufacturers and suppliers were hurt last year, not only by the retail downturn but also by the reduction in dealer inventories. As the retail production balance regains equilibrium there will be supplier ramp up issues. We are already working with our suppliers on this and they are doing great.

Wholesale credit will continue to be an issue. However, and I know this is a contrarian approach that could get me nasty e-mails, but I think Bruce [Van Wagoner, president of GE Commercial Distribution Finance’s Marine Group] and the GE marine financing team should be commended for the lengths they went to in order to stay in the boating market.

There could be some continued discounting, but we don’t expect it to be near as bad as last year. Brands that gave the significant discounts could have a tough time getting customers to pay a sustainable price. Fortunately for Nautique, we were largely able to stay out of the discounting last year, and we believe our brand will benefit from that.

Finally, the current environment is clearly a game changer. Customers have new paradigms and want to be treated well. Companies who have kept their integrity and not played games with their customers will benefit.

Rick Gasaway: Based upon recent economic data, trends and market specific results, there appears to be a general opinion that the market is improving. After the last couple of years of steep market depreciation, it is challenging to forecast demand with any feeling of certainty. There will be a new norm established for this industry, and with that comes new business models that involve production levels, dealer floor plan limitations and selling cycles. The biggest challenge still remains in forecasting how this new norm will unfold and finding some degree of comfort with how to manage the new cycles long term without fear of the sudden variances found in a volatile market that lead to tactical decisions in staffing, marketing, product development and sales.

Simply put, it’s tough to create a long-term plan in an environment that has been driven by short-term events. As an organization, we continue to do our best to utilize data available to us in order to make decisions about our business. As resources become constrained by a shrinking market, we invest in those opportunities that present the optimum results now but still fall in line with longer-term initiatives. We try to stay ahead of the market and prepare ourselves with multiple strategies based upon how things actually unfold. On the tactical side, we will continue to stay close to our dealers and our markets and remain flexible in order to change with the needs of the consumer and economic conditions.

Finally, we continue to be focused on product development. We believe that an opportunity exists for our company and our dealers to capitalize on the weakness of many of our competitors in the area of R&D. Share will be won now and enjoyed when the market recovers. We have been relentless in launching new products and enhancing existing products, while holding true to the value proposition of our brands. We have received six CSI Awards this year, more than ever before. We have received three [Trailer Boats magazine] Excellence in Design awards (out of 13 total, and more than any other company). We were recognized with an NMMA Innovation Award Honorable Mention at the Miami International Boat Show. And our dealers have recognized the product development efforts too and have supported us with their enthusiastic orders.

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