Boating Industry Intelligence You Can Profit From
In late April, Boating Industry interviewed 12 leading boat retailers about their local market conditions, their business performance and their expectations for the year ahead. In the June magazine issue, we published an article titled, “Is this a recovery?” which shared insight from 10 of these dealers into market conditions, sales and profitability. Here is the rest of their insight, including reports on alternative profit centers, inventory, challenges & opportunities and market outlook, plus bonus interviews with Paul Nickel, president, Pride Marine Group, Bracebridge, Ontario, Canada, and John Vallely, Jr., general manager, Vallely Sport & Marine, Bismark, N.D.
Dealer:
Dave Briggs, owner
Wayzata Marine
Oronco, Minn.
Two locations
Brands:
Chaparral, Four Winns, Chris-Craft, Tige, Yamaha Jet Boats
Other profit centers:
Our service numbers are down compared to a year ago, but we’ve only had open water for a few weeks, so it’s really hard to compare. We did a service department shutdown for December, January and February. Despite that, we believe that we’re going to do more service work this year. In fact, we’ve hired more people in the service department than we had a year ago. It will become a bigger, stronger part of our business. We will not de-emphasize it like we used to, even when new boat sales come back. We’ve made a concentrated effort to work on marina slips, storage and service.
Challenges and opportunities:
There are new challenges this year. The biggest one is having the right inventory at the right price. Where last year at this time, we had 100 boats in inventory, this year, we have 20 boats. To find the exact customers for those 20 boats is hard. The manufacturers are behind in their orders.
We are reaching out to our manufacturer’s reps and other dealers to understand what their inventories are like so we can buy inventory from other dealers to help us sell boats and help them clear out. We think dealer trading will become more like the auto business going forward than it has been. I think the manufacturers and the finance companies need to find out how inventory can move from dealership to dealership more than it used to. I know of five or six boats, if I had the ability to put them on my floorplan line of credit, I would do that, but the manufacturers and the lenders don’t make that easy.
There hasn’t been much distressed inventory in this marketplace. We’ve been working to find some, but it hasn’t been easy. A lot of it went to big regional centers, which left the rest of us out in the cold. It would have been better if all the Chaparrals went back to Chaparral for all of us to consider.
Retail financing is much improved over a year ago. It’s much easier to get people financed. Wholesale financing, especially GE, is very difficult to deal with. They are slowing our ability to get enough product certainly. And I think they’ve cut everybody’s credit line at least in half. Ours is a third of what we used to have.
I think it’s time for the dealers to start trying to get back to breakeven and not give stuff away. There are already product shortages, and they’re going to get a lot worse. If we’re selling everything to no margin, we’re losing out on opportunities. I guess it depends on how much pressure everyone is receiving from their local banks or floorplan companies.
Dealer:
Carlton Phillips, CEO
Prince William Marine Sales, Inc.
Woodbridge, Va.
One location
Brands:
Sea Ray
Other profit centers:
My service, parts and marina businesses are up. We raised marina prices a little. We are not losing slips. Nobody vacated.
Inventory:
We’re light on inventory. I truly believe that by end of July, we are going to be hurting for product. I’m calling other dealers to try to buy boats from them, and they’re calling us. But we’re not letting much go. I let a California dealer have a 390 Sedan Bridge – I had one used and one brokerage, so I didn’t need the new one.
The pipeline is cleared out. I have two 2008s, 12 2009s and 24 2010s. That’s all I have in stock. We are very, very light on inventory. I probably have another 20 boats coming for the 2010 model year. It’s not enough to get us through.
Challenges and opportunities:
We lost our DC National Capital show, so we had a show here at the marina. We brought some non-competitive dealers in. It was a very good show. We sold 16 boats on Saturday and Sunday, and probably another 15 or 18 boats since then from the show.
Our biggest area of opportunity is getting people to the store so they can see what we’re all about. Our boat show did that. It attracted about 4,000 people over two days.
The biggest challenge is getting banks to finance boats. It’s worse now than last year by far. Anything over $300,000, they look for reasons not to buy. We’ve started a program in which we’re trying to educate our bankers. The closest we can figure is that 9 to 12 percent of the total local market is Sea Ray. Other boats are being repossessed at a much higher rate than Sea Ray. We have a more stable buyer than some of the other brands.
Dealer:
Alan Bohling, president/CEO
Seattle Boat Co.
Seattle, Wash.
Four locations
Brands:
Cobalt
Market conditions:
I think manufacturer wise, we’re probably through the bankruptcies. Manufacturers are seeing a good healthy return to profitability and production. Dealer-wise, I think the brands that aren’t as strong in a particular marketplace, there are a couple in this marketplace that we may see go away. Not necessarily because of traumatic failure – we’ve seen the balance of that – but because they’ve had enough.
Other profit centers:
Our fiscal year ended March 31. In the new year, boat sales will still be a lesser factor in our business than it used to be. We’ll continue to focus on other elements of the business: the productivity and the efficiency of technicians and detailers. Service is still a significant area of growth for us. But even in our service area, we saw last year that people chose not to do the recommended services. If they needed a water pump impeller and if maybe they could go another year, they did that. There was a lower average total per invoice. And we do anticipate that to normalize a little bit as far as average per work order.
We also are anticipating reasonable growth in our marina facilities. Last year, we held even. We have this new site as of June 2006 with 524 slips. We were filling them up about 35 a month in peak season. Last year, we lost some customers, gained others and ultimately stayed even. Even the moorage customer was affected last year. This year, we’re seeing 20-percent growth in our marina facilities, which is not as much as 2006 or 2007.
Inventory:
This year, we have a limited amount of used inventory. It sold through for us, and we’re having difficulty getting used product, but there is still good demand for it.
On the new side, we’re seeing a dramatic difference in inventory from last year. Overall, inventory is in good shape. Seventy-five percent of our orders are pre-sold. Almost everything we have on order is pre-selling before it lands. It’s a factor of not having enough inventory in stock for people to select from. It’s a good way to be right now because they don’t need to be boating today. We timed our orders very well. We’ve been working so we know months in advance when they’ll be shipped. We can assure customers their boats will arrive on exactly the day we promised. When you have a lot of inventory, you can get sloppy on that pre-selling.
We’re very low on inventory: at about 10 percent of where we might normally be at this time of year in our key product group. That’s healthy for us – we have product to sell, but we’re focused mostly on pre-sales.
On the 30-foot plus side, we’re still at an all-time high, and it’s not getting newer and fresher. It just hasn’t turned for us yet. We’re trying some unique marketing ideas, but it is still a weakness in our market segment.
Earlier in the recession, our company spent time in annual meetings answering the questions of what are we the best in the world at and what are we designed around. The answer is the recreational boater up to about 34 feet. When you get away from your strengths, you can get hung on them. Our specialty is 20- to 30-foot boats, storing them, launching them, dry stack, fuel services, service operations, technician expertise, even our showroom size is designed around boats 20 to 34 feet in length. When we stepped out of that, we thought that was a growth opportunity and indeed it was for a period of time, but when times changed, we weren’t able to generate interest.
Challenges and opportunities:
The biggest challenge each dealership will have this year is continuing to manage the right number of boat orders so that inventory stays at a lower than normal level. We need to keep the customer hungry. We need to change that formula from push to a little bit of pull, not to where we lose customers, but where it’s a healthy balance. We must order enough boats to stay in business and meet demand, but few enough for customers not to negotiate too much. The customer has been trained that if they don’t get it at 40-percent off, they won’t buy it. The only way to retrain them is for dealerships to manage inventory at lower than normal level to increase margins again.
Market outlook:
One of the things we’re following that is important to the health of the industry is the stock market. Continued improvement and returns on the stock market is incredibly important to our industry. People have to regain that wealth to feel confident they can spend it. We’ll watch that and hope it continues to see positive gains. It is absolutely critical.
Another indicator we like to follow … when the East Coast is starting to improve, we know we’ll trail that.
Finally, we track housing gains, but more importantly, are people remodeling. If a household has a choice to buy a boat or remodel the kitchen, I honestly think we may win out on that. Those are competitive categories. If we see improvement in that remodel segment, I think that bodes well for us in the boat business. Both are nonessential.
Dealer:
Don Galey, president
Galey’s Marine
Bakersfield, Calif.
One location
Brands:
Bayliner, Lowe, Sea Ray, Centurion
Challenges and opportunities:
Something we’re seeing that I didn’t think I’d see – lending institutions just have a deaf ear. They aren’t lending. Cars are going through GMAC or Ford so local lenders don’t see that business. RVs are really hurting. On both sides of me are huge RV outlets. One is gone. The other is a conglomerate.
Market outlook:
Next year, we’re going to run fast and do good. The American public doesn’t change their way of living very much. They go right back to the same things they used to do. In California, every night is Saturday night anyway.
Dealer:
Debbie Hayes, co-owner
MasterCraft Boats of Arizona, Inc.
Phoenix, Ariz.
One location
Brands:
MasterCraft, Cobalt
Other profit centers:
Service has picked up. We’re picking up market share in service. In fact, we’re hiring a couple of extra technicians for the summer so as to not turn any service work away. We’re trying to generate some cash flow through the service department. With all the dealers going out of town, there are some good techs that don’t have a job. They’d rather work the summer than not at all, so we’ll hire them until we don’t need them.
We’re trying to hire one of the guys who worked over at the Cobalt dealership for 22 years. We’re trying to pick up some more service – all of our numbers were down last year, even service. If we can at least get service up.
Inventory:
Some of the distressed inventory is getting cleaned up. When the banks pick up the distressed inventory, they’re moving it around. Our inventory is much cleaner than last year.
Challenges and opportunities:
It’s all about surviving right now, about keeping costs as low as possible. We’re selling as much service and boats as we can.
We didn’t have a boat show this year. There aren’t enough dealers left in town. So, we held an in-house boat show two weeks ago on combination with a Cobalt launch party. We’re hoping that some of those deals will come through in the next few weeks. Cobalt sent out a nice invitation to all their customers. We sent them a postcard. They’ve only known we are their dealer for three or four weeks. Hopefully, when the season hits, we’ll get them flocking in here.
Dealer:
Fred Pace, managing director
Legendary Marine
Destin, Fla.
Four locations
Brands:
Sea Hunt, Ranger, Four Winns, Hydrasports, Everglades.
Other profit centers:
Our service business was way up last year and continues to do that this year. We are taking a much more proactive approach in terms of contacting customers and being more aggressive with specials to keep boats properly maintained, from waxing to winterization and oil changes. People who have lengthened their trade cycles to 4, 5 or 6 years are more interested in maintaining and taking care of their boat because they may not trade it as soon.
In the dry storage business, 2009 was a year of a number of customers selling their boats, having them repossessed or taking their boats and putting them on trailers at their house. That has turned around in 2010. There is reasonable activity and some people that took their boats away are coming back. There is some pretty good acceleration of new storage customers for the barns.
Inventory:
At this time a year ago, we were still trying to dispose of non-current product, so today with our current product – and we don’t have much of it – margins are dramatically better than this time a year ago because there is so much competition. Especially in the smaller segments, there are very few of those types of repossessions left. It’s mostly big boats – 33 feet and up – left in the market.
Challenges and opportunities:
We still have not received the type of activity level we would like at boat shows and/or events, but we just have to accept that fact. We’re doing more, smaller style events using direct mail and the telephone to get them to attend. We’ve done intros of new product at a location that gives them other reasons to attend than to see a new boat, such as restaurants. We’ve gotten some traction with that.
Wholesale financing remains a challenge. GE is doing a terrific job. They’re a great partner for us. They have placed limitations on our businesses, but that’s probably healthy for the entire industry. It will be good to have new companies enter that particular business. We’re still facing challenges with retail financing. It’s far more difficult than it used to be. We still face significant challenges with consumer confidence in the economy and our political system, but that’s a personal feeling.
We are looking at some new boat brands, if there’s a right fit. We’re not going to offer the selection we used to offer, but there are potential opportunities out there to consider if it’s the right fit for our stores and customer base.
Market outlook:
2009 was certainly a challenging year. 2010 has already been a better year than 2009. We’re certainly profitable for 2010, and we’re really excited about that. January and February are tough months. We’re 700 miles north of Miami. We have a winter here, and a number of freezing days. There’s not a great deal of activity in those months. Perhaps it was repossessions or a resurgence of new boat buyers, but January and February weren’t as difficult as in the past. March was terrific and April will be better than that. We are profitable this year, and anticipate that will continue to grow.
We’re cautiously optimistic that the worst is well behind us, and while we don’t expect the balance of 2010 and 2011 to return to 2005 and 2006, we’re headed in the direction of a better place and toward better times.
Dealer:
Lauren Woodard-Splatt, general manager
Woodard Marine
Hydeville, Vermont
One location
Brands:
San Pan, Sweetwater, Bayliner, Regal, Lund, Hurricane, Moomba, AquaPatio
Challenges and opportunities:
One opportunity we’re seeing in today’s marketplace involves employment. We’ve hired about seven new employees – both full and part time – on top of what we normally have. There are a lot of job applicants out there. Now, we have more qualified help. We’ve been careful to make sure we’re hiring the right people. One of the people I’m hiring is a service manager. We feel that by hiring that person, while they’ll go on payroll and increase expenses, they should be able to bill out at least their own salary and give me a chance to focus on sales and marketing, which is income producing.
Our biggest challenge is that we’re seeing a lot of people getting out of boating altogether. The challenge will be making up the difference. In buying a customer’s boat outright, we’re losing a customer in service, storage and the marina. We’re taking a risk on whether the new customer will store with us and or dock with us. The challenge is to keep everybody boating.
Market outlook:
Our expectations, our gut feeling is that this year will be better than last year, but our budget is the same as last year, so no matter what, we can stay in business and move ahead. I think we’re in a bit of a lull right now. When vacation time hits, I think we’ll be up from last year. But we won’t be back to normal until 2011.
Dealer:
Jeff Strong, president
Strong’s Marine, LLC
Mattituck, N.Y.
Five locations
Brands:
Cobalt, Pursuit
Other profit centers:
It’s more of a struggle then I’d like them to be. The number of boaters is significantly down as a result of the impact of the recession. While it’s terrific, half of our service department cringes when we sell a brokerage boat. The vast majority of the used boats we’ve been selling have been going out of state or out of country.
If we sell 30 of our existing client’s boats – those get pulled out of slips and service. For us, our dockage is down. Service is down somewhat, but nowhere near as dramatically. We’re just beginning to see new life coming in there, but we’ve got some catching up to do.
Inventory:
New boat inventory for us is in good shape. We have a handful of carryover product at this time, and I would expect those to be gone in next two to three weeks. It’s not big product. Our 2010 inventory is a real crapshoot. We’ve been blessed to be in a financial position with vendors and banks to continue to have as much floorplan as we want to have. We’re very well aware of the costs – we’ve seen increased costs – but we have the availability. That’s not an issue for us.
In 2010, we think we have exactly what we want as long as sales keep chipping away. We did not take the position of we’re not going to bring any product in. We’re stocked conservatively, but we have good representation at all showrooms. Our new boat business is reasonable. On the used boat side, we could definitely use more product.
Challenges and opportunities:
One of the things on our radar screen in the last 18 months is doing a very good job of detailed cost reductions and containment. At least for us, in the past, when you might go through and have a couple of good months of business, it’s easy to start to back off some of the really ugly things we’ve had to do. We will err on very conservative side there until we see a more prolonged sustained comeback. That being said, we just competed a major bulkhead project replacement. And we just got done spending $80,000 redesigning the picnic area, so it doesn’t mean not spending any money. It’s just being overly diligent on where we’re spending limited resources.
We continue to improve the look and feel of our facilities. Customers continue to be ever more demanding in where they spend their discretionary dollars, so it’s a fine line to walk. The challenge is communicating this to the staff. They haven’t had a raise in two years, they see you investing in a customer lounge, picnic and BBQ area, and they want to know how that fits in. We’re trying to communicate to the team that we feel it is necessary to continue to attract business so we have jobs in the first place.
On the cost containment side of things, the management team meets weekly and the board meetings are now monthly rather than quarterly. We’re staying as focused and nimble as we can and cutting where we need to cut. With that said, we have funds if they make good profitability sense.
I think there’s a good amount of dealers that have been pretty significantly impacted, maybe more so than we have. I think there are customers who are going to want to get back into boating, and other dealers may not be geared up to accommodate their needs. We’ve been blessed in that we haven’t reduced our staff other than those we wanted to. We’ve maintained our personnel at higher level than we needed to as they are excellent caliber people.
Dealer:
Karl “Scooter” Rambo, CEO
Rambo Marine
Hazel Green, Ala.
Two locations
Brands:
Cobalt, Four Winns, MasterCraft, Crownline
Other profit centers:
Our service and parts sales are not up yet. In March, our service department was painting the building and doing maintenance to keep everyone busy. The customers weren’t bringing boats in. They’ve waited until the last minute. Now they’re coming in in droves, and we’re missing some service because we can only do so much at this time. Service is definitely jumping up in April, but it’s still behind.
I budgeted service to be way up because I was expecting to gain business from those who went out of business around us. We’re starting to see the benefit, but it will take some time. We have purchased mail lists of brands carried by the dealers who have gone out of business in our markets. We’re also using direct mail to get their service business. Even though we may not handle that brand, we’re glad to do service with them. Then, it’s just a matter of time before they purchase a boat from us.
Inventory:
Distressed inventory is far less than it was a year ago. Last year, everything we were competing against was distressed, and we were purchasing a lot last year. This year, very little distressed is available in brands we’ve got.
I have plenty of floorplan available. I bought a lot a year ago, but the brands we want to purchase dried up in September of last year. We’ve been able to buy almost no distressed inventory since then in the good brands that we target. That’s a good thing in the long run. But we did make some great margins on that distressed inventory we bought.
I look forward to selling current model year boats, more business as usual. The key for us is to capitalize on the orphaned customers out there, and I think we’re doing a good job of that.
We’ve bought some used boats too, but prices have gotten so high – demand is so high for used – that right now the value is probably better on a new boat. I was in the car business a few years ago and they were seeing the very same thing. The better buys are in new, but there is a great demand for used because it’s perceived as a value. But it’s not really a good value when prices are driven this high.
Challenges and opportunities:
In the last two years, 50 percent of the dealers in our local market have gone out of business. It’s been huge, but I look at that as an opportunity. I think the overall market is smaller, but our share of it is going to do nothing but grow because of the dealers that have gone out of business.
It’s not been fun going through this downturn, but I look at it as an opportunity. We do things better than those who went out of business. It should be easy to impress those customers with our customer service, easy to convert them to be our customer.
Market outlook:
I’d be very happy if we’re up 10 percent from last year. I guess the best way to describe me is cautiously optimistic. Feels like it could stop at any time. I think the customers mindset and confidence in the economy is so fragile. Right now, they’re buying and buying the biggest, most expensive models. Not buying the cheapest models. We’re not selling a whole lot of the less expensive models, though it’s stronger than a year ago.
Last year was profitable primarily because we were in a position with bank lines and floorplan lines available when a lot of other dealers lost them. I’ve always said from the day I got in this business, you always want at least two national floorplan lenders and two local banks that you can have either floorplan or lines of credit based on real estate. Because we had those things set up well before the downturn, money was available to buy product, discounted products. We couldn’t make good margin on current model boat. We had to make them on something like distressed inventory. It’s a lot harder to make margin on current models.
If you wait for a downturn to set these things up, no one is interested. We had to do it during the good times. Last year, I wanted to add a new one, but very few bankers were interested. This year, in the last 60 days, a lot of bankers have been coming into the store asking to meet with me, wanting to loan money. A year ago, we saw none of those people. That tells me we’re getting back.
It’s never going to be the same as it was, the barrier to entry is going to be much greater. That’s a healthy thing: there were a lot of dealers who got floorplan lines who weren’t running their business well. Those are the dealers who went out of business. I think [from now on, lenders] will all expect dealers to have equity in their product and the business to justify floorplan and lines of credit – long-term health. There will probably fewer dealers, but those remaining will be much healthier, stronger dealers.
Dealer:
Mike Hebert, president
Texas Marine
Beaumont, Texas
Three locations
Brands:
Ranger, Robalo, Chaparral, Skeeter, G3, Bennington, Yamaha Jet boats
Market conditions:
We’re staying very aggressive. We got out of that tuck-and-duck position last fall once we saw that it looked like the market wasn’t going away completely. There is still a world left and people are still going to buy things, even though on a smaller buying level. We’ve staying aggressive with our marketing. We expanded our exhibit space square footage from 21,000 to 30,000 with some assistance from our manufacturers. And we had a huge show. Were able to create excitement with deals on repossessed boats and gained some market share.
Unfortunately, when the pie gets a lot smaller, that’s one of the things you have to do is get a bigger piece of the pie. Business isn’t in a growth mode. It’s even drifting downward overall nationwide. The rate of decline has slowed drastically, and in our area, we’re actually seeing a little uptick. We didn’t go down quite as hard as other parts of the country. We didn’t have the real estate problems. The oil and gas industry helped underpin it. It’s a good place. There are lots of people moving to this area from other areas. The cost of living is less, and there are still some jobs available.
Since the boat show, there have been some ups and downs, ebbs and flows. We can see it with consumer sentiment. They’re still extremely cautious, but a lot of them are planning to get a boat, just not right now. You have to earn their business and convince them it’s a good time to buy. They are doing their homework, they’re not in as big of a rush, they’re taking their time to look and shop.
They’re much more savvy with the advent of the Internet. Most all of them are using it now. You have to be prepared to deal with the consumer at their level and at the pace they want to go, and you have to be ready to give them some solid reasons to buy now, to show them where they’re getting a good value on the product.
Sales:
We’re very pleased with the first quarter, but one quarter doesn’t make a year. We’re still seeing some weakness. We’re hoping to stay very aggressive and get out in front of fishermen and outdoorsman at any and every opportunity.
We’re going to a lot of promotions outside the dealership still. Tournaments are a big thing on Lake Conroe every year. We bring some of our nicer runabouts and deck boats to real estate open houses and make a weekend of it. Those are the kind of things you’ve got to do, along with watching your expenses and promoting yourself just as well if not harder than last year. You have to look for opportunities to offer something different.
New designs are selling well. Distressed inventory is selling well. On your regular inventory, it’s hard to switch from the mentality of last year, but we’ve been able to get out of the mode of taking any deal to get the sale. We’re going back to the basics of selling the value and the selling features and the dream of what the consumer is wanting, making it as easy as possible without pushing them. The consumer has changed. The hard sell tactics and pressure, you have to be very careful in not making them feel like they’re getting pushed. It’s helping get them comfortable with buying and giving them incentives to buy.
Other profit centers:
Our service was a real bright spot last year. It was up substantially. We got extremely aggressive with resources, and the attention paid off and helped the bottom line. Due to the weather this year, the service business is off a little. It’s been an unusually cold and wet January and February. March was still cool. The activity is 30 to 60 days behind a normal year, which has affected service department and parts sales, but we’re seeing them return now to the higher levels of last year.
Although you have to be aggressive, you still have to be diligent in watching expenses and balancing profit centers. That’s becoming an even more important part for most dealerships – all these different profit centers. You have to get it from all these different areas now. It will be quite a few years before volume is what it was, if ever. You need to focus on developing those other profit centers within your dealership, while watching their expenses.
Inventory:
The pressure on new boat margins has been reduced somewhat. You can’t make the margins of a few years ago, but it’s up substantially from last year. Like everyone else last year, you just had to get rid of merchandise and get inventories in line with demand –cut your losses and the expenses. A lot of that in this region has flushed through. There’s still a chunk of distressed inventory out there, but fortunately not in this region. People still have access to it through the Internet.
Profitability:
I think it’s kind of like the car business. Many years ago, in each market area, they had one Chevy dealer, one Ford dealer, one Chrysler, Toyota and Honda dealer – but that went out the door, and now there’s a dealership on every corner. All the surrounding towns, if they had a stoplight, they had a dealer there. That was the end of the profitability of the car business.
You see what has happened in the auto industry. Hopefully, we can learn some things from that and not make some of the same mistakes other industries have made. But you’ve got to have the right amount of products. And we still have too many manufacturers competing for too small a pie. I’m afraid, because of that, it will keep profitability down in our industry and there will be additional fallout of boat manufacturers and dealers.
Challenges and opportunities:
The jury is still out overall on how the year will go. There are soft weeks. More people are talking about buying a boat. They’re just not sure if it’s now or later. We’re seeing some different attitudes in the financial markets – wholesale and retail. Lenders have made the turn from damage control to “how are we going to make money,” and how they make money is lending. It’s nowhere near where it was, but it’s a step in the direction of being out seeking business. That’s encouraging.
The challenges are the same as before – being able to recognize opportunities when they present themselves without giving the farm away or spending more than you should be spending. We’re feeling better about interest rates. Gas prices look like they’ll go back up, but not as badly as the past. That would be an additional challenge we didn’t have to deal with that last summer. The biggest challenge is: are consumers feeling better enough about their job and income to make a larger discretionary purchase. The political situation has such a big bearing on consumer confidence. Hopefully, it will get a little less toxic. That would help consumer confidence.
Market outlook:
Having a clear-cut business plan is more important than it’s ever been before in the 37 years I’ve been in the business. In that plan, you’ve got to make sure you have good strong vendor partners (boat, motor and trailer) with good quality lines that can give the kind of support you need to stay aggressive in the marketplace and support your customers with the experience they’re expecting.
Now it’s more important than ever that you’ve got good financial stability with your business partners and you can show them that you have that stability. We’ve said for many years in this industry that manufacturers and retailers are on two sides of the street. It would be something positive if this downturn forced our industry to realize that we all need each other. We need strong partners that work really closely, and we need to combine our resources to be successful. Without that, it’s going to be hard for a manufacturer or a retailer to survive this.
That federal stimulation money being put in the economy is pretty much over with. They need to make sure the momentum is not lost, that there is still enough buoyancy to lift the economy. Do we have a sustainable level we can build from now or is that roller coaster ride still going to be there? No one knows that for certain. I think that’s the problem: no one knows for sure.
Dealer:
Paul Nickel, president
Pride Marine Group
Bracebridge, Ontario
Five locations
Brands:
Chris-Craft, Nautique, Crownline, Pursuit, Chapparal, South Bay, Hackercraft, Tiara
Market conditions:
The boating industry in Canada is running about 20 percent ahead of last year on the new boat sales side. Good things are happening in Canada in terms of overall conditions, compared to the United States. People aren’t talking about the great recession anymore.
Up in Canada, there have not been the number of dealer fatalities as there has been in some markets. A bunch of dealers are holding on by their teeth. A bunch of marinas aren’t going to sell boats anymore. They figure they don’t need the hassle and the headache. There are a lot of people that own marinas that learned a critical word in their business this last year called absorption rate.
We’ve been blessed that our housing market, while it went down, has returned to where it was, maybe even appreciated. The report in March for cottage country was that prices were down 17 to 18 percent. But in Toronto, housing prices are going through the roof. These are signs things are going to be good.
Sales:
People are so used to spending money and all of the sudden they had to stop. Now, the boat that they might normally trade up every two to three years is four or five years old, so they’re saying, “I need to replace my boat.” So, we’re seeing some pent up demand. The demand has been pretty broad for us across the lines that we carry.
In terms of our business, we monitor leads through the Internet, social media, phone calls and manufacturer leads, and we’re tracking a 225-percent increase from a year ago.
I think the consumer today is looking for authenticity. If they don’t get that, they’re going to shop somewhere else. If your people are consistent; your mission, vision, and values are consistent; and your marketing and the way you deliver your systems are consistent, that’s what customers today are looking for. There has to be a high level of transparency in your business – and there is so much information out there for them to verify that today. If you’re not going to lead with your chin and then put the systems around it, they choose to do business elsewhere because, at that point, you haven’t differentiated yourself.
My staff is the best it’s ever been. My processes are better than they’ve ever been. As a result, my expectation is that we’ll be the same this year as two years ago in terms of sales volume. That was a good year for us. That represents a full recovery.
What I’m hearing and seeing is that most local dealers are seeing between a 20- and 30-percent increase over last year’s numbers. And bottom for them was about a 40-percent decrease due to the recession.
The way I see it, the guys that have been proactive, that have done the right thing, that have been loving their customers are those who are now reaping the greatest rewards.
Other profit centers:
We’re tracking better in service than we were a year ago – about 11 percent ahead. Where we’ve been pinched is on margin. Even though our sales are up, our margins in service are down. That’s predominantly in the storage area. Our take on it is the guy that had the eight- or 10-year-old boat thought he could save himself a couple hundred bucks on storage and went with someone who wasn’t of the same quality.
Inventory:
Our inventory levels are running down 40 percent from a year ago. This is the result of planning and trying to work closer with our manufacturers to get demand aligned with supply.
Used inventory is non-existent. We have under $250,000 of used inventory in our whole company. We are seeing demand for it, and we wish we had more.
Profitability:
Most smart dealers took a blood bath last year to get inventory in line with demand. So while there’s still a ton of repossessions and distressed merchandise, it’s old. Margins are returning close to 2008 levels. A lot of that is there’s not a ton of new boat supply out there. Right now, any of the good manufacturers are lagging getting orders to dealers. They can’t keep up with the demand.
I think that the people that have adjusted their businesses down to the right size, if they have good relationships with their manufacturers, if they can get the product at the right times, there is now an opportunity. The days of low margins are gone.
We do expect to be profitable this year.
Challenges and opportunities:
We decided that in a down market we were going to invest in infrastructure, people and processes so that as the economy flips around, we’d see that uptick. If we had cut the foundation of our business in the last 12 months, we would not be in the position we are in right now.
Our greatest difficulty is probably going to be hiring a couple more key people. Inventory financing is no longer a challenge. I’m not concerned about product shortages because we put together a plan for the year and made a commitment to our manufacturers based on a certain delivery schedule.
To me, the world looks like a great big candy bowl right now. There’s a ton of opportunities. Two weeks ago, for example, we struck a deal with a resort and signed up 60 boat club members. Everything that we’ve been working on, the foundation that we’ve been laying for the past two years, seems to be coming together. Sometimes you do the right things, but you don’t see any results. That’s how I’ve felt the last few years. Now, it feels like those things are happening.
Dealer:
John Vallely, Jr., general manager
Vallely Sport & Marine
Bismarck, N.D.
Two locations
Brands:
Bayliner, Crownline, MasterCraft, Bennington, Lund, Starcraft, Skeeter
Market conditions:
We haven’t lost any dealers in our market here. In the Dakotas, I only know of one dealer, maybe two, that went out in the last year. Most of the dealers in this market have been around for a while, at least 10 years or more.
In our market, sales are ahead of last year. We have some different demographics going on. There’s some oil activity out here as well as a strong agricultural market and a major medical community. It has driven wages up. They’re considerably higher out here. There are a lot of real positive things happening here from that standpoint. There is only a 4-percent unemployment rate for the state. All things being equal, things are a little more robust out in the Midwest.
Our consumers are affected by things like 401Ks and cost of living expenses like everyone else. I think the big thing is that unemployment is at a manageable level, and we’ve got a lot of people working.
The credit situation, while it did tighten up, the availability of money seems to be a little better. It’s still not great, but there seem to be plenty of local lenders, especially credit unions, and they seem to be pretty aggressive with marine financing.
Sales:
I budgeted flat, and I’m thinking there’s going to be a 10-percent increase. I’m hoping for that, based on the first six months of my year. My year starts the first of Oct., so I just finished my second quarter, and I’m up for the first six months.
Floor traffic is a little soft, but the people coming in are serious buyers. The most surprising thing in the market segments – we handle seven boat lines here – is that we see all segments selling. We see the towboat market being a little soft, but also it’s early and there’s no warm weather yet. Pontoons seem to be very strong. And 18- to 20-foot fiberglass runabouts seem to be stronger than usual. That’s Bayliner and Sea Ray for us.
Inventory:
The biggest challenge for us is that we don’t have any non-current boats, we only have 2010s. If anyone has an ‘07, ‘08 or ‘09, we’re at quite a disadvantage. We have to do a little reverse selling. We’re convincing people why they need to buy a 2010 vs. a depreciated ‘08 or ‘09 – we explain it’s worth less the day they come home.
There are no used boats in our market. I have one used boat on my lot as of this morning. The availability of pre-owned boats is an issue. And with four salespeople, a sales manager and myself, one boat doesn’t go very far.
We had a promotion a few months ago in which we took seven trades on one weekend, and we’ve sold every one in last two weeks. Accessibility to pre-owned is tough. It’s that way all around the country.
Consumers are very savvy now too because of the Internet and social marketing. They’ve been able to find out their boats are worth good money. To get some of these pre-owned boats, we have to pay a lot more for them and get more for them.
Profitability:
It was extremely hard to hold margin because there were so many distressed units in the marketplace – and there still is a lot of that product in the pipeline. When people are shopping, it’s still out there.
There’s no question we’ll be profitable, it’s just a matter of at what level depending on how the season plays out. We are profitable today. We were able to be profitable last year. The last couple of years have been the best in our company’s history. I think it’s the low unemployment, and the economy out here with the oil activity having a real stabilizing effect.
Challenges and opportunities:
There is a severe shortage of new boats. We have the most boats on backorder with all brands than we’ve had in 10 years. We’ve never had this much backlog that I can remember. We also have a lot of sold boats on order in that backlog that are already out to the middle of June. We’re hoping we can hold them together.
Our two biggest issues are the availability of pre-owned boats and the availability of new boats. This impacts our ability to get customers on the water. Customers today are in an instant gratification society. They don’t want to hear it’s 8, 10, 12 weeks down the road. They’re going to realize maybe they should go golfing or horseback riding.
Our biggest opportunity would be if we could get more pre-owned. We’re working hard on keeping parts and service business at a good level, keeping CSI scores up and taking care of the customers we’ve already got.