Forecast calls for transition in 2008

DENVER – A new RBC Capital Markets report on the recreational products sector suggests 2008 may be a transition year for the boating market as it struggles to reduce inventory levels.

“Although boat builders have been cutting product for over a year, a substantial drop in retail sales has precluded meaningful inventory progress,” reported RBC. “We expect model-year 2008 to be a transition year and look for more stability from the beginning of model-year 2009.”

Among other recreational industries, RBC suggests that the boating market has been hit especially hard.

“A long history of overwhelmingly price- and mix-driven growth has made the boating industry particularly vulnerable to a weaker environment,” stated RBC. “We are somewhat concerned that weakness in Florida and California, which account for a higher proportion of sales during the winter months, will weigh down industry growth in Q4/07 and Q1/08.”

Sales of mid- to high-end boats (in the $50,000 to $500,000 price range) have been a focus for concern, RBC pointed out, down nearly 20 percent, according to their estimates. The three reasons for this decline, according to RBC, is the higher level of confidence required for such a big purchase, the link between home price appreciation and trade-ups to bigger and more expensive boats, and the high employment rate, which has helped drive sales in “lower-priced categories.” RBC stated, however, that in an interest rate driven recovery scenario, bigger, more expensive products would likely lead a turnaround.

A recovery may be best anticipated by watching the housing market, RBC suggested. The company reported that while the correlation between its recreational products index and the homebuilder index is close to 0.6. Consumer confidence, long considered highly correlated to “leisure stocks,” may no longer be a good indicator for recreational firms, however.

“… this relationship has been decoupling,” stated RBC. “The one-year correlation of 0.13 is significantly lower than the five-year correlation of 0.37.”

Hope on the horizon

The silver lining of the report is a consumer study it recently commissioned, which suggests that 80 percent of people plan to purchase a recreational product at some point in the future. It noted, however, that the majority plan to defer their purchases for a few years. Those who are less inclined to wait to purchase are, of course, those who have owned such products in the past.

The study results also suggested that while Baby Boomers continue to drive sales, Gen Xers may deserve another look.

“… the data suggests that the Gen X penetration rate has actually surpassed that of the Boomers over the past couple of years. In addition, Gen Xers, the oldest of which are just entering the 40- to 49-year-old sweet spot for recreational product purchases, appear to have a higher level of interest in future purchases and greater urgency to buy compared to Baby Boomers,” reported the researchers. Minority groups’ interest in recreational products was also described as “notably high.”

Consumers interviewed for the study seemed most desirous of a boat (27%), according to researchers, followed by an ATV, a motorcycle, a towable RV and a motorhome.

  • For more of the latest news, click here.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button