‘Doubling down’ for a slow climb off the bottom

Posted on Written by Bill Sisson
Bill Sisson

sisson_billWe’ve heard it over and over: Hope is not a strategy. But neither is hunkering down, at least not long- term. As we move into the third winter of our discontent, the relative health of the companies that make up our industry ranges from those still in survival mode to others that have risen off the bottom and are cautiously working their way forward with a strategy aimed squarely at better times ahead.

As a longtime paint executive recently remarked while showing me new product, “It’s time to double down.” Indeed, this may well be when tomorrow’s winners start to separate from the pack.

Some cautious optimism: We appear, at long last, to be working our way off the bottom, with the worst, in all likelihood, behind us. The attendance figures and enthusiasm we saw firsthand at shows, from Newport and Annapolis to IBEX and Fort Lauderdale, are pretty fair indications that a turn has begun. Albeit, a slow, wide turn – if you’d prefer economic hieroglyphics, picture a big-bottomed U.

Granted, many of those buying boats this fall are people who could have purchased last year but hesitated, given the fear of a double-dip recession and overall economic heebie-jeebies, from the domestic housing market to Greek debt woes. With some of those concerns easing, buyers who have had the wherewithal are beginning to step forward.

Many others, of course, still have to sell their boats before they can buy new ones. That remains a roadblock. And while retail credit is still tight, the trend going forward suggests incremental easing; it would be difficult to imagine lending getting any more restrictive.

Pent-up demand is a funny thing. In this environment, it builds slowly, carefully, the way you’d wind the mechanical spring in your grandfather’s pocket watch. When job numbers finally improve and consumer confidence rises, the mainspring will release its motive force, jeweled gears will begin to turn and boats will start selling once more. It’ll happen, just not overnight and not like a slingshot.

In the meantime, there are scores of folks still actively using their boats – and that means business for yards, marinas, accessory manufacturers, engine builders and a host of other companies. The ranks may have thinned some, but that’s where much of the future demand is brewing.

Companies that have learned to be profitable on less volume – significantly less in many cases – are in far better shape than those still struggling to reduce expenses and right-size their businesses. In hindsight, the idea that you couldn’t get small enough fast enough may serve as an enduring mantra for our industry’s Great Recession.

Small clearly is the new reality. As many as 1,500 dealers are either out of business or are no longer selling new boats. As an industry, we are perhaps half the size we were before the bottom fell out. New-boat sales for this year will likely total fewer than 135,000 units, the lowest since record-keeping began in 1965.

When recovery eventually finds its footing, we may be back in the 175,000 to 225,000 range. That’s a fair distance from the 311,000-unit annual average builders cranked out and sold between 1992 and 2004 (the average between 1969 and 1991 was 400,000 new boats a year), but it’s enough to sustain a healthy industry.

No company probably had a more finely tuned radar for the heavy weather lurking over the horizon than Brunswick, which began making cuts and changes as early as 2006. It closed seven brands and 17 boatbuilding facilities. The company reacted quickly, smartly and aggressively – and it has paid off.

“We’re past surviving,” Brunswick president Andrew Graves tells Trade Only. “We’re looking at winning.”

Burn those lessons into your cerebral cortex, especially if you’re young and plan on sticking with the boat business. Given the industry’s cyclical nature, there will be more dips down the road – and memory, alas, is short.

Innovation and new products have always acted as powerful catalysts in jump-starting demand for individual companies, and this time around won’t be any different. As we’ve all discovered, it’s tough to be innovative and creative when you’re downsizing or right-sizing or hunkering down. But do we have any other choice?

Marcel Onkenhout, CEO of Dutch super-yacht builder Oceanco, said in opening remarks at the Fort Lauderdale show that this down period is precisely the time when companies need to focus on innovation and new product development in order to be ready when the recovery finally takes hold.

New cards are being shuffled and dealt. Time to double down?

This article originally appeared in the December 2010 issue.

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