Dealers cope with brand lossesPosted on
Four saltwater models dropped by Brunswick were secondary lines for many.
Dealers of the four boat brands being discontinued by Brunswick Corp. had mixed reactions to the news — in part because the brands were secondary lines for many of them.
Brunswick in mid-May said it was ceasing production of its Bluewater Marine brands — Sea Pro, Sea Boss, Palmetto and Laguna — and closing its Newberry, S.C., plant. The decision is effective with the start of the 2009 model year July 1.
While some dealers reacted with surprise, other were not taken aback by the latest Brunswick response to the suffering economy. The impact of the decision will depend on how much of a dealer’s inventory consists of the four saltwater lines.
Robert McCurdy, sales manager at O’Neill’s Marina in Largo, Fla., said he was not surprised to hear about the Palmetto line, but was “absolutely shocked” that Sea Pro was being discontinued. He sells Sea Pro, Palmetto and Monterey boats.
Sea Pro sales are not where they were two years ago, “but with our economic times, Sea Pro, I thought, was still a viable name and product,” he said.
Darren Largent, sales manager at Sea Pro dealer Auburn Sports & Marine in Washington, said he still had not officially been contacted by the company about the news nearly 24 hours after a release was sent to the media.
Though Sea Pro is one of his major lines, he isn’t too worried about the overall impact of the announcement.
“It’s really not that big of a concern of mine. It’s a bummer, but as far as being detrimental to my dealership, not at all,” said Largent, who also sells Smoker Craft and Sunchaser boats, among others.
“None of this surprises me; that’s a very crowded market,” said Phil Keeter, president of the Marine Retailers Association of America. Ten years ago, there were three to five lines in the saltwater fishing market, and now there are 15-20 lines, he said.
Also, he noted, saltwater boats can only be sold in certain parts of the country, which limits their reach.
Keeter said there probably aren’t many dealers who sold any of the discontinued brands exclusively, so the impact depends on how much of their inventory was one of these four lines.
“It will be a problem for them if that’s one of their major lines and they’ve got to go somewhere else,” he said. “If it’s one of their auxiliary lines or secondary lines, then it probably won’t be too big of a problem to them.”
However, he noted, the announcement does immediately devalue all remaining inventory.
“If a dealer is selling that boat and making a 25 percent margin on it, now he’s going to have to sell that boat, in essence, as discontinued or distressed merchandise,” Keeter said. “If (the dealer) has huge amounts of inventory, it will be heart-stopping.”
McCurdy said Brunswick is working with dealers by offering rebates and helping them liquidate inventory. As of now, they are still building, giving factory support and giving warranties.
“They’re still going to support us and help us sell our ’08 and ’07 models,” he said. “They’re putting rebates on them that are getting them down to used-boat prices.”
McCurdy thinks the news may even stimulate interest in the line.
“I think when you take money off and you get down, even if it were like a used boat, people will still be interested,” he said. “The product [Sea Pro] is nice performing, it shows nice and it’s still got Brunswick behind it. Whether the name’s gone or not, it’s still got warranty from a large corporation.”
Keeter said dealers selling these lines should expect to hear from concerned customers who have these boats and be prepared to assure them they will be taken care of if there’s a problem. Items such as seat repair will be covered without problems; the customer just won’t be able to get items such as decals or nameplates, he said.
Keeter said it’s rare to hear of a company discontinuing four lines, though he noted publicly held Brunswick must answer to its shareholders about what it’s doing to hold down losses.
“Boat company closures have been few and far between in the last 10 years,” he said. “More likely, what you’ve been hearing in the last 10 years is one company selling out to another or a bigger company acquiring them.”
What’s next for Brunswick?
This latest news comes on the heels of the company’s recent announcement it was selling its Baja line to Fountain Powerboats and closing its plant in Bucyrus, Ohio.
Lake Forest, Ill.-based Brunswick intended to end Baja production by the end of May.
And these actions are not necessarily the last reductions or changes Brunswick will announce, said Brunswick spokesman Dan Kubera.
“We have publicly stated that we could possibly reduce both models and brands going forward, as we approach product offerings more from the perspective of the entire portfolio, not just the models in a particular brand lineup,” he said.
“We are assessing the recovery potential for all marine segments in which we participate, their fragmented nature, the costs of our continued presence in certain of them and the position of our brands.”
However, Kubera added, it would be “nothing more than speculation” to try and identify any specific brand or model and its future.
Kubera also said the company was moving toward a “smaller manufacturing footprint” with more locations that can produce multiple brands and models.
He cited the company’s Fort Wayne, Ind., plant as an example of this. That plant historically manufactured pontoon boats, including the Harris FloteBote, so when it came time to manufacture the recently introduced Cypress Cay brand, it made sense to have it produced in Fort Wayne.
“In this way, we better use capacity, as well as remain more flexible to adjust to market demand,” he said.
The consumer, he said, doesn’t care where a boat is made, only how it is made.
In general, he said, Brunswick is looking at many possible scenarios going forward.
“We believe we will solidify our presence in the highly fragmented saltwater segment by concentrating our efforts and leveraging our resources on such brands as Boston Whaler, Triton, Trophy and our sportfishing offerings from Hatteras, Cabo and Albemarle, while sharpening our market focus and providing necessary cost reductions,” said Dustan E. McCoy, Brunswick chairman and CEO.
Analysts say Brunswick’s actions are consistent with market conditions and management’s long-term objective of streamlining operations.
“It is also a sign that management believes certain segments of the U.S. marine industry have been permanently (or at least indefinitely) impaired,” said Edward Aaron, analyst with RBC Capital Markets. He estimated these brands contributed roughly $30 million in revenue.
In April, Brunswick reported a 71 percent drop in profits for its first quarter amid weak consumer demand for new boats.
The company’s profits were $13.3 million, or 15 cents per diluted share, in the first quarter of 2008, compared to $45.6 million, or 38 cents per diluted share, in the comparable quarter a year ago. The company reported sales of $1.34 billion, down 3 percent from $1.39 billion for the year-ago quarter.
During a conference call, McCoy said the company would continue to curb production to reduce inventory. At the end of the quarter, there were approximately 2,800 fewer boats in dealers’ inventories than at the same time last year.
The brands being discontinued have been under Brunswick’s umbrella for only a few years.
Sea Boss was founded in 2003 and acquired by Brunswick in 2004; Sea Pro was established in 1987 and bought by Brunswick in 2004; Palmetto was founded in 2001 and acquired by the company in 2005; and Laguna was established by Brunswick in 2006.
This article originally appeared in the June 2008 issue.