Past survival, now it’s about winningPosted on Written by Reagan Haynes
President of the new, right-sized Brunswick says no more brands will vanish
Andrew Graves, the president of Brunswick Corp. and second in command to CEO Dustan McCoy, leaves little room for interpretation when asked whether the boatbuilding giant will be shedding more brands.
“People keep waiting for another shoe to drop, and the answer is no,” Graves says. “We’re very comfortable with the lineup we have.”
Brunswick began selling or discontinuing brands in 2006 when it detected the first hints of an economic decline. The company was criticized for being too negative about the industry’s immediate future, but its executives determined that a bearish strategy was the only way to avoid failure if the indicators they were seeing proved accurate. When the financial sky began to fall in the autumn of 2008 and other companies scrambled for cover, Brunswick already was consolidating its way to solid ground.
Today the company has positioned itself not only to survive the prolonged recession but also to turn a profit, even as sales of new fiberglass boats continue to decline.
Although Brunswick is done trimming brands, the company is not looking to add new ones – at least not yet.
“It’s a bit early to talk about acquisition,” Graves says. “Right now, we want to go out and take advantage of the work we’ve done and build our share and grow our market so that, regardless of recovery, we’re going to be successful. There might be some good opportunities at some point, but right now acquisition is a secondary consideration.”
A half-size market
Graves is not convinced that opportunities will abound this winter, even if Brunswick was looking.
“I think the industry does need fewer brands,” he says. “We’re in a market half the size, but we have a lot of small builders who are still out there because they’re passionate about the industry and they’re staying in it.”
That’s not to say builders won’t be stressed, Graves says, but that stress won’t necessarily translate to closings.
A Brunswick study has shown that of the top 300 boat brands – those that produced 95 percent of the industry’s boats in 2005 – only 10 had gone completely under by 2009. The rest still exist, although some are under new ownership.
So although stress on builders will continue through this market year, “the question is whether investors are willing to enter,” Graves says. He mentions no specific investors, although Platinum Equity acquired several brands after the Genmar bankruptcy and recently bought Triton Boats from Brunswick.
“It’s going to be interesting to see what happens with the private equity firms,” Graves says. “They’re in it for one reason. They come in … make a financial gain and sell it.”
Brunswick officials don’t expect to see new-boat sales rebound to the 300,000 level that the industry saw from about 2003 to 2006, but Graves also says they don’t expect sales to stay at today’s 135,000 level.
“I think we would suggest, and a lot of data would suggest, that 175,000 to 225,000 is a reasonable range for business to return to when macroeconomics stabilize and consumer confidence returns,” he says.
The early signs
Staying a step ahead of the recession helped give Brunswick a leg up on the competition. But how did company officials know what lay ahead before the rest of the country?
“I think we understood there was potential for significant weakness in the industry and, based on very early events in the financial sector, understood they could be crippling to us,” Graves says. “We made very quick decisions to make sure we could survive in a fairly terrible situation. We were very pessimistic.”
That pessimism was coming from other sectors of the economy, Graves says. Brunswick had insight into those indicators because its business crosses all segments and covers North America and Europe, he adds.
“The news we were hearing started to be much more pessimistic than optimistic,” Graves recalls. “We knew we had a pretty large fixed cost structure in our biz.”
Graves continues: “When we saw very early warnings – stock market ripples, unemployment, things happening in Europe – we started making early changes in ’06 and ’07. As we saw things continue to weaken, we continued to make changes. As we got into 2008, we were already under way in taking costs down and we were able to get through a very weak 2009 and 2010.”
In late 2007, the Brunswick Boat Group had 23 brands. It now has 16.
Sizing to succeed
Graves recalls the flak the company took for its quick reaction.
“We said things about the market early on that weren’t generally accepted in the industry,” he says. “We were accused of talking down the market and we were like, ‘We’re not making this up.’ And of course for us, as a public company, we’re forced to speak about what we see and what we think.”
McCoy’s quick reaction to the early warnings is what helped Brunswick survive, Graves says.
“We began plant closures and brand rationalization, and simplifying and streamlining the entire organization so that we have sized our business to succeed and be profitable in a market very close to the size it is today – well below historical levels,” Graves says. “We understood the gravity of the situation and reacted quickly and aggressively.”
Now plant productivity is higher than it has been in the last five or six years, although the company is half the size it used to be, Graves says.
“It’s kind of incredible,” he says. “We’re in a very volatile state, and we’re still more productive than we’ve ever been. It gives us a chance now to pick our heads up and look down the road, and we’re looking at winning in the marketplace. We’re past surviving. We’re looking at winning. We were either smart or lucky. I don’t know which.”
The boating market has remained volatile longer than many had projected, but Graves thinks the broader economy is improving.
“We’re a little disappointed to still not have seen the fiberglass bottom yet,” Graves says. “We’d hoped to see the signs of a true visible recovery, and they’re not there yet. People are still boating, but they still lack the confidence to buy boats.”
In fact, fiberglass sales declined even further in July and August, he says. Sales of aluminum boats and pontoons were flat or slightly higher.
“Boaters will be back, but we need the economic environment to support it,” Graves says. “We will be planning conservatively, but we’re also planning to respond as the market does recover.”
In late July, Brunswick sold Triton to Fishing Holdings, a division of Platinum Equity, and began to consider whether to do the same with Trophy, the other brand built in the Ashland City, Tenn., plant. Instead, the company opted to move Trophy to a different plant next year and sell the Ashland City facility.
Brunswick has closed 16 boatbuilding plants since 2007, and it now has 11. It is consolidating its Mercury Marine operations, closing Mercury’s Stillwater, Okla., facility and moving the work to its Fond du Lac, Wis., headquarters.
Styling and pricing
Brunswick is focused on two things: design and styling innovation to attract customers who have put off buying a new boat and keeping costs down, even as new and pending environmental regulations have made boats more expensive to build.
Whether consumers’ attitudes have changed for the long haul is anyone’s guess, but the duration of the recession has prompted most builders to reconsider their products.
“We think conspicuous consumption – buying all style and no substance – that kind of buyer will go away,” Graves says. “Or features on a boat that don’t add a lot of value, I think customers will walk away from that kind of opulence. I think it will be a minor change, not a big earth-shattering change.”
Graves still thinks a more cost-conscious consumer is emerging from the downturn, partly because of the access to information that the Internet and other sources provide.
“I do think there’s a different consumer out there,” he says. “I don’t think they’ll walk away; they’re still interested in boating. They’ll just be a little bit different in what they’re looking for and trying to make sure the products meet their needs, and do so without having pricing escalating. [They're] going to be careful about where they spend their money.”
This article originally appeared in the December 2010 issue.