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Hold Fast, We Could Be in for Stormy Seas

With the Ukraine invasion and our economy rattled as we recover from the pandemic, will soaring gas prices push inflation even higher and squeeze consumers?

(See Gary Reich’s report in the March 8 Trade Only Today.)

Discretionary spending often takes the biggest hit in such circumstances, and history has shown that boating is a leading indicator of recession. Could the recent rise and fall of the Peloton brand be a cautionary tale for the boating industry?

The answer is yes. More economists are warning of stagflation, a scenario wherein inflation is high and economic growth is low. For those who’ve been around this industry awhile, it brings back memories of the 1970s and the Arab oil embargos.

Indeed, a many Americans are not cognizant of the events of 1979-82. An unexpected rise in oil prices made 1979 a worse year for economic growth and inflation than had been predicted, triggering a recession. Approximately half of of the U.S. population was born after 1980, which means most have no reference point for the economic debacle now unfolding.

You’ve likely read about the rise and fall of Peloton Interactive. Peloton, once the undisputed leader in luxury fitness products, including Internet-connected stationary bicycles and treadmills that permitted monthly subscribers to participate in streaming classes, is in free fall. What happened to Peloton could be a wake-up call for the boating industry.

During the Covid pandemic, sales of Peloton’s products boomed, in large measure because gyms and similar facilities were closed. Consumers exercised at home. Similarly, boating also experienced unprecedented pandemic-driven sales in 2020 and 2021 in response to calls for social distancing and outdoor recreation.

For Peloton’s leaders, the fatal error was assuming that demand would continue to increase. But once Covid restrictions eased, consumers again had other choices for spending their fitness dollars. Demand for Peloton plummeted, and competition increased from other price-sensitive brands. Peloton’s stock nosedived 76 percent; CEO John Foley and other top executives resigned; layoffs hit 2,800 employees; and plants were shuttered.

What’s the boating parallel? The pandemic delivered the boating industry thousands of first-time buyers. It triggered a major shift in recreational spending by consumers forced to forego vacations, cruises, summer camps and much more. They chose boating for the outdoor recreation and social distancing benefits.

The country, however, is emerging from the fog of Covid, and consumers are returning to prepandemic activities. It is happening before our eyes.

We can’t be blinded by our recent sales successes. Some retailers claim they had their best years without an in-person boat show, and their conclusion is that big boat shows are no longer valuable. Still others speculate, with evidence to the contrary, that most future boat sales will be made online. Indeed, some marinas, sold out for the first time in decades, contend they no longer need to aggressively promote facilities or attend shows.

The industry must accept that there will be a correction. As consumers return to prepandemic travel and other pursuits, growth for boating is certain to slow. Demand for boats and services will decrease. The old adage “what goes up must come down” exists for a reason.

Moreover, those new boaters are now experiencing the real costs of ownership. Many likely will move to other options, resulting in many used boats coming to the market. After all, even in normal times, we know 40-plus percent of new boaters drop out in less than five years.

In order to maintain our competitive advantage, we must demonstrate to boaters, new and veteran, that we are not simply selling boats and services. We are selling them a lifestyle that offers benefits that are both tangible and intangible.

How do we do it? The best place to immerse consumers in the excitement of the boating lifestyle, short of being on the water, is at major boat shows. But shows must now be “experiential” events, not just product displays. While shows are a perfect place for dealers to nurture relationships with existing customers, their true value is delivering what no other promotional medium can: face-to-face contact with thousands of prospects to stoke the sales funnel. And the beauty is that it all happens in one place at one time.

Circling back to Peloton, marine dealers can learn from that company’s failure and get real in assessing the future. Failing to do so now could make a market correction more severe. It has happened before, and it triggered the demise of some solid marine businesses.

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