Bigger, pricier boats are where it’s at as the boating industry shows resilience to certain market weaknesses that are affecting sales of other luxury recreational goods.
A new survey from the investment firm B. Riley backs up statements from people such as MarineMax CEO Bill McGill and Mercury Marine president John Pfeifer that the big demand in the industry is all about content. Buyers are willing to spend money on it.
Despite shaky consumer confidence and 2016 being an election year, boat dealers who were optimistic about their businesses outnumbered those who were less optimistic by a 2-to-1 margin. And the confidence does not seem misplaced — the recreational boating industry appears to be more resilient to negative factors in the marketplace, compared with other leisure industries, according to one analyst who covers several of them.
B. Riley’s sixth annual survey of roughly 100 dealers in the United States and Canada shows that an “overwhelming majority of dealers” reported an increase in year-over-year sales from last year. This included more than 40 Brunswick dealers outside the MarineMax network, 16 Chaparral/Robalo dealers, 21 Malibu/Axis dealers and 21 MasterCraft dealers.
“I think the boating industry has really for the last year or so been a real standout performer, versus some other big-ticket leisure categories we cover,” says B. Riley analyst Jimmy Baker.
That’s in part because the boating industry is somewhat insulated from foreign competition.
“We’ve seen a slowdown in ATVs as oil and gas regions have weakened, and what I would say is the broader commodity market,” Baker says, adding that weakness in agricultural markets had affected companies. “The ‘ag factor’ hurt companies like Polaris. Similarly, we’ve seen a slowdown in motorcycle sales,” Baker says. “Those industries seem to be more subject to foreign competition, which is not as much of an issue in the boat space.”
McGill referenced a changing customer base during a conference call discussing third-quarter earnings in late July. “There’s been a little shift in the demographics, where middle-class America is not active now in our business,” he says. “There’s some, but not like it was,” McGill says as the company reported near-record earnings. “The upper middle class is very active now. High-net-worth individuals are extremely active right now. There’s been a shift, and a lot of it is new business.”
Pfeifer mentioned at a press event that although unit sales still have not caught up to their pre-recession peak, dollar values have exceeded it.
“It’s interesting,” Baker says. “You have an aging, increasingly wealthy baby boomer willing to pay for a premium product. Brunswick and other builders are addressing that demand. But at the same time they’re working hard to grow the industry, and in order to grow participation, boating has to become more affordable. You’ve got to play to both ends of the barbell. You have to have that entry-level offering to grow the industry, but also chase the wealthier consumer that’s wanting more premium product.”
Some very distinct opportunities for the industry show up in the data, Baker says. “We see pontoons continue to be very popular, with sales above prerecession levels. Yes, within the confines of pontoons, they’re getting more luxurious and expensive, but they are typically a more entry-level offering. We’re also seeing strength in that 30-feet-and-above fiberglass inboard segment. Ski and wake has seen a lot of price depreciation and continues to do well as its customer has become wealthier over time.
“If there was one big takeaway or surprise for us, it was how optimistic the dealers were,” Baker says. “So despite this being an election year, and there being a more broadly choppy consumer environment, those more optimistic outnumbered those who were less optimistic by 2-to-1. That was a surprising differential.” Only 4 percent of dealers surveyed characterized inventory levels as significantly too high, a “very encouraging number,” according to the report.
Baker says the hot summer also has been favorable for boat sales. “There was a strong March because it was unseasonably warm, and then we took a step back in April, as that month was cooler and wetter,” Baker says. “Then as the summer months entered and the weather improved, it seemed like business improved and continued over the last two months. A lot of dealers were really optimistic coming out of the Fourth of July holiday. What we heard from a number of dealers that surprised us, too, was how much business they expected to do into August and even September.”
Typically dealers would be saying business would start to slow prior to those projections, Baker says. “It’s hard to say how much the industry is picking up delayed sales due to weather or how much other factors are influencing consumers,” he says. “Gas prices are low, and more credit unions are coming into the [retail] market, offering attractive financing to potential broader audiences.
“I wouldn’t say this is by any means the 2005 or 2006 floodgates opening,” Baker adds. “It’s just more incremental loans coming through credit unions. There are a lot of factors that positively influence the market, but you can’t discount weather.”
The optimism speaks to dealer appetite for carrying inventory, Baker says, and it’s a good indicator for the industry. “Rather than getting a dealer to compare his business today versus pre-recession, we try to talk about this year versus last. This is our sixth year doing this, so we can see a trajectory of business and how optimistic dealers tend to do better than those who aren’t optimistic. I think the optimism is reflective of business fundamentals right now, but dealer confidence is important for a lot of reasons — staffing decisions, ordering. When a dealer becomes pessimistic or negative, it can be a self-fulfilling prophecy. Maybe he is cutting staff and inventory, and typically he’s not as aggressive in growth or pursuit of growth.”
This article originally appeared in the September 2016 issue.