A good if not great first half

Industry headed for a sixth straight year of growth despite slowdowns in the largest and smallest segments
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Man standing in power boat

New powerboat sales for the 12-month period that ended June 30 were up 5 percent, Info-Link says.

The boating industry has seen good momentum in 2017, although some say spotty weather this summer and chaos in Washington caused a bit of a slowdown in the smaller and larger boat segments and that some buyers might be getting cautious, anticipating the next economic slowdown.

Still the industry has remained healthy during its slow recovery from the Great Recession and seems to be adhering to the deep and painful lessons it learned from that experience. Dealers continue to carry healthy levels of inventory (even sometimes complaining that they’re not getting product fast enough), banks have stuck with tighter lending standards and builders have cautiously added capacity to meet growing demand and continue to stick with a pull rather than a push model seen prior to 2009.

Several market segments clearly are thriving.

“Generally speaking, the boating market is doing quite well, especially when you consider we’re now in our sixth year of uninterrupted growth,” says Jack Ellis, co-founder of InfoLink, the Miami firm that tracks recreational boat registrations. “New powerboat sales for the 12 months ended June 30 were up about 5 percent, compared to the same period last year. Bear in mind, however, that not all segments are experiencing the same trends at the same rates.”

For example, boats under 20 feet have lagged in 2017, and boats over 60 feet began to see softness this summer.

“You’ve heard about the slowdown in larger yachts, but aside from that I think everything is still clicking along,” says Thom Dammrich, president of the National Marine Manufacturers Association. “The economy is not great, but it’s good. The stock market is very good. That customer may be more susceptible to uncertainty [in Washington], but I’d argue that although there’s a lot of news, there’s not much going on in Washington.”

The situation resembles the climate in the months leading up to last fall’s presidential election, says Michael Swartz, an analyst with SunTrust. It’s also reminiscent of several instances during the previous administration when threats of a government shutdown dominated news cycles and caused consumer confidence to plunge.

“The thing we’ve heard with some of our dealer checks and talking with people in the industry, there’s a lot of concern and unease and tension with what’s going on in Washington,” Swartz says. “We saw this going into the election last year — there was a four- or five-month stretch where the industry in general, and larger boats specifically, kind of froze. That segment tends to be a bit of a canary in the coal mine. Those buyers are a little more plugged in to the economy, and that impacts their personal expenditures, as well.

“Is there a point where that buyer says, ‘This is the way of the world, this is hectic, I’m going to buy that boat, anyway?’ We just don’t know,” Swartz says.

The larger concern is that buyers understand the economy is cyclical and might start to worry that the market is beginning to turn, Swartz says.

“I’d like to say it’s five years down the pike, but we’re seven or eight years into the recovery,” Swartz says. “The thing is, it’s a shallow recovery, so maybe that will elongate it. But there’s no way of knowing. There’s going to be another recession, but the question is how deep is it and how long does it last? If it’s a quarter or two, everyone comes out unscathed; if it’s deeper, I don’t think we’ll see what happened the last time, but it could be more painful.”

“I think 2018 will be strong,” Dammrich says. “We might start to see some questionable economic conditions in 2019, but I think there will probably be a rebound in 2020 because I don’t think there’ll be a big dip. We’ll have a normal, mild recession, but we’re not going to have a global financial crisis again.”

Dealers still optimistic

“Everything we’ve been seeing has been very positive,” says Matt Gruhn, president of the Marine Retailers Association of the Americas. “Somebody here talked to a dealer who said they were at pre-recession levels and ‘things are easy again.’ Whenever you hear that, that’s very promising. Particularly over the last decade, I haven’t heard that often.”

Gruhn points to positive economic indicators, such as record stock market prices. “I’m certainly hearing, anecdotally, nothing political, but more and more people talking about when the next recession comes,” he says.

“We certainly wouldn’t expect it to be as severe as the last one, but my hope is that we learned enough through the hard times that we don’t make the same mistakes as an industry,” Gruhn says. “I think a lot of people are aware enough of what those mistakes were and how they happened and have hopefully focused on preventing that.”

Still, marine dealer sentiment declined on a month-to-month basis in July, although the mood based on a three- to five- year outlook brightened. The MRAA/Baird Marine Retailer Sentiment Index dropped from 77 in June to 69 in July —  down 10 points from its reading of 79 in July last year. 

Baird says the index’s three- to five-year outlook improved sequentially to 76 in July from 69 in June and was modestly higher than a reading of 75 in July of last year.

“Optimism after the election hasn’t turned into a rebound yet,” one retailer noted. “Hopefully next year will be great.” Several dealers say government action or inaction hurt demand, but at significantly lower numbers than in 2015 and 2016.

Baird says the percentage of retailers who reported new-boat retail growth in July (44 percent) declined from June’s pace (59 percent) and was well below last year (76 percent). “Net, our checks suggest demand moderated further in July despite an easier [year-over-year] comparison,” Baird says. July 2016 was down 7 percent, according to Statistical Surveys retail data. “However, used-boat retail trends in July appear a bit less volatile.”

Dealers can probably spot some areas where they’ve lost sales because there was not enough product in the pipeline yet, but that approach will help insulate them when the next downturn hits, Gruhn says.

“Channels are healthy, inventory is healthy, and should there be a slowdown, that’s going to help us in our adjustment to the slowdown and the recovery,” says Gruhn. “I think, for the most part, we’ve learned that lesson and it’s still fairly fresh, and that’s why people aren’t getting overly aggressive.”

Loading up the boat in the marina

People are more economically stable these days and are feeling more confident, leading some to decide it's a good time to upgrade their boats.

Cute kid in purple life jacket

Strongest segments, regions

Boats under 20 feet have been selling at a much slower pace, with only half a percent of growth in 2017 in boats from 16 to 20 feet, Ellis says. Sales of boats from 21 to 26 feet grew 8 percent, and sales of boats above 27 feet grew 9.6 percent.

“Similarly, there are significant differences by segment,” Ellis says. On a 12-month rolling, year-over-year basis in June, saltwater fishing boats, tow boats, pontoon boats and cruisers and yachts have been selling well, he says.

“Smaller boats, like jonboats, skiffs and runabouts have been struggling — I should point out, however, that jet- powered runabouts are doing quite well, as are outboard runabouts. It’s the sterndrive runabouts that are continuing to suffer.”

Saltwater fishing boats and tow boats led the industry in June with 9 percent growth in sales. Pontoon sales grew 6 percent on top of industry-leading growth for several years in a row. Cruisers and yachts were up 6 percent in June.

Freshwater fishing boats grew 4 percent and runabouts were up 2 percent, but skiffs were down 2 percent and jonboats were down 5 percent.

Some builders are also doing very well while others are struggling, Ellis says. “In other words, some of the people you speak with might say the market is softening while others will say the market is booming. It depends on your point of reference, of course.”

Boat sales in California have been a surprisingly bright spot for the first time since the recession — possibly because all the rain and snow the state got last winter helped offset a lingering drought, says Ryan Kloppe, director of sales at Statistical Surveys Inc., the Michigan firm that tracks new-boat sales.

“Pontoons were up 30 percent in California on a 12-month rolling basis,” Kloppe says. “Ski and wake are up, as well, and some of the runabouts — but the majority of runabout growth is from runabouts with outboards.”

“California’s finally starting to come around, and we’ll probably see Florida start to soften up in the not so distant future, where California has been late to the party,” Ellis says. “I see that in the whole West Coast. That used to be the ski-boat capital, and they’re starting to sell ski boats out there again.”

The larger boat slowdown

Brunswick Corp. and MarineMax indicated in their most recently quarterly earnings reports that sales have declined in the large-boat segment. That segment, though small in unit sales, is significant in dollars for the overall industry.

Sluggish sales of fiberglass boats between 40 and 49 feet are prompting Brunswick to lay off 90 workers and furlough 130 more at its Palm Coast, Fla., production facility during the third quarter this year. “This is in response to the retail demand, which has continued to decline and lag our expectation,” says chairman and CEO Mark Schwabero.

The company says those declines were partly offset by strong international sales and that it remains on track with its expectations because of positive market conditions and pending new-model introductions. The layoffs and furloughs “were to align our production levels with market demand in the 40- to 49-foot segment of our business while continuing to maintain our production capabilities in stronger segments of the business,” Brunswick spokesman Daniel Kubera says.

The company’s plan includes additional second-half declines in large fiberglass sterndrive inboard boats, which Schwabero says are "more significant" in the third quarter; those sales declined 16 percent in the second quarter.

Politics and weather

MarineMax reported seeing softness in the 60-foot-and-above boat market during its third quarter, which ended June 30, and pointed to inaction in Washington, D.C., as a leading reason that market weakened for the first time since the Great Recession. Cool, rainy weather in the Northeast also was a factor.

The company remains confident, based on several positive big-picture fundamentals, that those factors will not affect long-term buying trends, MarineMax chairman and CEO Bill McGill says.

“The thing that impacts our business the most is called uncertainty,” McGill said during a conference call with analysts. “What’s going on in Washington right now, everything they’re trying to get done is a pushback by the Democrats and a few of the Republicans, and that creates uncertainty — is this administration and president going to be able to execute on things that were promised to people who went to the polls and voted them in and voted on Congress?”

Controversy over potential Russian ties to the Trump administration “confuses people and makes them feel uncertain about what they’re going to do,” McGill says. “You’ve got people saying they’re going to impeach our president, and that makes people concerned. The business is doing just fine, the big-boat business — it’s taking a little longer to get it done. And when you’re selling multimillion-dollar boats, between one quarter and the next … it makes a huge difference. I think that’s what got us caught this quarter.”

A cool and rainy May and June in the Northeast also had an impact on sales; activity picked up in July as temperatures in the region soared, McGill says.

When MarineMax assessed the third quarter of 2016, the company pointed to strength in sales of boats larger than 60 feet as contributing 44 percent of same-store sales growth during that quarter. Although the company sells few boats 60 feet and larger, annual revenue from those sales is about $100 million, CFO Mike McLamb says.

“That specific segment has been fairly hot since the recession ended,” McLamb says. “This is the first time there’s been somewhat of a pullback since probably 2010 or 2011, that us and others in the industry believe will be short-lived once things in Washington get moving in one direction or the other. It doesn’t all have to be rosy. It just needs to move on to wherever it is going to be and get done.”

“We had some really warm days in March, but then April and May were kind of cool, and I think we saw that throughout the Midwest and Northeast,” Kloppe says.

“The economy seems to be doing fine, but I think people are a little timid when it comes to that, waiting for some kind of bubble to burst,” Kloppe says. “And weather was a little bit cooler than average.”

Positive fundamentals

The overall indicators remain strong, Dammrich says. “The Fed is raising interest rates because they see the economy is strong, confidence is high, unemployment is low. New-home sales are strong; every indicator is pointing to a strong market for new-boat sales,” he says.

Industry stakeholders and analysts interviewed by Trade Only overall believe the industry has performed fairly well, even if slightly below expectations, so far in 2017.

“This is almost all good news,” says Ellis. “Buyers are feeling more confident and are generally more economically stable than they were several years ago, so many are upgrading. The only downside is that the vast majority of these people are repeat boat buyers. We were hoping to see an increase in first-time boat buyers this year, but so far 2017 looks a lot like 2016. This presents a longer-term challenge, but in the meantime we appear to have a lot of satisfied customers.

“There is a silver lining — kind of,” Ellis adds. “Many of these new-boat buyers sold their prior boats, which means they were [or] are available for purchase. We also know that most first-time boat buyers enter the market via a pre- owned purchase, so this is good.

“Our concern is that the available inventory of later model-year pre-owned boats is considerably lower than it was in the past because we produced far fewer boats after 2008,” Ellis says. “Fewer late model-year boats might mean fewer first-time buyers.

“On a side note, the decreased availability of later model-year, pre-owned boats has a favorable impact on new-boat sales because it provides positive pricing pressure,” Ellis says. “People who may have otherwise bought pre-owned now have more incentive to buy new because the cost of a comparable late model-year boat is higher than it was in the past. All in all, we’re bullish about 2017 but are keeping a watchful eye on trends that are apt to have an impact on years to come.”

This article originally appeared in the September 2017 issue.

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