European boatbuilders have been focusing more and more on the U.S. market as their own economies remain challenged and the strong dollar creates a pricing advantage against their American counterparts.
Builders from abroad began focusing on the North American market just after the Great Recession, when many U.S. builders scaled back on product development — many out of necessity to survive. That lack of new product created a perfect opportunity for builders from Europe to market something new and different and take share away from domestic builders.
Then, however, Europe faced an economic crisis of its own — one that would linger years beyond the downturn in the United States. As challenged as the domestic boat market felt to dealers and manufacturers here, it looked attractive as the strongest in the world for several years running. And now the strong dollar, relative to the euro, gives even more incentive to builders looking to take advantage of a pricing edge. The new dynamic has created even more pressure for some of the smaller U.S. builders, who are still trying to figure out the new normal.
“Product from Europe is more inexpensive now because of the strong dollar,” says National Marine Manufacturers Association president Thom Dammrich. “The main reason they’re coming in droves today is because they have a competitive advantage on pricing, because of the strong dollar. The same thing happened five years ago when the dollar was really weak — U.S. manufacturers had the advantage and were flooding Europe with product. This is all part of international trade.”
On the sailboat side, Beneteau and Jeanneau have huge market share, Dammrich says. “Some of their power product is doing very well in the U.S., too. They brought their new powerboats over at a time when some of the U.S. manufacturers had not yet brought out some of their new product. Now you see most U.S. manufacturers have brought out new product in the last few years, so I think that’s going to get much more competitive. But, again, the European builders — because of the strong dollar — have got a pricing advantage in the U.S. today.”
‘Never waste a crisis’
The lag in new-product introduction by U.S. manufacturers during the recession gave companies such as Beneteau an opportunity they wouldn’t have otherwise had, says Beneteau America president Laurent Fabre.
“The only reason we were not bringing our powerboats to North America for the 120 years we have been in business was because the market was saturated already with a lot of brands,” says Fabre. But to quote Madame Annette Beneteau-Roux, who has led the Beneteau Group since 1964: “Never waste a crisis.”
“There was a crisis here in America, not only because the market was bad but also because the industry, for many years, was just taking advantage of the booming market without making the investment,” says Fabre. “They were just making a boat with a new hull color and calling it a new model. If you look at the U.S. industry at that time, there were very few new boats. Then the manufacturers lacked money to make the investments in new products. And whenever you come out of a crisis, customers want something new and fresh. They don’t want anything that reminds them of that crisis. That’s where Beneteau had an opportunity.”
That has created pressure for U.S. builders — from corporate giants such as Sea Ray to entities such as Lazzara Custom Yachts, a family-owned builder based in Florida that recently sought private backing to help stave off pressure from European builders.
“Everybody realizes the same thing: The American market is one of the strongest out there, so many are putting in the capital, sales and marketing needed to penetrate this market,” says Joe Lazzara, president of the company and the third generation of Lazzaras to run it. “There are fewer European builders maybe in numbers, but the main players are spending more money than ever. Having the proper capital is critical for any company, especially to compete with all the foreign money being poured into competing brands.”
The company decided to remain majority-family-owned to maintain control, he says. “Although we don’t have the same type of financial backing as some of the brands you’re seeing come here, one of the benefits of being small and operated as a family business is the ability to react to market trends, which are happening as fast as they ever have been, and being able to come out quickly with a new product to react. We don’t have to go through multiple layers of management to get approval to get a marketing budget for a boat show or develop a new product. It’s not the big that will eat the small; it’s the fast that will eat the slow.”
Investing in success
It takes more than just bringing some boats over to a boat show (even if they get sold) to gain a real foothold in the U.S. industry, Fabre says. Although those companies might create additional competition for domestic builders, many lack the follow-through needed to make a meaningful impact on a long-term basis.
“We came here, and for one year we studied how we needed to change our products to suit the needs of boaters here,” Fabre says. “We approached dealers and communicated about what we needed on products. We looked at the way customers were using their boats, and at how different that was here. It was a huge investment for us.”
Not all builders from abroad used the same approach, and Fabre thinks those will be the brands that disappear as soon as things rebound in Europe, which they’ve begun to do in some areas. “The problem is, when you address the U.S. market as an opportunity, you don’t take the time to understand the needs of dealers and different customers, who boat very differently depending on where they are. People boat very differently in the North, South, East and West. Even in Florida alone, the west coast [of the state] is very different from the east coast.”
Many of the European builders seeking to make gains in America have changed distribution networks several times in the past five years, which can devastate a brand, says Fabre.
“We work with the same dealers. We trust them, and they grow with us,” Fabre says. “That gives us the strongest, most loyal partners in the country. That approach has proven to be right. The past four years have been extremely successful. We were selling units, then tens of units, and now we are selling hundreds of units. You cannot sell hundreds of units if you have the opportunistic approach.
“We’re thinking long-term. Some brands will come and sell a few boats, but then customers can’t buy parts for them. The only way you can be successful is to have partners — dealers — and you can only do that if you make the long-term investment and commitment.”
But the opportunistic approach has created an ideal space to grow into for forward-thinking boatbuilders such as Lazzara. “You’ve got to take care of your customers, and a lot of those boats are so similar. They’re all beautiful, but one of the differences that comes into play is, are you able to take care of the vessel?”
So Joe Lazzara and his family members who are still involved in the company made a choice when they went with private backing. They formed two companies under the Avanti Ocean Group — Lazzara and Tampa Marine Services. Though their yard has long serviced Lazzara customers, they changed the name to take advantage of the service work on vessels that had little or no U.S. support.
“One of the challenges the industry faces is as all these builders come over, the service infrastructure has got to pick up to take care of them,” Lazzara says. “Things like Italian doors, parts of boats that are not manufactured in the States, makes them a heck of a lot harder to service. Since the U.S. is becoming more of a top market for builders, it’s going to be a challenge for them to provide service for their customers. There’s an opportunity for my company. We’re reaching out to service other brands because there is obviously a demand.”
With Tampa Marine Services, the Lazzaras are investing in one of the major service yards on the west coast of Florida. “I plan on being one of the largest, if not the largest,” says Joe Lazzara. Already the company has invested in a 300-ton lift to haul boats as large as 170 feet.
“I’m a third-generation boatbuilder — my passion is designing and building boats,” Lazzara says. “But I’ve seen the numbers, and I wouldn’t say service is recession-proof, but it’s pretty darn close. With the influx of European builders, and other builders, there’s an opportunity there to service the customer, and that’s why we started Tampa Marine Services. We just finished one of the best paint jobs we’ve ever done on a 106-foot boat. It’s beautiful.”
Bigger than Europe
The issue of boatbuilders looking to America for market share is one that will only intensify, and that could create a problem for companies that aren’t looking to protect themselves long-term, says Bill Yeargin, CEO of Nautique builder Correct Craft, which owns several other boat and engine brands.
“For many decades U.S. boat manufacturers have dominated the world’s recreational boating industry, but that is getting ready to change in a big way,” says Yeargin. “And the problem is way bigger than just Europe. We do business in 67 countries, and I think I have been in all of them. On many of the visits I have met with some type of government or quasi-government official, and I always get the same question. They want to know what they can do to convince me to build boats in their country. In one Asian country the government told me they had set aside over $1 billion to help companies there get into recreational boating.
“This is a huge threat to our national industry that we don’t seem to discuss much because people are not sure what to do,” Yeargin says. “When this starts happening, it will seem harmless. The first products will probably miss the market and be of inferior quality. But over a few years our international competitors will figure out what to do, and I believe they will eventually put some U.S. manufacturers out of business. As an industry, I believe we need to view the market as global from both a customer and competitive perspective. Over 95 percent of the world’s consumers live outside the U.S., and soon many of our competitors will, too.”
Setting U.S. trends
Those competing brands from around the world also will continue to influence U.S. boats, says Fabre. “European builders have brought a lot of things to the market that make sense,” he says. “Now some of the big American builders are looking very European. We have Americanized our products in terms of function and technical support, but in areas of design, I will tell you the American market is getting more and more European.”
For Lazzara, the path to competing is bucking the trend. “I definitely foresee a trend. You have to be unique; you have to reinvent yourself and your business model going forward,” he says. “We’re going to build an innovative product that does not look like everything else out there — that’s our advantage. We’re not going to out-market these guys dollar for dollar, but we are very customer-oriented. We want people to be able to pick up the phone … and call the president, and have the president answer. People want that, rather than going through all these layers. Our size is also our advantage.”
A rising tide?
It’s not all doom and gloom in Europe’s economy. The European Central Bank upgraded its forecast for eurozone growth in 2015 to 1.5 percent. If achieved, that would represent a significant acceleration from last year’s meager expansion of 0.9 percent.
Companies such as Brunswick Corp. did well in Europe in the first quarter this year, although most of the boats the company sells in Europe are manufactured there, which offsets unfavorable currency situations. “I think we said Europe will be flat to slightly up, so with our ability to take share and the momentum there we feel good about that market,” Brunswick CEO Dusty McCoy said during a conference call to discuss earnings.
During the quarter, European boat sales on a constant currency basis increased by 21 percent, compared with the prior year. Mercury Marine’s sales increased in Europe by 21 percent, which included a 9 percent benefit from an acquisition completed in 2014, says Brunswick president Mark Schwabero.
According to new figures from the Italian boating industry association UCINA, Italy’s marine market is showing encouraging signs of growth. Sales increased 2.1 percent, compared with 2013, and the best performance was recorded in the accessories sector. That’s “encouraging data after very difficult years,” says UCINA president Carla Demaria.
And the economic and currency fluctuations will continue to ebb and flow, Dammrich says. “Just to understand it, of the U.S. boats that go to Canada today, people there are paying 25 percent more for a U.S. boat than they do a European one,” he says. “That’s 20 percent of exchange rate fluctuation and a 6 percent increase in the cost of product. For a Canadian builder selling in the U.S., that product’s suddenly 20 percent cheaper in the U.S. than it was. So we’ve got that same thing happening, to an extent, between Europe and the U.S.
“Also, the U.S. market today is the strongest boating market in the world, so by nature that attracts competition from all over the place,” Dammrich says. “But U.S. manufacturers are a resilient group. They will compete with anyone, anywhere.”
This article originally appeared in the June 2015 issue.