Operators told revenues will remain tight while customer expectations ‘have never been higher’
Post-recession, the new normal is a challenge, albeit a manageable one, for marina and boatyard operators, Bruce Lunde and Dan Williams said in an International Marina & Boatyard Conference seminar on competing in today’s marketplace.
The Feb. 1-3 conference, held against the storybook backdrop of one of Disney’s Orlando resorts, probed the reality of doing business after one of the worst recessions in U.S. history and prescribed ways to adapt to it and move forward.
The new reality for many today is tight budgets, caps on capital improvements, rebuffs from cautious lenders, uncertainty about returns on investment during the next two years and delays in maintenance and upgrades, says Lunde, of Lunde Williams LLC, a Madison, Wis., marina and waterfront planning and design firm.
The response to these problems? Management companies are buying marinas and boatyards in an ongoing industry consolidation, he says. Operators are honing their competitive edge.
Creating an “aura”
“Marinas are selling value and they are selling sizzle,” he says. “Client expectations have never been higher. There are no excuses for mediocrity.”
In this business environment, managers should aim to create an “aura,” an ambience that draws customers to their marinas, Williams says. As fuel becomes more expensive, more people come down to the marina to weekend on their boats and don’t leave the dock.
Underwater lighting, shaded areas under stretched fabric, creative landscaping and walkways, shoreline upgrades and renovation, design features to make a marina greener or more accessible to people with disabilities, maintenance of docks and upland facilities and strong links between the docks and upland uses — pools, restaurants, shops, accessories outlets and maintenance and repair facilities — can create that ambience.
“You need to maximize your revenue streams and cater to your customer,” he says.
That means changing the mix of slip sizes to reflect the boats that customers are buying. Williams said boaters are becoming more sophisticated in their tastes. They want more than a slip. Many are looking for greener, better-engineered, better-looking places to store their boats. None of this comes cheap.
Lunde recommends renovating a facility “in small bites.” Prioritize goals, assess the market, tweak the slip mix and put together a realistic budget. Lastly, he says, confront regulatory issues. Work on integrated storm-water management. Make the marina accessible to people with disabilities. All new builds or renovated facilities must comply with 2010 federal standards for accommodating people with disabilities, beginning on March 15.
“Just think about where you want to be in five years and do it incrementally,” he says.
200 survey responses
Keeping a marina shipshape and renovating it to keep up with the times are big challenges for operators as a sputtering economy drives down slip rates, says Jim Frye, president of the Association of Marina Industries, in a marina industry update based on survey responses from 200 marina and boatyard operators.
“We’ve got to focus on getting more out of the same footprint with fewer dollars,” he says.
Asked how long it has been since their last renovation, 50 percent of respondents said 1 to 3 years; 21 percent said 4 to 6 years; 15 percent said 7 to 9 years; and 13 percent said more than 10 years. (Percentages for some categories of the survey do not total 100 percent in this story because of rounding.)
Frye says the question failed to distinguish between a major renovation and minor changes, and he says he suspects that many of the renovations were storm-related.
Frye says 81 percent of those who had done some renovations worked on their docks; 51 percent worked on their electrical systems; 32 percent worked on their fuel systems; 39 percent worked on uplands; and 8 percent worked on their dry docks. “I don’t think we see a big uptick in renovations to meet [Americans with Disabilities Act] requirements,” he says.
He says that just 28 percent of respondents sought federal money to help with renovations. Federal grant money is available for sewage pumpouts, transient docks and boat ramps. “The vast majority have not applied for federal grants,” he says. “There’s money out there,” but the grants require marinas to contribute matching funds.
Frye says that just 29 percent of the marinas that responded to the survey are at 100 percent occupancy, 45 percent are at 75 to 99 percent, 19 percent are at 50 to 74 percent, and 6 percent are under 50 percent. A modest number lowered rates in 2011: 12 percent lowered their wet-slip rates; 5 percent, their dry-stack rates; 5 percent, service rates; 7.5 percent, transient rates; 24 percent, fuel margins; and almost 10 percent, fuel prices.
Staffing, wages, revenue
Ten percent said they had increased full-time staff; 23 percent said the number of staff had decreased. But 36 percent said they had given full-time employees raises. Only 3 percent had cut wages. Twenty-nine percent of marinas that sell fuel said their volume increased in 2011; 38 percent said it decreased; 33 percent said it stayed the same.
Revenue was a mixed bag. Wet slips: 22 percent said revenue was up; 39 percent said it was down; and 40 percent said it stayed about the same. Dry stack: 28 percent up, 26 percent down, 47 percent the same. Winter storage: 22 percent up; 31 percent down, 47 percent the same. Service and repair: 36 percent up, 26 percent down, 38 percent the same. Transient slips: 22 percent up, 31 percent down, 47 percent the same. Ships store: 20 percent up, 35 percent down, 45 percent the same. Dealer revenue: 15 percent up, 32 percent down, 54 percent the same. Restaurant: 31 percent up, 30 percent down, 39 percent the same.
Frye says that whether a marina was up, down or the same tended to be driven by region (regional breakdowns were not yet available).
“One of the things we’re trying to do is find out what the new normal is going to be,” he says.
Kirby Scheimann, Southeast regional manager for Marinas International, helped present the survey data. Although he’d rather see the 3 percent annual growth typical of the industry before the recession, he says it appears for now that the new normal for the marina industry is “staying about the same” — that is, flat.
The “new normal” for the U.S. economy appears for now to be a long period of below-potential, but improving economic growth, says Maria Dolores Espino, an economics professor in the School of Business at St. Thomas University in Miami. She foresees opportunities to export to emerging markets — Asia, Latin America — and low and stable inflation, but also low pricing power for most products and services and a period of consumers and businesses “re-liquifying” — shedding debt, accruing assets — on their balance sheets.
“This bodes well for the future,” she says. Her projection for 2012: 2.5 percent real GDP growth, depending on how the U.S. economy is affected by the ongoing economic malaise in Europe.
Espino says bankers likely will continue to be risk-averse through 2012 and remain a drag on business expansion. U.S. banks have more than $2.5 trillion in excess reserves.
“We’ve never seen this level of excess reserve,” she says. “They have the capability to lend, but they are not doing it.”
The International Monetary Fund is forecasting a further half-percentage point contraction in the European economy overall in 2012, with Spain and Italy going into “deep recession” in 2012-2013. Germany should be able to maintain a modest growth rate of 0.3 percent in 2012 and 1.5 percent in 2013, and France a growth rate of 0.2 percent in 2012 and 1 percent in 2013, but Spain may see a further contraction of 1.7 percent in 2012 and.3 percent in 2013, and Italy a decline of 2.2 percent in 2012 and 0.6 percent in 2013, Espino says. She believes the U.S. Federal Reserve has acted prudently to ensure that Europe’s banking problems don’t drag down the U.S. banking system, but she says its economic problems will have an adverse effect on U.S. exports to the region.
“Sales there are going to be flat,” she says.
She advises U.S. businesses to explore a mix of export markets, European and emerging, maintain strong cash flow (don’t get buried in debt), retain talented employees and contract for the rest and lock in interest rates now (the Fed has committed to keeping them low through 2014, Espino says).
Projects shut down
The recession shut down most new marina development, says Sam Phlegar, president of Applied Technology and Management Inc., a consulting firm with offices in Charleston, S.C., and nine other locations. Projects were canceled, mid-stream developments were put on hold, expansions and improvements were tabled and project schedules were significantly extended. “Little happened in 2009-10,” Phlegar says.
One strategy for keeping a project alive during hard times is to seek permits, even if the work is delayed. “This creates value and positions [the project] for entry into the market,” he says.
Phlegar advises, too, an audit of the original vision to test its viability in the new normal, fine-tuning plans and repositioning the project as the market changes. Where possible, developers should find and use grant money to move a project forward and look for governments overseas that are eager to promote marina development as a way to draw foreign investment and create jobs.
Phlegar sees encouraging signs: The U.S. economy is slowly improving, he says, boat sales are edging up, the volume of transient dockage is growing and lease rates are stabilizing.
The challenges: Loans still are hard to get, European economies remain a crapshoot and slips-for-sale (condominiums and dockominiums) are a “dinosaur” (“That model looked so good in 2005,” he says. Not anymore.). He warns that marinas may have to change to keep their value in fluid economic times such as these.
His advice on new marina development: Plan, plan, plan. Keep looking for lending. He says it’s coming back, though very modestly. Get your permits. “Be ready,” he says.
This article originally appeared in the March 2012 issue.