At MÉR Companies, a marketing and event firm based in Knoxville, Tenn., and Southwest Florida, we are navigating the Covid-19 pandemic while celebrating 10 years in business with many industry veterans on our team. Like the Great Recession of 2008, the luxury tax of 1991 and the 1979 oil crisis, this time period is challenging, but we see the current challenges as a bit more complex than the virus itself.
And because we are using our institutional knowledge to assess the current situation differently, we are able to forecast a calmer sea ahead. We have identified three core factors occurring in tandem with the pandemic: the need to build field inventory, the shutdown of manufacturing facilities, and the sustained increase in retail sales.
At the beginning of 2020, retailers and manufacturers alike saw retail inventory begin to increase. We were watching this indicator. Product available to sell was reaching levels we had not seen since the early 2000s. This has been the single largest dashboard item for most manufacturers. As retail sales began to flatten and even shrink from 2018 numbers, manufacturers were beginning to reduce retailers’ inventory.
While the initial steps were not drastic, they were calculated. As the novel coronavirus spread in March, factory managers had to keep everyone safe while maintaining professional commitments, knowing every move they made would be scrutinized.
This challenge affected OEM manufacturers and suppliers, as well. Often in our industry, the suppliers’ businesses go as the OEM manufacturers’ businesses go, but this time that was not the case. Many OEM manufacturers saw an opportunity. While shutting down manufacturing facilities can be extreme and excruciating, it should help to deplete the sizable product inventory in retail stores.
Retail activity then began to increase. These spring sales were not a wave left over from the fall boat-show season. People looking for social-distancing activities were buying boats, and they wanted to go boating immediately.
And so halfway through 2020, the inventory problem is the opposite of where it was when the year began. Retailers are challenged to get products to sell. Most manufacturing facilities have been running since May, but getting a multifaceted manufacturing facility back up is much more complex than turning on the light in your garage. Entire facilities needed to be readied. Hard assets needed to be addressed. Offices and plants needed to be cleaned. Logistical plans needed to be executed. People needed to be re-engaged.
And in order to build boats, manufacturers needed raw materials supplied by plants that also had been shut down. The sophisticated level of businesses in our industry commands low inventory of raw materials. Reopening to address a shrinking inventory scenario was far more complex than it seemed on the surface.
All of this is now affecting the upcoming fall boat show season. Some shows have been canceled because of Covid-19, but many are struggling to secure exhibitors because retailers simply do not have product available to sell. Rather than spending the exhibitor fees and not being able to sell enough product to cover show costs, retailers are opting out and waiting for more product to come in.
Most of our OEM clients are now replenishing retailers’ inventories. MÉR Companies is expecting third-quarter retail sales to remain flat or, possibly, slightly increase from 2019. If we maintain a sense of social regard and responsibility, we expect business to continue to be strong.
We as an industry need to continue to operate with high standards, prudence and humility.
Being nimble in a situation like this pandemic means having discipline. It doesn’t mean being reactive to the slightest activity or reacting too quickly. Truly being nimble means having discipline, basing decisions on factual information and reading the big picture, such as what’s happening in the supply chains in addition to what’s happening with the Covid-19 disease.
Our customers deserve our attention as they yearn to get out on the water. History is going to repeat itself. Our industry will yet again come out stronger and better than we were before.
Managing director Paul Cherney founded MÉR Holdings in 2010 to help other businesses get to market. A longtime industry veteran, Cherney has had marketing, sales and general manager roles with Carver, Brunswick Corp., KCS International, MarineMax and Chapparal/Robalo Boats. He is based in Knoxville, Tenn.