Malibu Boats president Jack Springer has held CEO positions in a number of industries, including furniture, plastics, body armor, foundry, auto parts stamping, textiles, automotive and semiconductors. He spent time in the marine industry at Nautic Global Group before joining Malibu in May of 2009 — at the height of the recession.
It was then that Springer saw opportunities for Malibu Boats to jump ahead of the competition in terms of market share, leaving behind its closest competitor and growing its own share by 10 points. The company went public in January after only a few months of preparation.
Trade Only sat down with Springer to discuss Malibu’s recent past, its future and the reasons for the ski and wakeboard segment’s growth at a time when most of the industry was losing sales in droves.
Q: What has it been like for Malibu to go public, and what are some of the differences between being privately and publicly held?
A: There probably hasn’t been as much change as I expected. … We’ve always served investors and they’ve always had expectations, and the way I look at it is, that pool of investors is a lot larger than it was. But it’s really not changed much. One of the things we always try to do is hold to our mantra: Just focus on Malibu and do what’s best for Malibu, and I think as long as you do that, whether you’re a private or a public company, you’ll be fine.
Q: What was the process like of making that initial public offering?
A: You know, it was very fast. That was one of those things. I think it was the right time [to go] from being a small cap company. We had always thought that if there was ever going to be any type of an exit, it would be a typical buy-sell arrangement. But as we examined it, one of the things that was very important to me was understanding the impact on our dealers and employees. As I came to understand more and more, it seemed the impact on our dealers and employees was going to be a lot less than some other forms. And it did prove to be that way.
The other factor was, from the time we began considering it to the time the IPO occurred, it was only about five or six months. It was extremely rapid — very much a hundred-yard dash, versus a marathon. So that allowed us to have as little impact on our employees and our distribution as possible and get back to doing what we do extremely well every day.
Q: I remember several analysts had come out saying Malibu was very well positioned to go public. What goes into that positioning?
A: I think that’s absolutely accurate. Within our segment, we’re by far the top company. There’s about 1,300 basis points separation in market share, or a 33 percent market share, and we have grown that over the last five years by about 10 points.
We’re the clear leader. We have probably brought out three to four times more product than the competition since the recession occurred. One of the things I believe in is that in a recession you bring out product. You don’t retrench. You don’t cut back because you can grow your share and grow your company. And we did see that occur.
Then you look at our dealer base and all of the changes in our distribution. I think we’ve added 40 dealers in the United States alone.
So being the largest, having the product we had, having the dealer base we have, which is the best in the industry, in my opinion, that just positioned us to be able to talk about all of the key factors that the investor community looks for. And they’re looking for that growth. They’re looking for that No. 1 and increasing market share.
Q: In addition to bringing out the new product, how has Malibu been able to achieve the market share it has in the past five or 10 years?
A: If we go back, say, from the year 2000 to the year 2009 or 2010, we and our largest competitor were always at about 23 percent. We would be No. 1 for a couple years and they would be No. 1 for a couple years. There are really two things that have driven it. Number one would be product, and the second would be distribution.
Beginning in about 2009 we just continued to grab that market share. So we went from 23 to 33 percent; they went from 23 to about 20 percent. So now we’re not too far away from being double the size of our next two competitors from a market share point of view. It’s not only in the U.S. Internationally we have well over 40 percent market share.
It has been through new product. We’ve more than doubled our new-product development team over the last four years. We have added a tremendous amount of engineering — probably eight-fold — in terms of what we had in the 2009 time frame. If you go back to 2008 and ’09, we were like our competition. We brought out generally one new boat a year, one or two new features a year.
In 2009 we stepped it up. We brought out our new Axis and we began bringing out three new boats a year with about 12 to 15 new innovations and features a year. So that helped to really drive the market share, along with our distribution. If you look at the United States alone, we’re either the No. 1 or No. 2 market share leader in 80 percent of the U.S. market. So we essentially just command the market, except in that other 20 percent of the market where we’ll have a third or fourth position. And those dealers are being challenged to get to No. 1.
In addition, that Surf Gate package has driven growth because surfing is the most popular sport in our industry today. We came out with that in 2012. That has helped to continue to drive market share. Axis is now a 7 percent market share brand, and they did that with really only two models, and last year we added two more models. Also in 2012 we introduced our premium pickle fork line, called the MXZ line.
I think it’s important that we don’t take a step back. For 2015 we’re bringing out more new boats and more innovations than we have in the history of our company. So we’re not backing off. We’re accelerating, if anything.
Q: How do you keep those features new and stay ahead of the curve? This is a high-tech segment.
A: It is, probably more high-tech than most. There are several factors that go into it. I believe that we analyze the market and the market share better than anyone else. We’re extremely data-driven. So what we call product quiet spaces — that would be an area where we’re not represented or we don’t have good market share — we target those areas and bring out new product.
On the innovation front, it’s not only the data side of it. Every person on the executive and management team works boat shows. They’re listening to the dealers, getting the feedback from a regional point of view. I get a lot of suggestions … when I’m at a boat show talking to the individual customer.
So we take a lot of different data points, data, conversations, dealers, customers and we lay out a 36-month road map. For the next 18 months I know exactly the product we’re going to be bringing out. That second 10 months is a bit softer because we’re listening to the market and trying to determine at all times what they’re looking for. We have it in a soft format so we can make changes to that second 18-month period. I think that’s helped us stay on top.
Surf Gate alone for us — we’ve dominated the whole surfing arena, even though there are some other commodities coming out. We’ve dominated in sales last quarter, last month and really in 2012 when we brought it out because we have a 99.8 percent adoption rate, so our customers are virtually putting Surf Gate on 100 percent of the boats that they buy.
Q: Malibu has said it would like to pick up some crossover from other niche segments. How will it do that, and which areas are targets?
A: We have a chart showing primary markets where we have had success, and one market where we have been extremely successful is the sterndrive, with that I/O with the propeller sticking out of the back of it. That’s really for several reasons. Boats in our segment have completely changed in the last 10 to 12 years. Then, 95 percent of the market was a direct-drive market. Today 95 percent is a V-drive market. So what we’ve been able to do is introduce boats that are much larger, between 23 and 26 feet. The beam on those boats is 102 inches, so much wider than that 90-inch beam the direct-drive boat had.
Our larger boats will seat up to 18 people. Then you add to that the whole action orientation. What we see is a lot of families who are wanting to get out on the water. Their kids want to wakeboard and wakesurf in addition to tubing and things of that nature. … They’re looking at our boats — a Malibu or an Axis — because it allows them to be with their family and do all the sports and have all the versatility. If they just want to have lunch on the lake, they can do that, too, because it holds 12 to 18 people.
So what we’ve seen, the chart I mentioned, if we go back to 2002 and you combined sterndrives and our sportboat segment, we were less than 15 percent of that, about 14.8 percent of that. As of 2013, it’s more than 28.7 percent. So we’ve more than doubled it and we expect that, and we’re continuing to see that customer cross over. We expect that in several months, when the 2014 numbers come up, it will be substantially above 30 percent because that customer is migrating to our boat.
Q: Sometimes the people who analyze boat sales data say there is no huge migration from sterndrives to pontoons, but I wonder if anyone’s combined the number of people who’ve left sterndrives and migrated to both pontoons and sportboat segments. Are trends shifting from sterndrive long-term?
A: The general market share growth has helped us, but I think the point you raise is a great question. I will agree that pontoons and the ski boat segment are two areas pulling the sterndrive customer.
Q: Why do you think people are making that crossover?
A: I think it’s really three things. It’s the versatility of the boats we have. I’m seeing a trend toward families and individuals that want to be out and doing activities, not just riding around in a boat. I think that’s one of the reasons you’re seeing a migration of all segments to dayboats. They want to get behind the boat rather than just cruise around the lake — being out in nature and being active. I think those things are driving more people toward ski boats and even pontoon boats. It’s something that’s important to a lot of families. We have a lot of customers who have the disposable income to have a pontoon and a ski boat.
Q: Where are you guys on the buyout of your Australian licensees? Has that been finalized?
A: I’m going over there as part of the due diligence. We’re paying for it out of our cash flow. What will occur, assuming that all the due diligence goes right — and we’re pretty close to them, so we expect that it will — then the closing will occur toward the end of the first quarter [Sept. 30]. For us, that adds an additional 300 units a year that we’ll be manufacturing now.
Q: Millennials are attracted to this segment. How do you guys reach this group that other segments would love to reach? Where are your key demographics?
A: I think that one thing we did very well back in 2009 is bring out that Axis brand. [That] gave us the ability to offer a boat to any potential customer, from young to old, from entry-level to someone who has owned five or six boats of ours.
We look at Axis as our entry-level brand. The customer may be buying a first boat for the family or they grew up on a Malibu, so they’re buying that Axis because it’s designed to be entry-level. It’s designed to be edgy, youthful and performance-oriented, but to capture that younger customer. That demographic for us will be about 10 to 12 years younger than a Malibu buyer.
One of the things we did extremely well with Axis is, we built it from the ground up, which means we didn’t take an old hull and an old deck and de-content an old Malibu. I don’t believe that works. Everything that we put into that boat was designed for an Axis. If you adjust for inflation, Axis is the same price today as boats were 10 years ago that had fewer features, were smaller and didn’t have the beam or the length. We think we deliver a very high-value boat to that customer buying their first boat or maybe their second boat.
On the Malibu side, that demographic is about 10 to 12 years older. Their income level is higher because they’ve been out with that earning power for longer. What we see a lot of times, the father and mother are buying the boat, but the real users are kids or teens or college-age kids who are coming back home.
What has occurred with the advent of surfing, which has always been around but since 2012, when we allowed it to be done and changed in a second and a half, now we have people from ages 7 to 70 that can surf. Quick, funny story: I was saying 6 to 60, but on a recent trip to New York I was talking to an investor and he made the comment that he was going out every Sunday with his 70-year-old mother and wakesurfing. With our boats and the surfing innovations, we can have people who are 70 who are participating. So it’s opening up a whole new clientele.
Our goal is to capture that person on their very first boat, no matter what age they are, but also keeping them for life. Now we’re seeing many first-time Axis buyers from 2009 and 2010 that are migrating to a Malibu. And then we have new buyers coming into Axis.
Q: Do you think buying habits have changed permanently post-recession? Or is Axis hitting a need that was always there? Or is this a more temporary response to the downturn?
A: I think it is long-term. There are probably a couple of reasons.
If you look at what the National Marine Manufacturers Association is doing with the Discover Boating campaign, they’re trying to grow the market. They’re doing a lot of advertising and doing a lot of good things to get new buyers into the market, regardless of segment.
We have people and families moving from staying inside to getting outdoors, and that’s helping to bring new people to the market, but the other element — and this is the key difference between Malibu and Axis — is that Axis is based on simplicity. An Axis is not going to have the touch screen. It’s going to be more of a toggle switch environment.
Our Power Wedge we came out with on Malibu in 2006 is a power wedge, and on Axis it’s an auto set wedge, so it’s more of a manual-setting wedge. So we’ll continue to keep Axis very stylish, very simple in terms of operation and there are customers who want that, and as we bring out innovations and products we’ll always bring them to Malibu first and then [decide] whether we want to bring them to Axis. In the case of Surf Gate, we did, but in other cases we might not because we want to focus on keeping that as a price-conscious boat.
Q: The innovations in this segment are astounding. Being able to shape your wake and customize it, depending on who’s behind the boat, is amazing to me. Some of the stuff I hear about sounds almost sci-fi. Can you talk about that and how it plays into the popularity of the segment?
A: When you come to Tennessee, within two hours we can have you wakesurfing. It’s truly that easy.
Today everybody has a touch screen. What the world is now starting to see is a brand-new touch-screen technology. It’s a completely new dash system that has a 12-inch touch screen. We’ve gone to a next generation of software for touch screen for this year that will be, for the future, sort of a baseline.
Something we do in our segment and specifically with Malibu, if you came out to Tennessee and we took you out surfing and wakeboarding, we could set up a pre-set for you that locks in the wave or wake exactly the way you want it. You want it 3.5 feet? We can lock that in. If you want that pocket 12 feet back instead of 8 feet back, we can lock it in and then save that for you.
Any time you get into that boat, all you have to do is start [it] and hit that pre-set and it will automatically lock in the way you want to wakeboard or wakesurf.
Years ago, you had to ballast the boat on one side, lean it, put all the people in one corner of the boat and you could surf. But then if you had someone who surfed with their other foot forward, you had to empty the ballast on one side, fill it on the other, move the people and it could be a 20-minute time frame. But with Surf Gate, when you push that button you’re not placing people in a corner of the boat, and it fills the ballast with a high-flow ballast system. You can empty and fill the ballast very quickly, and you can deploy the gate, and in a second and a half, you have your surf wake.
And then if you set it for someone else, they have their surf wave exactly the way they want it. So that convenience is a huge factor, but it extends into things people don’t necessarily think are sexy, like towers. We’re the only manufacturer that makes their own towers. That’s another acquisition we made in 2009, and it enables us to control our concepts, our design, our manufacture and the quality of our towers.
And we control our own demand. As a result, we can deliver our towers at a much lower cost than the manufacturer who’s buying from a middleman. The value equation for our boats goes up. Over time, we’ve brought more and more in-house, so we do a lot of our stainless, our speaker cans, many things of that nature, we do that in our machine shop in California.
If it relates to stainless or billet, we’re probably 50 to 60 percent manufacturing that ourselves. For the 2015 model year we’re now doing our cleats and doing our grab handles. Our machine shop now has 12 CNC machines, so it is larger than a lot of machine shops where that’s their only business. We’re going to look to do more and more of our own because there is a significant cost advantage to doing it that way and we believe it gives us more control.
Q: How does that help response time? Are you able to be more nimble when you do these parts in-house?
A: Being in control of it gives us an advantage. I think all of us probably have struggled with importing from other countries. So grabbing hold of that and controlling that part of the supply chain is an important advantage, but three years ago we started something else: dual-sourcing.
We didn’t want to be beholden or be at risk with just one supplier. In many cases, for our most important parts, we have at least two suppliers. That’s helped us immensely because a supplier is going to run into a problem at some point in time and they’re not going to be able to make a delivery.
You can either store that boat until you get the part — which creates a whole other opportunity for error because you have to remember to assemble and disassemble it in exactly the same way. That second supplier can fill in for that first supplier so you don’t have to stop your line or put a boat out in the parking lot and wait to finish it later. We’ve virtually eliminated shortages on our plant floor by having a dual-sourcing strategy.
Q: We keep hearing that the millennial generation is roughly as large as the boomers. As a segment that caters to a younger buyer, how are you viewing this wave of consumers?
A: I think we’re really the only competitor in our segment that has a full range of product — Axis for entry-level to the most premium boat you can buy. Axis buyers are typically maybe 25 to 35. That Malibu demographic is in the 40-to-55 range.
Q: What’s the price range of Axis?
A: Starting with the 20-foot model [at retail] it’s going to range anywhere from the low 50s to the time you get the 24-foot boat, and how you option it, into that $70,000 to $75,000 range. It will run about $12,000 or so less than a Malibu and probably more to the tune of $15,000 to $20,000 less than the others because of how much we do internally now.
Q: You mentioned the international market share. Is this segment growing?
A: It is growing, and I’ll break it down a little bit. We look at our domestic as North America. We put Mexico and Canada into our domestic space. We’re by far the top market-share company in Canada, and it’s been a very strong country for us, especially in western Canada, with the oil industry doing what it has done.
As a breakdown of the rest of the world, you have Europe and eastern Europe, which many years ago were a lot like America — very ski-based with a lot of direct drive. They’re morphing and changing over time, but I think what we’ve seen over the last three to five years is stagnant or maybe down a bit because of economies like Italy, Greece and Spain. We’re starting to see some signs of that coming back.
One area that’s very strong for us, which is surprising for a lot of people, is the Middle East. We absolutely own Israel, putting 25 to 30 boats a year out on the Sea of Galilee. Dubai is very strong for us. The Middle East is an area where our boats are popular.
Q: Anything you want to add?
A: I think the industry’s coming back. We’ve all got to be very focused on getting new people into boating. We’ve all got to be working to get people on board with the NMMA. That’s very important. We’re all in this together.
This article originally appeared in the September 2014 issue.