“It’s been really quiet,” Ken Clinton, president of Intrepid Boats, said about the drop-off in business that occurred in mid-March.
Intrepid has stayed in business through the avian bird flu, ebola and the luxury tax. It survived the tsunami that upset production of Yamaha outboards, and it endured the largest recession since the Great Depression. But by mid-April, Clinton said, the coronavirus pandemic seemed different.
“When’s the finale?” Clinton asked. “It’s one thing when it’s the banking industry and you kind of had an idea of what was going on and who was affected. This virus doesn’t care what age, what race, economic background — no one is shielded from it. I just don’t know how deep the damage is. I’m trying to control my little piece of the world.”
Trying to maintain control amid a crisis of historical magnitude has been difficult for all kinds of marine business owners. They are being forced to figure out a new way of doing business — or not doing business — basically overnight. Immediate concerns include protecting the health and safety of employees, determining what services are essential, reacting as governments close marinas and ban fishing, tapping into stimulus money, and figuring out how to interact with consumers who are, in many cases, reeling themselves.
And at the time of publication, the human toll of the crisis was only just beginning to set in. Craig LeBlanc, owner and general manager of Allen Harbor Marine in Massachusetts, had lost his father and an employee to covid-19. He issued a plea to boat dealers around the country to take the virus seriously.
In terms of mandates to close businesses, states have taken the lead, sometimes with local and state officials contradicting one another and adding to confusion for companies and consumers. Epidemiologists say the inconsistent guidance at those levels, and at the federal level, gave the disease a head start, a reality that became evident weeks later as clusters popped up around the country.
The patchwork rules also made it wildly confusing for businesses to determine whether they were deemed essential. Even in jurisdictions where marine dealerships seemed to be under orders to shut down, those dealers provided service for law enforcement and Coast Guard vessels, which are considered essential. The same confusion stymied manufacturers with government contracts.
“We’ve got 14 locations across the country, so there are lots of different jurisdictions and areas and groups of employees, and so much uncertainty,” Correct Craft CEO Bill Yeargin said early on. “We were contacted by two vendors already. One supplies a high percentage of the industry, and they told me they have to shut down because they’re non-essential.”
Yeargin, as of mid-April, had identified three challenges the marine industry will face in addition to the kind of devastated marketplace that rattled business during the recession in 2008. Supply-chain disruptions will likely continue, as will government shutdowns; and employee health and safety will become more paramount than ever.
That last challenge is one that companies still operating are already trying to address. Some are instituting cleaning schedules and installing Plexiglas barriers at service and sales counters. Others are instituting restroom procedures, encouraging workers to close office doors and communicating more through technology. Still others are restricting customer access and adding escorts to ensure that customers don’t contaminate work spaces.
In some cases, businesses are turning to more tried-and-true sales tools. “Our brands have extended rebates,” one dealer wrote in response to a survey question. “It is helping us sell some boats.”
To Close or not to Close
The lack of government mandates on whether to close businesses in some parts of the country has left those business owners deeply concerned about choices that affect employee livelihoods and customer relationships.
“I really, truly believe that the best thing we can all do is stay home, as much as we want to keep things going,” says Eric Braitmayer, president and CEO at Massachusetts-based Imtra. “If this gets worse, we’re going to have a much slower time coming out of it. It would be really nice if states would mandate closures because we think it’s best for our people, but we don’t want to be telling our customers we’re doing that if it’s not mandated.”
Intrepid was still building boats as this magazine went to press, implementing strict social distancing and using personal protective equipment. Clinton says he was glad to pay employees who wanted to work. Other employees were home without penalty. “I have a bunch of employees that are counting on every paycheck, so it’s important to them,” Clinton says.
Intrepid also has had to juggle consumer desires to feel safe against keeping the manufacturing pipeline going. “We have orders in the queue that we’re moving forward on, and that’s been a struggle too,” he says. “People are scared right now, and in a lot of cases, my customers are in an older demographic. Here I am needing a material selection for a boat coming online, and they’re like, Are you kidding me?”
The lack of clarity around which businesses should close, and for how long, also made it difficult for company owners to determine how best to ensure their employees would receive government benefits for an appropriate amount of time. “If we’re shut down for two weeks and then the government shuts us down four more weeks, now people are out of work for six weeks,” Clinton says. “The provision they’re talking about [in the federal relief package] is for 80 hours; that’s two weeks. So how do these people survive for six? You have to make those kinds of decisions and let them dictate to you whether they agree. I’ve had a hundred people at least come and thank me for keeping the place open. It’s important to them.”
Marine dealers tend to operate with high fixed expenses and low cash reserves, according to a survey by Baird in conjunction with the Marine Retailers Association of the Americas and Soundings Trade Only. That combination is likely to leave many dealers in need of government aid, at least in the short term.
The CARES Act, a $2.2 trillion relief package that President Trump signed into law in late March, includes a Payroll Protection Plan for small businesses to keep workers employed while cash flow wanes. But small business owners were largely still awaiting funds by mid-April, with banks and regulatory agencies overwhelmed by the number of applications.
The delays hurt the quarter of marine dealers who said in the Baird survey that they didn’t have enough cash on hand to make it through a whole month without revenue. “Everyone knows this is turning into a cluster,” says Adam Fortier-Brown, government relations manager for the MRAA. “Until the Fed starts to buy back some of that capital from the banks, things are going to stick like that.”
From the banks’ perspectives, most small businesses in any industry lack a long-term cash reserve, says Don Parkhurst, senior vice president of marine and RV finance for SunTrust. “If business dramatically drops off, they just don’t have a lot of staying power,” Parkhurst says. “They need cash flow to sustain themselves, and all of a sudden, that cash flow is way down, if not completely gone. Nobody’s ever really faced that before. This can’t go on much time, or they just won’t be solvent.”
Speaking generally about lenders, Parkhurst says several banks were offering deferments to customers and small businesses, offering a few months of relief. Other banks were doing moratoriums on repossessions. “I think banks are being much more accommodating than they were in 2008,” Parkhurst says. “They realize this is not businesses’ fault. As long as it doesn’t go on too long, I think most businesses will survive.”
Surviving, though, is a lot different from thriving, which many marine businesses were doing before the pandemic. One yacht brokerage company with around 300 sales reps nationwide responded to the Baird survey by saying sales stayed brisk until mid-March, when buyer leads decreased 30 percent and deals shrank 40 percent. The dealer subsequently cut out non-essential monthly costs but kept staff on, expecting to be reimbursed through the federal paycheck program.
“We have restructured and in some cases paused some of our online marketing with various vendors,” the dealer wrote. “Most vendors are willing to work with us by heavily discounting their services while allowing the advertising to continue. We have also cut back on most of our various sales contests and promotions for a few months. Many of our staff are under work-from-home orders, so we are delaying photo shoots of new listings, in-person showings, et cetera. At this point, we believe our business will be down about 40 percent for 2020, which is painful after a record Q1 to start 2020.”
For a seasonal businesses like boating, the pandemic couldn’t have hit at a worse time. It struck in the spring and is projected to continue at least into early summer in some locations. The bad timing was compounded by a strong first quarter — traditionally an extremely slow period for the boating industry — that led to companies to ramp up, expecting to be busy.
Oklahoma-based HydroHoist, with around $35 million in revenue and close to three-quarters share in Tier 1 markets for rotomolding and boat lifts, had a record first quarter in 2020, according to CEO Mick Webber. “We were aligned to kill it this year,” he says.
Many dealers were similarly positioned, says MRAA president Matt Gruhn. “Being in a situation where our dealers are carrying the most amount of inventory that they do in the year, where the payments are coming due and so forth, this hits at a really bad time,” Gruhn says. “There’s no doubt.”
The heavy inventory means dealer floorplan lines are basically maxed out, Parkhurst says, so interest and curtailments are at their highest. “We know we have a very seasonal business, and most of the sales occur in April, May and June,” Parkhurst says. “If they’re not fully stocked, the boats are probably on trucks on the way from the factory. It couldn’t have hit them at a worse point.”
The silver lining is that people who can go boating are going boating. One MRAA member reported an all-time-high number of boats launched during the pandemic, and has more than doubled his average on marina fuel sales, Gruhn says. “We can’t go to work, we’re supposed to social distance, and we’re cooped up at home with family — why wouldn’t we be out on a boat?” Gruhn says. “As time goes by, I think we’re going to see more desire for that.”
All the algorithms and projections that the marine industry previously relied on can’t help now, says sales consultant Sam Dantzler, who partners with MRAA on dealer education. “Nobody has been through this before — zero people,” Dantzler says. “But there are opportunities out there.”
The fact that the economy was robust prior to the pandemic should help, Gruhn says, adding, “Hopefully when the virus is behind us, we can ramp up quickly. And if that’s the case, I think people’s desire to be on the water is going to lead the way to the industry’s recovery.”
This article originally appeared in the May 2020 issue.