Industry pros forecast more pain, slow improvement and a bright future
The economic challenges of the last year have made some of the boating industry's most seasoned professionals hesitant to predict what 2010 will bring.
"The best news is that 2009 is behind us," says Rich Lazzara, vice president of Lazzara International Yachts in Tampa, Fla. "When we look back on our industry years from now, I believe 2009 will prove to be the most devastating [year] in history."
Most who spoke with Soundings Trade Only believe the industry's troubles are far from over, with more dealer and manufacturer failures expected, the continuing lack of floorplan choices and a stubborn consumer reluctance to spend on discretionary items.
Not all the news is bad, however. "Sales breakthroughs have been recently reported by marine dealers in some sections of the country," says Jim Coburn, president of the National Marine Bankers Association.
Many say it could be a long, cold winter. "Perhaps another 400 to 500 dealers will fail by mid-2010," predicts Phil Keeter, president of the Marine Retailers Association of America. "Our industry will become leaner through this very painful attrition. In the long run, I think we will see smarter dealers with much more manageable businesses."
Manufacturers, too, expect the difficult times to continue and are adapting accordingly. "I see no evidence that the economic recovery will be strong enough to support robust growth in the longer term," says Peter Truslow, president of Edgewater, Fla.-based EdgeWater Power Boats. "Those of us left in the business have faced this new reality by making significant cost reductions and by changing our business models."
Some, though, see light at the end of the long tunnel. "Our forecast is certainly brighter for 2010 than it was for 2009, even though the retail sales increase may only be minimal," says Phil Dyskow, president of Yamaha Marine Group.
Genmar founder Irwin Jacobs says he believes the purging of repossessed units will continue into the new year, and looks for a more "normal" environment in the second half.
The bottom line: Boating is not disappearing.
"The boating lifestyle has never been more popular," says Dyskow. The "passion ... has not diminished, and, in fact, we would argue it has strengthened," agrees MarineMax chairman, president and CEO William H. McGill Jr.
Vice president and general manager, Boats.com/YachtWorld.com
From our vantage point in the business of running Web sites for selling new and used boats, we believe we've seen the bottom of the U.S. market. It's showing some signs of stability, maybe even recovery, particularly among brokerage boats where sales volume has surpassed 2008 each month since June.
Our business has seen mergers among brokerage houses and an overall consolidation caused by extreme weakness in the boat-dealer segment that's exacerbated by an almost total lack of both wholesale and retail finance. The brokers and dealers who have weathered the storm appear to have a brighter 2010 ahead, although credit remains a significant issue.
Data is hard to obtain, but it would appear that the U.S. marine economy may recover ahead of the international marketplace. Many European markets are still declining, some severely, whereas U.S. GDP is already on the increase, usually a harbinger of an improved economy even though consumer spending is expected to lag. There are a few bright spots in emerging marine markets such as Australasia.
Most businesses watching their statistics recognize that the Web typically delivers in excess of two-thirds of qualified business leads, and yet most marine companies still spend a tiny fraction of their diminished marketing budgets online. We expect more marketing dollars to shift that way in 2010, as online marketing's value and ROI gain higher recognition. In addition, the most successful companies will integrate into their marketing efforts electronic outreach such as e-mail, PR and increasingly sophisticated social media efforts such as CEO blogs, Facebook business pages and company YouTube channels.
The majority of marine companies know they need to improve their Web sites and optimize them for search engines. They also realize they need multiple online sales channels. Part of the challenge in 2010 for businesses like ours, which serve boat-retailing businesses, will be to develop innovative products that make this process easier and more efficient.
Chief operating officer, Navico Americas
While the boating industry has certainly continued to struggle over the last year, marine electronics are seeing light at the end of the tunnel, which I'm pretty convinced isn't a train. A small portion of electronics sales in 2009 can be [attributed] to boatbuilders, but the larger portion was tied to retrofit on the dealer and end-user levels.
As usual, this growth has been driven primarily by investments in new, compelling technology that gives boating enthusiasts a reason to upgrade marine electronics. Navico's B&G, Lowrance and Simrad brands - and we believe the overall segment - are seeing a growth in sales in Q4 2009. Key factors include new, higher-performance technology and significant improvements in integration.
In the last 12 months, there have been a number of advancements across the industry with regard to new technologies that create better situational awareness for boaters. Today's radars are safer and lighter, in addition to providing unparalleled short-range details and better target separation. Today's sounders provide clearer, cleaner images of what's on the sides of the boat, as well as what's below, in resolutions never before experienced.
Intuitive new user interfaces, real-time weather information and customizable weather displays deliver up-to-the-minute information on threats from the sky, and faster processors allow charts, alerts and overlay of radar and AIS targets to update at a rate that gives boaters the information they need and the time they need to digest it and react. These technology advancements alone have driven recent increased sales within the segment.
That said, while we do expect the uptick in growth we have seen in Q4 2009 to continue, 2010 will not likely be a year of tremendous gains. Therefore, aside from the new technologies that are creating consumer pull, we as an industry must all recognize, accept and react appropriately to the new reality of today's boating market. This can be done in a variety of ways.
Collaborating where possible to cut down excessive shows that burn marketing money without generating end-user pull and enthusiasm. Sharing up- and downstream visibility of forecasts and consumer sell-through so that we can keep working capital at the reduced levels the 2010 market requires. Protecting price points so channel partners and manufacturers alike can maintain adequate margins, thus ensuring a good value proposition for the consumer and allowing companies to invest in the new technologies and services that will drive future business.
This type of change, of course, cannot happen in a bubble. It requires us to work together to protect our industry so that we emerge from this downturn stronger than we were in the past and better prepared for future economic downturns and opportunities.
First vice president, consumer lending, Flagstar Bank; president, National Marine Bankers Association
The current state of the marine finance and marine industries since the beginning of the U.S. financial crisis of September 2008 can be labeled as "the fog." We all are, unfortunately, still waiting for lender capital to be "righted" with some banks and financial institutions. This means that, at some point, their revenue will have to rise to the forefront for sustaining operating and shareholder value. Revenue is generated through booking quality loans.
Not much has changed in the way of retail marine lending. The capacity of available loans and lenders is about the same as last year, and underwriting guidelines appear very conservative to many dealerships and borrowers compared to just two or three years ago. Floorplan financing remains the biggest problem for the industry, as there appears to be no new major entrants emerging soon.
We expect consolidations, bankruptcies and shop closures to continue in the marine dealer and manufacturer arenas. There will be noticeably more marine dealer closures at an increased pace during the coming winter months.
Various professional opinions remain regarding the return of a vital economy, but the economic recovery, in terms of us moving away from the recession, remains a pretty tough call to make. We believe the economy will continue to struggle throughout 2010 and into 2011. However, there are signs of recovery. Sales breakthroughs have been recently reported by marine dealers in some sections of the country.
Key statistics to watch are auto sales trends, unemployment and consumer confidence. Auto sales have historically mirrored boat sales trends, while consumer confidence and unemployment directly relate to sales of boats and high-ticket commodities.
Consumer loan rates, including those for boat loans, are still very reasonable and are trended toward the low end of the historical scale. At this writing, U.S. economists do not expect key interest rates to increase until later in 2010.
While all the news is not as good as we would like it to be, we have to remember there are opportunities available and that the marine and banking industries are not just going to go away. The latest NMBA statistical data maintains boat loans are still of high quality in terms of overall performance and consumer characteristics. We must remember to invest in and strengthen our businesses. Being creative and always focusing on what is important to our business and well-being are key elements to getting through "the fog."
President, National Marine Manufacturers Association
Keeping things in perspective is key in good times and in bad times. There's no question the declines we've experienced in new-boat sales have been the worst we have ever seen. Yet there are positive indicators - participation growth as well as the large installed base of 17 million boats currently in use that have helped keep boating's service sectors steady during these economic challenges and boating top of mind for current boaters.
Here's what I believe we're looking at: Retail sales of new boats are expected to be approximately 135,000 units in 2009, a 32 percent decline from 2008. However, in 2009 the industry only produced an estimated 52,000 to 80,000 new boats. In 2010, anticipating retail sales will be flat with 2009, wholesale production will need to increase significantly to more closely mirror retail sales. The recovery of new-boat sales will ultimately be paced by the availability of retail and wholesale credit, as well as the ability of boat manufacturers and, more importantly, their parts and accessory suppliers to adequately ramp up production to meet demand.
Still, make no mistake that the longer-term outlook for boating remains bright. Boaters' passion for boating is strong and will not go away. What's more, population will continue to grow. In fact, according to the U.S. Census Bureau, in the next four decades the U.S. population is projected to increase from 300 million to 440 million. It shouldn't be lost on our industry that getting just one-third of those additional 140 million Americans interested in boating via quality, targeted industry promotions could account for approximately 66 percent more boaters by 2050. Moving just a portion of these new boaters into new-boat owners would provide a major impetus to new-boat sales.
In order to properly take advantage of these opportunities, our industry's challenges will be the cost of new product or, more specifically, keeping boats affordable for the new boat buyer; our ability to help minority populations, which will no longer be the minority, see themselves in boating by including their images in our ads, catalogs, magazines and Web sites; staying committed to "green" products and positioning our industry as environmentally conscious; and being able to deliver better boats and better boating experiences. We will need to restart a larger Discover Boating effort to continue promoting the boating lifestyle to the American public and keep boating top of mind.
Now is the time for forward thinking and preparation. Position your business and yourself to be ready to take full advantage of the opportunities that will come as we recover in 2010 and 2011.
Executive director, Marine Trades Association of New Jersey
2009 was not just challenging, but downright scary. Events of the last year forced a radical change in how many businesses operate and manage their resources. We saw everything from layoffs to bankruptcies to the most unlikely of businesses posting on Facebook and sending "tweets." We have all felt the effects of this downturn in some way or another.
Like many trade associations, we drastically cut back on our spending and shifted our focus [to] saving money and finding new ways to help our member businesses not only survive these times, but prosper through them. One of those efforts was the creation of a new local boat sales event - the Jersey Shore Boat Sale & Expo. The event was organized by MTA/NJ dealers to offer a low-cost, one-stop opportunity to sell boats and move product ... while offering consumers an affordable and accessible venue. Not necessarily a new idea, but one that worked.
The first event was held in September, and it was a success. Qualified buyers came, boats were sold, people were enthusiastic and excited, and the exhibitors were pleased. The formula worked, and plans are now under way for a spring event to be held at the same great venue in May.
On the legislative and regulatory front, New Jersey will see a change in its leadership in 2010, which may prove to be very beneficial for marine businesses. Gov.-elect Chris Christie stated that he would issue an executive order for a 90-day freeze on all proposed state regulations. During the freeze, a "red tape review group" would examine state codes to pinpoint business mandates that can be repealed, one of which we hope is the public access mandate that has severely impacted the industry in New Jersey. We welcome this initiative and plan to work with the new governor to repeal the current mandates and develop a reasonable public-access policy that will not only protect and preserve our marine businesses, but provide quality and meaningful access for the public.
In speaking with MTA/NJ members, expectations for the coming year are varied. Some are forecasting that boat sales will be slightly better in 2010, and some feel it will remain flat. Most expect inventories to remain low. Businesses will continue to seek cost-effective and innovative ways to promote their pro-ducts and services while continuing to trim expenses and work with less. More businesses will utilize social media and creatively expand their presence online. Service is expected to remain strong throughout the year, and some marinas will see a small increase in their slip rentals over 2009 but will continue to have vacancies through 2010.
While there is consensus that 2010 is going to be a difficult year for our industry, I remain hopeful and optimistic that better days will soon be here.
President, Yamaha Marine Group
There is no doubt we are still living in challenging times, but there are signs of improvement, and we have many things to look forward to in 2010.
Our forecast is certainly brighter for 2010 than it was for 2009, even though the retail sales increase may only be minimal. Retail performance in 2009 included a large number of distressed sales, such as repossessions and aged inventory. These boats were typically sold on low profit margins.
In 2010, we're likely to return to a more normal environment, and the mix of the products available will be much different than in 2009. Traditional new-boat package sales will account for a much larger percentage of overall dealer sales. Yes, there will still be some distressed inventory out there, but not nearly as much as there was in 2009.
The most promising piece of information circulating right now is the fact that the boating lifestyle has never been more popular. More than 70 million people participate in boating, and there are more than 15 million registered boats in the marketplace. This means people are committed to their boating lifestyle and that we have a healthy sport for the long term. Though the new-boat market is still struggling, there will be solid future demand.
At Yamaha, we think we are well-positioned to meet the increased demand. We've made major investments in state-of-the art facilities over the last five years. We've continued with an aggressive research-and-development program. We've done everything possible to keep our dealer and boatbuilder partners healthy, and we've done everything possible to stimulate retail activity. Recently, we announced the largest new-product launch in Yamaha Marine's history.
When you look at some of our new outboards, there are features that will jump right out at you: lighter weight, more displacement, breakthrough power-to-weight ratio, best-in-class alternator output, better fuel efficiency, and more of the new features that customers have been demanding. For example, our new F300 is the lightest outboard in its class. It's literally 246 pounds lighter than the previous V8 F300 model and 51 pounds lighter than our previous F250.
Why are new products so important? They truly create reasons for consumers to buy now. Also, new products help to differentiate a new boat/motor package from distressed inventory, some of which will still remain in 2010. We also believe that customers' expectations continually increase from year to year. As customers become more demanding, we have to alter our products and the features of our products to meet those demands. New products add more value to the sale, and we will have a lot of value to add in 2010.
CEO, West Marine
As our crystal ball will never be precise, we've been investing a significant level of resources in rebuilding our company to become more flexible and more narrowly focused so that we can do a better job in responding to market changes, no matter their direction and slope. While our efforts have paid off with greatly improved results during the last year, we're very intent on preparing ourselves for 2010 and beyond.
Like many companies, we've seen an uptick in demand in many segments. No doubt, some of that has been due to improved market strength, and some has been due to changes in the competitive landscape. We assume this uptick will continue but are not expecting a roaring market that will magically wipe away the industry shrinkage of the last few years.
A significant risk is that product manufacturers will be overly conservative in their forecasting and not able to benefit should the market expand. It would be a shame if manufacturers did not invest appropriately in inventory as well as R&D.
From West Marine's perspective, we remain bullish on boating. It's been appropriate to reduce scale during this recession, but that in no way reflects on our belief in the longer-term opportunities in our industry. Making the necessary changes to ensure a strong balance sheet during the shrinking market and assertively preparing for future market expansion seem to us proper approaches to market phases.
We will continue to invest in new and larger stores, product-line expansions and a host of other major strategies. While we appreciate the challenges so many have faced during this recent extraordinary period, we're certainly hopeful that leading companies in our industry will invest in their people and products for the benefit of boaters as well as themselves.
Chairman and president, Association of Marina Industries; vice president of business development, Westrec Marinas
Although many marina operators have suffered a decline in their business during the last 12 months, I believe it's reasonable to suggest that, for the most part, the marina segment has not been as hard-hit as others.
Most marinas receive the majority of their revenue from boat storage - either dockage or drystack - and these revenue streams are more readily sustained than those from "active sales" like fuel, retail, and service and repair. Obviously it's easier to move smaller boats home and away from marinas rather than larger boats, and so those marinas accommodating larger boats are having greater success in maintaining occupancy levels.
In many regions, rates have been discounted to some degree and/or occupancies are off, but many operators are holding the line on rates and focusing on increasing the value of their products and services. Doing more with less will be the mantra for marina operators and most small business owners in general throughout 2010 and likely beyond. A renewed focus on customer service and increasing the quality of the marina experience will build customer loyalty.
The government did a lot recently to stimulate the economy, and there's a cost associated with this. The stimulus that was used to curtail the decline in our economy will run its course, and the deficits incurred will have to ultimately be reduced. The elimination of the stimulus and payment of these debts will restrain future economic growth for businesses and individuals. Most importantly, consumers remain overleveraged and need to get their personal balance sheets back in order. This can only be done through higher savings, at the cost of their spending and the economic activity that results from it.
Another cost to the stimulus, recently reported by National Public Radio, is the fact that large financial institutions are hording cash to pay off their TARP obligations instead of lending to consumers. This may actually cause the recession to linger and hamper consumers' ability to access cash.
Unemployment, currently near record highs, may impact marinas as well. If people aren't working, they won't be boating - at least not in a sustainable manner. Though boaters are resilient and experience shows they give up any number of things before they give up boating, if high unemployment persists there will be a portion of boating customers unable to pay their boating bills. Related to unemployment, a second wave of mortgage defaults among the jobless will both reduce expendable cash and further squeeze available credit.
In the near term it's possible that the cost of consumer debt, especially credit card debt, will impact marinas. Increasingly, marina customers are using credit cards to pay for storage as well as their "active use" purchases like fuel and retail. The cost of credit card debt is increasing - many report increases in interest rates of 10 percent or more - and subsequently the availability of that credit is decreasing. Many will no longer be able to afford to use those credit cards.
We may see an impact on marina businesses as some boaters lose access to their credit cards and are unable to pay their bills. Many marinas are offering credit card processing as a convenience to customers; virtual payments are on the rise. When the reality of higher interest rates and loss of credit catches up with this trend toward virtual payments, marina operators may experience a very real increase in receivables. The ability to manage and minimize those receivables will differentiate successful marina operators from those who don't make it through to the "new normal."
Publisher, Cruising World and Sailing World magazines
As predicted, 2009 was an incredibly tough year for the marine industry, and the sailing sector took its share of hard knocks. We knew it would be rough, but we had no idea how bad it would be. We went into the year saying that "flat was the new up" and ended the year by saying that "down less than 30 percent was the new up." Murray Davis, the founder of Cruising World, once wrote that every great sea story features a storm. The sailing industry rode out that storm in 2009, and we now hope that we've come out the other side.
There are two major obstacles that must be overcome for us to realize increased levels of business in 2010. We all know the first is an easing of credit at both the wholesale and retail levels. Second, and perhaps more important, we need to see an increase in consumer confidence. Manufacturers and dealers I speak with all agree there are lots of would-be boat buyers out there, but [they] lack the confidence to pull the trigger. Looking forward, the word I would choose to describe the outlook for 2010 is "encouraging."
There are several reasons to feel encouraged about the year ahead.
1. We've taken the difficult steps necessary to reinvent our businesses so they can survive and hopefully thrive at the new norms our industry is experiencing.
2. A number of sectors in the sailing market have held steady, and some sailing companies even increased their business during 2009. The aftermarket, charter and brokerage sectors have all held up comparatively well. Boat owners are investing in upgrading their boats since they are holding onto them longer, passionate sailors are still taking sailing vacations, and the brokerage market is active.
3. Attendance at the fall shows has been strong, most notably at our biggest annual show, the U.S. Sailboat Show in Annapolis. Even where attendance was light, show attendees have been well-qualified and not just keel-kickers.
4. Consumers are stepping up to buy new models, proving again that "new" sells, even in market downturns. A number of the sailboat builders that introduced new models this fall are reporting that they are sold out through April and May. We've seen good sales activity at both the small and large ends of the market size-wise, particularly among buyers who don't generally rely on financing.
5. Sailors are as passionate as ever about the lifestyle and sport of sailing. Whether their dream is to buy a new boat to cruise the Caribbean or to win the Chicago-Mac, they still have a powerful commitment to their sailing dream - and they will invest money in new boats and new equipment to achieve their goals. Their dreams may be postponed, but they will not be denied.
2010 will be another challenging year, that's for certain. But there is every reason to be encouraged as we look forward. We have managed to change our business models and are operating with fewer resources and lower costs than we ever thought possible.
Companies that invest in new models and new technologies are realizing sales and market share increases even in a contracted marketplace. Several market segments have demonstrated strength and staying power even in one of the worst business years we've ever seen. And, most importantly, sailing remains a priority for our core customers. They are spending money still - on using their boats, on charters, on used boats, and on upgrades for their current boats.
They are hungry to learn about new boats and new technologies, spending time with their favorite magazines and online, attending boat shows and talking to dealers. The customers we need are out there, and with even a modest increase in available credit and a bump in consumer confidence, they will take out their checkbooks and buy.
It's important for all of us to realize that we won't be able to time the recovery. We need to keep moving forward, keep working on new ideas and new products, and keep investing in enough marketing to stay visible to consumers. Otherwise we risk having survived all of the pain of the last couple years only to miss out when the market turns around.
Founder, Genmar Holdings
I don't think anybody at this time can create any, what I would call, solid prediction with all of the unknowns. There's no predictability to the economy right now.
I am absolutely convinced that we've seen the worst, and what I'm looking forward to is when we can start seeing something of a positive sign that we're seeing the trend line go up. I still think that there's a need to get rid of the repossessed inventories, which are still keeping a depressed market as far as regular sales out there for dealers. Until that purges itself through the system, I would say there's going to continue to be some uncertainty. At the same time, though, I believe that over the next six to eight months, we will see things show some positive signs.
I would say that from a planning standpoint and from my personal point of view, I'm looking at another six months to eight months of a purging process to get things back to some normality, meaning inventories in line, repossessed inventory out of the system. People don't realize the repossessed inventories are the best buy that's ever been made in the history of this industry, and there's people out there buying boats today that two or three years from now will probably end up making a profit, which has never happened before.
Whoever's going to be in this business, whether you're a manufacturer of boats, whether you're a vendor or a dealer, everyone's going to have to be at their best in order to be successful in this industry. Surviving, I don't think, is anybody's dream in business, and there's a lot of what I call survival going on right now.
President, Marine Retailers Association of America
I think three themes will dominate the recreational boating industry in 2010.
- Lean: Our industry will be leaner in several ways - some positive and some negative. There will be fewer manufacturers, dealers and consumers. That has become evident in the last few months. Bankruptcies, foreclosures and actual terminations of operations are occurring at all levels. Financial institutions and major manufacturers are predicting even more. Perhaps another 400 to 500 dealers will fail by mid-2010. Manufacturers will produce less, dealers will stock and purchase less, and financial institutions will floorplan less. Our industry will become leaner through this very painful attrition. In the long run, I think we will see smarter dealers with much more manageable businesses.
- Innovation: All of the changes in business that will be implemented are going to come through some very innovative thinking. Manufacturers are going to have to come to market with less product - fewer models as a start - and new and different ways to help dealers move that product; consignment, regional warehousing, factory showrooms, stronger and more in-depth participation in floorplanning are just a few of the methods.
Dealers are going to have to put on their "thinking caps" to deal with these lean times. Fewer brands, less models, more presold boats and more "just in time" inventory will become a must. New and different floorplan opportunities will have to be sought out - local banks, credit unions, government programs and manufacturer participation come to mind. More creative boat show displays with fewer boats will be a must. More innovative methods of consumer financing with a more varied base of lenders will also be a must. Dealers' sales forces will have to backtrack and find innovative methods of cultivating all of their previous customers. Customer service on all customers - new and old - will have to rise to a new level. Dealers relying exclusively on sales will be, in my estimation, behind the 8-ball.
- Cooperation: For years there have been a number of industry leaders who have preached the theme of cooperation between the various segments of our industry. I have voiced that opinion for several years. I have seen some of that happening. I believe now more than ever that must become a reality. As our consumer base has decreased, as the number of manufacturers and dealers decreases, we must rely on one another more than ever. Manufacturers must truly become partners with their dealers to move product. The steps we must take to become leaner and the methods we employ to become more innovative must come from a higher level of cooperation than our industry has ever seen. I believe we can and will make this cooperation happen.
Vice president, Lazzara International Yachts
As we head into 2010, the best news is that 2009 is behind us. When we look back on our industry years from now, I believe 2009 will prove to be the most devastating in history. So for 2010 I see two main themes: First, it will be "The Year of the Customer," and second, it will be "The Year of Rebuilding."
Let's look at "The Year of the Customer." While sales will be up compared to last year, they will not be where they have historically been. This is going to create greater competition amongst companies, with the customer being the ultimate winner. While heavy discounting will come to an end, customers can look forward to getting better value, better service and more innovative products than over the previous decade.
Why now? Because manufacturers are going to have to focus intensely on delivering superior experiences in each of those three main categories or risk an even further loss of sales.
The second theme is directly aligned with the first in that companies will use 2010 to start focusing on rebuilding through innovation, efficiency and good old-fashioned hard work. This will be critical to success in the coming year. It is not business as usual, and while many companies were able to a) sustain through the downturn, or b) restructure their debt, these will not be an option going forward. The only way to rebuild is through sales, and the only way to sell is by offering a remarkably compelling product, service and experience. Companies that are best embracing these new challenges will not only see success in 2010, but for years to come.
There are many new things that Lazzara Yachts will be debuting, such as the LSX120 and LMC76, the latter of which will be the first motoryacht with triple Cummins Zeus drives. However, this isn't about our company; it's about our industry. As I look on the horizon, I see new distribution models, more efficient product, construction methods that embrace environmental concerns and a laser-like focus on exceeding the customer's expectations.
I, for one, look forward with anticipation to success. Our industry has a great opportunity to evolve into something much more customer-centric and with a renewed interest on providing the best value possible.
President, Sail & Ski Center
Planning for 2010 may be as difficult as it ever has been in the 35 years of my being in this business. There are so many variables, such as the level of continued inventory liquidations, national and regional unemployment, retail and wholesale lending practices, political acrimony and media spin that keeps consumer confidence at a conservative level.
I am a "glass-is-half-full" kind of guy, but the only thing I am sure of is that for the near future the glass will be a little smaller than in the past. That doesn't mean we can't be successful and profitable. We have done well in the past with a lot less gross sales than we have gotten used to during the last eight to 10 years.
There will be adjustments, but boaters will still go boating, and enthusiasts will exercise their passion for whatever kind of boating they enjoy. We must, as we always have done, understand who our core customer is and be sure we reach that customer with cost-efficient marketing programs. That means we will continue to improve our use of the Internet and social media opportunities. Focusing on fixed operations revenue and managing inventory turns will be key operational challenges for the next 12 to 18 months.
The shock of the sudden economic downturn has hopefully subsided, and we should at least see the level of sales decline flatten and begin to improve over the next several months. The variables I mentioned earlier, plus the potential dealer and manufacturer fallout, make it difficult to get a grip on the timeline trends for improvement. Thus, we will be budgeting very conservatively for 2010 and monitoring results with the intent to make quick short-term adjustments that conserve liquidity without harming our core capacities and marketing efforts. We anticipate that boat sales will continue to be 10 percent to 20 percent below last year's depressed levels until the beginning of the third quarter of 2010, assuming there are no economic or political bombshells that put us back in the ditch.
The flip side of our inventory management strategy during the last 12 months is that, should we have some success in the boat show and early spring seasons, our inventory levels, while having breadth and not much depth in most models, could result in lost sales for the summer. Most of the manufacturers that we represent have reduced production rates to the point that getting some core models could be difficult.
Time will tell, and our goal is sell hard and operate conservatively until we can have a better grasp on the future, which is probably not a bad recipe for operating in any environment.
Chairman and CEO, Brunswick Corp.
2010 may be a transition year for the marine industry. The rate of decline the industry experienced in the second half of 2008 and all of 2009 has begun to ameliorate. However, as we exit 2009, the industry remains on a downward glide, and there are no visible factors which will reverse this trend as we enter 2010.
As we think about 2010, there are, however, several indications that the economic improvement that will enable growth in the industry from the record low levels of demand being experienced is beginning. Therefore, it is possible that we will exit 2010 with improving demand fundamentals. 2010, then, will likely require the industry to begin the year with a continued focus on handling contraction, and it may end the year with transitioning its focus to handling increasing demand.
William H. McGill Jr.
Chairman, president and CEO, MarineMax
The greatest economists and business leaders are having trouble predicting what 2010 will bring to the U.S. and world economies. Their best guesses - and I emphasis the word "guesses" - are given with many conditions or qualifications around the uncertainty and concerns with our current government's attempt to socialize our great country by taking from the rich to give to the poor. It is my opinion that the current government strategies will hurt the businessman and will not create the jobs that are needed to improve our economy and consumer confidence.
Although I don't believe the "perfect storm" is over yet, the seas appear to be subsiding. We at MarineMax are uncertain what 2010 will bring and are approaching the year as if the overall marine industry will be flat at best, with little recovery until 2011.
I am an optimist and am hopeful that 2010 will show a recovery from 2009. However, we are managing our business with a clear understanding that "hope" is not a strategy in itself. With much pain in 2009, we have right-sized our inventories, number of locations and expenses; protected our balance sheet, which has no debt except for short-term borrowings on a portion of our inventories; and amended our credit facilities with our banking partners to improve flexibility in 2010. Planning or budgeting for a difficult year does not mean we are not hoping that the economy will improve. We believe that more marine dealer and manufacturer failures will occur this winter, and we are planning to take advantage of potential opportunities to gain market share and explore strategic growth opportunities. The marine pie may be smaller, but we plan on getting a larger piece in 2010.
Even during difficult times, there is always good to be found if one just looks. The best news in our business is that, even with all the challenges of 2009, our customers' passion for boating has not diminished, and, in fact, we would argue that it has strengthened as our customers focused on boating to relieve some of the stress in their lives and to spend more time with their families.
Our strategy of teaching, servicing and showing our customers how to have fun is working, and we believe our recreation will be even more important to our customers through these challenging times and beyond. Along with our business partners, our dedicated and passionate team continues to be focused on exceeding the expectations of our customers.
Vice president and general manager, Brewer Yacht Sales; president, Yacht Brokers Association of America
The year 2010 will continue to be a challenge for the marine industry across the board. The brokerage market has fared better than new-boat sales the last 12 months, and this trend should continue throughout 2010.
Although the brokerage market will have more stability in 2010, selling prices of brokerage boats will continue to decline. This price decline is primarily a function of the ongoing bank repossessions of consumer boats, as well as new-boat dealer inventory.
Existing boat owners who want to sell are now competing with the repossession market on price for both new and used boats. Banks will continue to get these repos off their books, and the only way to do that is with lower prices. Until the nation's inventories of repossessions sells through, sale prices of brokerage boats and new boats will have to come close or match repossession prices, further depressing the entire market.
Banks need to do a better job of disposing of this repossessed inventory by using the existing brokerage companies and remaining new-boat dealers to sell it. Margins can be better protected for both banks and brokerage clients if the current distribution channels are utilized through full-time professional brokerages and new-boat dealers. A lot of this has changed the way customers shop for boats. The retail buyer is focusing on price mostly as a result of the banks selling repos. This should be a short-term problem but will take at least the next year to sort itself out.
The next round of bad debt, according to the chairman of the FDIC as of December 2009, is commercial real estate, which poses the biggest threat to the U.S. banking industry. This could slow the recovery. Banks will continue to tighten credit card interest rates, as well as lower credit lines. Mortgage interest rates should remain fairly stable, and loan underwriting guidelines will tighten even more. These market trends have shrunk not only the marine manufacturing base, but will continue to erode the existing boating customer base.
On the bright side, as prices fall across the board, it will make boating more affordable to the boating public. Florida, California and the Midwest markets should show some stability in 2010. These markets have been hit the hardest the last 18 months. Internet sales and marketing will continue to morph into the preferred venue, based on the dramatic increase in social networks as well as video and e-mail marketing.
The strong publications will survive in the print media business, with continued strong targeted content. It's still much more comfortable to sit down with a magazine or paper and enjoy a good read. It's also the most portable information delivery system on the planet.
Marine businesses that approach 2010 with solid business practices and a good dose of fiscal conservatism will be the survivors and enjoy a slow, steady rebound.
President, EdgeWater Power Boats
Like most boatbuilders, I now have a more sober and reasoned vision of the future of our industry. I look back at the growing economy and the easy money that fueled the years of double-digit sales increases and realize that those days are over. Industry statistics give us a pretty clear picture of the year ahead.
2009 was a disaster for boatbuilders. Factory output came to a standstill as dealers were unwilling or unable to buy more boats. Fortunately, the drop in consumer demand was not as precipitous. Dealers have been able to reduce their inventories. EdgeWater dealer inventory dropped by almost 70 percent in 2009.
With inventory at historically low levels, dealers can now take on a limited stock of boats, and builders will need to build boats to meet retail demand. I generally agree with the NMMA and the leading banks - recreational boat shipments will increase more than 25 percent next year.
The bad news is that these production levels will not bring us back to the good, old days in 2010, and I see no evidence that the economic recovery will be strong enough to support robust growth in the longer term. Those of us left in the business have faced this new reality by making significant cost reductions and by changing our business models.
There are several basic things that have helped us at EdgeWater. We have always maintained relatively low fixed production costs because of outsourcing. Major components such as electrical systems, upholstery, cabinetry, metal work and even some R&D are produced by expert suppliers more efficiently than we can in-house. These partners have kept manufacturing costs in line during the downturn and will enable us to efficiently grow as the market improves.
We also changed our dealer programs. Under the new programs, our larger dealers act as distributors for better territorial control, and they receive more factory support on financing and marketing. We also created a new agent program for dealers who are unable to stock the full line. We have already signed up several new dealers who appreciate the flexibility and factory support that these programs offer.
Our business has become more diverse; 2009 production declined far less than our competitors because we exported more and built boats for other markets. This kept our factory running through the year and will enable us to better serve our dealers as the market improves.
Bruce Van Wagoner
Managing director, marine, GE Capital, Commercial Distribution Finance
During the last 12 to 18 months, the marine industry has seen unprecedented changes. Many of these were unexpected and unpleasant. The economy has battered the marine industry as well as the companies that fund its inventory. Given these impacts, my view is that while no one can absolutely predict the future, it is important to strategically step back in order to try and gauge what's to come.
The entire world has gone through a fundamental reset, and the marine industry is no exception. Those who are still in the business are re-evaluating every component of how they bring products to market and how they sell them. For example, we have seen manufacturers cut production by up to 70 percent to get through the downturn, while many dealers have exited the business entirely. Other dealers are liquidating their current new-boat inventory, after which they may leverage their credit facilities.
Looking back, the financing and sales peaks of 2006-2007 now seem to be the historical anomaly. It is clear that era of easy financing and extraordinary sales levels are behind us.
One measure of the industry's health is its inventory levels, which are down about 50 percent compared to last year. This is a significant change. However, given the current economic climate, this is a good thing for the industry overall.
Another measure of industry health is retail demand, which should parallel inventory levels. Those numbers are aligning more closely with inventory, although they are not yet at an optimal ratio. Aging or non-current inventory is still too high for the current demand environment, which means that manufacturers and dealers must continue to work together to reduce aged inventory in the channel.
Many dealers, with the support of the best manufacturer partners, have done a great job of cleaning up their excess inventory levels. We still see approximately six to 12 months of aged product in the channel that must be moved to retail, and it is mostly in the over-30-foot segment. This inventory overhang will likely contribute to a slower industry recovery.
As the economy begins to stabilize and we adjust to the new economic reality, we expect to see inventories remaining at a lower level for some time. We also expect fewer dealerships in the near future. Our projection is that there likely will be at least 30 percent fewer new-boat inventory sales locations in the United States at the end of 2009 than the prior year, and this will carry into 2010.
With regard to floorplan financing, we expect inventory levels to remain down on average, as supply continues to align with demand. We also project that new retail boat sales will be flat to slightly down compared to 2009. We have been working with our manufacturers and dealer networks to share with them available tools and best practices on how to manage their inventory finance flow to stay healthy in the near term. To thrive in this environment, manufacturers and dealers will need to learn how to be more efficient, so they can remain profitable at lower sales levels.
The biggest factor in all this, of course, is the end consumer. Consumers need the confidence that they will have a steady income in order to purchase a big-ticket item such as a boat, and they need to know that retail financing will be available to them if needed. For some consumers, purchasing a marine product may be seen as a more available form of recreation rather than vacationing far from home. Manufacturers and dealers can continue to emphasize the value of boating through their marketing and promotional plans.
We feel that 2010 will be a transitional year, without as much upheaval as 2009. The smart manufacturers and dealers will be holding on to or gaining share in this down market and building consumer interest in the coming years. Inventory financing will be available but with more stringent controls. The recovery will be a slow one, but hopefully steady, to lead us into healthy growth in the next decade.
Co-owner, Woodard Marine
Woodard Marine is preparing for 2010 to be another challenging year. 2009 can be marked with epic events: financing crises, dealerships and manufacturers filing Chapter 11, and inventory levels at an all-time high. For 2010, we are going back to the basics by not placing all of our eggs in one basket. We will be doing this by concentrating on three major areas: floorplanning lenders, manufacturer relationships and expanding our services.
First, we are focusing on teaming up with multiple floorplanning resources. We are not looking at moving from one lender to another, but focusing on utilizing multiple lenders, including local banks. This will allow us to take advantage of cash discounts, repos, manage finance rates and increase cash flow.
Secondly, with dealerships folding every week, now is the time to re-evaluate our relationships with customers and manufacturers. At the same time, manufacturers should be looking to team up with dealerships that are strong financially, possess integrity, and deliver the boating dream. This strategy will strengthen the marine industry for the future.
As a result of these folding dealerships and manufacturers, we are projecting that 2010 will still be saturated with repos and preowned packages. We feel the key is to keep these discounted boats filtered through our dealership. There is going to be a large sticker shock on new 2010 models. By offering multiple manufacturers, we will have the opportunity to inventory non-current models and preowned boats with full manufacturer warranties. Our goal is to keep margins up and sell with integrity while increasing our turns.
Lastly, consumers are on extreme budgets while at the same time expecting customer service to be better than ever. Woodard Marine will be celebrating our 50th anniversary in 2010, and we feel this bar will be even higher. We will be expanding our schedule of events and community involvement to meet these expectations. We feel the key to customer loyalty and future sales will be to show our customers how to live the boating lifestyle on a budget.
Woodard Marine is preparing for another year of tight budgets, decreased sales and working harder than ever. However, this stalled economy has been a blessing in disguise. It has brought our team closer than ever and our customers more loyal. We are having the most fun we have had in years, and we can only go up from here.
This article originally appeared in the January 2010 issue.