An industry depleted by recession sees the new year as a new beginning
Those are some of the positive themes emerging from our annual turn-of-the-year survey of industry professionals.
The optimism is based in part on increases in attendance and enthusiasm at the fall boat shows and an upswing in consumer confidence. But it's also tempered by reality - an unemployment rate stubbornly hanging around the 10 percent level and a housing market that remains anemic.
Any recovery will be incremental rather than dramatic, our experts say, and the ways of doing business will change for those who have survived - many by paring their operations to the bone.
"Those who are ready will move forward, not because of a dramatically improving economy ... but due to the results of the difficult decisions and hard work accomplished during the last few years," says Brunswick chairman Dusty McCoy, whose company began downsizing in 2006.
Longtime dealer Larry Russo expects further contraction. Fundamental economics, he says, dictate a "significant reduction in the overall manufacturing footprint this year."
NMMA president Thom Dammrich, meanwhile, thinks consumers may be tiring of holding back. He hopes the penny pinching of recent years has morphed into what he calls "frugality fatigue."
Vice president, Dominion Marine Media
In the last year the marketplace for boats, which is supported by our websites, has had its ups and downs - and more of the latter than we'd hoped at this time a year ago. The new-boat market had a year of continued decline, except in the aluminum-boat sector. On the other hand, the brokerage market got off to a decent start this year and on the strength of that is likely to finish 2010 ahead of 2009, despite mixed results through the summer and early fall.
In 2011 the overall market is not likely to turn around in a big way because continued high unemployment rates will hold back consumer spending. Also slowing the market, from our global perspective, is the fact that the European economy is lagging behind the U.S. On the other hand, participation has been holding up, which will continue to help the aftermarket, and we've been encouraged by positive signs at this fall's boat shows, in strong holiday spending (as of early December), and in a recent rise in consumer confidence. In addition, YachtWorld.com brokerages reported a better-than- expected month of big-boat sales in November, with very strong total valuation.
Everyone says the boating business will be quite a bit different when we recover from the recession, but, in fact, it already is. While the government has been bailing out the banks and General Motors, and unemployed workers have been trying to make ends meet, those who remained in the boat-buying market have changed their shopping habits. Ninety percent of them now utilize search engines to look for boats and research them, and most of them engage in different forms of social media to gain additional information and opinion on the boats they like. Increasingly, to connect to the Internet, they're using smart phones and tablet computers in addition to, or instead of, laptops and desktops.
For a company such as ours, the task now and throughout 2011 is to meet the demands of these shoppers, providing boat listings and boat reviews in text, photos and video formatted for a variety of online platforms. At the same time, working for those selling boats and equipment, we have to provide the resources and online products that will connect them to the modern buyer more effectively.
Looking beyond our own websites, it's clear that the online marketplace for those in the boating business is changing as fast as the Internet. We need to be clever in the collaborations of our businesses to keep pace. Partnerships and co-marketing opportunities will be as important as technical development.
We also need to continually promote the fresh air, beauty, adventure and family time offered in boating. Americans are spending more and more time plugged into their electronics, and an important duty of those of us doing business in that space is to remind them of the promise that awaits them when they unplug and get on the water.
Executive director, Sail America
After three years of anemic sales, there are definite signs that the sailing market is slowly improving. Reports from recent boat shows have been encouraging and the outlook for 2011 suggests the worst is behind us. It's still too early to tell if this is the start of the much-awaited turnaround, but it sure feels like it.
The United States Sailboat Show that was held in Annapolis in early October has long been considered a bellwether for the sailing industry. Feedback from the show was extremely positive, with boat sales far exceeding manufacturers' expectations and other vendors reporting sales close to prerecession levels. Sailboat sales at the St. Petersburg Power & Sailboat Show in December continued the trend, suggesting buyers are stepping back into the market.
In a recent survey that the Sporting Goods Manufacturers Association conducted for Sail America, 74 percent of respondents are projecting a sales increase for 2011 and the remaining 26 percent are projecting their sales will be flat. Interestingly, no one surveyed expects sales to drop in 2011. Despite this optimism, 70 percent of respondents feel the state of the sailing market is weak.
Given the uptick in sales in late 2010, the sailing market appears to be shaping up well for continued improvement in 2011, although there are still many economic, political and employment uncertainties that could dampen our hopes for growth.
Looking ahead to 2011 and beyond, I believe there are a number of positive factors that will help lead the sailing industry out of the doldrums of the last few years and on to better times ahead:
- Innovation: There has been considerable product innovation in the sailing industry, which is driving sales.
- Pent-up demand: Sailboat buyers still have money; they've just been afraid to spend it. Many were willing to postpone the purchase of a boat by a year or two, but they won't put off the purchase indefinitely.
- Lifestyle: Sailing is a great way to relax and spend time with friends and family. My hope is that consumers will not want to miss the window of opportunity to enjoy this wonderful pastime.
- Upgrades: Many sailboat owners are upgrading their boats rather than buying new. Although this doesn't help sales of new boats, it has helped create a relatively healthy aftermarket.
Despite these market drivers, a number of events, including continued improvements in consumer confidence, a stronger housing market and lower unemployment, will need to happen before the sailing market can experience sustained growth. We are still several years from a full recovery, but there are encouraging signs that the market will improve.
President, Seattle Boat Co.
As I contemplate our business surroundings and look to the near future, I feel an incredible dichotomy of opinions running through my head. I now have a sense of the paranormal effects felt by Dr. Jekyll and Mr. Hyde managing a severe case of schizophrenia.
Normally, I would carefully dissect the health and results of the current winter quarter as a determinant of what is to come. I recall a disappointing winter quarter of 2000 when I made an insightful decision to cancel 25 percent of my upcoming orders. Today, my upcoming orders represent a fraction of our peak years and yet I am indecisive - one moment ready to double orders, the next wanting to cancel most of them.
Yes, we survived the worst of it, but now we must find the best way to succeed. And if we do it right this may be the most profitable period ever. In fact, the Commerce Department recently reported that U.S. businesses reported the highest net earnings in the third quarter of 2010 since 1947. Our industry may be a little behind, but I want a piece of that news. With that said, I am approaching 2011 with cautious optimism utilizing three strategies.
- Strong emphasis on presold boat sales: Our sales and boat-ordering strategy is entirely structured around preselling truckloads of boats. It is an attempt to be the "just-in-time" boat dealer. Our process includes carefully identifying models and quantities at specific production dates, then capturing buyers while providing outstanding value (based on COD payment) and personalized, custom-tailored boats.
- Maintain solid multidepartmental performance: Our service and storage operations may have saved the day and now we must assure their future. At the beginning of 2007 we initiated a conscientious effort to manage every minute of productivity, efficiency and clock time per employee. That effort has resulted in a smooth operation meeting 100 percent of its budget goals. We must continue to build on this platform and find ways to improve and grow non-vessel revenues.
- Dominate within focused market area: At times I feel anxiety about what might happen in the future - new competition, undercut pricing, factory-direct selling, losing key staff and so on. Well, those things just might happen, though not as likely if we dominate our focused market area. I am absolutely convinced many boat dealers are carrying too many brands, which causes confusion among sales staff and greatly increases operating expenses. But there may be a unique opportunity to add a product line that will increase volume and improve market share concentration. Also, now is the time to focus on our brand, concentrating on the key contributors: customer satisfaction, appearance, convenience and, most importantly, performing faster (no three-week service backlogs) and perfectly at every opportunity.
My outlook (at the moment) breaks down like this:
- New-boat sales: Improved margins by 3 to 5 percent, improved unit sales of 5 percent on existing brands and new growth opportunities adding up to 30 percent more gross sales volume.
- Used and brokerage sales: Declining due to unavailability of late model-year inventory, continuing strong margins, market demand will be there.
- Marina and storage activity: Slight growth for second straight year, up as much as 15 percent while available capacity exists.
- Service, parts and accessories: Steady but with slight growth opportunities based on new unit sales and capturing new customers, up as much as 5 percent.
- Fuel dock: Steady with fuel costs stabilized and boaters continuing to boat, need early season warm and sunny weather to see any improvement.
President, National Marine Manufacturers Association
With the start of a new year, many make their predictions for what's to come in the 365 days ahead. Here's my prediction: I anticipate that retail new-boat sales and wholesale production and shipments will be up in 2011.
After seven consecutive years of declining unit sales, why wouldn't someone predict a turn in direction?
From 2000 to 2010, unit sales of new boats were up in only two of the years (2000 and 2004). Dollar sales of new boats have been up in five of those 11 years (2000, 2001, 2002, 2004 and 2005) but not in the past five years. The last 11 years have been the largest bear market in new-boat sales in history. So as the next decade begins, why should we expect anything different? In my opinion, the answer is that the U.S. consumer is ready for a change. Call it frugality fatigue or simply pent-up demand.
So how do we capitalize on this need for change? One of our industry's greatest strengths is the significant installed base of active boaters we have assembled. There are 17 million boats in use in the United States today and 68 million Americans went boating in 2009. Moving forward to 2011, most new-boat sales are going to come from our current customers.
To help build that customer base, Discover Boating has ignited the desire for boat ownership in tens of thousands of Americans during the last five years. In 2011, the industry will reignite the Discover Boating national marketing campaign to reach even more new boaters.
Many of the key economic indicators are pointing in our favor, too. Government data indicate incomes are growing, along with consumer spending. RV and new-car sales are picking up. Consumer confidence is improving slowly. Europe is likely to remain weaker than the United States during the next 12 months.
Customers at fall boat shows were more upbeat than they have been in several years. And the economy has grown for five consecutive quarters through Sept. 30 and is poised to make it six straight quarters as we enter 2011.
Despite all the positives, we still have many challenges to address. There is no doubt in my mind that some dealers and manufacturers will still lose sales in 2011 simply due to a lack of product availability. However, that may not be all bad. Someone will make that sale, and with low field inventories of new boats and declining availability of used boats, dealers should be able to improve their margins on new-boat sales.
Let's face it; the availability of late-model, preowned boats will be limited since manufacturing levels were trimmed considerably in the last two years. New models, accessories and innovations that are not available in the used market will help inspire consumers to consider new boats again.
Persistently high unemployment and the increasing cost of new boats (brought on by new emission requirements) will continue to be a strain on new-boat sales. But nearly every other segment of the industry will thrive on that large installed base of existing boaters using their boats as much as ever.
Growth is slower than everyone would like; this is why the recovery in new-boat sales will be slow. But there is just too much momentum in each of the areas mentioned above to argue that new-boat sales won't see year-over-year growth in 2011.
2010 is the new benchmark from which we will measure our success in the future. Most have learned how to make money at this benchmark level. Against this benchmark, 2011 will be a good year.
David J. Hayden
National Marine Electronics Association
Well, here we go again (or do we?) - another round of government monetary stimulus aimed at bond purchases.
The plan is to buy $600 billion in bonds over the next eight months. (Where does that money come from, I ask?) The intent is to drive down interest rates, encourage more borrowing and eliminate the threat of deflation.
The good news is that consumer spending continues to rise, which implies that confidence levels are moving in the right direction. There are also some promising signs and developments appearing on the radar. Economic activity and employment in the U.S. manufacturing sector is expanding at a faster pace than expected.
From the majority of reports coming in on the recent boat shows, home and abroad, everything is pointing toward a modest recovery for the marine electronics industry in middle-to-late 2011. The general mood is upbeat; there is a sense that the marine electronics industry is definitely improving and heading in the right direction, with net results much better than in previous years.
This upbeat mood was felt and sensed at the NMEA 2010 International Marine Electronics Conference & Expo, which was held Sept. 29-Oct. 2 in Seattle. The energy levels were running fairly high - so much so that it surpassed all expectations.
Unfortunately, the modest turnaround in the marine electronics industry has come too late for some of our members, many of whom were either too late to adapt to the rapidly changing marketplace or found themselves underfinanced to weather the down economy over a long period of time.
The majority of our members rely on those new- and used-boat sales and the subsequent orders for marine electronics to install. It doesn't take long to understand that no boat sales equals no marine electronics sales. Having said that, another market area has started to emerge - the "retrofit market" - whereby boating consumers, rather than purchasing a new boat, decided to upgrade their existing boat.
We have witnessed this retrofit market during previous recessions in our industry. However, in my 37 years of being in the marine electronics industry, I have never experienced such decimation in all sectors of the marine industry. The retrofit/upgrade market has kept many of our NMEA members afloat during this prolonged economic downturn and now they are beginning to see the light at the end of the tunnel.
New and used boats are starting to sell again; electronics are being ordered. If we as an industry can survive the winter, it could be time to celebrate. It will be a different market. Our industry must adjust - work harder, smarter and leaner. The boating consumer is more knowledgeable and has far more choices today than ever before. Our industry must recognize this and act in a professional and respectful manner to earn that consumer's trust and ultimately make the sale.
Brand and marketing director,
Grand Banks Yachts
By several measures, consumer confidence about future expectations has more than doubled since its low point last year. That's a key indication for us at Grand Banks of brighter days to come. We see the lack of buyer confidence, more than a lack of qualified buyers, as one of the major obstacles to any turnaround. This appears to be the case in our segment of the industry, although other segments that draw more from aspirational consumers have a tougher road ahead.
Of course, 2010 also started with a feeling of optimism that the worst of the economic turmoil was over, only to see a retreat among consumers as reality failed to live up to expectation. This time, however, I believe confidence has been bolstered by the broad consensus that emerged in late summer among analysts predicting the United States would likely not see a double-dip recession. Its timing corresponded closely to a marked uptick in inquiries and sales activity among our dealers worldwide. (It probably didn't hurt either that the Dow made a 1,000-point climb in one month during this period.)
These conditions don't mean Grand Banks or our customers expect a major recovery, but the sense that we're not going to see further worsening in the economy appears to have brought buyers off the sidelines in strong numbers. Many of those I've talked to at boat shows have said as much.
The other major obstacle for our segment of the industry has been the mass of heavily discounted inventory clogging the marketplace. Even if we haven't necessarily lost buyers to these cut-rate deals, it dramatically slows the sales cycle and causes general confusion about comparative value. Fortunately, the situation eased as these boats sold off during 2010 and new-boat shoppers have gained more of a sense of urgency as a result - an assessment supported by the increased level of sales activity around our lineup this year at the Fort Lauderdale International Boat Show.
Against both of these obstacles, our focus has been to make wise investments in new product development. New models and new technologies build confidence by demonstrating continued progress and strength in the face of adversity and provide a compelling impetus for owners looking to move up. And the excitement of new model launches brings buyers off the sidelines as well. New models also strongly differentiate themselves from discounted late-model inventory to establish a clear baseline for value. This, in turn, helps us protect price points so both Grand Banks and our channel partners can hold margins and continue this cycle of new product development crucial to long-term success.
None of this is to say that we expect a big jump in sales for 2011. But sound management of capital and smart moves in the marketplace will help us stoke this small turnaround into something bigger and better in the months and years to come.
Chairman, J&D Acquisitions
We're in such uncharted waters in this world that we no longer can create our own destiny if somebody wants to shoot a cannon through the wall, so to speak. But I came out of the Fort Lauderdale boat show feeling very, very good. The people were back. They were excited.
In the yacht group, we saw a surge of people ordering new yachts the week after the show. We knew they wanted to, but they were waiting until the elections. With the elections behind them, several of these people started sending in deposits and signing contracts. So, from that standpoint, I'm very pleased.
Credit continues to be the biggest concern for dealers - getting enough credit to run their businesses. There are still a lot of good dealers who can't get credit. I think they're as good a risk as anybody in many cases, but there isn't a credit facility out there for them.
That's my biggest concern going forward - the financial side of the business. Who is going to give them the support necessary to floorplan boats? It's basically GE or a local bank. There are a lot of people who can't get taken care of by either one. We get calls every week, if not every day, from dealers saying if they could get floorplan they would take our line on.
I'm 100 percent sure there will be others coming into the credit side of the business. The window is so big right now an elephant can walk through it. The opportunity is enormous, because GE is the only one there. They're doing what they have to do to support their business and if they had a competitor I'm sure they would find they'd have to be more competitive.
We were a new start-up in February. We have retooled many of the Carvers, and we're getting a great response. And that's not just here; that's globally. Marquis also has several new models. On our smaller boat lines - Larson, Seaswirl, Fincraft and Triumph - Larson continues to do very well. We have signed up 94 new dealers since February. That is a huge number. We are just short of 300 dealers in that group of four boat companies.
The people that made it this far should, for the most part, be in business for the future.
The bottom line is I believe the worst is behind us. Everybody is starting to talk more optimistically. Perception becomes reality if enough people believe it. On the other side, housing is still an important part of our economy and that clearly continues to be a thorn in everybody's side.
At the same time, I think people have waited long enough. There are a lot of people who want to own a boat that don't own a boat today. Maybe they can't afford it, but maybe they can and don't want to take the risk right now. Or maybe they're just looking. There were some great bargains that people missed. They're getting a little sticker shock. You can't buy a boat at 30 or 40 percent off anymore; you have to pay a legitimate price for it. The discounting is behind us.
I think the times are so uniquely different than anything I've ever experienced that we have to operate our businesses differently than ever before. What that means is there has to be more multitaskers. There has to be more cost controls. There has to be quality control. You've got to have the right vendors, the right people. We've had purging in our own situation. It's a different game and you've got to play it.
President, Marine Retailers Association of America
We've all heard the phrase, "There is light at the end of the tunnel." I truly believe the recreational boating industry can finally see that light. I'm anticipating a slight recovery for 2011. All the trends I'm seeing, all the reports I'm receiving from dealers, all the Wall Street financial reports I review cause me to believe that we have reached the bottom and are starting up the other side. Thank God at last.
Dealers for the last two years have worked diligently and at great cost to their pocketbooks to reduce their inventories. They stood up, sometimes alone, and bit the bullet to move product in order to decrease their "carrying" costs. Dealers stood back and re-evaluated all of their business processes and cut or eliminated where necessary, sometimes terminating employees that had been with them for years.
The economic climate forced them to become better businesspeople or go out of business. Dealers quickly shifted to selling brokerage boats, where the cost of inventory is non-existent, increasing their service portfolios by working all of their previous customers and establishing new profit centers, such as storage and accessories.
Having done all of the aforementioned necessities, they are now poised to enter the winter boat shows with fresh inventories that can be priced with better margins. The displays they have at the shows may be smaller, much to the disappointment of the show promoters, but they will not be showing non-current or previously displayed product to the consumer. I feel the consumer will welcome that.
Unless we have no consumer demand, I think that manufacturers will now be able to ramp up and deliver fresh product. Lord knows they can surely use that in their plants, which have been severely idled in this economy. I've been told by major lenders that they are also ready to extend more floorplan lending at competitive rates, something that was severely slowed down when inventories rose to unacceptable levels during 2009 and 2010.
I believe our ever-resilient recreational boating industry, though it will be smaller, will once again become profitable. Not all at once, but slowly over the next 12 to 18 months. We have seen bad times before, but we have never seen the consumer's desire for the lifestyle that boating offers diminish, so we must remember to cater to that desire and work efficiently to satisfy it.
Group president, Rec Boat Holdings
We are approaching 2011 with a positive outlook. It is my belief that the worst is behind us as far as the retail market is concerned. The big question remains how rapidly we will start seeing significant growth at this point and what kind of growth curve will we see?
The economy has shown positive-to-very-positive signs across many metrics, but the one area that is still holding us back is the real estate market. As long as we see depressed prices and overstock in the residential market, we'll be dealing with consumers who continue to hesitate due to psychological concerns or actual barriers to obtaining financing by using collaterals that have lost a lot of the value they once had.
The extremely low interest rates we are seeing today will eventually entice people to start buying houses again. And if the stock of foreclosures and short sales are depleted soon, that will have a huge leverage effect on values, and I believe that is when we'll begin to see a strong increase in demand.
In our industry, inventory levels have reached a point where matching consumer demand and availability will likely create challenges. The seasonality of our business will always make planning difficult for the manufacturers due to lead times in the supply chain. It can be challenging to respond to changing market demands in a short period of time. We will need to focus on managing this challenge and find ways to reduce our cycle times. This will offer more flexibility to the network and increase inventory turns, which will result in the delivery of positive financial performances for our enterprises.
However, this is a work in progress. For now, we still need to make sure our dealers have enough boats in showrooms to respond to an expected better spring than what we have seen during the last couple of years.
The surviving marine dealers have large enough credit lines to conduct business normally. Retail financing, though not yet as obtainable as it was prior to the crisis, has become more available. Inventory turns will be largely improved and the flood of distressed inventory has been consumed, so we can refocus our efforts on selling new boats with normal terms and margins.
All that said, we need to adjust to new ways of conducting business. We need to know and understand a consumer who has been trained to look for deals, along with a new era in terms of information availability with the Internet, products that offer more technology at an increased price of entry and credit rules that are more restrictive.
The savvier, underleveraged companies will have the ability to make those adjustments if they haven't already done so. I think we will start seeing some positive trends with the upcoming winter retail season. We sure are ready for it on our side.
Chairman and CEO, Brunswick Corp.
For those in the industry who have taken the opportunity to dramatically reshape their cost structures and operations during one of the country's longest downturns on record, 2011 may be a time of gains and progress. Those who are ready will move forward, not because of a dramatically improving economy that will propel growth, but due to the results of the difficult decisions and hard work accomplished during the last few years.
While economic growth has proved elusive and unpredictable over the last few years, boating participation and registrations have remained vibrant during the downturn. As an industry, we must do a better job of tapping into that reservoir of boaters' desire to be on the water.
William McGill Jr.
Chairman, president and CEO, MarineMax
Another year is behind us, with 2010 being a year of downward trends in the marine industry, reflective of the low consumer confidence and uncertainty surrounding the U.S. and world economies. Following the November elections, we are hearing more positive feelings about the economy from our customers, albeit with concerns that the Bush tax cuts may not get extended and Obamacare may not be repealed or substantially modified. Today, we are not only facing the issue of low consumer confidence, but also the lack of confidence in our political system.
Forecasting the marine industry outlook for 2011 is akin to fishing - hoping for the big fish while knowing they were most likely caught in 2006 or 2007 and realizing that we will catch many smaller fish before they grow to become big ones. I believe it is almost certain that a substantial industry recovery will not occur in the next few years, as the housing market, unemployment, world economies and consumer discretionary dollars will remain challenged.
I believe the biggest challenge for our economy remains the misconception of the current administration that creating a greater size of government and increasing taxes for taxpayers and businesses to partially pay for a non-balanced budget will stimulate the economy. Fewer taxes for taxpayers and businesses, coupled with a balanced budget, will stimulate the economy and create jobs, which is Economics 101.
Our research indicates that consumers have changed as a result of these last few years of being in a recession, or should I say a depression for the marine industry, with unit sales down about 60 percent from the late '90s and through 2006. Most are watching their dollars more and are concerned with pricing in an industry that has only increased costs to the dealers way ahead of inflation.
I believe we must all push ourselves to properly content and push our manufacturers to reduce costs to adjust to these times. Overpowering, overcontenting and not reducing manufacturing costs will be the challenge for the marine industry in the next few years. Why do boats need to run a few miles an hour faster at a premium price, have multiple TVs, duplicate electronics and lots of equipment, which most customers do not use? I believe we need to be more practical and realize that price elasticity does apply to our industry.
My mother used to tell me that it's not how big the pie is, but rather how big a piece you get, which is apropos in these times. 2011 is a time for capitalizing on the many opportunities to get a bigger piece of the pie by growing market share with our customer- centric strategies, which are aligned with our customers' desires and needs.
The great news is that our customers have been boating more during these stressful times and their desire for a new or larger used boat is growing. We will continue to teach, service and show them how to have fun on our many Getaway events and rendezvous. We see 2011 as a growth year for MarineMax, with increased commitment and focus on maximizing our customers' enjoyment on the water.
No matter what 2011 and beyond will bring us, our team has experienced the best two-year training course of their life and is ready for the challenges and opportunities ahead.
President and CEO, Volvo Penta of the Americas
We are cautiously optimistic about Volvo Penta sales for 2011. Specifically, we have committed to our global headquarters an increase in revenue of approximately 20 percent vs. 2010. The basis for our optimism is a combination of the underlying belief that the U.S. economy will be more friend than foe in 2011 and the following:
1. New boat dealer pipeline inventory is at an historic low. Therefore, even modest increases in retail activity will drive increased production requirements from our boatbuilder customers.
2. The continued and amazing success of our IPS products has now made us the clear market leader in boats 40 feet and larger. As this segment recovers, we will earn disproportionate benefits due to our high market share.
3. The launch of our recent IPS 3 will enable us to enter an entirely new ultra-high-end market segment for boats from 60 to 120 feet. In this segment it is not unusual for the price of a propulsion solution, per boat, to approach $1 million. This will be purely new business for Volvo Penta.
4. Our decision to focus our gas sterndrive business on boats 20 feet and larger has enabled us to shed the loss-making 4-cylinder "entry-level" market. Now our high-end V-8 customers get more value since they are not subsidizing the former loss-making entry-level segment.
5. Our independent boatbuilder and dealer customer base continues to gain market share in their respective segments. Their continued success in 2011 will be the basis for meeting our growth promise.
6. Our parts and accessory sales have been remarkably successful in 2010 and we predict that growth will continue in 2011.
It is important, however, to bring some perspective to our optimistic outlook for 2011. If we achieve our predicted revenue increase, our total revenue will still only be two-thirds of our historic peak. Also, it is important to be aware that our revenue recovery is not translating into proportionate unit sales increases. Thanks to our IPS success and high-end gas focus, our average unit sales price has doubled since 2005. Therefore, we are catering to a much smaller customer base than in the past.
President and CEO,
Recreational Boating & Fishing Foundation
"Drive thy business or it will drive thee." - Benjamin Franklin
Like most industries, the economy has posed difficult challenges for boating. And during every industry conference or trade show I've attended this past year, I heard a great deal of conversation about the slow pace of recovery.
As a former business owner and entrepreneur, I recommend that you focus on what you can do rather than what you can't. How? By focusing on your customers. Because when the recovery is complete, your relationship with existing customers and your ability to leverage them will be based on how you communicated with them during these tough times.
We know from RBFF's recent boating research released in September that customers are not moving away from the boating lifestyle, but instead are looking for more value. Despite the economic downturn, nearly half of all consumers claim they will still be in the market for a boat in the next three years. For the time being, consumers are more likely to try to find ways to make boating less costly by doing repairs themselves. A strong predictor of future purchase intent is to target those who participate in other outdoor activities like fishing.
With that information in hand, what can you do to cultivate the consumers who want to purchase a new boat in the future? What can you do to educate consumers who fish, but may not own a boat? For current owners, how often will you reach out to them about special deals or discounted accessories or other programs that keep you in touch with them?
Boat. Fish. Connect.
The variety of ways to communicate with customers has never been greater. Whether it's e-mail, direct mail or chatting on Facebook, you should take advantage of these low-cost or no-cost tools. Of course, if you're like me, you may just want to pick up the old-fashioned telephone and call your customers - a technique that may even be perceived these days as innovative.
Make a commitment now to focus on your customers. Continuous contact will contribute substantially to the long-term success of your business, regardless of external economic factors.
Larry Russo Sr.
President and CEO, Russo Marine
From a boat dealer's perspective, we have a manufacturing problem in our industry. During the last 20 years, we have witnessed annual boat production fall from 500,000 units to less than 150,000. During the same period, we have seen the U.S. retail dealer population shrink from 10,000 dealers to 3,000. As a result of the last two major recessions (1990-1993 and 2008-2010), we have experienced a 70 percent decline in boat production and a corresponding 70 percent decline in dealer population. Herein lies the problem. Why, then, have we not seen a significant reduction in the number of boatbuilders and boat brands?
I sense our industry is in for a major course correction in the manufacturing sector. Fundamental economics do not support the current structure. At present, there is simply too much manufacturing capacity for the real demand that exists in today's ever- shrinking marketplace.
What will happen and when will it happen? In the coming year, marginal brands will come under great pressure to find worthy dealer distribution. The best dealers - the 20 percent that generate 80 percent of the sales - already have the best brands and the leading market share. That will leave these struggling builders to select weaker, underperforming dealers that cannot possibly generate enough sales to get these manufacturers out from under their financial stress.
Here is what I see coming: We will have a proportionate shakeout in the manufacturing headcount similar to what we have seen on the dealer side. The NMMA reports there are more than 1,400 companies certified by the Coast Guard to build boats in the United States. Of that number, most are small shops that will survive on niche customers and custom builds. There are about 300 brands that are in the "production" boat business. These are the companies that build 50 or more boats per year. We will see a significant reduction in the overall manufacturing footprint this year and it will come in many forms: liquidations, acquisitions, mergers, alliances and joint ventures. Most single-facility manufacturers can no longer sustain their burdensome fixed overhead structure with a steep decline in business.
Here is a case in point and a strategy that makes sense. Donzi, Pro-Line, Baja and Fountain were once four separate, independent builders. Today, they are all built under the same roof so they can create manufacturing efficiencies, reduce costs, increase through-put and survive. To me, this looks a lot like the new "world order" in the boatbuilding business.
Robert E. Staehle
President, National Marine Distributors Association; vice president, Kellogg Marine, Land N Sea & Diversified Marine Products
Three phrases describe what's happening in the marine supply business and 82 percent of NMDA members are predicting a slight increase in the parts and accessories market for 2011.
1. Parts and accessories are king: In my years in this business, when times are tough, parts and accessories are the king. Dealers and manufacturers really refocus on service and repairs to make it through hard times and it's our role to supply that pipeline. The ones who do it best are the ones who grow and survive.
2. Survival of the fittest: Whenever we have tough times, the dealers who survive are usually family-owned, well-managed, service-oriented and well-educated. They really know and understand their business model. It's an honor as distributors to do business with these hard-working people.
3. Sunshine is the answer: Our business cannot function today without good weather. 2010 was without a doubt the best boating season in all the years I've been in the Northeast. Everyone went boating. Boats that were covered and stored for years were launched and used. Marinas were full for the first time in the last few years and service work for the winter has been strong for many yards. We may not have another year weather-wise like 2010, but the momentum created will go forward and help us all.
We see 2011 as a challenge for all of us, but expect that with the groundwork that has been laid, the lessons that have been learned and the resiliency of our industry, the parts and accessories market will have another good year and help the overall health of the recreational boating industry.
President, FLIR Commerical Systems
Much like the broader electronics industry, marine electronics have undergone a remarkable evolution in terms of speed, power, functionality and price. As we look to the future, we only see this continuing, as increased capability and affordability drives even greater adoption, which in turn further increases affordability and innovation.
During these difficult economic times, many recreational boaters are choosing to improve or upgrade their suite of marine electronics to get expanded utility and enjoyment out of their vessel. In the coming year, we see upgraded technology bringing improved value to boats and more enjoyment to the boating experience. One examples of this is the increased adoption, capability and affordability of thermal night-vision cameras - cameras that make pictures from heat, not light - have become "must-have" technology for anyone who boats at night, even anyone who thinks they might have to. The last four years have seen a tremendous growth in the adoption of this revolutionary technology and recent events will only serve to increase the boating public's demand for the ability to see clearly in total darkness.
Over this time period, FLIR's thermal night-vision cameras have evolved from a high-tech curiosity to an established product class as a necessary, stand-alone piece of marine electronics. Throughout 2011, boaters will see this development continue as thermal night- vision cameras become seamlessly integrated into a variety of bridge electronics.
This integration is already becoming a reality. Furuno's MaxSea TimeZero commands the integrated FLIR thermal night-vision cameras to automatically follow any AIS target designated on the chart plotter. Raymarine-branded thermal cameras are seamlessly integrated with the Raymarine E-series wide-screen MFD, allowing touch-screen control of all camera functions. Other slew-to-cue functions, like radar integrations, are currently available to the boating community.
This pattern of more complete integration with bridge electronics will continue in 2011, making thermal night vision easier to have - and easier to use - than ever before. It will also allow the use of some of the expanded capabilities that exist within FLIR cameras. Every camera we ship has a built-in networking technology called Nexus Marine Networking, which allows it to plug into on-board networks simply and easily. It also can enable remote system operation, so boat owners don't even have to be on board to see what's going on around their vessel, as long as they're at a computer with an Internet connection.
FLIR products also have built-in video analytics that make them valuable security assets. When these capabilities are fully enabled, boat owners can define exclusion zones and electronic tripwires, so that if anyone boards the boat when they're not supposed to, the camera can send an alert - complete with a picture - to the boat owner, alerting them to the intrusion.
Of course, none of this touches on the new lower-cost thermal cameras that will be hitting the market in 2011 ... but more about that later. As we say at FLIR, the best is yet to come.
Founder, Cardinal Points Network
Since the recent exodus of lenders from the marine industry, the question remains: Will banks and finance companies return to the boating industry? I think we all know the answer is ultimately yes.
There are two separate finance markets for the boat industry: retail financing to the buyers and floorplan financing to the dealerships. In both cases I believe we are looking at a "Back to the Future" scenario. Bankers realize that losses incurred during the last few years resulted from loose lending standards made worse by the economic downturn. It will be a very long time before we see zero-down, low-doc, extended-term and aggressive instant-approval programs in retail finance. We will see lenders that recognize the potential in lending to the boating customer and will do so with reasonable down payments, terms and complete financial information.
The National Marine Bankers Association will tell you they are fielding questions about lending to boaters. Regionally, banks are starting to talk to dealers about this industry. Some of the banks that exited the industry are soliciting branch loans from boaters today. Dealers should start seeing more competitive choices for their buyers.
Dealerships that have taken care of their clients with service, storage, parts and accessories have been the survivors. These businesses have multiple income streams that make their financial position stronger and create happier boaters. At the same time, dealers have learned to be frugal with their finances and have done more with less. As buyers and profits return, dealers need to reinvest money into their businesses.
If fiscal responsibility is maintained in our industry, lenders will again provide commercial loans to the boating industry. But boat dealers need to build stronger balance sheets than they have in the past, turn product and actively manage their finances in order for lenders to return with any vigor.
We've talked about the SBA's 7(a) DFP program a great deal over the last year. Right now the SBA is working with the boat, RV and car industries and their lenders to retool the program so it can be viable for banks to utilize. If the SBA puts together a usable program, it will help a small percentage of our dealers in obtaining bank financing. I believe it will have a positive impact, but it will still come down to the financial health of our dealers.
From everything I have seen, the boating industry has learned a great deal in the last two years. Boaters are better served by dealers that understand happy customers ultimately create profits. I think dealers better understand that financial rigor creates better choices. If we keep improving financially, lenders will come and help our industry prosper.
Karen M. Trostle
President, National Marine Bankers Association;
president, Sterling Acceptance Corp.
The marine finance industry has seen some rise-and-fall cycles over the last several decades, and 2010 may be the year that will reflect the bottom of the most recent cycle. Fall boat show activity suggests we may have made an upward turn in sales and corresponding loan requests, albeit slight. Used-boat sales are tracking much better than new, but the increased inquiries and boat show traffic encourage us all to be more optimistic for the future.
One thing is certain: Money to lend for new- and used-boat purchases is available to those qualified to borrow. Credit-granting criteria may never be as liberal as it was three or four years ago, but if the applicant can verify income, verify liquid assets and show good credit ratings, chances are there is a lender out there that will approve the loan.
I believe 2011 will continue to be a mixed bag for our industry. Because the housing market still has major problems, with real estate values dropping and the unemployment rate hovering near 9.5 percent, banks will still be dealing with high delinquency, foreclosures, repossessions and short sales. That being said, the remarketers have been doing an excellent job in getting fairly good retail prices for the collateral. While many of the most dramatic price deals may be exhausted, there are still some great buys out there for the consumer.
Word on the street is that those consumers who wait too long to react to counteroffers or come in too low on purchase agreements are losing the boat sales. This may spur some sense of urgency for clients who want to purchase boats. Prices for used boats and late-model new boats have seen some stabilization, which means the comfort level will improve for lending.
Consumer loan rates are still extremely low, and projections by most economists are that rates will remain stable throughout 2011, with perhaps a slight uptick by year's end.
New regulatory reform bill requirements, coupled with the turmoil in the credit markets, will be a major focus of attention for lenders during 2011. Banks and service companies will no doubt need to make changes in policies, procedures and product offerings when the regulations are eventually written. These new regulations may have a negative impact on the marine finance market.
I am encouraged that 2011 will be a year of slight growth for the marine financing industry. The appetite for marine loans is healthy for lenders and, as the economy begins to slowly recover, more and more lenders will enter the market and expand territories of service. There is definitely light at the end of the tunnel.
This article originally appeared in the January 2011 issue.