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The dawn of a new dealer model - Trade Only Today

The dawn of a new dealer model

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Staying afloat will be less about selling boats and more about service, storage and lifestyle, experts say

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Few would argue that the punishing business environment of the last three years has changed the face of the recreational marine industry. But perhaps no segment has been more negatively affected, if not permanently altered, than marine retailing.

The days of the marine dealer who built a business primarily around selling new boats and engines and offered accessories and service, often as loss leaders, to support boat-buying customers are over, according to those who closely monitor the business. Tomorrow's marine dealership will be a lean, diversified operation in which every facet contributes to the bottom line, they say.

Dealers also will need to do more to involve customers in the boating lifestyle, and that means more than just holding rendezvous. Experts say dealers will need to offer more events, boating clubs and social gatherings that promote the rewards of being around fellow boaters and their families.

The dealer of the future will need to do more with less - fewer locations and employees and less inventory. What they stock in the showroom will need to be more targeted to local demand.

Dealers also will have to work with lower floorplan credit lines. That suggests a significant change in the way dealers will operate, compared with how they did four or five years ago. Going forward, they may have to rely more on cash flow - even during slow periods - to cover daily expenses and major items, such as showroom expansions and other improvements. When they borrow, the local bank probably will figure more prominently than before, not just for business capital needs, but also for funding inventory purchases, experts say.

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In short, tomorrow's successful marine dealers could be less focused on new boat and engine sales. They will offer a wider menu of services and operate a marina or partner with someone locally who does.

Dealers will need to be much better at targeting their inventory to market needs and tracking inventory turns. If this sounds challenging, keep in mind what the experts suggest will be a major positive for tomorrow's marine dealers: They will be more self-reliant and better able to manage through the industry's constant up and down cycles. They'll also be far less dependent on a particular supplier, which means tomorrow's dealers will have more reason to invest in a brand built around themselves, not simply that of XYZ Boat Company.

Service and more

In many ways, these changes already are well under way. A fiercely competitive retail marketplace has favored dealers who, in the words of Duffy Stenger, Regal Marine Industries vice president of sales and marketing, are "diversified and have numerous income streams." Stenger says dealers who stuck to the old business model for a marine dealership - one that proved successful during the go-fast era of the 1980s and even through the slower-growth decade of the 1990s - are the ones who left or were forced out of business in the last few years.

"You can't rely solely on new-boat sales unless you have an extremely low-overhead operation," Stenger says. "Dealers will have to improve in the service area."

Stenger adds that because of the shakeout, dealers who already have made the commitment to service are winning. As new-boat sales all but disappeared for many retailers in recent years, service has been a bright spot, he says. "We're finding dealers who are even offering mobile service, where they go to the boater to make repairs and perform maintenance," he says.

All this reflects a push by many of today's battle- hardened dealers to wring out sales and profits everywhere they can. "Clearly, diversification in terms of revenue and profit streams at the dealerships have been very important and critical to folks who have survived the last 18 months," says Brunswick Boat Group president Andrew Graves, pointing to the renewed push by dealers not only into service, but also into aftermarket parts and accessories sales and storage. "Those are excellent business functional relationships to have, and to be focused on each one and understand its strategic role and its profit potential is very important."

But he cautions that dealers should not lose sight of customer service and how all dealership functions contribute to a positive experience for boaters when calculating their contributions to the bottom line. "We also want to deliver an outstanding experience and customer satisfaction," Graves says. "So some of the sectors may not be true profit centers, but [dealers] need to understand their strategic role in the business and whether or not they're generating profit or they're providing some other type of service or value to consumers."

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Graves points to rendezvous, operator training and some of the other services dealers increasingly are offering to help keep boaters on the water while adding value to their operations. They are expenses, not profit centers, to be sure. Nonetheless, Graves says, more of today's dealers recognize that hosting these functions builds customer loyalty and contributes to profitability.

"Rendezvous, training sessions and providing that overall experience that a consumer is looking for not just when he has a problem or needs warranty or service support, but to help him enjoy the boating experience ... all are great ways to pull people into boating or retain existing boaters," Graves says. "They make the boating experience more enjoyable and that's a critical thing going forward."

Graves says more and more dealers also recognize the power of their service departments not only to generate sales and - if run properly - profits, but also to bring in potential new customers. The days when service was reserved almost exclusively for a dealer's boat-buying customers are fast disappearing.

"Clearly there are some long-term customers and existing customers who are given preferred and very rapid service," he says. "But dealers in the past year or two have opened up to folks [who own] other brands as a way to fully utilize their service and operating overhead, as well as to try to bring new customers to the brands they're selling."

Boat buyers

If there's one concept about the dealer of the future that sparks debate, it's the role boat sales will play in the operation, especially new boats. Not surprisingly, Stenger, Graves and other boat company executives argue that new-boat sales will remain a central function of most marine dealerships. Others argue that used boats, given the significant inventory of product that remains on the market, will be more important to tomorrow's dealers.

Still others, however, caution that today's used-boat sales boom will cycle down as the inventory of quality, late-model product declines and prices rise. "When the price of used boats gets close enough to new, then it will switch back over to new again," says David Parker of Parker Business Planning. "Right now, new boats have been [priced higher], compared to used boats and non-currents. But the non-currents are about gone now."

Parker adds that during hard times people who shop for a boat prefer to buy a late-model used boat to justify the purchase. "They don't want to go out and buy a new boat when their neighbor has just lost a job," he says.

Phil Keeter, president of the Marine Retailers Association of America, concurs, adding that sales of used boats are starting to wane. In addition, he says, dealers who have  survived the carnage of the last few years have done an excellent job of moving new-boat inventories. They latched on to used-boat sales while the opportunity was there, but Keeter says much of that product now has been sold.

For that reason, he and others see a budding uptick in new-boat sales, not to historic highs, but certainly to levels well above those the industry has seen in the last few years. "We need to have buyers," Keeter says. "Once we have the buyers, then everything will fall in place."

Parker believes it's time for dealers to market new boats more aggressively. He even urges them to return to marketing new boats based on monthly payments, rather than purchase prices, to position them more favorably against used boats. "We need to be looking at the payment on a used boat with a shorter term versus a new boat with a longer term ... and start moving buyers back into new boats based on payments, rather than price," he says. "If you look at just the dollar sign on the used boat versus the new, obviously they'll take the used boat."

Even those who make the case for new boats admit that to be profitable at selling them, dealers will have to be more selective in the products they offer. Regal latched on to this idea late last year when it opened a factory showroom at its manufacturing complex in Orlando, Fla. The showroom was offered as an adjunct to help dealers sell new boats, not as a factory-  direct sales initiative. Stenger says Regal recognized that dealers won't be able to carry a lot of inventory. "Our dealers simply can't inventory all the products we offer, especially the larger models," he says.

Lenders also have severely reduced or canceled dealer floorplan credit lines in the last few years in response to the banking crisis and the industry's steep decline. In response, dealers have adapted to making fewer new-boat sales. A case in point is consignment boats. Parker, who conducts 20 Group seminars with dealers around the country, says dealers are reporting as much as 25 percent gross margins on sales.

"If you're a blacktop dealer and you've lost your floorplan, you are now a consignment lot with service," he says. "Until things turn around, the quicker dealers can transition into that, the better off they'll be."

For dealers who still see new boats as the core of a successful operation, one thing appears certain: Manufacturers will be far more selective when they choose dealers. During the last 10 years, the industry has pushed to improve customer service and the boat-buyer experience, so manufacturers say they'll be even more focused on customer service. They'll continue to offer the highest-scoring dealers the best benefits, including longer-term agreements, full shop-rate warranty reimbursement rates and the best marketing support.

For its part, Brunswick increasingly will work with dealers who operate more professionally and who invest sufficient capital in their businesses, according to Graves. "I think it's also proving true that dealers need to have a medium-term strategy and business plan ... one that looks at what they will be doing over the next two or three years and has a very well-thought-out strategy and business plan that they are executing," he says.

Another characteristic Graves says he and other manufacturers increasingly seek in dealers is a winning attitude. Given the natural selection that has reshaped the industry, it's logical to think that attitude would be common among the survivors.

But one manufacturer, who asked not to be named, says there are "dealers out there who at this point are pretty frustrated and deflated. They blame the manufacturers, the lending industry and everyone but themselves for their plight. They're looking back to the past instead of adapting to a changing market. They aren't the kinds of dealers we probably would partner with down the road."

This article originally appeared in the January 2011 issue.

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