As the calendar year closes and the 2023 model year launches into boat-show season, dealers across North America continue to report a significant slowdown in retail activity. Fresh off a couple of years of record sales and profitability, dealers are trying to answer the question: Is this a normal seasonal slowdown, or is something more troubling afoot?
The summer of 2022 seemed to sustain strong sales at most dealerships, but as inflation, rising interest rates and a volatile stock market took their grip throughout the late summer and fall, dealers witnessed plummeting lead volumes and new-unit sales. During the late fall and winter months, boat sales always slow down: On average, total powerboat sales in September, October, November and December combine for about the same total levels as May or June alone. But as of this writing, dozens of dealers are reporting a year-over-year downward trend of 20, 30 even 40% on units sold, but not yet delivered.
Optimistic dealers project 2023’s sales totals to come out flat compared to 2022; others are projecting sales totals dropping another 15% to 20%, on average. Such a scenario would lead to rising inventory levels and more margin pressure than dealers have experienced since the fall of 2019.
A deeper dive into data provided by Wells Fargo supports those latter dealers’ outlook. It shows dealer inventories reaching normalized levels earlier than originally expected, on pace with 2019 levels, when the entire industry was focused on reducing inventory in the pipeline.
“The theme of the year is going to be dollars versus units,” says Chad Lyon, managing director of marine and RV at Wells Fargo Commercial Distribution Finance. “Our numbers are always measured on dollars, but from a dealer standpoint, it’s going to be important to keep up with the units. Today, unit inventories are still below normal level, but we’re recovering. You’ll get some level of mismatch in terms of your dollar sales: They look good; however, that will likely come with a decline in the number of units they’re selling. … I think watching both is the right way to approach what’s ahead.”
As supply-chain issues roiled our industry, manufacturers were forced to put dealers on allocations for new-boat orders. Those limited orders leaned toward the production and sale of the highest-priced, most profitable units. And the premium products, coupled with insane demand, led our industry to the highest profitability levels we’ve ever seen. In other words, incredibly high levels of revenue, despite far fewer unit sales.
From a profit-picture standpoint, it doesn’t get any better than that — until your dealership starts to realize that fewer unit sales equates to fewer service orders, fewer winterizations, fewer storage contracts and so forth. Tack on fewer trade-ins, due to mismatched preowned unit values, and dealers are finding themselves in a tough spot heading into a year they expect to be challenging.
“I’ve keyed in on units instead of dollars,” one dealer told us at the Marine Retailers Association of the Americas. “I’ve gone back the last three years and tracked my winterizations. What’s unsettling is that we are off about 22% in our sterndrive winterizations right now. It’s got me concerned.”
This is the type of fine print that dealers should be keeping an eye on. Call it alternative profit centers or otherwise. Service, storage and the like are the areas of the business that dealers must rely on to survive a downturn in new-unit sales. A couple of preceding years with reduced unit sales isn’t the ideal way to kick off 2023.
Another issue, also masked by the high revenue and profitability of the past couple of years, is that dealers should be tracking their sales through the eyes of the unit sales they have closed year-to-date and the units they have sold but not yet delivered or closed on.
The boats that dealers have already closed mostly represent preorders from months ago, signaling demand that has now passed. Boat sales that have been written up but not yet closed demonstrate current demand. The latter is where dealers are beginning to identify problems.
“From a dollars standpoint, from what we have closed on, we are ahead, year to date,” another dealer told us. “But if you track what we’ve written, we’re down about 15% in units, although the dollar amount remains on par with last year. We’re excited about the dollar amounts, with the price increases, but we’re losing sight of the units, and we’re concerned.”
No matter if we find these trends to be a seasonal blip or a rude introduction to the post-pandemic marketplace, the key to success in the months ahead will be effective inventory management from a more granular perspective. The ability to stay on top of it all will mean managing the right metrics, on top of managing the units-versus-dollars differences.
As Lyon says, dealers would be wise to start now by taking expected sales totals (measured in dollars and units) “and divide it by the average inventory levels they expect to have on hand. The marine industry has always been a two-turn industry, so based on those projections, do you have too little or too much inventory on hand, or just the right amount?”
Understanding the dynamics and managing the business to the right amount of inventory could make or break a dealer’s success in 2023.
Matt Gruhn is president of the Marine Retailers Association of the Americas.
This article was originally published in the January 2023 issue.
