Nevertheless, the sailboat shows are showing resilience. At the recent U.S. Sailboat Show held in Annapolis, Md., one of the biggest in the U.S., the crowds came and most exhibitors indicated satisfaction with the show. According to anecdotal reports, some exhibitors saw signs of a rebound. At the recent Boats Afloat Show sponsored by the Northwest Yacht Brokers Association, the attendance was lighter than usual but still well attended. A quick survey of brokers onsite by Oyster Yachting indicated many lookers but deals were sparse compared to earlier shows. Boats Afloat is one of the main boating events in the Pacific Northwest held in the Seattle, Wash. region.
Based on metrics from Info-Link, the boating industry’s unit sales overall have started peaking in early 2004 and have dropped about 45% since then – about 1% drop per month on the average. Generally, the boating industry has been slow to throttle back production and has not anticipated the steep drop-off in sales which commenced in early 2008. Dealers have been working on clearing off excess inventories with discounts and incentives as large boat builders pared back production.
Because of the overall economic downturn and resultant tight credit policies, boat sales have been held back by a combination of factors:
- Tight credit for sub-prime borrowers
- Tapping the “house equity bank” has dried up
- Shift in consumer funds away from discretionary spending
- Consumer confidence declined, move toward savings
- Stock market portfolio losses
Today, the scenario is different and closely tied to the bursting of the real estate bubble. Companies with low debt loads are less affected and have a far better chance of survival. The ability to quickly adapt to the realities of the battered economy will give smaller boat builders and marine-related business an advantage which have managed to keep debt at low levels.
Hinckley Yachts is one example of the problems brought on by heavy debt. A recent article in the New York Times highlighted this venerable boat builder’s troubles. The 80-year old builder of fine yachts has seen its employment slump from 625 at the peak in mid-2008 to about 300 recently. The company took on debt through numerous rounds of sales of stock to private equity firms. It became problematic when the boating industry took a dive. According to insiders, the culture at the company shifted from that of a family-owned business to one controlled by outsiders – sometimes with agendas which does not mesh with the former management’s goals or customers’ interests.
A reasonably good proxy for the financial trends in the boating industry are the revenues of publicly-held marine-related companies. West Marine (WMAR) is the largest publicly-held, specialty retailer of boating equipment and supplies to the boating community through a network of 342 stores. It also operates the Port Supply division, one of the largest wholesale distributors of marine equipment serving boat manufacturers, marine services, commercial vessel operators and government agencies. The company’s revenues since 2007 have been sliding in tune with general malaise in the boating industry.
Geoff Eisenberg, West Marine’s CEO, commented:
Randolph Repass, who founded West Marine in 1968 in his garage to sell ropes, bought about 279 thousand WMAR shares in the second half of last year and now owns almost 1/3 of the company. Whether he is just trying to protect his legacy or whether his optimism stems from a shakeout of WMAR’s competitors is difficult to gauge.
West Marine's largest director competitor, Boater's World, has floundered earlier this year. Boater's World gave West Marine stiff competition in its markets with its 129 marine center stores across the U.S. However, the bankruptcy of Boater's parent company, Ritz Camera, sank the boating supply chain.
Staying afloat in the current economy is the key mantra for boat manufacturers. The upturn, in our view, will be slow and take years for the industry to recover to former levels. There is some anecdotal evidence from trade show attendance figures and dealers that the choppy waters are calming down but a clear upturn has not yet materialized.
Oyster Yachting has compiled a Sailboat Industry Ad Index which is normalized to May 2007. This is based on the number of monthly ads appearing in selected sailing-oriented publications. Clearly, the trend in advertising sales is still on the downswing. When the industry begins to recover, this index should signal a turn around.
The mix of boats, between power and sail, will be driven, to some extent, by the recovery in world markets and price of oil. Overall, the recreational new boat buyer pool will be reduced by the decline in availability of home equity credit, a general tightening in the credit markets, and the increased financial conservatism of consumers.
It is worthwhile to note that interest in sailing and cruising has not waned in spite of the tough economy. Cruiser's rallies and races are continuing to be popular. Case in point, the Latitude 38-sponsored cruiser's rally from San Diego to Cabo San Lucas is set to sail on October 26, 2009; it has attracted record interest with over 183 vessels registered for its 16th year. Perhaps it is befitting that the fleet will sail in these stormy economic times just after Hurricane Rick delivered its wake u