Accessory Profits Steady in 2007

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Editor's Note: Power Products Marketing, a Minnesota-based research firm, conducted a telephone survey in January on behalf of Dealernews. They talked to 152 motorcycle dealers across the United States. These dealers collectively reported 2007 motorcycle sales of more than 95,000 units, or 10 percent to 11 percent of the entire market. The following is an analysis of the feedback pertaining to apparel and accessories, new and used motorcycle sales and inventories, customer profiles, and financing of purchases. Although the company did not conduct surveys for 2005 and 2006, this analysis compares 2007 figures to figures compiled in prior years. For the most part, the 152 dealers were the same ones surveyed in previous years.

Survey results suggest that the growth in accessory and apparel inventories at the retail level has slowed, and profit margins on these items remained the same or increased for nearly all the dealers surveyed. Surprisingly, when it comes to motorcycle unit sales, used/new sales ratios don't seem to be changing. Neither do unit inventories at the retail level (though we didn't ask how current the inventory was). New-unit customers do appear to be changing, with fewer people returning to the sport after an absence. More customers than ever are using OEM financing, according to the results.

Accessories and Apparel: Less Growth in Inventory, Margins Up
The number of motorcycle-related apparel and accessory items stocked collectively by the dealers in 2007 increased by only 5 percent compared to 2006 levels, the lowest annual increase since we began tracking this indicator in 1998. Below are the annual increases reported in prior surveys:

20074.8%
20047.9%
200317.9%
20028.8%
200116.4%


Nine dealers reported a decrease in their apparel and accessory offerings during 2007. Seventy-three reported no change, while 70 reported increases.

The collective amount of floor space in these dealerships devoted to apparel and accessories increased only 3 percent during 2007, the smallest change we've recorded since 1998. Below are the annual increases reported in prior surveys:

20073.2%
20046.6%
200312.9%
20029.3%
20019.7%


Only four dealers reported a decrease in floor space during 2007, while 97 dealers reported no change. Fifty-one dealers reported an increase.

Profit margins on motorcycle-related apparel and accessories continue to face pressure from competition and a sagging economy, but surprisingly, they've held up just fine at these stores. We asked how much the dealers' profit margins had changed in the past year. The overall average was an increase of nearly 2 percent during 2007. Below are the annual increases reported in prior surveys:

20071.8%
20041.0%
20030.6%
20021.1%
20012.4%


Eight dealers reported a decrease in profit margins during 2007, while 101 dealers reported essentially no change. Just 43 of the 152 reported an increase, nearly 29 percent of our sample body.

Disappointing Christmas
Sales of motorcycle-related apparel and accessories during the Christmas holiday (from Black Friday through December) at these stores decreased half a percentage point compared to last year, the only decline in the 10 years we've been tracking this activity:

2007-0.6%
20042.0%
20038.8%
20023.9%
20018.9%


Forty-three dealers said their sales during the 2007 Christmas holiday had decreased, 71 dealers reported no change, and 38 dealers reported increases.

According to the Department of Commerce, U.S. retail sales fell 0.4 percent in December, the first decline in six months. By comparison, electronics-and-appliance sales fell 1.9 percent, department store sales dropped 0.4 percent, and sales at sporting goods and other leisure-time activity stores fell 2 percent. However, sales reported by nonstore retailers, including online stores and catalogs, rose 1 percent. The Commerce Department reported fourth-quarter 2007 real GDP growth of just 0.6 percent, the lowest quarterly rate of increase since the economy declined in each of the first three quarters of 2001.

Used Motorcycle Sales/Inventories
The surveyed dealers sold more than 16,500 used cycles in 2007. As mentioned, collectively the stores sold more than 95,000 new bikes. This computes to a 17 percent used/new ratio on average, or about 1 used for every 5.75 new bikes sold. This indicator has been fairly consistent in recent years.

The dealers reported a collective inventory of nearly 2,900 used motorcycles. This computes to about 2.1 months of used motorcycle inventory. The chart below compares this number to previous averages between 2000 and 2004.

Months of Used Inventory at End of December
20072.1
20041.8
20031.9
20022.5
20012.6
20002.7


This statistic has held steady at roughly two months.

New-Bike Sales: Inventories, Buyer Types, Financing
At the end of December the dealers had more than 26,200 new motorcycles in stock, which computes to about 3.3 months of inventory. The chart below compares this number to prior-year surveys.

Months of New Inventory at End of December
20073.3
20043.5
20033.2
20024.3
20013.8
20004.4


Although we do not have the 2005 and 2006 figures, it appears the most recent figure is consistent with our last surveys conducted for 2003 and 2004.

Using estimations, the dealers divided their new-unit customers into four groups: first-time buyers, customers returning to the sport, customers adding another cycle to their stable of one or more bikes, and customers replacing a bike being sold or traded in. Here are the averages compared to prior periods:

Jan 08July 05Jan 04Jan 03Aug 01
First-Time Buyers32%29.5%26%25%28.5%
Returning to the Sport10.5%28%19%20%22%
Adding to a Stable13.5%11%21%20%15%
Replacing Existing Unit44%31.5%33%35%34.5%


The percentage of first-time buyers has increased from roughly a quarter of the buyers a few years ago to about 32 percent during 2007. In addition, an estimated 44 percent of the new-motorcycle sales involved customers replacing their bikes. The number of customers returning to the sport after an absence has dropped sharply. So have the number of customers adding to (or creating) a stable of bikes when compared to 2004 levels. We believe these decreases have caused the numbers of first-time buyers and those replacing a unit to increase artificially.

About 17 percent of customers paid cash or with a credit card, nearly 60 percent financed through OEM programs, about 9 percent financed through local banks, about 5 percent financed through the dealership, and about 9 percent financed through independent financial institutions.

Despite the absence of data from 2004 and 2006, it appears that the use of OEM programs has climbed in recent years. The use of local banks, dealerships and independent financial institutions seems to have fallen back to mid-2003 levels. The number of cash and credit card customers appears to have fallen, with OEM programs picking up that slack.

Jan 08July 05July 03July 02Jan 01
Cash/Credit Cards17.5%22%22%25%22%
OEM Programs59.5%46%56%50%29%
Local Banks9%12%8%9%26%
Dealership Financing5%6%4%9%14%
Independent Financial Institutions9%14%10%7%9%