Snowmobile OEMs push for aggressive promotion after U.S. sales decline 13 percent in 2007
- Key Points
- Arctic Cat dealers need to lower inventory levels to match consumer demand more closely
- Average MSRP has risen 40 percent industry-wide, due to consumer demands for increased performance
Snowmobile dealers and manufacturers struggled again this year in North America, battling warm weather and generally heavy inventories. The story was more pleasant in Scandinavia and Russia, where sales increased for all four OEMs.
Ed Klim, president of the International Snowmobile Manufacturers Association (ISMA), says snowmobile sales are tied almost directly to the amount and timing of snowfall. "In the western areas of the U.S. and Canada where there was snow, sales were up more than 10 percent. In the Midwest and Northeast, where snow was light, sales of snowmobiles were down."
The snow coverage/snowmobile sales pattern shows that product demand exists. "People will buy snowmobiles if it snows," Klim says.
Snowmobile dealers in Michigan were hit with a double dose of trouble this year. Snow was light and the economy was soft due to a decline in U.S. auto sales. Based on talks with OEMs, dealers and industry observers, Dealernews estimates that Yamaha was a big winner in the North American market share race, picking up several points to about 16 percent (see chart). Those gains came at the expense of the other three OEMs, especially BRP, the market share leader at about 36 percent.
The two Minnesota-based manufacturers, Polaris Industries and Arctic Cat, are nearly even at about 24 percent.
Inventories are a concern for Arctic Cat, which has announced plans to slash deliveries by 30 percent for 2008, and to a lesser extent BRP, whose lineup was getting a little bit long in the tooth last year. Cat cut its work force by 4 percent in March and follows Polaris in dropping production to clean out its pipeline. Yamaha and Polaris seem to be in good shape.
On a brighter note, unit sales continue to increase in Scandinavia and Russia. ISMA members reported Russian sales of about 12,000 units, up about 20 percent from last year.
"Anytime you look at one country with about 140 million people that has an economy that is developing faster than most places, it bodes pretty well, as I see it," Klim says. The Russian economy is growing three or four times as fast as that of the U.S., and Russians are beginning to develop trail systems, Klim points out.
All four OEMs sell into Russia and are looking for growth in that market given the extensive off-road areas for good riding, a growing economy and a developing interest by consumers.
Attracting New Riders
After a decade of declining North American snowmobile sales, manufacturers have stepped up an aggressive campaign to bring new snowmobilers into the sport. The Go Snowmobiling campaign is reminiscent of the successful campaign run by the U.S. motorcycle industry, Discover Today's Motorcycling.
It's a move by the industry to bring the pleasures of snowmobiling to a new audience, one that goes beyond the core group of enthusiasts.
The pilot program launched two years ago in select regions carries the message to nonsnowmobilers that they should consider making the sport part of their lifestyle. The package includes radio and TV spots, photography, promotional material and a website, www.gosnowmobiling.org. More than 1.5 million visitors looked at the site last year.
Through extensive consumer research, ISMA found that consumers are willing to try snowmobiling once they find out more about it. "It appears we have done a poor job in communicating with the nonsnowmobiling community," Klim says. Funding is still being developed, he notes.
"I think that's obviously the right angle," says Yves LeDuc, vice president at BRP. "It's certainly the key to our future."
LeDuc also says the industry has to continue to bring more "environmentally friendly" products to market as well as products that are more attractive to those who are not heavy users. "That may mean we have to look at costs, especially pricing," he says. "I think the purchasing behavior of consumers might have changed, and we have to understand that."
Developing a broader base of riders and marketing products that are more suitable to casual users are important steps to meeting the problems caused by weak winters, high gas prices and competing recreational products such as ATVs and side-by-sides.
Arctic Cat faces challenges. The company closed its 2007 fiscal year March 31 with snowmobile sales of $247 million, up 4 percent from $238.1 million in the previous year on growth largely attributable to increased sales incentives and new product.
"Snow profitability has been declining during the past few years, particularly as a result of retail sales incentives," says CEO Chris Twomey.
Arctic Cat picked up enough market share last season to climb over Polaris into second place behind BRP, but faces difficult challenges, primarily because of its inventory situation. Last year, Polaris bit the bullet and cut snowmobile production about 40 percent to help dealers clean out noncurrent inventory. This year, Arctic announced a similar move, planning to reduce snowmobile deliveries by 30 percent for the 2008 season in what Twomey describes as a "one-time" effort to help dealers lower their snowmobile inventory levels to more closely match anticipated consumer demand.
"In North America, industrywide retail sales of snowmobiles declined again this year, and have declined in each of the last 10 years," Twomey says. "As in each of the past nine years, the areas in North America which experienced good snow conditions — parts of the Pacific Northwest and Canada — increased retail sales. Unfortunately, the rest of the country, from Montana east to the Atlantic, received very little snow, and so the result has been a continued increase in dealer inventories. This year we've asked those dealers with increased inventories to order less units in 2008 to bring their inventories in line with demand.
"I view this as a one-time reduction because as inventories come into line I expect dealers to increase their snowmobile orders modestly," he says.
BRP is looking for growth with new products. Market share leader BRP lost ground last season because it had an outdated product lineup that hadn't seen substantial changes for several years. While BRP's REV platform took the industry by storm in 2002, the company hasn't significantly upgraded its lineup since then.
"This was the fifth year of the REV platform," points out Yves LeDuc, BRP vice president and general manager of powersports in North America. "That caused us some problems this year. To us, it wasn't a surprise that we lost market share."
Noting that marketing success is all about product, LeDuc is excited about BRP's new REV-XP chassis that will be available next season. The line is an average of 50 lbs. lighter than other machines in the market and has better ergonomics, says LeDuc. "We're raising the bar and making it difficult for others to imitate," he says.
LeDuc also is excited about BRP's prospects in Europe, especially Russia. "You have snowmobile paradise there," he says. "There are huge areas of snow that doesn't melt for many weeks, you have dense population in the snow areas, and you have increasing [consumer] buying powers. It's not like here where you have lots of small towns in the snow areas; Russians like to snowmobile, and there is huge growth potential."
BRP has a special advantage in Europe: It manufactures its Lynx brand in Finland, giving it somewhat better proximity to that market.
Polaris' tough moves are paying off. The OEM took some tough medicine last year when it cut snowmobile production about 40 percent in order to help dealers clean out noncurrent inventories. The move was instrumental in breaking the company's lengthy string of record earnings performances, but it may have successfully positioned it for next season.
Even so, Polaris lost about half of one point in North American market share, slipping into a virtual dead heat with its Minnesota rival Arctic Cat for second place.
"We made some hard decisions that I think were appropriate," says Bennett Morgan, Polaris president, "and we are seeing some of the positive results of that. Now, dealer inventories for us are very clean."
That's more true in the Western states that had heavy snow, but less true in the Midwest and the Northeast. "East of the Rockies," notes Morgan, "it was much more challenging for those folks."
Morgan says he's comfortable with Polaris' lineup for next year, calling the 800 RMK products "just awesome." And he says the company's position in the 600 segment of the market is excellent. "We're going to spend a lot of time there, in the heart of the market."
Stepping back a bit, Morgan sees the trend of increasing sled prices that will have to be addressed by the industry. "Look at the number of sleds [with MSRPs] over $10,000," he says. "That's a concern." Morgan says that over the last five years, the average MSRP has risen almost 40 percent. That's due, in part, to consumers demanding higher performance.
Morgan says in the next year Polaris will continue to emphasize inventory reduction and to concentrate on the fundamentals. The company went through a massive reorganization of its snowmobile operation this year, and Morgan expects the operation to run smoother, now that the new team "has a year under its belt."
"Our fundamentals are much better," he says, "and I'm encouraged about the snowmobile business. I know that sounds bizarre, but I feel much better about what we are doing as an organization in the snowmobile business."
Yamaha is the big winner in 2007. With its full lineup of efficient four-stroke snowmobiles, Yamaha grabbed an estimated 3 percent of market share in North America. And Adam Sylvester, Yamaha snowmobile product manager, says the company is going to continue to push that advantage.
"The industry is moving toward four-strokes," says Sylvester. "Every year, the percentage [of four-stroke sleds] increases. It will continue just the way it has in PWC. The only thing that is slowing it down [in the snowmobile industry] is that we are the only one being aggressive about it. The other guys have limited touring models; they haven't focused on it. We're the only guys who are committed to it."
Sylvester sees overproduction (read: excessive inventories of noncurrent models) as the biggest problem facing the industry, outside of poor snow conditions.
"You only make money on currents," he says, "and that's only where dealers can make money. The noncurrents are a real problem. We're focusing on staying a current model retail company."
How do you do that? By building to dealer orders and not overproducing.
Sylvester says Yamaha has an advantage over other companies that have to recognize shareholder concerns. "You have to build to market demand," he says, "not to stockholder expectations. They have to keep factories churning something out, but we can adjust.
"We cut snowmobile production for next year to keep the correct number of units to meet retail demand."
The biggest challenge for Yamaha, Sylvester says, is for the company to educate consumers about the value of four-stroke products. "There are 1.7 million registered sleds. We have to help educate those guys to the true potential of the Yamaha four-strokes. That's our biggest challenge. We have to show them it's time to upgrade."