Harley-Davidson Thinks Of Success Differently

According to an article by @bob_tita in the Wall Street Journal (WSJ – Paywall), Harley-Davidson plans to reopen its factories this week at lower production rates and stated it will be sending dealers an attenuated range of new motorcycles — meaning, time for a COVID-19 course correction.

You may recall that Harley’s U.S. assembly plants and most of its dealers closed in March as part of a nationwide effort to slow the spread of COVID-19.  Currently, as many of the company’s 698 U.S. dealers make plans to reopen, Harley’s director of product sales, Beth Truett, stated in a memo, which was viewed by the WSJ, that about 70% of them likely wouldn’t receive any additional new motorcycles in 2020.

The motor company is pivoting from the “More Roads” plan to now focus efforts and energy to appeal to customers of premium-priced brands with limited availability.

Speaking of availability… By definition, excellence is scarce.  Harley-Davidson has leveraged “scarcity” previously. Underproduce motorcycles and limit distribution, which creates long waiting lists that in turn create an exclusivity mystique. Will it work again?

And speaking of premium positioning…

Harley-Davidson Eau de Toilette – Example of brand dilution!

Price alone won’t make a brand premium and few companies can thrive on limited market coverage and low volumes by commanding premium prices in a particular niche.  One thing is sure: motorcycle customers are price-sensitive, even if they are ready to pay a premium price for a … Harley lifestyle.

This means Harley-Davidson has to be able to truly earn the added value.

Data supports what we already know to be true about premium brands: people with lots of money buy nice things. Whether you’re talking apparel (i.e. Phat Farm, Polo, Timberland and Tommy Hilfiger), Tequila, hand bags (i.e. Gucci, Fendi, Louis Vuitton and Prada), restaurants or footwear, it’s easy to recognize the pattern that the nicest, most expensive brands are favored by consumers with the highest household income. What is less obvious, are the fewer instances when wealthy people opt for the less-expensive, or when average-income people make deep trade-offs to purchase really pricey things.  There are a whole lot more average-income people than there are excessively wealthy ones.

Strong brands have a strong identity. Mediocrity doesn’t captivate or win the motorcycle sales race. There is a rule of thumb that says that a company ought to be able to explain its brand identity in seven words, give or take a couple.

The clock is ticking Harley-Davidson!

So, what is it about “premium-ness” brands that are able to inspire consumers to say “no” to some things so they can say “yes” to a brand that’s often or slightly out of financial reach? That’s the Harley-Davidson opportunity.  Finding the nooks and crannies to up-sell consumers on “premium-ness” choices—especially a candy coated brand in the top tier of the motorcycle pack.

The Harley downside risk is the “Porsche Effect“… becoming known as an SUV manufacturer that also produces a few sports car models rather than the premier sports car brand that also makes SUVs.

I’d like to better understand how Harley-Davidson can retain a premium brand identity if combustion engines, once the top tier of American motorcycle engineering, are being replaced by e-motors (LiveWire) that can be built by almost anyone, and if motorcycles feel and act like smartphones that you no longer even have to own?  It’s likely that the V-Twin motors of the future will no longer be a distinguishing brand characteristic.

New competitors are knocking on the Milwaukee door and customers are better informed, have tougher requirements and are able to interactively rate and influence companies and their products.

In the end, what Harley-Davidson claims about it’s premium brand doesn’t matter. What matters is whether or not consumers believe it enough to pay more for it.

Photos courtesy of Twitter Bob Tita/WSJ and Harley-Davidson.

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Harley-Davidson Electrifying COVID-19 Community Response

#500 “First Strike” Edition LiveWire – United Way Auction

Harley-Davidson, in conjunction with Bonhams, is auctioning off a one-of-a-kind custom motorcycle and donating the proceeds to the United Way Worldwide’s COVID-19 Community Response and Recovery Fund.

The Milwaukee motor company has previously stepped up in times of crisis; it has contributed to both U.S. and international relief efforts consistently over the years, from support for 9/11 first responders to donations of motorcycles in the Haitian earthquake restructuring. Now with the current COVID-19 pandemic health crisis, H-D is chipping in to raise funds for this moment.

The motorcycle being auctioned is an exclusive version of Harley-Davidson’s electric machine, the LiveWire®, which is customized with a one-off paint scheme and unique graphics package.  This bike wears a full array of carbon fiber accessories including carbon fiber Speed Screen Blade, Tail Section Cowl, and Tank Trim. To mark the historical significance, the never-to-be-replicated motorcycle on auction is number 500 of the 500 “First Strike” edition LiveWire’s and will be signed by members of the Davidson family.

The motorcycle winning bidder and a guest will also be treated to a unique delivery experience and a “behind-the-scenes” tour of the Harley-Davidson Museum, which includes all travel and accommodations to Milwaukee as well as a private, one-of-kind walk-through of the museum.

The auction started yesterday and is being held digitally by Bonhams to follow the CDC’s social distancing guidelines, and will close on May 26 at 4:00pm (EDT).  Bidders can find more information about the auction and prize package at bonhams.com/LiveWire, which is available for participants from the United States.

Thank you Harley-Davidson!

Photo courtesy of Harley-Davidson.

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Harley-Davidson Rides Across The Rubicon

Jochen Zeitz with an electric Harley-Davidson LiveWire motorcycle – Photo Credit: Joshua Kurpings

He saved Puma. Now he’s going to fix the Harley-Davidson global business!

I’m talking about Jochen Zeitz, the interim Harley-Davidson CEO.

The motor company today announced that Zeitz has been appointed President and CEO, effective immediately. You might recall that Zeitz assumed the role back in February when Harley-Davidson ditched CEO Matt Levatich for years of disappointing sales.

Before we ratchet up turnaround enthusiasm of new leadership, it might be good to peel back a layer on the mysterious Mr. Zeitz.  I’ve written a detailed background post HERE.

It’s been my experience that business leadership works much differently during a turnaround transformation.  Managers are less able to rely on practices that previously insulated them from criticism. In addition, a traditional consumer goods company is research driven, and don’t typically decide on action until research tells them to change – but the reality is that research doesn’t always tell you what the consumer wants.

Let’s check out some of the Zeitz FACTS:

• Zeitz is on a combat mission to make the Harley-Davidson business sustainable in a way that improves both society and the natural environment, and that creates economic growth.
• Zeitz was the driving force behind Harley’s sustainability efforts and approved former CEO Matt Levatich’s desire to “bet the farm” on electric motorcycles.
• It took 8-years and the work of a thousand engineers to fully realize the LiveWire, the company’s first electric model, that finally went on sale at $30K.
• Among the entire Harley-Davidson board of directors, there’s a total of ZERO years of motorcycle industry experience.  Coincidentally, ZERO is the top manufacturer of electric motorcycles for the street and dirt.
• No public (via Google search) photo exist of Zeitz riding a motorcycle, attending a motorcycle rally or HOG event.
• At Kering, Zeitz was known as the “sustainability Taliban” — Kering employees characterized him as impatient and demanding unrealistic standards.
• Lack of gender equality on the Harley-Davidson board, yet Zeitz has been a board director and influential member since 2007.
• Zeitz history of working with unions is murky.  In China workers don’t have the right to Freedom of Association and Asia remains Harley’s strongest sourcing region
• Zeitz gets the gist of enlightenment after a dialogue with Benedictine monk Anselm Grün – yeah, yeah, you let go of attachments, dissolve your ego, and then you get enlightened and write a book.

Let’s gain some additional insight of the Zeitz thinking from his previous statements; “My belief is that every company has an opportunity to innovate by creating business solutions for services or products that significantly reduce your impact and create more demand for your product.”  “Well, unless you are an extracting business. In that case, you’re a dinosaur and you’re dying.”  The solution is to marry sustainability with growth. “It’s a question of what we grow and how we grow, and how we can reduce our impact significantly and still grow,” he went on to say, “We have to grow within planetary boundaries.”

Planetary boundaries?  Huh?

I’m as green as the next fuel/air motorcycle enthusiast, but I had to do a deep dive on this one…  It seems the 11,700-year-long Holocene epoch (“Age of Man”) is the only state of the Earth System (ES) that we know for certain can support contemporary human societies. The planetary boundary (PB) concept, introduced in 2009, aimed to define the environmental limits within which humanity can safely operate.  The planetary boundary (PB) framework contributes to such a paradigm by providing a science-based analysis of the risk that human perturbations will destabilize the Earth system (ES) at the planetary scale.

Whoa, this is heavy!

I would assume that in Harley-Davidson parlance and every day practice, this means that instead of making short-term profits that may incur costs later on (an obvious example being depleted resources leading to higher raw material prices, or social inequalities reducing at-work performances and purchasing power), businesses need to spread some of that growth to the wider world around them, for the sake of the planet – but also themselves.

Who would’ve thought… buy a Harley-Davidson motorcycle for the sake of the planet!

Zeitz might actually be on a path similar to Alfred Ford.  Currently known as Ambarish Das, he is a great-grandson of Henry Ford and heir to the Ford Motor Company who has converted his earthly consciousness to helping build the Temple of the Vedic Planetarium in Mayapur, which was largely funded by Ford’s $35M donation.

I don’t want to appear like I’m self-serving, but as you get gray hair in the beard you tend to focus the “More Roads” plan on which rides you are really trying to accomplish in life.  Maybe it’s time to published a memoir, meet-up in Alachua County, Florida and reflect in one of those “healing” pools.

I hope this transcendental awakening works out for Harley-Davidson.

Photo courtesy of Harley-Davidson.

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Covid-19 Bites Harley-Davidson

Q1’20 Harley-Davidson Retail Motorcycle Sales + Motorcycles and Related Products Segment Results

Let’s jump right to that impressive Q1’20 financial result:

• Harley-Davidson (NYSE:HOG) posted earnings of $69.7 million compared with $127.9 million in the same period a year ago.
• The dividend was slashed to 2 cents a share from 38 cents.
• The motor company is in talks with major U.S. banks to secure $1.3 billion in liquidity.
• Harley’s U.S. retail sales were down 15.5% compared with the same period a year ago.
• International retail sales were down 20.7% compared with 2019.
• Harley’s U.S. heavyweight motorcycle market segment share was down 2.2 percentage points, to 48.9%.

Another quarter, another poor performance from Harley-Davidson, though the market seemed to buy into the promise that this time it will be able to turn things around.

Déjà vu…

Management promising to fix things again by “crafting strategy accelerants” to deliver improved sales and better returns.  However, it admitted that its efforts thus far haven’t worked and also said it was “refining” the plans it had already devised, but it wouldn’t reveal how it was going to achieve them until this summer. Granted the financial problems Harley-Davidson encountered this quarter aren’t necessarily all of its own making, though it hasn’t helped itself along the way.

It’s important to note that the Harley-Davidson trends in the U.S. have been weak for years despite the economy being strong for so long. That is a major problem and the acting Harley-Davidson CEO, Jochen Zeitz, remains vague on what the motorcycle company is going to do to change that dynamic.

The “ReWire” Board

The fact that management chose the term “ReWire”, emphasizing the electric future to describe their refining plans reads like a satirical article in The Onion.  It’s as if CEO, Jochen Zeitz said, “I’ve heard some concerns going around, and I want to impress upon each and every one of you that I’m taking every possible step to ensure that we tap into a market that has traditionally been neglected by motorcycle manufacturers, Harley-Davidson is announcing a new line of motorcycles designed specifically for men.”

The “ReWire” plan consists of five main points:

• Enhance core strengths and better balance expansion into new spaces.
• Prioritize markets that matter.
• Reset product launches and product line-up for simplicity and maximum impact.
• Build the Parts & Accessories and General Merchandise businesses to their full potential.
• Adjust and align the organisational structure, cost structure and operating model to reduce complexity and drive efficiency, to set Harley-Davidson up for stability and success.

The ReWire playbook abandons some of the previously ratified “More Roads” plan, but there is so much “CEO Speak” — “designed to address top priority opportunities, drive consistent execution and reset the company’s operating model in order to reduce complexity, sharpen focus and increase the speed of decision making.” — in that investor call its difficult to know what exactly remains “committed” to or what will stop.

Little is certain these days, but there’s one sure thing: in a situation where 30+ million people were laid off or furloughed in the past 6-weeks, people are definitely thinking about their wallets.  And living with ever-present, crushing uncertainty and the knowledge that people all around us are dying isn’t the stimulus to rush out and purchase a new motorcycle.

Let us face facts.  It’s going to be a different world for a while. After all, temperature checks, touch-less payments, masks, wipes, take-out and distancing were not part of the Harley experience before the March closures.

If Harley-Davidson is about anything, it’s about bringing people together. Lots of them. And really, really close — with motorcycle rallies, music festivals, HOG events and all the cross country rides.  Looking at you Sturgis!

The whirlwind of 400,000+ motorcycle enthusiasts half-hearted adherence to CDC guidelines, while gathering all week in a number of local bars, and eating VEGAN-burgers could be viewed as a controlled experiment to determine the virus’s true incubation rate.

I have some gray in my hair and beard, something you will see in a majority of Harley enthusiasts.  I find the idea of a Harley specifically aimed at men deeply patronizing.

Photos courtesy of Harley-Davidson.

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