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welcome-vegasI’m talking about Las Vegas where the average tourist gambles only four hours in their 4-day stay.

After a couple decades of being the fastest-growing city in the U.S., Las Vegas has seen its growth stall in recent years.  Portions of the strip are dotted with steel and concrete shells as construction was halted and developers attempted to refinance projects and avoid bankruptcy.  Just as Americans did with their homes, casino owners borrowed way too much money to build hotels that were way too big.  The unemployment rate ballooned and for a while the city had the honor of having the highest foreclosure rate in the country of ANY metro area with at least 200K people.

I visit the city often for various work conventions or when attending motorcycle rally’s and recall getting gouged on the rooms and expensive food so, over the last few years I could not be more unconcerned or feel less guiltless in taking advantage of the town when it was down.  Hotel room rates have been slashed and suites that a few years ago went for $400 were recently selling for $125 a night.  And, I’ve wanted to get some of my money back from the card tables for a while now.

An artist rendering of the new Las Vegas Harley-Davidson dealership near the "Welcome to Fabulous Las Vegas" sign on the south end of the Strip.

An artist rendering of the new Las Vegas Harley-Davidson dealership near the “Welcome to Fabulous Las Vegas” sign.

But, economic defeat on the strip in this dirt wasteland is being reset by none other than Harley-Davidson.

Mr. Andress and Tim Cashman are building an $18M flagship dealership on the south end of the strip.  You may remember that this is where the “Welcome To Fabulous Las Vegas” sign attracts large numbers of tourists for a photo op.  The Cashman’s plan to tap into the 40M annual visitors and build a 50,000 square-foot, two-level motorcycle complex which will clearly draw visitors off the strip.  They purchased the 5.25-acre site at the bargain basement price of $8M and expect construction of the dealership to be complete in October 2014.

The Cashman’s are no strangers to Las Vegas where they have three other Harley-Davidson dealerships and also control 10 alternative retail outlets (ARO’s) that sell everything in the alphabet with a H-D logo sans the motorcycle.  Their total annual sales in 2012 was about $60M.

Clearly the strip is on its way back!

Photo taken by author and dealership rendition courtesy of Las Vegas Review.

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Enterprise Resource Planning (ERP) was the watch word at Harley-Davidson’s Q3’12 earnings call earlier in the week.  So eloquent were the deflections it almost makes a person think they’re a SAP – for investing in SAP AG!

Harley-Davidson’s third-quarter earnings were income from continuing operations at $134.0 million on consolidated revenue of $1.25 billion, compared to income from continuing operations of $183.6 million, or $0.78 per share, on consolidated revenue of $1.40 billion in the year-ago quarter.

Through nine months, Harley-Davidson income from continuing operations increased 12.1 percent year-over-year to $553.3 million, or $2.40 per share, on consolidated revenue of $4.41 billion, compared to income from continuing operations of $493.4 million, or $2.09 per share, on consolidated revenue of $4.13 billion in the year-ago period.

“The third quarter marked a pivotal milestone in Harley-Davidson’s transformation. With the launch of the ERP production system at York, a major piece of our restructuring work is behind us. We are now focused on optimizing the system and look forward to the start of seasonal surge production early next year,” said Keith Wandell, Chairman, President and Chief Executive Officer.

Like partners in a three-legged foot race, both the management and employees were hobbled by their connection to this so-called new ERP production system at the Company’s largest assembly plant.  How ironic.  A new production system being implemented to improve manufacturing performance becomes part of the problem that resulted in comments during the call like:

  1. “Harley-Davidson’s annual new model launch was pushed to late August from late July.”
  2. “New motorcycle sales were adversely affected by a limited availability of new motorcycles in July, August and early September.” 
  3. And leaving no deflection rock unturned… “The economy remains fragile and there’s a lot of uncertainty for high-end products like a brand (Harley-Davidson) like ours.”
  4. No mention in the call about the Milwaukee HQ IT jobs outsourced in July to India (Infosys) and if that had an impact on Q3?!
  5. Nothing mention in the call whether what I feel has to be the lamest slogan (“Great Motorcycles”) on the 110th Anniversary models is creating sales issues.  It would be the first thing I’d take off the bike!

110th Anniversary Model with “Great Motorcycles” Slogan – Primary Cover

On a worldwide basis, dealers sold 61,053 new Harley-Davidson motorcycles in the third quarter of 2012 compared to 61,838 motorcycles sold in the year-ago period.  Dealers sold 40,402 new Harley-Davidson motorcycles in the U.S. compared to sales of 42,640 units in last year’s third quarter. In international markets, dealers sold 20,651 new Harley-Davidson motorcycles during the third quarter compared to sales of 19,198 units in the year-ago period.  During the quarter, retail unit sales increased 32.3 percent in the Latin America region, 9.8 percent in the Asia Pacific region and 1.8 percent in the EMEA region and decreased 4.7 percent in North America (U.S. and Canada) compared to last year’s third quarter.

Harley-Davidson Motorcycles and Related Products Segment Results Third-Quarter Results: Third-quarter operating income from motorcycles and related products was $144.8 million, a 19.9 percent decrease compared to operating income of $180.7 million in the year-ago period.

110th Anniversary Model with “Great Motorcycles” Slogan – Air Cleaner Cover

Revenue from motorcycles during the third quarter of 2012 of $774.0 million was down 16.1 percent compared to the year-ago period. The Company shipped 52,793 motorcycles to dealers and distributors worldwide during the quarter, down 14.5 percent and in line with prior guidance, compared to shipments of 61,745 motorcycles in the third quarter of 2011.

Revenue from motorcycle parts and accessories totaled $233.7 million during the quarter, down 0.8 percent, and revenue from general merchandise, which includes MotorClothes® apparel and accessories, was $75.6 million, up 9.1 percent compared to the year-ago period.

Gross margin was 34.7 percent in the third quarter of 2012, compared to 33.7 percent in the third quarter of 2011. Third-quarter operating margin from motorcycles and related products was 13.3 percent, compared to operating margin of 14.7 percent in last year’s third quarter.

For the full year 2012, Harley-Davidson continues to forecast a five-to seven-percent increase in motorcycle shipments compared to 2011.

My view is that they are not done transforming the company and it’s going to take more time to right the ship while getting the ERP humming to turn the management business vision into a reality.

Photo courtesy of SAP and H-D.

Note: In 2006 H-D selected SAP to help them manage and optimize their growth.  In June 2011, there was an article in Forbes referring to H-D involvement in SAP’s Community Network.  It’s unclear if the “new” ERP implementation is an updated rollout of a newer version of SAP or a major transition to new ERP vendor. 

Full Disclosure:  I have no investment in or hold any SAP AG or Harley-Davidson stock.

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Closure Notice at AMC

The American Motorcycle Classics (AMC) Harley-Davidson dealer in Albany, OR., is going out of business at the end of the month.  They’ve called it quits.

Years ago the business was run by John Lewis, Sr.  He retired, moved to Las Vegas and sold the business to his son, John, Jr.   The G.M. was Joe Saltarello.  Was it the poor economy?  Sure didn’t help.  Were other H-D dealers complaining how Albany was cannibalizing their business which is only good for the consumer?  Did they invest in the business?  Depends on your definition of “invest.”  Maybe John, Jr. was having problems making the payments to Sr., who may have held on to the real estate and now decided to liquidate the assets, cut his losses, sell the real estate and call it a day?   Or, maybe they were FORCED out by the H-D motor company?

Hey, now that is an interesting question.  Maybe it’s a combination of all of the above.  Who knows?  If you do know send me a note.  I’m discreet.

Here is what we do know.  Over the last two years H-D is trying to consolidate its dealerships one way or another.  H-D may have just sent a letter of retirement to Albany/John Jr.  In essence it withdraws approval for the H-D franchise.  I called and spoke to the finance manager at AMC earlier in the month and he indicated that H-D was “forcing them out.”  Similar to the Chevrolet and Chrysler dealership forced closings.  Maybe it was sour grapes, but his statement went something like “HD was demanding they expand the store” and while they had committed a half-million $$ in infrastructure investment to H-D in what could be viewed as mini “Super Store” … they just didn’t have the sales revenue for such an investment, essentially being forced out by the manufacturer.  It’s not clear if AMC was selling a reasonable volume of licensed products, but I think it’s unlikely given the location.  The finance manager also stated they were doing about half the motorcycle sales volume they once garnered 4 years ago so clearly the economy has had a relevant impact.

Businesses fail all the time so what’s the point of this post?

Well, AMC H-D is well known in the northwest for being the cheapest H-D dealer in Oregon.  If I had interest in a new motorcycle I would always call or drive down and get pricing whether it be a motorcycle or parts.  That then became my new starting price to leverage any deal at a local dealer closer to the Portland metro area.  I never did purchase a motorcycle there,  but I have 4 buddies who all purchased motorcycles during the last 2-4 years from Albany.  They obtained below MSRP on every purchase, including additional discounts on aftermarket parts and walked away saving $1000’s and big smiles!

And even though they saved all those $$’s… cheapest does not always work.  You can’t always make it up on volume and it now seems that little was dropping to the bottom line to keep the doors open and make the payments.   We’ve seen this behavior in other type businesses.  A person will throw an “open sign” up in a strip mall and offer cheap prices — way below the current market — but in less than 24 months they disappear.  It means they were not making enough money, and just screwed up the market for everyone else.

AMC H-D had a “No pancakes, No S*****t, no rock band, no bull” slogan which was essentially an anti-social slam toward other dealers who subscribe the post-sales mantra.  But you know what?  That doesn’t work for some folks.  Yeah saving a few bucks is important (always!), but many of us are motorcycle enthusiasts and are looking for a dealer that will be in business (long-term), one that’s like a social “club” to hang out, talk shop, talk custom modifications and they are willing pay a little extra $$ to have that option.  Personally I like the fact that Paradise personnel (Mike(2)) know who I am and will call me by name when I walk into the dealer.  We’re not BFF’s, but I know, that they know, that I over paid a few hundred $$ for that privilege on my last motorcycle purchase, and for me it’s more than just a money transaction – its genuine relationship building – AFTER the sale.

Maybe this is what happened at Albany?  They had “A Beautiful Mind” moment.  Did you see the movie?  In the movie Russell Crowe plays John Nash, a mathematician who won the Nobel Prize for developing the concept of non-cooperative game theory.  In case you’re not familiar with the theory, it roughly means that to make the best decisions, you have to consider the actions of your competitors.

This may sound harsh, but in my view, the AMC H-D building was “lipstick on a pig.”  Functional, but not a place you’d socialize or hang-out long.  I’ve been there in the early morning and remember how they didn’t even have coffee for customers?!  Call me Mr. shallow.  From an outside-looking-in viewpoint,  the company didn’t have much of a Facebook presence, didn’t do any blogging or customer outreach, the email system announcing sales totally sucked and defied any reasonable logic from a marketing viewpoint, and did I say the web site was dated?  At the end of the day it just didn’t look like they were putting a lot into promoting the business or appealing to those who were looking for more of a social gathering atmosphere at their local dealer.  Yeah they could “splain” that all off as low overhead giving YOU the customer the best price, but when every other dealer around you is struggling and willing to lower/match prices to compete and your shop has no amenities… you’ve cast your destiny

There are consequences other than it’s “Christmas in July” for Paradise H-D, Salem H-D and Team Latus!  There is the loss of 10-19 people who are no longer gainfully employed – and I’m not trivializing this because the folks there are hard working people and deserve better – but, PowerSports Network (powered the website) loses a customer and AMC H-D also sponsored the Pioneer H.O.G .Chapter (newsletter PDF HERE).  It was the first northwest chartered H.O.G. chapter (#4085), and it now has no home.

I’m sorry to see the dealership close and I’m sure for many of you it feels like losing an old friend.  I’m just glad I don’t have any pre-paid expensive special parts on order!

Photo courtesy of American Motorcycle Classics.

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Today was not a good day for leadership.

First it was Calderon.   You know — the Mexican President, Felipe Calderon?  His administration has attempted to rid Mexico of the narco-traffickers using thousands of Mexican troops and hundreds of millions of dollars in U.S. aid, but cartel members have killed thousands in an effort to maintain control of the lucrative drug trafficking routes.  More than 18,000 people have been killed since Calderon launch his military offensive in 2006.

Then in an unprecedented mucho ballsy move he comes to the U.S. today and complained about Arizona’s immigration law (SB1170), when all the state wants to do is protect itself against a flood of illegal immigrants from Calderon’s country!  And, how about that Congress’s standing ovation for the Mexican leader?!  Adding insult to injury in this twilight zone was President Obama complaining whining about Arizona trying to do something about a problem he- President Obama and the federal government- have created and choose to ignore.  George W. didn’t help.  Combined with the fact they can’t be bothered to read the law that they’re criticizing. If they did, they’d find out that parts of Arizona’s law are word-for-word the same- exactly- as the federal statutes on immigration.  I’ll save my viewpoints on how Mr. Calderon should spend his time trying to create opportunities for his own citizens, so they’re not driven by poverty and desperation to sneak into this country illegally for another day.  The fact is that this “pony show” is all about pandering to Hispanics for votes.

And speaking of pandering…

Polaris Industries Inc., (parent company of Victory motorcycle) announced today that it will establish a new factory in Mexico’s Monterrey/Saltillo area. Talk about great timing on doing your part for the American economy — exporting American jobs along with the factories.  This major realignment will begin immediately and will lead to an eventual sale or closure of the Polaris’ Osceola, Wis., manufacturing operations.  Polaris stated the realignment allows it to invest in and outsource certain “nonstrategic” component manufacturing processes while improving on-time delivery to customers, and providing savings in logistical and production costs.  Make no mistake, it is all about the money.

Scott Wine, CEO of Polaris, stated in a press release:

“Pursuing opportunities in new markets outside the United States, while concurrently evaluating our cost structure to improve our long-term competitive positioning, are key components to our growth strategy. This decision was based on a thorough review of our worldwide operations and will allow us to improve our ability to meet the quality, delivery and cost standards desired by our dealers and customers.”

Harley-Davidson has made it public they are also considering a move out of Wisconsin.  Inconceivable? Think again.  Polaris plans to have their factory in Mexico operational beginning in the first half of 2011.  Can H-D be too far behind?

My philosophy is that if my neighbor doesn’t have a job, sooner or later I won’t have a job either.

Photo courtesy of Harlistas.

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About 40 years ago, a social movement arose to destroy the establishment.  People wanted to take on the man and return power to the people, upend the elites and lead a revolution.   Some would argue that today we have a similar movement with the people loosely called the “tea partiers” who today are motivated by runaway federal spending vs. the war during the Woodstock days.

Taking it to “The Man” refers to the government, leaders of large corporations and other authority figures in general.  Sprinkle in an array of conspiracy theories involving the Fed, the big banks and black helicopters and you’ve got Harley-Davidson investing heavily over the last year in what I call taking it to “The Man” advertising.  It’s advertising which appeals to the man who is born free, but he is everywhere in chains…

You see these advertising movements are built by marketing people who hope consumers will put their faith in unrestrained passion and zealotry to buy motorcycles.  The assumption is that the people are pure and virtuous, and that evil is introduced into society by corrupt elites and rotten authority structures so let’s stick it to ‘em.  But, what happens when Harley-Davidson (the motor company) becomes the manipulator and shadowy corporation or the ‘elite and rotten authority figure?’

So it is according to AMC H-D in Albany, OR.  Based on their most recent communiqué, the Milwaukee Motor Company decided that starting in March there would be a policy change which prevents dealers from advertising any sales storewide.  So, taking a page from H-D’s own corporate marketing campaigns and doing their own mini-version of “Stick it to the Man” type of advertising…AMC H-D created their own tea party movement and broadcast there plans to have a 20% off sale (excluding motorcycles) all year long!  If the item you need isn’t in stock then you’ll get a 15% reduction when you place the order.

Talk about counter-establishment.  Pure advertising genius!

So what’s in play here.  First and foremost is a job-less recovery is making it darn hard for any motorcycle dealer.  Second, H-D would like to continue to be viewed as the premium brand or “exclusive” product and thus does not want to be attached to a “sale” image with their brand.  Lastly, the dealers who prefer to operate in the higher margin “dealer markup” mode are likely pressuring H-D to stop the undercutting from lower margin dealers who have yet to succumb to the mega/bistro/resort level expense in renovating a dealership.  Remember Timpanogo?

We all know that if you want service after the sale, knowledgeable and friendly staff, a quality product, and pancakes on Sundays, you’re gonna pay for it!  The question is just how much more.

Photo courtesy of AMC H-D.

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It’s roots have an Arabic theme and come from founders Billy Florence (an actor) and Walter Fleming (a physician).  This symbol is part of a fraternity and wearing the red with black tassel is one of the most distinctive.  It derives its name from first being manufactured in the city of Fez, Morocco.

I’m talking about the Shriners Fez!

The Shriners usually gather monthly with some type of activity, but more importantly, the various local clubs serve as an extension of the entire Shrine in their respective communities. They reach out to the civic groups, chamber of commerce, local schools and other services to share messages and their mission. The Shrine Clubs serve a vital role in community Child Care programs, whereby they raise monies for the Shriners Hospitals for Children, through many donation efforts and Hospital Fund Drives.

And now you can wear your “Robur et Furor” (Strength and Fury) emblem while riding on a Harley-Davidson limited-production 2010 FLHTCUTG Tri-Glide Ultra Classic motorcycle – the Shrine Tri Glide.  The “Shrine Glide” is offered for members in Arctic White with Red & Gold pinstripes or for Jester members in Concord Purple with Violet & Burgundy pinstripes.  The ordering window is open now until Friday, March 5, 2010 through any H-D dealer.  Since this is a limited quantity, the order window could be closed sooner if the production is sold out.

Imagine the looks you’ll garner from children at the hospital riding in on that Concord Purple model!

Photo courtesy of H-D.

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Re-CycleIt’s economics.  You can’t recycle when it costs more to use the existing product than to use the raw material.  You can try, but the economics will likely run you out of business.

And speaking of recycle costs, the H-D marketing folks who are never bashful to re-hash an idea, decided to change the dates and re-roll the Sportster guarantee or “Ride Free” program.  First announced back in January my thoughts on the program were posted HERE.  Dealers reported the initial program provided an uptick in showroom traffic and many requested that H-D corporate create more similar programs which would help drive traffic to the dealer.  Rather than innovate It seems the H-D organization creates ideas via committee because that is not my concept of a “Bold Idea” … to push out program dates through August 31st and if you buy one of the qualifying 2009 Sportster models you’ll get what you paid for it when you trade-in or buy-up to a big-Twin on a Dyna, Softail, VRSC or Touring model is…

“Did that voice inside you say I’ve heard it all before…  it’s like déjà vu all over again.” – John Fogerty

I have a simple suggestion to help the marketing folks solve this classic “need some creative ideas” problem:

  1. Locate your PC and bring up a browser
  2. Navigate to the Google
  3. Select a word, any word at random
  4. Remember the word you selected at random?  Now enter/type the word in the blank field
  5. Click the “I’m feeling lucky” button

Like magic it will take you to a web site strongly associated with that word and amazing things might inspire.  I know it sounds like I’m taking a cheap shot at the savvy marketing dudes and I can certainly understand a business’s desire to avoid additional expenditures in these trying times.  But, is this truly THE best sales promotion idea out there?

Another ad-hoc suggestion is to ping the Facebook group or independent bloggers and have them share ideas or comments on the best way to spark people’s interest.  Sure it’s subjective opinion, but who knows what ideas it may inspire.  Let me know how it works.

Photo courtesy of Flickr.  Motorcycles recycled into chairs/table in Sass Fee Switzerland.

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