Harley-Davidson Right-Sizes The General Merchandise Division

Customize It And Stand Out

According to Reuters, Harley-Davidson Inc. has laid off 40 employees in Milwaukee at their general merchandise division.

It’s not a large number of employees, but most unfortunate if your career “rug” was just pulled out from underneath you as someone impacted by this reorganization.

Important to note is that Harley-Davidson’s second quarter earnings report, released July 23, 2019 reported general merchandise sales of $64.6 million, a 5.8% decline from 2018. The company saw a 4.2% decline in the first half of 2019 from 2018 in general merchandise.  It’s also no secret that Harley-Davidson continues to see a decline in motorcycles sales in the U.S. and abroad as it works to adapt to changing clientele.

In the Reuters report the motor company stated the general merchandise division re-org was to manage it’s business with “focus and discipline.”  That statement reads like a quote from the Six Disciplines playbook.  Was the division previously an over-committed reactionary one with no focus and discipline?  That euphemistic “focus and discipline” term seems to be more about flattering management because at the end of the day it’s a “reduction in force,” which is an old school straightforward term.

SAVE, SAVE, SAVE

And speaking of general merchandise — have you noticed the significant up-tick of emails from Harley-Davidson corporate or your local dealer?  I follow Harley-Davidson on multiple channels to stay current on their events and product announcements and always get a number of emails, but I’ve seen a dramatic drum-beat increase over the last couple of months.

It’s starting to have a feel of desperation to survive and meet sales quotas.  Here are a couple recent examples:

Motorclothes, Last Chance to Save Up to 50%…
Harley-Davidson VISA…Reap The Rewards…
End of Summer Sale…
Customize It and Stand Out…
Finance Interest Rate Specials…
Schedule a test ride today…
The 2020 Models are here…
Ride into Fall sale…
Performance Workshop this weekend…

Why is email solicitation so popular?  Because it’s a free alternative to tele-marketing and direct-mail campaigns.  The cost of sending an email is minimal compared to the cost of printing and mailing paper and the email “opportunity” goes directly to your inbox for review.

I predict we’ll see more and more sales email as the motor company works even harder to capture and retain our interest.

Photos courtesy of Harley-Davidson email blasts

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Harley-Davidson: Little Things Done Well

As I write this I’m reminded that I was flying home from Barcelona, Spain about this time last year after a long work week at an industry event and that every year in business is different.

A few years are easy, some are hard, and most are somewhere in between. Each year you face a different set of circumstances: changing economic, political, social and what’s cool in the billet industry.

We know from the Discovery Channel which scripted a mini-series project about the history of Harley-Davidson, that in the early years the company really struggled to survive. From month to month, they worked hard to keep from getting further behind and sinking further into debt.  There were the AMF years and then came the housing bubble.  Those of you who have tried or are establishing a little business of your own know that success is much harder than you envisioned it should be. Many folks think there must be “one big thing” they are missing that if discovered and remedied would turn things around and put them on the path to major prosperity.

Clearly, that isn’t the case, and over the course of a few startup years often you learn that rather than “one big thing,” there are many functions throughout the business that had to get established in good working order for the business to really succeed.

After 114 years, this still holds true for Harley-Davidson. There are no guarantees or shortcuts to success. There is only doing the hard work that needs to be done, doing it to the highest standards, and identifying the next area to establish or improve in order to build the next generation of Harley-Davidson rides and riders to control their destiny.

All of this became acute over the last week when Harley announced their Q4 and full-year 2016 financial results (HERE).

Words like “intense competition, flat market, soft sales, and earnings miss” ruled the day.

These are just words.  I’m of the viewpoint that how well any company performs is a key factor in how well they succeed compared to their competition.  Since we’re a few days before Super Bowl — a sports analogy is in order — how well a team executes ALL aspects of their game has everything to do with whether they win or lose.

Obviously taste in motorcycle brands, styles, or in paint schemes, is subjective. Some in the press have beaten down the overall market with reports that seem to indicate the riding “fad” has ended. Granted there’s been negative publicity with Polaris shutting down the Victory Motorcycle brand and overall motorcycle industry earnings not being great, but there are many very nice motorcycles being made, and WE the riding enthusiasts/public have lots of choices.

Why do I bring this up?

I’ve notice in my travels that many successful companies have a sense that they are masters of their own fate; their success is within their control. They know it’s a myriad of little things done well that add up to their success. And no matter what their size, they realize that a company always has the resources at hand to take their next step. Isn’t that really the “art” of it: to creatively employ existing resources to advance the ride, the employees and the company?

Most of us know the answer to a problem is rarely found outside the company; it usually comes from within.  I’m confident that Harley-Davidson will find the answers and simply function better as an organization.  I predict they will do a more thorough job of performing the functions a successful motorcycle company needs to and roll out compelling new products that will be industry hits.

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Harley-Davidson Q2 2016 Financial Results

I’m a bit late getting this information out, but you can read the company press release HERE.

From my experience you know it’s going to be a long day when the financial perspective includes statements about how we’re in challenging times…  “Political, economic and cultural forces working against the confidence and security for people everywhere in the world” — whoa, roll the eerie and scary sound effects!

Here is a quick synopsis:

The Bad:

• Worldwide sales for the quarter were down due to significant declines in the U.S. industry which was a surprise and far weaker than expected. Worldwide retail sales of new Harley-Davidson motorcycles in Q2 were down 1.9%.  U.S. retail sales were lower than expected on surprisingly weak industry results.  Q2 retail sales in the U.S. were down 5.2% versus prior year, behind weak U.S. industry sales.
• U.S. retail inventory was up at the end of the second quarter.
• Manufacturing expenses were higher than expected, driven by startup costs related to the implementation of a new ERP system in Kansas City, and costs associated with plant retooling.  In addition, plant efficiencies were lower than expected due to lower production given soft sales in Q2.  This is an overly simple statement because in reality it’s complex planning and execution, including numerous down days, inventory bridges and careful new model ramp plans.
• The motor company stated they are taking steps to lower expected 2016 shipments which is largely due to continued pressure on industry growth in the U.S.  Third quarter shipments are expected to be approximately flat to down 9% versus 2015 third quarter.

The Good:

• Revenue was up slightly.  Net income was $280.4 million on consolidated revenue of $1.86 billion compared to net income of $299.8 million on consolidated revenue of $1.82 billion in last year’s second quarter.
• Q2 market share of 49.5% in the U.S., was up a strong 2.0 percentage points. The gains came in all segments, Touring, Cruisers and the Street/Sportster segment size of motorcycles. And it came from all seven sales regions in the U.S. The market share gains were over double the nearest competitor and came largely at the expense of Japanese competitors.
• Retail sales in international markets were up in Q2 in all regions except Latin America (Brazil).
• The company added six new international dealerships in the second quarter and has a goal to add 150+ international dealers over the next 4 years.

Given this current environment one could wonder if Harley-Davidson is positioned appropriately for the flat/declining industry which seemed to surprise them in Q2 — management states they are prepared.

Full Disclosure:  I have NO personal stock holdings in HOG or plans to procure any.

Some parts of the above text are attributable to the Seeking Alpha transcript on July 28, 2016.  Photo courtesy of Harley-Davidson.

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Indian Motorcycle Announces 2017 Line-Up

Indian Motorcycles

Could this be a historic mark on Sturgis?

Seventy-five years after Ed Kretz dominated the first motorcycle race on the sands of Daytona Beach, Indian Motorcycle announces the 2017 line-up just days before the start of the 76th Sturgis Motorcycle Rally and just hours before Harley-Davidson’s Q2’16 financial results.

Indian states the 2017 lineup includes the recently released Scout Sixty, Indian Springfield and Chief Dark Horse models with new color choices.

A new and the industry’s largest and brightest touch-screen information and entertainment system has a 7-inch display with turn-by-turn navigation, Bluetooth audio and USB flash drive support. The Chieftain bikes come with 100 watts of audio, while the more expensive Indian Roadmaster has 200 watts.  The screen is glove compatible with two-finger touch capabilities, according to the company.

Indian has grown at a brisk pace, introducing nine new models since its relaunch in August 2013.  The motorcycle industry is looking to be flat this year, so Indian and Harley-Davidson are in a share battle.  For the full year, Polaris sees motorcycle sales increasing in the high teens on a percentage basis.

Time will tell if it’s a brand, a dealership or a bike thing as the two companies slog it out in the back half of the year.  On the surface it looks like Indian will once again challenge its main rival.

If you are headed to the 76th annual Sturgis Motorcycle Rally,  riders can view the entire new 2017 lineup at the Indian Motorcycle Factory display on Lazelle St. or experience them firsthand with a Factory Demo Ride at 2100 Whitewood Service Road (I-90 at Exit 30) from August 6 – August 12 from 9 a.m. – 5 p.m. daily.

Photo courtesy of Indian Motocycles.

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Harley-Davidson Continues Adjusting To The Absence Of Road Glide

Harley-Davidson announced it’s Q2 2014 financials, indicating that Q2 net income was $354.2M on consolidated revenue of $2.00B, compared to net income of $271.7M in the year-ago period on consolidated revenue of $1.79B.

Dealers worldwide sold 90,218 new motorcycles compared to 90,193 motorcycles in the year-ago quarter.  U.S. sales were flat/down as dealers sold 58,225 new Harley-Davidson motorcycles in the quarter, compared to sales of 58,241 motorcycles in the year-ago period.

Some interesting nuances from the analyst call:

• Market share was down 2.6% on a year-over-year basis at 50.3%.
• Management confirmed the Road Glide is coming back with the new 2015 product launch in August.
• In the U.S. the Road Glide accounted for 10% of sales
• There were self-inflicted wounds with the intro of the Street on Sportster sales which was down double-digit and compounded by lack of Street inventory.
• Management stated Indian touring bikes have had little impact on Rushmore bikes which in the first half were up double-digits.  But, read this HERE which colors the picture a bit different.
• The Street start-up issues are supply chain in nature and related to this being the first time H-D is manufacturing a product internationally.
• H-D now expects to ship between 270K and 275K motorcycles worldwide which represents growth of approximately 3.5% to 5.5% versus prior year.

Despite the soft Q2 sales, H-D believes the demand fundamentals for the business remain intact and underlying growth trends are strong.  The industry has grown for three straight years coming into this year and there is more investment in the industry than Harley-Davidson management has seen in the last five years in terms of new products, marketing and advertising.

UPDATED: August 1, 2014 – Harley-Davidson officially reveals the 2015 Road Glide.

Photo courtesy of Edgar and H-D.

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Artic Oscillation Blamed For Harley-Davidson’s Sales Decline

You’re the CEO and going down your quarterly earnings check list:

1. Still in business after 110 years – Check
2. Secured music talent for 110th Anniversary Party – Check
3. Number one seller of motorcycles to young adults (18-34) – Check
4. Increase 2013 first quarter revenue to $1.57B (up 10%) vs. $1.43B a year earlier — Check
5. Increase 2013 first quarter income to $224.1M vs. $172M a year earlier – Check
6. HOG shares up 2.1% to closed at $54.31 – Check
7. U.S. dealers sold 34,706 new motorcycles, down 12.7% from a year earlier – Ooops!

Colder temperatures and the wet climate set the stage for the quarterly sales miss.  At least according to Harley-Davidson CEO, Keith Wandell who stated in last week’s earnings call… “By far, the vast majority of the (sales decline) was weather related”.

Interesting.  The earnings call didn’t signal any major marketing changes for the brand, instead pinning some of the losses on external factors such as rainfall in many parts of the country, the weak economy and the unseasonably cold weather.

Are the only unemployed consumers who keep getting rained on Harley-Davidson consumers?!

Generally speaking home sales and auto sales are up.  It would seem that management neglected to remind us about Superstorm Sandy, how federal tax returns have been delayed and how fuel prices are unsettling to consumers.  To be fair some retail outlets selling spring apparel, home and garden were depressed due to wintry conditions, but looking at the weather for an impact on Harley-Davidson consumer spending seems a bit trivial.

I spent the last week in Arizona and if you plotted temperatures from dawn until noon, you’d observe an alarming warming trend.  If you extended that trend line for the next 4-months, you’ll clearly notice that ice caps will melt and the poor polar bears will be swimming more.

We’ll soon know if the good weather in the upcoming quarter provides a recovery to more normalized sales volume.

Photo courtesy of NOAA

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Freedom In Your Face

U.S. Ambassador to China - Jon Huntsman

In a heady display of “feel the vib” and “look at me” doing that pursuit of freedom gig, the political poster child for human rights, dares onlookers of the patriotic possibility and the fact it’s not just something special for the American people as he rides his signature Harley-Davidson RoadKing Classic through the streets of Shanghai.

Some might even call him showing off a bit since urban incomes average about $2,200 a year in Beijing where the bikes sell for $12K to $37K.  Harley-Davidson opened its first store in China in April 2006 and the allure of its citizen’s growing spending power means the motor company is unwavering in its commitment to extract dollars from the world’s most sought-after-market… who cares if in Beijing and Shanghai, motorcycles are largely banned from most major streets and highways.

In fact, Shanghai stopped accepting motorcycle registrations back in 2002 so, I wonder how Mr. Huntsman got that motorcycle registered?  Was it shipped over or did he buy it there?  In a country well know for reproducing (“copy”) everything, unlicensed Harleys have been smuggled in to the country for years so his would likely go unnoticed. Details, details…Don’t bore me with the details.

The mandarin speaking Mr. Huntsman will resign as U.S. Ambassador to China on April 30th and according to Politico reports he might make a run for the Republican nomination in 2012.  Adding fodder to this speculation is the fact he’s booked for a speaking engagement in New Hampshire in May shortly after his return.

Interestingly, if a deal can’t be made and the government shuts down in less than 30 hours due to what looks like near-fatal-distrust of the two parties… I wonder how Mr. Huntsman will get back to the U.S. — charge it?!

UPDATE: June 21, 2011 – Mr. Huntsman enters the 2012 Presidential race.  Reuters report HERE.

Photo courtesy of AP.

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No Talent, No Time, But Lots Of Cash

2011 CVO Ultra Classic Electric Glide

I’m talking about the Harley-Davidson CVO (Custom Vehicles Operation) division and their customers.

CVO versions take an existing Harley motorcycle, then add a host of additional parts, usually cosmetic but some are mechanical, including the 1,803cc (110 cubic inch) version of the stock Harley motor.  The bikes they design and build are by any definition “mass-produced,” so they’re not true “custom’s” in the purest sense of the word.  But, based on rider demand the CVO division makes specialized versions on a few Harley models each year.  The people who purchase these want to customize their motorcycles but don’t have the time or skills.

But they do have money!

I was out yesterday at lunch and did a local H-D dealer “drive-by” when I noticed they had two 2011 CVO Touring bikes on the show floor:

1. CVO Street Glide (MSRP: $33,880 (includes shipping costs)) – Asking Price was $36,400
2. CVO Ultra Classic Electric Glide (MSRP: $36,880 (includes shipping costs)) – Asking Price was $40,300

2011 CVO Street Glide

Whoa!  A $40K Harley-Davidson.  That’s a first.  And neither had the optional 200 Watt “Boom! Audio Bagger” package which would have pushed the asking price even higher.  The CVO models always sell out and I’m sure 2011 will be no different because H-D deliberately under produces to maintain a perception of exclusivity.

So what’s my point?  I think purchasing the CVO takes all the fun away from doing your own customization.  The research, planning, procuring and incremental accessory installations are what provides motorcyclists winter projects and if you purchase a CVO your relegated to just washing it, right?

For example a comparable bike to #2 above is the Electra Glide Ultra Limited which includes the Power Package (103cu in plus ABS/Security) with an asking price of $27,200K (MSRP: $25,280 (includes shipping costs)).  With very similar paint schemes (minus flames) it looks like the dealer is asking about a $13,000 premium for the CVO version.  Sure it has the 110 cu in and several other accessories, but the price difference gives a person a lot of room for upgrades and chrome that you specifically want vs. what the motor company decides you need.  H-D doesn’t care either way as long as you just buy a new 2011 model.

I’m thinking the dealer is wishing for a lot here with their additional mark up during these financial times.  It will be interesting to see how long the CVOs stay on the showfloor as $40K buys a lot these days.

Photo courtesy of H-D and Telegraph.co.uk/ Double Red.

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Recounting The Sturgis Rally

If you’re a numbers person there is plenty to analyze about the 2010 Sturgis Motorcycle Rally.

Even more so if you’re somehow impacted by the largest death tally in over 10 years.  These tragedies will reverberate throughout the tri-state area for months, and will undoubtedly affect future events.  My sympathies go out to the friends and families.   Even the Cowboy State (WY) has lawmakers reviewing the lack of a helmet law and are considering revisions based on this year’s tally which reversed a downward trend in that state.

Unknown Wedding Couple at Broken Spoke Saloon

Whether you have interest in the amount of tax revenue, the number of weddings, the number of drug arrests, the number of Regional Health System emergency department visits or the amount of trash the rally produced, there are stat’s for everyone.

First off is the tax revenue; the South Dakota Department of Revenue and Regulation stated that revenues at the 2010 Rally increased ($127,804) from last year. Sales and tourism taxes collected so far from temporary vendors totaled $989,911 in the northern Black Hills, which includes Sturgis and communities in Meade and Lawrence counties.  There were 1,207 vendors at the 2010 rally and the gross vendor sales totaled $13.6 MILLION in the Northern Hills, $1.7M more than last year. In the Southern Hills, which includes Pennington County and Rapid City, Custer, Hill City and Keystone, sales were $2.8 MILLION, up from last year’s $2.5M.  Another indicator of attendance came from the city of Sturgis public works director, Randy Nohava, who stated that the rally generated nearly 9-tons of trash per day!

But, there is one stat we won’t get and that is the exact number of law enforcement agents who worked the rally or the costs.  It’s double-top secret.  However, law enforcement is quick to point to the: 1,442 citations issued, including 209 arrests for driving under the influence; 46 felony drug arrests and 183 misdemeanor drug arrests as a result of their extensive presence.

And while I’m on the law enforcement topic, there is one statistic which was very odd. The arrival of a Blackhawk helicopter, courtesy of the U.S. Immigration and Customs Enforcement along with their extensive support team. Supposedly the Blackhawk was there to provide additional surveillance of criminals and better mobility for ICE agents.  There has been NO word yet on how many illegal immigrants were apprehended at the 2010 rally.  It turns out that the Blackhawk support was never requested according to local law enforcement and in fact their arrival created almost as much controversy as the May 2010 incident where 3-Blackhawks from the Colorado National Guard descended over Wounded Knee and touch off a flurry of protests.

In terms of attendance, the methodology suggests that estimates are always inflated.  In fact, an article in the Rapid City Journal stated that 2009 numbers were rounded down to 477,000 and that the early estimate number for 2010 is 450,000.  The exact number doesn’t really matter as the bean counters really focus on the tax revenue data as a key indicator.

There were some other interesting capitalism mass-marketing stats.  Ford used the Rally to launch its new 2011 H-D “bling” filled F-150 truck and the U.S. Postal Service unveiled the “American Motorcycles” commemorative set of four stamps featuring classic motorcycles and a 1970’s era chopper.  And there are statistics for a good cause too; the 50-mile Legends Ride which raised $52,000, and was split by the Sky Ranch for Boys and the Sturgis Motorcycle Hall of Fame and Museum. And finally were the Hamsters MC, who helped raise more than $257,000 for therapies and services at the Rapid City Children’s Care Hospital for children who couldn’t otherwise afford treatment there.

Yep, the rally has lots of protestations and an industry trumpeting its success…

Statistics courtesy of Rapid City Journal.  Photos courtesy of Army/web.

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It’s A Summer Thing

Auction Preview

“The sun is get’n ripe and the water’s get’n warmer”
“The days are get’n longer , them shorts are get’n shorter, you won’t hear me complain”
“It’s a summer thing”

It’s the lyrics from country’s new comer, Troy Olsen who sings a song which highlights friends, beverages and flotation devices on the water.

And speaking of flotation…it’s well known that most Harley buyers use financing from Harley-David Financial Services (HDFS) when they purchase a new ride.  Not so long ago, H-D applied logic to its loan portfolio that was eerily similar to the housing bust.  The company used its in-house finance unit to chase after subprime borrowers, making it easy for them to buy $20,000 chrome-sters with no money down.  The risky lending—which later forced Harley to take million dollar write-downs — along with rising default rates created major problems.  Customers with low credit scores weren’t the only issue for HDFS.  Turns out those “creditworthy customers” walked from those no-money-down financing offers and along came the delinquencies as repossessions reached new levels.

Silvio Perez (Manheim) - Starts The Auction

In steps Manheim — a worldwide leader in the sale of used vehicles.  Being reported as a first, Manheim Seattle helped execute a massive auction sale of Harley-Davidson motorcycles which were ‘rounded up’ from the various repossession parts of the U.S.  The auction occurred last week and we had a man on the inside watching some of the action.

Essentially two auctions took place over a two-day period.  The first day was exclusive to H-D dealers and the second was open to any type vehicle dealer.  Of the 60+ motorcycles on day #1 about 40 sold with the remainder falling short of the minimum required bid.  Tells you a little about where the dealers are in terms of inventory and price right now.  The GM from Downtown H-D picked up a great buy on a Springer Screamin Eagle.  The 20 or so unsold were added to the second day of bikes scheduled for auction to all vehicle dealers.  The second day motorcycle inventory list were older bikes vs. the first day.  However, most but not all sold.  Several stalled at the minimum required and the auctioneer prompted the lady from HDFS as to any movement on the minimum bid as she looked to be pulling her hair out with the fast action pace of the event.

Crowds Swarm the Auction Motorcycles

The motorcycle repossession/auction business is somewhat of a hidden market business which the general public knows little about. Given that the housing market remains stressed with foreclosures and short-sales being high we can expect motorcycle delinquencies to remain high and as a result firms like Manheim will continue to flourish.

Photos courtesy of John (aka.“Burn-Out”) and Manheim.

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