OPE Industry Forecasts: Will business pick up again in 2010? (Part I)
The following is the first of a two-part series:
Outdoor Power Equipment recently asked several OPE industry leaders to shed some light on the state of the industry entering 2010.
Specifically, we asked the following thought-provoking questions:
What is new and exciting about your company?
What impact will the federal government make on the OPE industry during the remaining three years of U.S. President Barack Obama’s current term?
How will the environmental and energy-independence movements impact the OPE industry during the next five years?
What are your top-five OPE dealer survival tips for the next five years?
What will be the biggest trends to emerge in the OPE industry during the next five years?
What is your overall outlook for the OPE industry in 2010?
OPE received the following written responses, in order, Dec. 15-23, 2009:
BOB WALKER
PRESIDENT
WALKER MFG. CO.
(FORT COLLINS, COLO.)
1. What is new and exciting about your company?
BW: Probably the most “new and exciting” news about our company is that we are still in business and are still an independent, family-owned business, and we are doing our best to stay that way in the face of the business slowdown challenges experienced in the last couple of years. Despite lower sales, we are moving ahead with new product development and new marketing initiatives. On the product side, we are offering significant improvements to our Model B Series machines for 2010, including offering upgrade kits to make these improvements on earlier units. Marketing efforts are moving ahead with a brand-new “www.walkermowers.com” design rolling out in early 2010 and an improved Walker Dealer Web site that was introduced in the fall quarter of 2009.
2. What impact will the federal government make on the OPE industry during the remaining three years of U.S. President Barack Obama’s current term?
BW: It seems to me in its first year under the Obama administration, the biggest impact of the federal government on our industry has been to create fear — fear of the unknown in what is going to happen in business and our personal lives. It appears that pattern may continue for the next three years with what seems to be an out-of-control Congress and a president long on rhetoric and short on leadership. I think that fear has had a paralyzing effect on business with everyone waiting to see what is going to happen before making further investments and moving ahead. Certainly, many of the initiatives undertaken or being considered by the government are not friendly to small business, which is the backbone of the economy, and this leads to more uncertainty and fear. However, from the optimistic point of view, as our marketing manager, Tim Cromley, has been saying, “We are all in the same boat; what we learn from this and what we do about it is up to us.”
3. How will the environmental and energy-independence movements impact the OPE industry during the next five years?
BW: The impact of environmental improvements and energy-independence will be more complex products, higher taxes and higher costs passed on to consumers. I don’t think anyone is against our stewardship of the environment and energy consumption, but some of this appears to be the law of diminishing returns, where customers pay a lot more for a little gain. Certainly, the development of cleaner-running, more fuel-efficient engines, and alternative fuels, including electric power, will all be a part of the future design consideration of outdoor power equipment.
4. What are your top-five OPE dealer survival tips for the next five years?
BW: Dealers who survive in this industry will be doing the following: 1) Focus on selling durable, serviceable equipment; 2) Organize to provide excellent service for the customer — before the sale, at the time of sale, and after the sale; 3) Take full advantage of information technology to efficiently manage all aspects of business operations; 4) Have a business succession plan that brings young people into the business and mentors them into leadership; and 5) Stay independent, and don’t let manufacturers or distributors make decisions about products offered or inventories kept at dealerships.
5. What will be the biggest trends to emerge in the OPE industry during the next five years?
BW: In the next five years, some OPE products will become more of a commodity-type product, while others will thrive as specialty products where changing technology will allow continuing innovation. The commodity-type products will tend to be sourced from overseas manufacturers driven by price points, while the specialty products will come from U.S. manufacturers. We see Walker Manufacturing staying and continuing to thrive in the latter category.
6. What is your overall outlook for the OPE industry in 2010?
BW: Cautiously optimistic for the beginning of a turnaround and a small increase in business in 2010.
LEIF RINGSTAD
GENERAL MANAGER
MARUYAMA
(DENTON, TEXAS)
1. What is new and exciting about your company?
LR: Over the past 12 months, Maruyama U.S. has completely reinvented itself into a complete two-tier company and is busy communicating that fundamental change to the entire marketplace. We have also abandoned the company name “Maruyama U.S.” in favor of simply being known as “Maruyama.” We are an integral part of the total Maruyama group worldwide — and we are the marketing face of the company.
Second, we have completely incorporated and internalized the “Challenger” brand mindset into our company culture. This is essential to understanding us — there are no sacred cows, nothing is exempt from challenge as we seek our proper level in the market landscape.
Finally, we are really working to adapt our company culture to the 21st century marketplace. Beginning with the inside, our organizational structure, our policies and our people, we are allowing our new attitude to radiate out from the center. We have empowered people to make decisions to solve problems for people. We have been guilty in the past of being a product-focused company. Maruyama is absolutely making great product — supported by a group of great individuals. If you work with us, you know our names — WE ARE ACCESSIBLE. But more importantly, we are a family working to achieve a common set of goals, and if you work with us, you are part of the family.
People don’t do business with companies. They do business with people. We are working very hard to be the people that you choose to work with on a daily basis.
2. What impact will the federal government make on the OPE industry during the remaining three years of U.S. President Barack Obama’s current term?
LR: The EPA bonding requirement will probably provide a brief window of competitive breathing room for the companies that can actually legitimately meet emissions requirements. It won’t be a long window because the competition is extremely smart and exceedingly well funded. They will immediately make course adjustments and come back stronger than ever. But I think there will be a short window in which the existing compliant companies will have a competitive advantage.
The ongoing issue of ethanol in fuel is going to cause us as an industry to reevaluate our lubrication standards and fuel standards. It will also require that we as an industry push to change the test fuel requirements to a more market-available product that better matches what is sold in the real world so that we can test in the real world.
We will likely see the rising ethanol requirements drive demand for premixed fuel products that are clean of ethanol, butane, etc.
3. How will the environmental and energy-independence movements impact the OPE industry during the next five years?
LR: While the debate about climate change continues, the market will move past the debate. As this year’s students come into the workforce and by extension into the consumer force, the market will adapt to a new mindset. Propane, electric and other technologies will become more prevalent. This will be driven by the market more than by legislation.
Moreover, as we see further development in India and China, we will be competing with these economies and their consumers for available energy sources. This fact will also drive the development of products utilizing alternative fuels and energy sources.
As for 2-cycle technology, there is a logical limit to how far 2-cycle can be cleaned up before legislation simply kills off the technology — the field has narrowed now to the point that only a few engine manufacturers will remain able to produce compliant 2-cycle engines, and, of course, I am very proud of the fact that all of our engines meet or exceed EPA limits right now, without sacrificing performance. I also doubt that an industry will be legislated out of existence. After all, we still burn coal in this country and we haul our freight with diesel trucks and fly our airplanes on kerosene. For some applications, there are simply no alternatives, and 2-cycle emissions by comparison are a very small issue.
4. What are your top-five OPE dealer survival tips for the next five years?
LR:
1) Diversification — Look to new revenue streams that make sense given the core customer base you have already established. For Maruyama, that proposition is chemical application, lawn & grounds treatments, non-structural pest control. Also, avoid the draw of a one-line store — the good, better, best product offering still compels many customers into purchasing the higher-quality, higher-priced, higher-margin unit over the cheaper, low-margin unit that drew them into the store. This is a market that is driven by choice; to keep customers, you must show them reasonable choices.
2) Marketing Know How — Know who your customers are, and why they buy from YOU IN PARTICULAR. Hone your message to speak specifically to that group and stay on message every day, all year long.
3) Retail Merchandising Skill — People like to do business with a place that looks successful. Nothing looks more like success than a clean, well-lit, well-organized place of business. The better that a store is merchandised, the better that store will fare when competing not just with similar businesses, but also with the big box stores and other places where your customer might look for product.
4) Dedicated Sales Force — Invest in good salespeople, not only inside the store but most importantly OUTSIDE the store. In a tight market, you make the most long-lasting gains by going out and taking business from other companies. When the market rebounds, your relative market share means that you realize a lot more dollars as things improve. And when things are tight, the dealership that goes the extra mile to service professional landscapers will earn the business.
5) Overall Professionalism — I always think of the power equipment shop in my hometown, Wally’s Saw and Gun in Bruce, Wisconsin. Mr. Frisinger always maintained a professional shop. His store wasn’t large, but it was professionally operated. A shop doesn’t need to be large to be professional. People went to Wally’s Saw and Gun because he ran a clean, professional business that communicated integrity, expertise and capability with every action. Be the kind of shop that you would want to buy from!
5. What will be the biggest trends to emerge in the OPE industry during the next five years?
LR: The biggest single thing that is going to emerge in the OPE industry over the next five years is an equation that results in quantum change: China and India + Really Good Marketing = Quantum Change.
Sooner rather than later, the Chinese and Indian manufacturers are going to discover how to bring a product to market in a way that is very appealing to the West. When that happens, the equations all change for everyone, and it will be a very different world. The second biggest thing that will emerge over the next five years is something that I call “Verticality.” When a company grows to a certain point, say 30- or 40-percent market share, there is very little that they can do to meet shareholder’s demands for continued growth. So in the OPE space, where two-tier distribution has been the main channel to market, the manufacturer’s only way to increase top and bottom line revenue is to start to squeeze out the distributors. Obviously, this started already this year with some of the merger activity that we’ve seen. And it will continue as the larger market share companies look to control their channels and capture the additional revenues and margins in the process. This will also have a tremendous impact on product offerings and product diversity in the market.
Third, the recession that we are hopefully now exiting will unfortunately have a decade-long tailwind behind it. The wealthy haven’t been impacted in terms of landscape spending. The impoverished haven’t really been impacted either. But there is a wide swath down the center lane of our economy, the middle class. They have been hit pretty hard. Many middle-class households cut back on landscape spending in the last year, and those homes will be slow to return to the use of a commercial service. The pro-cutter that is successful in the coming five years will be a more sales and marketing savvy provider who is adding more value-added services and making a drive toward pest control applications, as well as traditional landscape services.
Ethanol will continue to be a growing factor in the industry. As a result, we will probably have to start looking at custom-blended fuels and premix products like 50 Fuel and TruFuel as an alternative to the pump for some of our market segments.
Finally, I think that a combination of legislation and market buzz will be the genesis of a true drive into alternate fuel and power sources. In my opinion, the best technology has yet to be developed. What is the bigger question along this line is will the alternate fuel/power technologies develop into a real market or just remain a product niche?
6. What is your overall outlook for the OPE industry in 2010?
LR: I see 2010 as a continuation of 2009 until late into the year. Until jobs are created and filled, and debt is paid back down by the consumer, the level of discretionary income for professional grounds care will be harder to come by. As a result of this, parts revenue should climb, while operators seek to repair more equipment while measuring out the early part of the season. Later in the season, I think we will see a significant amount of pent-up demand, and that will start to break loose in the late summer and into the fall.
The rate of dealer attrition will remain fairly high as older sole proprietorships age into retirement and as the weaker operators succumb to the stronger dealers and to the box store. There is a strong likelihood that a few regional “Super” stores could emerge this year as the result of dealer market consolidation.
Overall, I expect some market growth in 2010, but most of the growth will arrive later in the year.
JOHN D. HEDGES
DIRECTOR OF SALES & MARKETING
CENTRAL POWER DISTRIBUTORS, INC.
(ANOKA, MINN.)
1. What is new and exciting about your company?
JDH: Before we get too excited about 2010, we will look at 2009 and see what was effective and not. Distribution in the next several years will be exciting enough. We look forward to those challenges and plan to remain on the cutting edge regarding products, policies and new opportunities.
2010 will be a growth year thanks to two new product lines acquired in the third and fourth quarter of 2009. Tanaka (owned by Hitachi) and Parker (owned by Ariens) will add a different dimension to our typical market penetration areas. Kohler will continue to be a market leader through innovation and leadership of Mr. David Kohler. Tecumseh will continue to find quality and reliable vendors, which will allow them to supply more products in 2010. We will create exciting new business opportunities for our MTD customers through their EDGE products. Our E-Zone will continue to provide bigger companies with a channel to sell their products at large numbers. All in all, CPD looks forward to 2010 and the business opportunities that presents themselves.
2. What impact will the federal government make on the OPE industry during the remaining three years of U.S. President Barack Obama’s current term?
JDH: The debate on nationalized health care reform is frightening to me. If all my information is correct, there are a bunch of people in D.C. that are doing things to do things rather than doing things to better the country. Our industry is in the cross hairs of this administration because of “Green Movements” around the country. It will take each and every one of us in this industry to have solid information from OPEI (Outdoor Power Equipment Institute) and win the “grassroots wars” in our local areas. Education, sadly, may not be enough to keep drastic, expensive, pointless changes from being made. Hopefully, this administration is four and done.
3. How will the environmental and energy-independence movements impact the OPE industry during the next five years?
JDH: This is an interesting question. There may (or may not) be too much emphasis placed on the well being of the environment. However, real or not real, the mission is to clean up the world. Unfortunately, we are an industry that produces noise and exhaust. What most people don’t realize is how hard the lawn and garden industry has worked to bring down emissions to what many thought were impossible numbers several years ago. Did I mention expensive? The expense involved with little increases can’t last forever. The manufacturers will have to raise the prices one of these days. I commend them for what they have been able to accomplish.
With that said, we can only hope for battery-powered items that work I guess. Carrying a cord around is better than heavy equipment for some people but still annoying. A good battery or solar power will be expensive. The real question is not for the consumer products but the commercial ones. What can be created (using a battery) that lasts a long time, can be charged quickly, and produce minimal noise?
4. What are your top-five OPE dealer survival tips for the next five years?
JDH:
1) Don’t get into floor-plan suicide. Be sure to pay off the bill at the end of your free financing.
2) Sell products that make sense to your area. If you are a dealer in the heart of a big city, you may want to stock more battery-powered products rather than gas. They do make a battery-powered mower you know.
3) Advertise, but get the most “bang for your buck.” Stay away from huge newspapers and try to find the local shoppers in your area. People tend to like them best.
4) Offer specials and be creative. Without them, you are the same as the others.
5) Don’t try to match the box store pricing. Promote service and ease of doing business with you. Make sure your employees understand your business philosophies and they live it at work. Your dealership will be easier to promote if all employees are singing off the same sheet of music.
5. What will be the biggest trends to emerge in the OPE industry during the next five years?
JDH: The big will continue to get bigger. Watch for more consolidation in the manufacturing arena. Small manufacturers will only survive when they are building unique items. Bigger distributors will have more demands placed on them to continue to add more value for the manufacturer. Smaller distributors will be bought by bigger ones. Small dealers will go out of business or be purchased by the bigger ones. New items will be slow to be created.
Manufacturers will look around the world to find the next China, and people won’t care where their product is made. We have become immune to not seeing “Made in America.” However, there may be hope beyond the horizon. With the job market so bad, people may have to settle for lower wages to have a job. We could see all this coming full circle with jobs coming back to the U.S. but with lower employee wages and benefits. Maybe at some point someone will say, “Enough is enough. Let’s bring back manufacturing to support our own country.”
6. What is your overall outlook for the OPE industry in 2010?
JDH: I don’t think it will be total doom and gloom but probably similar to what we just experienced in 2009. Parts sales were good but wholegoods sluggish. Prepare to write off more bad debts. Look for creditors to remain tight. Make plans to increase sales with fewer customers. Commercial business will remain weak.
Think about it. There were an astronomical number of jobs lost in 2009. I don’t see them coming back. Because of LEAN, companies are figuring out how to be more efficient. Just like the employment sector, the commercial market has had to become more efficient. It appears some landscapers are using lesser-quality equipment compared to recent years. If it is “good enough,” they’ll use it. It may take a few years to find out it’s better to bite the bullet, pay for more expensive items now, and repair them rather than pitch them.
FRED J. WHYTE
PRESIDENT
STIHL INC.
(VIRGINIA BEACH, VA.)
& VICE CHAIRMAN
OUTDOOR POWER EQUIPMENT INSTITUTE
1. What is new and exciting about your company?
FJW: Some could argue that what remains the same about STIHL is what is exciting: unlike others, we continue our independent servicing dealer distribution strategy. To that point, in “The Distribution Trap,” a book published by Praeger and just released in December, authors Andrew Thomas and Tim Wilkinson speak to the dangers of mega store distribution; and I’m pleased to say, a chapter of the book is dedicated to the success of the STIHL distribution model. Of course, new products are always exciting, and in 2010, we have several exciting introductions, including the arrival of the STIHL HSA hedge trimmer, the first entry in our new 36-volt, lithium-ion battery-power platform, and continued expansion of our low-emission line of products with the FS 70 RC-E line trimmer.
2. What impact will the federal government make on the OPE industry during the remaining three years of U.S. President Barack Obama’s current term?
FJW: We watch legislative and regulatory issues closely. Particularly noteworthy is proposed climate-change legislation and regulation of greenhouse-gas emissions involving a cap and trade provision. While we all strive to reduce emissions, we must be careful not to adversely impact America’s manufacturing base. Also, with so much focus on climate-change and energy independence, there is a great deal of pressure to use higher-percentage ethanol blends, which will assuredly impact dealer service departments, especially if percentages are raised too quickly. And while helping small businesses is one of three areas that President Barack Obama has targeted to create jobs, we will want to keep a close eye on tax policies and resultant effects on small businesses. This is especially significant to STIHL, considering our selective retail distribution model.
3. How will the environmental and energy-independence movements impact the OPE industry during the next five years?
FJW: We have already seen the impact of environmental and energy-independence movements in the marketplace with recent mergers and consolidations seemingly designed to assist various companies in meeting various environmental regulations. I would expect to see more mergers and consolidations over the next five years as EPA III takes full effect in 2013. Responding to these pressures requires significant long-term R&D investment for introduction of new technologies. At STIHL, we are well positioned to benefit from advancements made at our R&D facility in Waiblingen, and we’re pleased to be at the vanguard of environmentally conscious products, technologies and philosophies. In fact, we have some of the cleanest handheld outdoor power equipment available today, based on information posted at the EPA Web site. And our new 36-volt, lithium-ion battery product platform will provide a high-performance, zero-emission option for professional customers.
4. What are your top-five OPE dealer survival tips for the next five years?
FJW: There’s nothing like a crisis to clear your mind, and the industry has certainly had the opportunity to shake off old conventions and re-focus on key business basics. Things that dealers should be looking to do in 2010 include the following:
1) Offer a product worthy of customer loyalty. Especially in tough economic times, no amount of fancy marketing or gimmicky programs can make up for products that do not deliver the performance and dependability that customers demand.
2) Make partners out of their vendors and work with manufacturers that genuinely support and have a vested interest in the success of their dealership.
3) Accelerate personnel training efforts, so that every customer engagement — before, during and after the sale — is the best it can be and employees feel like an investment is being made in their future. Combined with good internal communications, dealers can relieve a great deal of fear and stress that their employees are feeling during uncertain times.
4) Invest in manufacturer- and distributor-subsidized marketing programs that offer a turn-key approach — not fast-talking media sales reps — so focus can be on their own business operations.
5) Develop and implement an Internet e-marketing program to capitalize on the undeniable emergence of digital communications, if they’ve not already done so.
I had the opportunity to speak with many STIHL dealers at this year’s GIE+EXPO, and their outlook seemed to match a recent American Express survey, which indicated that over half (55 percent) of small-business owners are optimistic about near-term business prospects, yet 63 percent of respondents said they do not think the worst is over. The only thing certain is that judging the accuracy of some recent economic forecasts and predictions for the future is, perhaps, best left to historians!
5. What will be the biggest trends to emerge in the OPE industry during the next five years?
FJW: From a distribution standpoint, consolidation will continue. Likewise, we will see consolidation in the manufacturing sector. From a new products standpoint, regulatory compliance and the demand for sustainable products and processes will drive not only consolidation by some but also real product innovation by others. From a marketing sta
