OPE Industry Forecasts: What experts predict will happen in 2011 (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 2011.


Specifically, we asked the following thought-provoking questions:

What is new and exciting about your company?
How will the recent midterm elections and Republican takeover of control in the House of Representatives impact the OPE industry?
How will the Environmental Protection Agency’s (EPA) recent ruling to permit use of E15 (15-percent ethanol) in model 2007-or-newer cars and light trucks impact the OPE industry?
What will be the biggest challenges that dealers face in 2011, and how should they handle those challenges?
What is your overall outlook for the OPE industry in 2011?

OPE received the following written responses, in order, Nov. 24-Dec. 13, 2010:




JOHN D. HEDGES


DIRECTOR OF


SALES & MARKETING


CENTRAL POWER
DISTRIBUTORS, INC.


(ANOKA, MINN.)


1. What is new and exciting about your company?


JDH: I read the paper, listen to Fox News, and hear people talk. If I felt the way they report, I wouldn’t be able to answer this first question. However, because CPD is made up of many incredible people, I can say there are things going on here to be excited about.


We are coming off a record year for the second year in a row. Our manufacturing partners continue to allow us to add value through new and exciting promotions, second-to-none quality, and unbeatable fill rates.


CPD has branched out into all areas of the country, thanks to our national account partners. Our traditional customers have found more reasons to buy from us based on our product offerings, fill rates, same-day shipping policy, and our E-Zone online ordering system.


Looking ahead to 2011, we have new business ventures that should allow us to have a great year again.


2. How will the recent midterm elections and Republican takeover of control in the House of Representatives impact the OPE industry?


JDH: If you listen to the Republicans, it is the saving grace this country seeks. However, in my fair amount of years on this earth, I am somewhat skeptical. Last year, we talked about Obama Care and the effect it would have on small business. If the new Congress does just a few things to reverse the downward spiral we are in, then Halleluiah!


No matter how much we may want to get rid of CARB and EPA, they are both here to stay. Republicans tend to believe in less government and more choice. Is it too late to reverse some emission regulations? I’m afraid it is. But anything to slow down the next legislation and decide what is real and not real regarding the small-engine markets would be appreciated. Can you say, “No more Cap and Trade?”


Obama Care needs to be repealed, or at least revisited to make it good for small business. It is a small-business killer the way it is today and invites companies to settle for penalties for not offering insurance. The sad part is it will be less expensive to do that for some smaller OEMs, distributors and dealers.


On a side note, I tend to veer away from these issues since writing a note to then President Clinton. It was July 4, and AOL had a link to send the President a note. I did. My note talked about EPA and the way its new rules were hurting this industry that I love dearly. I hit send and forgot about it. Less than a month later, I had a note from the director of the EPA, saying President Clinton passed it on to him. He let me know I was wrong in my discussion, and I told my wife we would be audited. Four years later, we were audited.


3. How will the Environmental Protection Agency’s (EPA) recent ruling to permit use of E15 (15-percent ethanol) in model 2007-or-newer cars and light trucks impact the OPE industry?


JDH: I asked myself what could be the difference in E15 and E85? E15 is 15-percent ethanol and 85-percent gasoline. E85 is 85-percent ethanol and 15-percent gasoline. Got that? If the industry is saying E15 is bad, then one might think 85-percent ethanol is really good. Not true. Too much of a good thing can be bad, and I think this is one of those cases.


Ethanol is an alcohol and can cause metal pitting in engines, and fuel lines can be broken or cracked if made of rubber. (Not to mention the price of corn as a food item!) Minnesota is a leader in E85. Early on, there were at least five times as many gas stations in Minnesota that offered E85 compared to other states. Today, that number has tapered off in some areas. Today in Minnesota, there are more than 300 stations offering E85 compared to California, where there are only 50-plus.


Flex vehicles have been designed to offer both E85 and regular gas. But as time has gone on and with more people owning flex vehicles, it still isn’t clear if the cheaper E85 is a good deal. Going up a hill pulling a trailer, uses more E85 compared to the same scenario using gas. Are we to think that this industry will begin making E85 engines? Yes, they’ll have to. Unless the EPA has a total change of heart, my guess is we’ll see flex products in production as early as 2012.


4. What will be the biggest challenges that dealers face in 2011, and how should they handle those challenges?


JDH: How low will you go Mr. Dealer? The sales of new equipment will still suffer through the on-going sluggish economy. I have preached the last couple of years that parts and service is the saving grace. I don’t feel any different today. Commercial cutters are holding off on new purchases until they absolutely have no other choice but to buy a new mower. Consumers are holding on to that old mower and repairing it each year if they need to. Hand-me-downs are not happening as rapidly as they used to. A hand-me-down meant a new product would be purchased.


Watch for “me-too” items coming from overseas, and don’t get caught in the price game. At GIE+EXPO 2010, I was astonished at how many “me-too” items there were coming in from Asia. Can they really keep up with the servicing side of the business, and can they keep up with the changing standards? My suggestion is stick to your major brands, promote heavily using co-op dollars, and make your full margin. Don’t jeopardize your current lines by potential fly-by-night companies. Ask for assistance from your manufacturers and distributors on promotions, open houses, and volume discounts. “Buying American” will be a big deal in 2011. Make sure you are aligned with American companies.


I understand credit restraints have been lifted slightly, allowing more consumers to buy a new item. This will allow for some new purchases but only to those needing to make them. The days of buying based on “want” are gone, and the days of buying based on “need” are here.


Web sites are no longer a luxury item; they are a necessity. If you have a Web site, use it to sell. This will require capital to build up your online reputation. When building a Web business, think of your brick-and-mortar building and how you built up clientele. Although the methods are different, the concepts are the same. Instead of using Yellow Page ads when you started, you may have to invest in PPC (pay per click). Link sharing and other online tricks will get you up and going faster.


5. What is your overall outlook for the OPE industry in 2011?


JDH: If you are a pessimist, here is your outlook. The industry will suffer through another couple of years. The consumer needs to see positive news for a period of more than 120 days to believe we are going in the right direction. After 120 days, they believe something good is going on, but still won’t buy. After one year of good news, we’ll start to see good things happening, purse strings loosening up, and sales of new product taking place. During this time, Mr. Pessimist, make sure you read the bad news and don’t try anything new.


If you are an optimist, here is your outlook. Create your own destiny by finding new customers, finding new lines, and finding new ways to market. Don’t let the news people tell you how bad it is out there. Stay focused on your money makers, and don’t try to be something you aren’t. Advertise in bad times, spend a little more money on your inventory, and don’t be afraid to charge for value-added services like pickup and delivery, as well as storage. Accept competitor ads, and have open houses. Have new-found fun developing your Web page and watching orders come in. Even if you aren’t the biggest guy in the world, make sure your customers think you are.



CHRIS ROESSLER


MARKETING MANAGER


ROTARY CORPORATION


(GLENNVILLE, GA.)


1. What is new and exciting about your company?


CR: While Rotary continues to make significant improvements in customer service, distribution and manufacturing, I am really excited about our expanded product line and various enhancements we have made to ensure our customers get the parts they need, when they need them.


We have introduced more than 275 new items for 2011, including a variety of blades and shop packs featuring popular air filters and fuel filters. Altogether, Rotary offers more than 8,500 different outdoor power equipment parts, tools and accessories in our new 1,400-page catalog — the largest selection you’ll find anywhere.


Just as important, we are making improvements to our Web site that allow customers to view up-to-date items we are adding monthly to our product line, plus dealer specials and value-added sales programs.


Over 40 percent of the products we sell are manufactured by Rotary which gives us the flexibility to adjust quantities during the manufacturing process to meet inventory demand. This is crucial to on-time delivery, especially during the peak seasons. I am also proud to report that our fill rate on parts continues to be one of the highest in the industry.


2. How will the recent midterm elections and Republican takeover of control in the House impact the OPE industry?


CR: Like other sectors of our economy, I feel most of the outdoor power equipment industry is taking a “wait-and-see” attitude with the shift in power. If business continues to improve, companies will start hiring again and, hopefully, there will be growth and expansion.


With a new Congress in place, I tend to be optimistic about the future. I am sure there will be “gridlock” on many issues. However, one thing is for sure: If our lawmakers don’t get a handle on spending and healthcare costs, everyone will feel the impact, including servicing dealers, suppliers and manufacturers.


3. How will the EPA’s recent ruling to permit use of E15 ethanol in model 2007-or-newer cars and light trucks impact the OPE industry?


CR: The EPA’s recent ruling will create problems for the outdoor power equipment industry. The use of E15-or-higher blended ethanol fuels will damage certain equipment and could pose a safety risk for operators.


It’s no surprise that price is what usually drives a consumer to purchase a certain fuel. As a result, many people will use the higher ethanol blend in small engines, and this will lead to performance problems and equipment failure. Ethanol-based gasoline can gum up the carburetor and cause valve damage. Ethanol is also a very efficient solvent and has been linked to the deterioration of some fuel hoses and plastic parts.


Perhaps Kris Kiser, executive vice president of the Outdoor Power Equipment Institute, sums it up best when he predicts E15 “will get into products it shouldn’t, and there’ll be lawsuits.”


4. What will be the biggest challenges that dealers face in 2011, and how should they handle those challenges?


CR: One of the toughest challenges for dealers will be competing for business in a digital age that includes chat groups, texting, social media, online ordering and the maintenance of an updated, user-friendly Web site.


I feel more focus should also be placed on suggestive selling and service after the sale. E-mails or reminder letters to homeowners about the importance of servicing their equipment during the offseason is a good way to build sales in a slow period.


It’s important to give your customers a reason why they should return to do business with you. For commercial customers, offer blade sharpening with a rotating set of blades, so they always have a set ready to go. And be sure to communicate with your commercial customers to find out their needs and how you can improve your relationship with them. This may involve a special commercial counter, a dedicated phone line for commercial orders or an afterhours contact.


5. What is your overall outlook for the OPE industry in 2011?


CR: As usual, the overall outlook depends on the weather! If we receive adequate rain during the warm, growing season, it’s a great predictor for an excellent year in the OPE industry.


I think you will see parts revenues continue to climb due to the economy as both residential customers and commercial businesses tend to repair equipment instead of replacing it whenever possible. In my opinion, you will also see more competition on the commercial “cutter” side with new people entering the lawn service business with a trailer, mower, string trimmer and edger, trying to out-bid established companies. This could increase business for the wholegoods market.


 


BOB WALKER


PRESIDENT


WALKER MFG. CO.


(FORT COLLINS, COLO.)


1. What is new and exciting about your company?


BW: We are seeing a nice recovery of business starting in March 2010, and the recovery pattern has continued through the summer and fall. Inventories in the field are low, and dealers will be able to move into 2011 with fresh, new product with some pent-up demand from customers who have deferred purchasing during the past couple of years. The Walker product line continues to expand with new model tractors, decks and attachments, and we are continuing to make improvements on existing models — “making them better all the time.”

2. How will the recent midterm elections and Republican takeover of control in the House of Representatives impact the OPE industry?


BW: More favorable legislation and policy for businesses and particularly for small businesses.

3. How will the Environmental Protection Agency’s (EPA) recent ruling to permit use of E15 (15-percent ethanol) in model 2007-or-newer cars and light trucks impact the OPE industry?


BW: E10 continues to cause a lot of problems in the OPE industry; E15 will only make it worse. The idea of segregating fuel supplies for newer and older machines is only one of several challenges for trying to make E15 work.

4. What will be the biggest challenges that dealers face in 2011, and how should they handle those challenges?


BW: Probably the financial area will be the biggest dealer challenge in 2011. After the tough economic times the past couple of years, the climate for obtaining financing for business credit and consumer credit will be a challenge for many small businesses. Many dealers will experience tight credit — to operate their business, finance inventory, and help make sales to customers.

5. What is your overall outlook for the OPE industry in 2011?


BW: I am optimistic for the OPE industry in 2011 and expect that the business recovery cycle we are experiencing will continue.



MICHAEL JONES


PRESIDENT OF


SALES AND SERVICE


NORTH AND LATIN AMERICA


HUSQVARNA PROFESSIONAL


PRODUCTS, INC.


(CHARLOTTE, N.C.)


1. What is new and exciting about your company?


MJ: Internal organizational changes have been implemented to increase efficiencies. We’ve streamlined our operations and our focus on finding solutions for our channel partners — our distributors, dealers and the pros that depend on our brands each day. Our focus remains committed to servicing the professional industry. We will continue to work with our dealers to offer solutions that will help them grow their business.

On the product side, innovation and performance are always in the mix, but we have also tapped into the value proposition category with the introduction of the Husqvarna P-ZT and the Dixon DX zero-turn mowers. These new mowers were introduced to give landscapers the chance to increase their fleet at an affordable price and still get the performance they expect.


2. How will the recent midterm elections and Republican takeover of control in the House of Representatives impact the OPE industry?


MJ: Regardless of the party in power, it is necessary for the government to implement measures that help bring stability and create a climate where there is ample opportunity for businesses to continue to invest in their future success.

3. How will the Environmental Protection Agency’s (EPA) recent ruling to permit use of E15 (15-percent ethanol) in model 2007-or-newer cars and light trucks impact the OPE industry?


MJ: Everyone in the industry is invested in learning about short-term and long-term effects of this policy change. The biggest challenges will need to be addressed by the EPA — the regulation of the fuel as it relates to the amount of ethanol and educating consumers about the acceptable and non-acceptable uses of E15. OPEI continues to represent the industry in regards to this issue, of which Husqvarna is a member.

4. What will be the biggest challenges that dealers face in 2011, and how should they handle those challenges?


MJ: The state of the economy affects every business and will continue into 2011. Dealers will need to demonstrate what differentiates them from their competitors to better position themselves when customers are ready to purchase.

5. What is your overall outlook for the OPE industry in 2011?


MJ: Product value propositions around new product offerings are imperative. For dealers, the ability to help customers choose the right products, provide support and service, and offer financing options will be essential.


WILL COATES


PRESIDENT


BILLY GOAT


INDUSTRIES


(LEE’S SUMMIT, MO.)


1. What is new and exciting about your company?


WC: While this recession was taking its toll on the OPE industry, our employees were hard at work, building a better future. Our company founder, Bill Coates, decided to hang ‘em up in July of 2009 after 41 years of service to the company. We were fortunate to be able to purchase controlling interest in Billy Goat without further leveraging the company, so that was a huge relief as the credit markets tightened. The administrative staff relocated to a newly acquired office building and warehouse just up the street from the factory. That acquisition opened up numerous manufacturing and logistical options, and allowed us to accommodate the growth that we saw this year. 2009 also marked the introduction of a merchandising concept that has been a welcome success with our retail partners and distributors.

In early 2010, Billy Goat launched the next generation of debris loaders that incorporates dual shredding technology into the impellers and a modular chassis for a variety of mounting positions. The benefit of the new impeller design is greater debris reduction and fewer trips to the landfill.


Finally, we launched two exciting new products at GIE+EXPO. The 34-inch HomePro mower fills a void that many of our dealers have been asking for at an extremely competitive price. The HomePro mower complements the spring portfolio of Billy Goat products and fits wonderfully into the lower bays of the merchandiser. Our new hydrostatic overseeder also got rave reviews from customer prospects in our GIE+EXPO outdoor booth. This 22-inch overseeder features intuitive controls that dramatically reduce operator learning curves and increase productivity beyond any competitive alternative. Both products go into full production during the first quarter of 2011.


2. How will the recent midterm elections and Republican takeover of control in the House of Representatives impact the OPE industry?


WC: I’m no soothsayer, but my feeling is that the expected balance brought on by the election will calm the nerves of many an independent businessperson. Policies that promote job creation in the private sector will hopefully prevail but spending must be curtailed — this will require sacrifice by all. The better companies in OPE have already been investing in the future and taking advantage of favorable incentives. I’m optimistic that the dealers who’ve survived this recession have learned how to manage their inventories, cash flow, and financing. They will be the winners when growth picks up beyond the current uninspiring pace of GDP.

3. How will the Environmental Protection Agency’s (EPA) recent ruling to permit use of E15 (15-percent ethanol) in model 2007-or-newer cars and light trucks impact the OPE industry?


WC: OPE is such a small percentage of the overall fuel consumption in the U.S. that OPE OEMs had to take a backseat in the debate. Whether you agree with the economic, environmental and self-sufficiency arguments of the policy, the bottom line is that E15 will lead to further fuel-system-related service issues for end users of OPE, particularly those with older equipment. To accommodate this development, I think it’s inevitable that the engine manufacturers will have to raise their prices (as they have with stricter emissions) for redesigned models and that ultimately hurts the consumer, too.

4. What will be the biggest challenges that dealers face in 2011, and how should they handle those challenges?


WC: First, I believe that the economic challenges of 2011 won’t be much different — certainly not any worse — than those of 2009 and 2010. As I’ve alluded to earlier, those dealers who have survived this difficult period are the fittest and best prepared to manage costs. A challenge that we’d all love to have is an economy growing faster than at a 2- to 3-percent clip. Lean inventories throughout the entire supply chain mean that it will take time for channel partners to react. Will the credit market respond in time to take advantage of the growth opportunities? Will transportation, domestic and abroad, become bottlenecks? How will dealers already stretched thin adequately train existing and/or new employees? This is one of the reasons we’ve chosen to invest aggressively in sales training tools and video to make dealers more efficient.

Second, I think a huge challenge to dealers is all of the non-value-added activities that result from the myriad of governmental rules and regulations. It’s difficult enough to run a good business today and eke out a reasonable profit. When the government pushes and pulls as many levers as it does, small businesses can quickly be overwhelmed by the requirements.


5. What is your overall outlook for the OPE industry in 2011?


WC: One trade publication I read recently hedged its bets by predicting OPE growth of flat to 8-percent up for the year. That’s quite a range — our CFO certainly doesn’t let us budget that loosely! But, it does reveal the prevailing uncertainty in business that exists today. The good news is that OPE products are necessary — grass has to be cut whether it be by the professional or the homeowner. And, OPE products have a limited useful life, so there’s a point where customers decide to replace rather than repair. If tax rates stabilize and punitive economic legislation is scuttled, then it’s not unreasonable to think that OPE could continue to rebound from the bottom of 2009 at an additional 5- to 6-percent growth in 2011. I’d love to read these words a year from now and realize what an understatement that was.

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