OPE Industry Forecasts: What is foreseen for 2014? (Part II)

The following is the last of a two-part series:

Outdoor Power Equipment recently surveyed several executives about the state of the OPE industry heading into 2014.

Specifically, we asked the following thought-provoking questions:

What does your company or organization have planned for 2014?
What were the OPE industry’s biggest stories of 2013, and what will make headlines in 2014?
What will be the OPE industry’s top trends in 2014?
Aside from the weather, what challenges will OPE dealers face in 2014, and how should they address them?
What is your overall outlook for the OPE industry in 2014?

OPE received the following written responses, in order, Jan. 2-15, 2014:

PETER ARIENS
PRESIDENT
STENS, LLC
(JASPER, IND.)

1. What does your company or organization have planned for 2014?

Peter Ariens: Stens just went through a two-year process of preparing and implementing a new software system, headquarters move, and distribution center re-alignment. With the planning and implementation of these updates behind us, the possibilities our improved resources give us, and the optimism in the dealer marketing right now, I think 2014 promises to be a big year for Stens. We will spend 2014 working to show our customers an even more improved product availability and delivery network as part of an overall best-in-class parts purchasing experience.

2. What were the OPE industry’s biggest stories of 2013, and what will make headlines in 2014?

Peter Ariens: Ethanol continues to be an ongoing hot topic. OPEI continues to lead the charge on educating our industry and advocating on our behalf. I am sure that battle will rage on through 2014. Of course, ObamaCare is also getting plenty of air time as the small businesses that make our industry hum are working through the changes that this policy is mandating.

3. What will be the OPE industry’s top trends in 2014?

Peter Ariens: I think we will continue to hear about ethanol regulations and how that battle will continue to play out. I think this will continue to cause manufacturers to innovate their product lines with electric- and battery-powered options or even product line rationalization such as Kawasaki exiting the handheld market altogether.

The economy is experiencing a bit of an upswing right now bringing the housing and construction markets back, which bodes well for both residential and commercial equipment business. Most manufacturers and distributors have used the last few years to lean out product lines. The market uptick could give us all the necessary funds to innovate and work toward developing the next generation of equipment incorporating smarter technologies. Optimistically, I look to see some of those to be introduced toward the end of 2014.

4. Aside from the weather, what challenges will OPE dealers face in 2014, and how should they address them?

Peter Ariens: I think the Internet and online businesses will continue to change the face of our dealers. The average buyer these days is much more educated than the buyers of yesterday. Buyers continue to use the Web to research features, benefits, and prices of equipment and parts. Most manufacturers today have websites for buyers to find that information. I think the dealer needs to participate in the Web world. If you are a dealer and do not have a website yet, I think you should get one. It is amazing how many dealers are driving considerable revenue online. But where the dealer really has the ability to shine is in their local markets. They need to continue to do what they have done best for decades, be that friendly face and guiding voice that the homeowner or commercial buyer knows and trusts. I think the more the dealer is able to personalize their service and knowledge about each of their individual customers, the more they will prosper.

5. What is your overall outlook for the OPE industry in 2014?

Peter Ariens: My outlook for 2014 in a word is positive. Most dealers are coming off of a profitable year and are looking for ways to invest in the growth of their business. At the same time, I see more dealers pulling the next generation into their business plans. Separately, these two things are favorable news for our industry. Together, they are great news. I believe this next wave of talent and ideas brings with it more technology and business know-how than previous generations.

TOM CROMWELL
PRESIDENT
KOHLER ENGINES
(KOHLER, WIS.)

1. What does your company or organization have planned for 2014?

Tom Cromwell: At Kohler, we continue to be optimistic about growth for the outdoor power equipment industry in the United States. Throughout the year, we pay close attention to several indicators that we believe shape the outdoor power equipment industry growth potential…weather patterns, the U.S. economy, equipment replacement cycles and U.S. housing starts. Going into the first quarter of 2014, all of these factors are trending in a positive manner. As of January 2014, a strong snow season has started throughout the U.S., which will help companies throughout the value chain. The U.S. economy experienced 4.1-percent GDP growth in the third quarter of 2013, with forecasts indicating 2.5 percent in the fourth quarter. Housing starts were stable throughout the second half of 2013, with November climbing past 1 million. A fundamental need for housing (household formation, obsolescence, etc.) suggests housing starts should drive toward 1.5-million starts long term (roughly 60-percent higher than where we expect 2013 to end up); however, it may take a few years to get there. With these indicators in mind, we are working closely with our manufacturing customers to plan production accordingly, and are moving forward with several new engine model releases and an expanded repower program for 2014.

2. What were the OPE industry’s biggest stories of 2013, and what will make headlines in 2014?

Tom Cromwell: Overall, 2013 was good for the industry and for Kohler. Regarding the industry, there were a few items in 2013 that stand out. I was extremely impressed by the OPEI campaign “Look Before You Pump.” The campaign was developed through collaboration with companies throughout the industry to increase awareness of the impact of E15 gasoline on outdoor power equipment. The other items are the continued growth of electronic fuel injection-based mowers and gaseous fuel-based products in the industry. As Bob Walker, president of Walker Mfg., said in last year’s prediction, “Costs for fuel injection are going down, and the benefits are going up.” Lastly, the U.S. government’s reconsideration of renewable fuel standards and ethanol blend requirements was big news in 2013, and the final decision early this year will be monitored closely by the industry.

3. What will be the OPE industry’s top trends in 2014?

Tom Cromwell: For industry professionals like commercial landscapers, their focus will continue to be on efficiency and reducing overall operating costs. We expect continued investment in electronic fuel injection (EFI) solutions throughout the industry. Since the introduction of our EFI solution into the marketplace, our commercial turf customers have experienced significant fuel savings (typically in the 25-percent range). Additionally, EFI engines eliminate many of the service issues related to fuel and carburetors, thereby improving uptime on the equipment and profitability for the owners. In my lifetime, EFI-based engines will replace carburetor-based engines in these applications. I also believe that sustainability will be a recurring theme in not only the way the equipment is used, but also in how it is manufactured, procured, and ultimately disposed of. The entire lifecycle costs and impact are continuing to become more important.

4. Aside from the weather, what challenges will OPE dealers face in 2014, and how should they address them?

Tom Cromwell: Driving end-customer loyalty to their dealership will always be a core focus and challenge for dealers. Ultimately, providing end users with the right product that saves them time and money, like an EFI-based commercial mower, will drive loyalty and repeat business. Additionally, succession planning continues to be a big challenge for OPE dealers. For the industry to maintain sustained success, it is critical that we attract business- and service-oriented individuals into the dealer network. Finding and grooming that talent will become an even bigger challenge over the next several years, as the economy continues to improve and unemployment declines.

5. What is your overall outlook for the OPE industry in 2014?

Tom Cromwell: We anticipate modest growth in the 3- to 7-percent range, with upside to that number if we have good weather and strong overall economic tailwinds.

JIM PAUGH
POWER EQUIPMENT
ACCOUNTS MANAGER,
AFTERMARKET DIVISION
NGK SPARK PLUGS (USA), INC.
(WIXOM, MICH.)

1. What does your company or organization have planned for 2014?

Jim Paugh: Although the official rollout of new blister-packaged NGK Spark Plug assortments was last year, our inventory is now ramped up to meet the expected demand for the 2014 year. There are three different assortments: an OPE assortment, a marine assortment (outboards and personal water craft), and a sport line assortment (ATV, UTV and snowmobiles). These are to support those retailers who have a “do-it-yourself” (DIY) showroom.

2. What were the OPE industry’s biggest stories of 2013, and what will make headlines in 2014?

Jim Paugh: I know that weather is always the obvious one that no one wants to talk about, all the while constantly talking about it. Let’s face it: Weather is always a big story, and not to bring it up is silly. After coming off a very difficult year in 2012 with an extended drought throughout the U.S., 2013 started slow with very cool temperatures delaying outdoor maintenance until May, but once it started, there was good precipitation through late fall in most regions of the country. This “good weather” seems to have helped most of the companies I spoke with not only recover from 2012, but also break some all-time sales records. I do think the sunshine on our shoulders makes us all happy, but regular rainfall will make anyone in the OPE industry happy, and help fatten the wallet as well. I suppose if I were in charge of the weather, it would rain every three days, between midnight and 3 a.m. This way, the grass keeps growing, and it won’t spoil the fun of boaters and motorcyclists.

Fuel is the other big story. The EPA continues to cause the OPE industry problems, and the attempts to roll out E15 were no different. The interesting thing is that depending on who you talk to, it may be a bad thing or a good thing. Since NGK sells to both OEMs and to aftermarket distribution, it is clear that both segments have their opinions on this topic. For OEMs, this is clearly a nightmare. It has the potential to cost significant money in terms of warranty expenditures, and even if the company’s policy is that fuel-related failures will not be covered, there is the cost of educating and explaining to the customer why it will not be covered. I think the greater cost is the potential damaged reputations to engine and equipment manufacturers with unjust perceptions by the customer with regard to the quality of the engine and equipment.

Those who are currently quite happy with the fuel problems brought on by high ethanol content are those who sell fuel component parts. Fuel-related problems definitely make up a large portion of the repairs taking place at the servicing dealers. The other group taking advantage of the fuel situation is the fuel-treatment companies. Some of these products I have tried and was very happy with the results! A brief caveat, not all in this group hold this opinion. For the time being, this is a golden opportunity to increase revenue through increased parts sales and billable labor.

3. What will be the OPE industry’s top trends in 2014?

Jim Paugh: I expect that we will continue to see an increase in equipment powered by alternative fuels. As much as I hate to say this, battery-powered products seem to be improving in quality and performance. The place where I see the best growth with these types of products will be with homeowners that dislike dealing with fuel and oil, and in places where noise restrictions are enforced. The internal combustion engine will continue its rule, unless there is a major breakthrough with battery technology. This is where we will continue to see growth with alternative fuels. LPG (liquid propane gas) and CNG (compressed natural gas) are proving to be good alternatives to gasoline and diesel. Since the cost of both of these fuels is considerably lower than gasoline and diesel, anyone that is trying to manage fuel costs will be attracted to the new choices when purchasing new equipment. On a recent project that I am involved with, I have been talking with many in the oil and gas industry, and they all have said the supply of natural gas is so plentiful that this the answer to our energy problems for many years to come.

4. Aside from the weather, what challenges will OPE dealers face in 2014, and how should they address them?

Jim Paugh: Inventory management is going to be the biggest challenge for OPE dealers. As with all companies, managing this is always a balancing act. There will be the temptation to stock more this year since many had such a good year last year. Stocking more may be appropriate if the trend on a part number or equipment model points toward continued growth, but to overstock on certain numbers or models due to a weather-related spike or a warranty-related spike is a problem. It is critical to have inventory on hand when the customer is ready to buy. Since our industry is seasonal, sending a customer away because the part or product is not in stock does result in lost sales. We are an impatient people, and we want it when we want it. The solution to this is making sure the dealer uses the tools he has available with inventory management software. If the software does not include these types of tools, then it is not worth the money. It is important to set minimums and maxes for parts and supplies, but it is also important to be able to see sales trends on inventory, then evaluate what is seen and adjust purchasing accordingly.

5. What is your overall outlook for the OPE industry in 2014?

Jim Paugh: I am expecting a very good year for 2014. I don’t think we’ll see the same growth as last year, but pending weather problems, we should still have above-average growth. Most of the companies I’ve spoken with are having strong booking orders being placed, and this is a sure sign of upbeat, positive attitudes at the dealer level. The dealers in the North should be in a better cash position with the respectable snowfall we’ve had so far, and that always helps. I also think we’ll see some more consolidations in distribution through either mergers or attrition. On one hand, this is troubling, since competition is always good to force improvements in customer service. The upside is that it should help the exiting players become more profitable by not having everything come down to price.

RICK ZECKMEISTER
VP OF ENGINE MARKETING & PLANNING
BRIGGS & STRATTON CORPORATION
(MILWAUKEE, WIS.)

1. What does your company or organization have planned for 2014?

Rick Zeckmeister: At Briggs & Stratton, we are excited to be bringing some of our most innovative new products to market in 2014. While innovation has always been at the heart of what we do, in 2014 our new products are poised to actually change the way people use outdoor power equipment.

Whether it’s a mower engine that reduces sound and vibration by nearly 65 percent; a walk-behind mower that folds to reduce storage footprint and make maintenance easier; or a pressure washer that adds a high-flow setting, making it more useful to more homeowners for more projects; these are meaningful innovations to the end user – not incremental changes to existing products.

Many of these products were developed in concert with our OEM partners, and we are looking forward to more collaboration with them as we head into 2014 and beyond.

But innovation doesn’t stop with product development. In 2014, we will also continue innovating in the ways in which we are engaging with homeowners. From an active and growing social media presence to online panels where we talk with homeowners each month about topics related to OPE use, our goal is to always be present where homeowners are talking about yard and garden maintenance.

We view these channels not only as an opportunity to have a discussion with Briggs owners and prospective owners, but also as an invaluable source of consumer insight and ideas that supplement our traditional market research.

2. What were the OPE industry’s biggest stories of 2013, and what will make headlines in 2014?

Rick Zeckmeister: It seems like we’ve been talking about ethanol for years, but 2013 was certainly the year of the ethanol issue coming to a head. At Briggs & Stratton, we were happy to be a part of the industry’s “Look Before You Pump” campaign.

Educating owners and prospective owners of our products about the damage that ethanol can cause to small engines is a critical role that we, as manufacturers, need to play in concert with OPEI and other industry organizations. Our collective voices will help drive this important message home in 2014 to help ensure that our customers are armed with the knowledge they need.

In 2014, we’ll continue to see Made in America being an important buying factor for shoppers, not just in OPE but across most categories. In fact, U.S. spending on domestically made goods is outpacing U.S. spending on imports for the first time in two decades, other than during recessions. For those OPE companies like Briggs & Stratton who have a strong Made in America story to tell, this presents a big opportunity*.

3. What will be the OPE industry’s top trends in 2014?

Rick Zeckmeister: We’re seeing more and more “prosumers” who are looking for commercial-grade engines and equipment for residential use. We’ve already started responding to this with commercial-style features in our newest line of Snapper residential zero-turn riders.

This goes hand-in-hand with another trend that we are seeing in OPE that has its roots in other categories – limited-volume, handcrafted goods. At our Auburn, Alabama, plant, we made a change on the line in the plant to provide a platform to build low-volume, highly handcrafted engines.*

The engines are being built with direct-current drivers to turn and torque bolts by Master Service Technicians. “Data DNA” is logged and creates a thumb-print for the engine to help with quality control and reverse engineer any problems based on the data. The engines are used in the Commercial Turf space, but 30 percent sold to consumers on zero-turn mowers.

4. Aside from the weather, what challenges will OPE dealers face in 2014, and how should they address them?

Rick Zeckmeister: With so many outlets for consumers to purchase OPE, from dealers, mass retailers, online and more, it is becoming increasingly important for dealers to communicate their value to homeowners and cut through the clutter. Dealers need to be engaging with homeowners in a variety of ways, including social media. Being part of the conversation online can help position dealers as the go-to resource for OPE-related questions.

Furthermore, prospective customers are not only searching for products online, they are reading ratings and reviews on products, as well as dealers and stores. So, encouraging your customers to provide feedback online through review sites, including Briggs & Stratton’s new ratings and review portal, can help drive traffic to dealerships.

5. What is your overall outlook for the OPE industry in 2014?

Rick Zeckmeister: I think the OPE industry will experience an “up” year in 2014 due to many factors. Certainly, the economic landscape is improving and the housing market is positive. And of course, we’re always keeping our eye on weather patterns.

At Briggs & Stratton, we’re extremely excited about 2014. We’re introducing new groundbreaking, innovative products to the market with easier-to-use engines that are lighter and stronger. One of our new engines features noise-reducing technology so consumers can enjoy the same power from a quieter engine. To bring these engines to market, we’ve embraced new technologies to ensure our consumers will have a great ownership experience.

* Briggs & Stratton engines made in the U.S. are built from U.S. and global parts.