MILWAUKEE, WI – Harley-Davidson executives acknowledged continued market struggles in the United States during their conference call with financial analysts this week. But they also made some bullish statements on the future, including expansion of new rider training; the promise of an “exciting,” and presumably bigger, lineup for 2018; and the biggest one of all: a commitment to release 50 new motorcycles by 2020.
How many of those 50 models will be for the North American market is unclear, and executives avoided specifics during the question-and-answer portion of the call. However, CEO Matt Levatich said, “I’ve never been more excited about our product pipeline in my 22 years here at Harley-Davidson.”
What is clear is that Harley-Davidson wants dealers to sell through existing inventory to prepare for these future launches. “We’re being very disciplined to make sure that we maintain the right balance of inventory at retail in totality and the right mix, model year to model year…and that’s going to be a very important discipline as we go forward, particularly because of the impact in the products that we’re going to launch,” Levatich said.
Short game: Tighten inventories
Harley is intent on reducing current retail inventories before it releases too many 2017 models, a strategy it began implementing during fourth-quarter.
In Q4 “we shipped fewer motorcycles than we planned, to support our commitment to hold year-end U.S. retail inventory flat to prior year,” said Harley-Davidson Chief Financial Officer John Olin. “Limiting model-year 2017 motorcycle shipments allowed U.S. dealers to focus on selling… 2016 inventory and help reverse the significant increase in year-over-year retail inventory at the end of [Q3 2016].
“However, we believe that limiting the availability of 2017 motorcycles also adversely impacted Q4 retail sales.”
Olin said the company expects U.S. retail inventory by the end of first-quarter 2017 to be “considerably lower than Q1 2016,” and will be more adequately balanced of ’16 and ’17 motorcycles to start the spring selling season. To this end, Harley-Davidson said it will ship up to 20 percent fewer new models to dealers in first quarter than it did last year, and then boost shipments in the final three quarters.
“The reason we’re… taking shipments down in the first quarter is to take overall inventories down,” Olin said. “We want to make sure that our inventory is as tight [as possible] to keep the premium nature of the brand intact, and… to help dealers focus on selling through the model year 2016.”
For 2017 “we expect continuing headwinds on retail sales, including a soft U.S. industry driven by weak oil-dependent regions and soft used-bike prices; intense and potentially increasing competitive discounting in the U.S.; continuing new product competition; and global economic and political uncertainty and volatility,” Olin said.
Long game: New customers
Levatich said the company in 2016 “set out to raise our game” by driving demand from new rider segments, improving production time-to-market, increasing international market presence and enhancing new product development. In the United States, the company said it picked up two market share points in the 601cc-and-over segment during fourth quarter, resulting in a 1 percent pickup for the year, assuming 51.2 percent of that size segment across the industry, executives said.
Levatich and Olin pointed, however, to a “new normal” in the U.S. market, one that’s characterized by lower used vehicle values impacting new unit sales, and which long-term growth depends squarely on courting outreach customers vs. the core enthusiasts that sustained the brand over the last 25 years.
“Our demand-driving efforts only partially offset the impact of the down U.S. market,” Levatich said. “Our long-term plans reflect the challenges in the market, as we must adjust to accommodate what we believe is the new normal for U.S. market performance.”
Executives said sales to outreach customers in the United States grew at a compound annual growth rate of 5 percent and outpaced sales to core customers for the fifth year in a row. It sees new rider training as key to growth in the outreach segment; therefore the company plans to add dealers to its Riding Academy program and then work with them on improving conversion rates.
“Our long-term, 10-year strategy has the headlining goal to build the next generation of Harley-Davidson riders worldwide,” Levatich said. The corporate plan has specific, measurable actions in the short and long term to build rider base, increase access to products, and grow market share, he added.
“We believe there’s untapped potential that exists, and we’re going after it, with greater emphasis on inspiring and training new riders and encouraging one-time riders to return to the sport,” Levatich noted.
Levatich said the company believes new and returning riders buying used Harleys have brand loyalty and high repurchase intent. “Of those who plan to buy another bike, nine out of 10 plan to buy another Harley, and 90 percent of those riders would consider buying new,” he said.
Conversion of used-bike buyers now to new-model buyers later is another segment in Harley’s long-game strategy. In the short term, depressed used vehicle prices “put a headwind on new motorcycle sales, for both Harley and the overall industry,” Levatich said.
“But once we bring a customer into Harley-Davidson, they’re in for the duration,” he added. So the softening of used-bike prices “is good for the industry overall, because it’s bringing in new people” that might not have otherwise started to ride.
“It’s just part of that new normal in the United States that we’re going to have to work through and compete with.”