In the white hot RV market of the past few months, nearly all dealers have benefited from the incredible surge of interest in our products and services from consumers looking for safe family vacation options. While we should all rejoice in this silver lining of the otherwise dark cloud of Coronavirus, it is also notable how good fortune is just as unfairly distributed as bad. Great operators distinguish themselves and even thrive in tough markets. In this incredible surge almost every dealer is doing well regardless of their internal processes and disciplines. In other words, the line is blurred between the lucky and the good. The question we should be asking ourselves is: which are we?
For years, our data has been tracking the gradual slowing of inventory turns among our clients. Generally strong sales trends and favorable interest rates have masked an unmistakable trend; many dealers have developed poor inventory management habits in recent years. Large and small, motorized and non-motorized, the trend was the same: average and lower performing dealers – many of whom barely survived 2008/09 – have allowed inventory turns to slow, in many cases dramatically. The favorable external climate has created unmistakable lax internal processes when it came to inventory management.
In normal markets, this is a self correcting problem. That is, business people who poorly manage their main assets generally find themselves former business people in short order. But in the RV business of the past decade or so there has been just enough growth, with interest rates just low enough, to keep just about everyone comfortably afloat. And comfortable it has been; even with slowing turns, our average reporting RV dealer was still reporting net profit above 4% for the past couple of years … who could blame them for complacency? Even in these good markets, though, the top net profit dealers always distinguished themselves by excellent inventory management and followed through on the commitment made by many but kept by few during the Great Recession: to never let inventory get out of control again.
From an observer’s perspective it seemed like a recipe for disaster: growing dealer inventory matched with manufacturer overcapacity and, as we entered 2020, flattening growth in almost all segments. Top and bottom line growth was stagnant for many dealers yet many were experiencing wage and pricing pressure from all directions.
Indeed, in early 2020 the question for many of us was not IF there were going to be a correction of some sort, but WHEN it was going to happen and how painful it was going to be. In a macabre sort of way some very sharp dealers almost relish these sorts of market corrections, as they know their strong balance sheets and astute management will separate them from their weaker competitors and allow for even better future growth. Many of our top-performing clients felt the time was drawing near for market share advances at the expense of crumbling competitors and even timely acquisitions as the market softened and rates rose.
Yet here we are.
In our discussions with dealers in early March, we discussed one thing: survival. Today,of course, that fear has been replaced by aggressive buying and an unparalleled appetite for inventory as consumers flock to the lots and manufacturers scramble to ramp up production in this new world. While the numbers are still coming in we have enough data to know that May, June, and July will bring almost all dealers historically high net profits. And – importantly – that inventory problem is literally gone. Wrong engine/chassis, wrong paint, wrong interior, wrong floorplan … none of it matters now as it’s all sold. In a odd way, this market is actually rewarding those who had let their inventory get out of control – they had too much and were saved by the once in a lifetime business opportunity visited upon our industry.
Right now, dealers all across North America are breathing a sigh of business relief. Many, maybe even most, never knew how perilous a position they were in. What they know now is that they need inventory, and fast. From annual turns in the 1.5 range, with tons of old age inventory, to a clean, nearly empty sheet in less than ninety days. An incredible change in fortune.
Lucky?
Good?
You be the judge.
We all know the old saw, “Never waste a good recession.” This is not to compare a frightening pandemic to a normal business cycle, or make light in any way of the very real suffering so many afflicted with COVID are experiencing, but we need to follow this sage advice nonetheless. No matter the root cause, the industry as a whole has been given an unprecedented inventory cleanse.
Don’t waste it by reverting to poor inventory management habits. Commit today to the disciplines that will create the turns and returns that will safeguard your business for the future.