By John Spader and David Spader
As originally published in RVBusiness, May/June 2021
By now, the “COVID boom” in our industry is old news. Dealers are still scrambling to find inventory, facing significant service and sales delivery backlogs, and earning tremendous net profits by historical standards. While it indeed is a great time to be in the RV business, it is not the time to ease off the accelerator or diminish your pressure to perform across all departments. In fact, we believe that several trends within the industry will result in increasing pressure on dealers to maintain and grow even from today’s standards.
First, there is the constant drive of the top performers. As in all markets – up or down – our highest-performing clients are never satisfied with the status quo and continually look for ways to thrive above and beyond the general market. We saw it quite clearly in the 2021 budgeting cycle – even though 2020 was a gift for many in terms of profitability, the best dealers are pushing and planning for more in 2021 in terms of expanding sales and more profits.
For years, many of our dealers have budgeted for survival net of 3-4% with the top performers planning on 5-6%. Now, many of our clients view a 5% net as merely average – and strive for 8% or even more. This means they are staffing, training, marketing and pushing aggressively to increase market share, revenues and profits in 2021. They are anything but complacent and are planning on leveraging their market strength this year.
Dealers who aren’t paying attention – attention to inventory, to customer service, to lead management and closing ratios – will find this current boom short lived as the top echelon of dealers are as aggressive as ever in pursuit of their goals. The dramatic market growth in 2020 can’t be sustained forever – even the slightest flattening will mean that some dealers will see a volume drop.
Second, consolidation among dealers and manufacturers is changing the competitive landscape. Larger dealers and chains have the ability to purchase and manage inventory in ways that smaller dealers cannot. While size alone isn’t everything, and multilocation dealerships have their own challenges, larger dealers have leverage in the marketplace that puts pressure on the rest of the players – pressure for the best employees, the best products and the for the consumer’s attention. Additionally, many larger or consolidated dealerships have equally outsized fixed overheads and acquisition costs … they simply need constant volume increases to maintain those big machines.
Manufacturer consolidation is another complicating factor in this changing market. Like larger dealers, consolidation by manufacturers has decreased their flexibility to manage industry volume changes. Publicly traded manufacturers are under additional pressure; nothing but continual growth will satisfy shareholders. Manufacturers need a constant outlet for their growing capacity – the larger dealers and chains become natural partners. None of this is to say that smaller dealers can’t thrive, simply that they must constantly evolve their value proposition to consumers to maintain pace in a marketplace where purchasing power is unequal.
The final factor forcing change in our industry is the introduction of equity capital at a rate we haven’t seen previously. It used to be rare to see investors without industry experience entering the fray; now, it is relatively common. These investors aren’t interested in historical norms of profitability and growth – they are interested in internal rate of return. Nothing less than consistent and profitable growth will suffice to justify their investments, and it should be expected that these dealers will aggressively pursue volume as they consider today’s volume level as just the entering point, not a high-water mark.
To be sure, volume isn’t everything. The consistent high net dealers are able to adjust their sails and profitably adapt to varying markets. Still, it is Pollyanna-ish to assume that the marketplace will continue to be as friendly to dealers as it has been this past year; there will ultimately be a return to the zero-sum game. Even in a great market competition will be fierce; should the market soften it will be cutthroat. Now, as ever, dealers should budget carefully, manage people thoughtfully, pay close attention to market signals and execute their strategies with urgency.