By John Spader and David Spader
As originally published in RVBusiness, July/August 2021
Consolidation remains a very lively topic at dealer conventions and 20 Group meetings. Everywhere, it seems, dealers are following the trend set by manufacturers by joining ever larger dealer groups – either as sellers or buyers.
With several large national chains as well as many regional players back on the buying spree, it is safe to say that most major markets now include one if not several dealerships that are part of remotely-owned and controlled dealer groups.
Clearly this has changed the landscape of the industry in many ways, and displaced the locally-owned model that dominated the industry for decades. But has it fundamentally changed the metrics of the business, and do larger dealerships provide more value to consumers, less risk for ownership and more opportunity for long term profit? In many cases, the answer is no.
While the surface logic for larger dealer groups makes sense – greater purchasing power from vendors, centralized processes, larger manufacturer territories, better management of inventory – there is probably a deeper question to be asked: beyond a vague economy of scale: is bigger really better?
In the past year we have had a front-row seat to many of these transactions. Certainly, many dealers have great motives for wanting to sell: funding retirement, moving to other business opportunities, or simply maximizing gain in a hot market. The motives to buy, however, are murkier, driven in equal part by a fear of not having the scale needed to compete with larger rivals and the natural entrepreneurial desire for growth. Adding fuel to the fire, the COVID boom and low interest rates have made our industry a focus of M&A activity.
To be sure, there are structural reasons why this all makes sense: consolidation over the past decade has dramatically increased the market power of some manufacturers, and it follows that they in turn would support strategies that led to fewer, larger dealers with better balance sheets and purchasing abilities. And, with the rise of Internet marketing, the RV industry has become increasingly price competitive on a regional or even national scale. Growth through acquisition is a reasonable alternative for those looking to expand.
So, is bigger better? Maybe. While the financial results of the first big publicly traded roll up group were decidedly mixed before COVID, other chains are indeed driving great results. There are lots of reasons for each of these, but the core point is that growth alone is not a strategy … it is simply doing more of what you are already doing (for better or worse). Growth becomes part of a successful strategy when it is backed by multiple business activities that lead to market differentiation, relative price or cost advantages and consistently above average financial returns.
This could take many forms, and is limited only by the imagination of the business managers, but probably includes superior inventory and cash management, advanced people management and pay programs that reward results supporting the financial goals of the company and – importantly – staking out a value proposition to the retail customer that is clear and tangible.
Without internal business activities that support each other and are actually enhanced by being part of a larger dealer group, the business is just that – a large dealer group with lots of inventory, widespread locations and no particular market advantage. Juggling more plates than one is prepared to does not make for a better juggler. It just makes for a more spectacular mess when it all comes crashing down.
So, will there be room for the single-location dealership in this new world of mega-dealers? We think the answer is a qualified YES. The qualification is that smaller dealerships will need to stake out sensible sections of the market, and serve them in a way larger chains cannot. The pathway forward is through narrowed focus, operational excellence, and clear value propositions to the customer.
Business as usual, or simply imitating the models of the big chains, is not likely to be a winning strategy. But the agility and focus of smaller dealerships provides an advantage that, if leveraged properly, will allow for sustained success – even when competing with much larger rivals.