Can Smaller Dealers Thrive Amid New Era of Consolidation?

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.