The Brawler thought Harley-Davidson's "Screw it, let's ride" marketing campaign from last year was a bizarre bit of false bravado as the country pitched into recession.
Now it seems Harley is truly screwed as sales and earnings have fallen through the floor, massive layoffs are on tap and production is being scaled back.
Dimwits like Charlie Sykes and Scott Walker say the answer to Harley's trouble is ... tax cuts! (Odd that such avid free marketeers argue that government action, rather than company innovation, is needed to get Harley humming again. But there you go.)
Harley's woes really aren't that surprising. Its sales rose and rose during the Internet and real estate bubbles as thousands of dentists, systems managers and radiologists decided they wanted to play Peter Fonda. With those bubbles popped (and its finance arm getting whacked by higher projected credit losses), Harley needs to figure out what's next.
And it won't be easy. Harley's business model has been to pitch pricey bikes to middle aged men who are highly brand loyal and can be counted on to replace their current Harleys with new ones.
In this economy a $28,000 bike is a luxury few can afford. And meanwhile, Harley's core customer is getting older (and may be thinking more about saving for retirement than the open road).
It's not just the Brawler that thinks it's a problem. HD does as well.
From the risk factors section of its 2007 10-K:
The Company’s marketing strategy of associating its motorcycle products with a motorcycling lifestyle may not be successful with future customers. The Company has been successful in marketing its products in large part by promoting the experience of motorcycling. This lifestyle is now more typically associated with a retail customer base comprised of individuals who are, on average, in their mid-forties. To sustain long-term growth, the Company must continue to be successful in promoting motorcycling to customers new to the sport of motorcycling including women, younger riders and more ethnically diverse riders.
How well has Harley done expanding its customer base to sustain long-term growth?
Here's a customer profile from the 2002 10K:
Studies by the Company indicate that the average U.S. Harley-Davidson motorcycle purchaser is a married male in his mid-forties (approximately two-thirds of purchasers are between the ages of 35 and 54), with a household income of approximately $78,600. These customers generally purchase a motorcycle for recreational purposes rather than to provide transportation. Over two-thirds of the Company’s U.S. sales of Harley-Davidson motorcycles are to buyers with at least one year of education beyond high school, and 31% of the buyers have college degrees. Approximately 9% of the Company’s Harley-Davidson U.S. retail motorcycle sales are to female buyers.
Here's the profile from its 2007 10K:
The average U.S. retail purchaser of a new Harley-Davidson motorcycle is a married male in his mid to late forties (nearly two-thirds of U.S. retail purchasers of new Harley-Davidson motorcycles are between the ages of 35 and 54) with a median household income of approximately $84,300. Nearly three-quarters of the U.S. retail sales of new Harley-Davidson motorcycles are to buyers with at least one year of education beyond high school and 30% of the buyers have college degrees. Approximately 12% of U.S. retail motorcycle sales of new Harley-Davidson motorcycles are to female buyers. (Source: 2007 Company studies)
So in five years its average buyer has gotten older although marginally more female.
It doesn't seem that's going to cut it.
So what does Harley do?
One tack would be to stay focused on what it does best: big bikes. While that strategy may make sense on some fronts (focus on what you know, stay loyal to the brand identity, etc.), that approach will mean greatly reduced growth prospects and could doom it if the current consumer spending environment holds out long term. And meanwhile its core audience just gets older. (Heinemann's-Davidson.)
Or it could do what people have been saying what it should do for years (and what Harley itself has suggested, intermittently, it may do): Make smaller, more affordable bikes. That's easier than it sounds, as it would force Harley to compete against the Japanese manufacturers on their own turf. But if the market is moving away from Harley, does it have a choice? As this Los Angeles Times story from last September pointed out, Harley dealers were already taking floorspace from hogs and giving it to more affordable bikes ... and scooters:
Soon-to-be-former CEO James Ziemer sniffed at the practice:
Many dealers are also feeling the pain, as the economy weakens, credit tightens and the motorcycle market becomes increasingly transportation-oriented. Some are even starting to offer products that would have been sacrilege in better economic times: They’re selling fuel-efficient, foreign-made – even electric – scooters on the same floor as Harley’s flag-waving, thunderous internal-combustion cruisers, also known as Hogs.
It is, to be sure, a culture clash, but desperate times are calling for desperate measures at some dealerships, especially in California and Florida, the top two motorcycle markets, and other areas that have been more severely affected by the down economy.
Even so, Chief Executive Ziemer frowns on the practice of selling inexpensive scooters. It’s not only because the profit margin on a $28,000 motorcycle is much higher than it is for a $4,000 scooter, but also because it dilutes the character of the brand.
“I don’t think that it serves them well,” he said. “They’re selling to a different customer base. If someone’s looking for a very inexpensive product for transportation, that person was not going to buy a Harley-Davidson anyway.”
Well, it goes without saying there are a lot of persons who are not buying a Harley right now. Elsewhere in the story, Ziemer says owning a Harley is "not about transportation, it's about an experience."
If Harley is going to survive as an independent company, it's going to need to think hard on what that "experience" is going to be. The Brawler suspects it will need to figure out how to make that "experience" relevant to a wider range of distributors.