Leading indicator may suggest turnaround

Leading indicator may suggest turnaround
By monitoring the disconnect between the unit sales decline and the age of the units being sold, you may be able to identify when the market begins to turn around.

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By Peter Houseworth, www.Info-Link.com

The recreational marine industry has been under unprecedented pressure, the majority of which actually began in late in 2005. Initially, new boat sales declines were most pronounced in Florida and California, which are obviously two of the key boating states, but over time, weakness spread to other markets across the country as the national economic situation deteriorated.
While the current cycle has not been uniform — enthusiast segments and certain geographies have performed better than others — all boat sales have been hampered by consumers cutting back on discretionary spending.
At Info-Link, we are frequently asked when the current situation will return to “normal.” To be certain, marine retailing is undergoing the most dramatic changes we have seen since we started following and reporting on the boat market some 13 years ago.
Predicting future boat sales is a daunting task, due in large part to the discretionary nature of boating. In terms of prediction, the fact of the matter is that no one knows for sure when or if retail boating markets will function as they used to.
Obviously, a sustained return to higher new boat sales levels would require improved consumer confidence as well as improved access to both wholesale and retail credit. While in our view it is highly unlikely that this will be a “dog leg” turnaround, we did want to share with the industry one of the factors that we are following as a leading indicator of improving conditions.
The chart that accompanies this article provides a more in-depth look at the current dislocation in the new boat market, and more importantly, will ultimately provide an advance measure of when our current inventory situation begins to improve.
In terms of new boat sales, the left-hand axis plots the percentage change in unit sales (based on a three-month moving average) for all Info-Link reporting states. The right-hand axis plots the average days in inventory for vessels that were retailed during that period. The average days in inventory is calculated based on when the boat was built and when it was retailed to the end consumer.
Despite the fact that many manufacturers have curtailed production for some time now, this information indicates that the curtailments have not been sufficient. The average “days in inventory” has increased from a “normal” state somewhere between 200 and 250 days and continues to deteriorate, rising to more than 360 days through March 2009.
When the average age of vessels retailed reverses direction and begins to decline, we believe that it will be an early indicator that conditions are beginning to improve and that supply and demand are, in fact, coming back into balance.
The information in this chart contains data for all 15-foot-plus aluminum and fiberglass power vessels. Market dynamics can vary substantially for individual boat brands, boat types and market segments, and this information can be broken down by performance for specific categories and brands.

Peter Houseworth is Director of Client Services at Info-Link Technologies, a marine market research firm. He can be reached at peterh@info-link.com or 786/888-8238.