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Sunday, January 30, 2011

36 Harley Davidson Storefronts Closed in 2010 while stock price soars (yes, HOG's can fly...for awhile)

Journal Sentinel
By Rick Barrett

Downshifting with the economy, 64 Harley-Davidson stores have closed in the United States in the last two years as sales fell and the world's largest maker of heavyweight motorcycles throttled back production.

Last week, Harley-Davidson Inc. executives said 36 storefronts closed in 2010, not a reason to panic as the company has more than 650 primary U.S. dealerships and 162 secondary locations - dealers with multiple storefronts. That compares with 644 primary dealerships and 132 secondary storefronts in 2002.

Yet the 36 closings caught some in the motorcycle industry by surprise since, not long ago, it was unusual for a Harley dealership to go out of business.

"To me, it's an incredibly high number," said Chaz Hastings, owner of Milwaukee Harley-Davidson and a former district sales manager for the motorcycle company.

Harley-Davidson would not say how many of the closings were dealership shutdowns or store closings where a dealer had more than one location. The number was in line with expectations, according to the company, and it places the number of U.S. dealerships at about the same level as in 2002.

As recently as 2006, Harley-Davidson Inc. had a profit of $1 billion. It had a $55 million loss in 2009 and a $146.5 million profit in 2010.

Some dealership closings were necessary to protect the overall health of the dealer network, according to Harley.

The closings were a mix of primary dealerships and alternate locations, said company spokesman Bob Klein. No new dealerships were opened in the U.S. in 2010, he said.

Since the dealers are independent businesses, Harley-Davidson would not say where store closings took place in 2009 and 2010. But dealer checks confirmed closings in Wisconsin, Michigan, New Jersey, North Carolina, Florida, Louisiana, California and Washington.

This week, Harley dealers will attend an annual dealership meeting in Orlando, Fla. Some of them may be relieved that stores have been shuttered in markets saturated with motorcycle dealerships.

"I can't call it a good thing because it is somebody's livelihood that has been lost. But the world has changed," Hastings said.

Losing a franchise
In Wisconsin, Harley stores have closed in Green Bay and Hartford. It's upsetting to lose a Harley-Davidson franchise, said Ken McCoy with the former Green Bay dealership.

McCoy still has a motorcycle shop with two locations, although it no longer sells new Harley-Davidsons. He blames the recession for the loss of the franchise that he had operated for more than 40 years. "Lenders weren't helping us much," he said.

West Bend Harley-Davidson closed its Hartford store in the recession, saying it no longer made sense to have two locations less than 20 miles from each other. The Hartford store had operated for about nine years.

"Looking back, it was a real good decision because it would have been pretty tough having all of that overhead," said Louie Lauters, co-owner of the West Bend dealership, which has been in business since 1946.

It's easier not having to stock motorcycles, parts and accessories for two locations, in addition to providing dealer services at two locations. It's also good that Harley-Davidson ratcheted down the number of bikes it shipped to dealerships, Lauters said.

"All of the dealers are not getting as many motorcycles as they were used to getting," he said. "That's created a little sense of urgency for people to buy early this year. It seems as if things are on the upswing."

The costs of becoming a Harley-Davidson dealer depend on the opportunity available, according to the company. Minimum requirements include a net worth of $1 million and $600,000 in unencumbered funds, such as cash, stocks and bonds.

There's no specific distance for how close dealerships can be to each other, although Harley-Davidson has policies to address the issue and does its own marketing study when considering an expansion of the dealer network.

In the 1980s, when the company struggled badly, it may have opened too many dealerships including locations in rural communities.

"I never want to see anybody go under," said Hastings, who in 1996 was Harley-Davidson's district sales manager of the year. "But I know that Harley-Davidson and other dealerships definitely felt there were too many locations."  In some corn belt states, "We had bikes stuck between weed whackers and tractors," Hastings said.

Familiar with hard times, Hastings became an owner at Milwaukee Harley-Davidson in 2005 when the dealership was on the brink of closing. It was encumbered in debt and struggled from some previous decisions.

Hastings, who also owns three taverns and a limousine service, recast Milwaukee Harley-Davidson's image to one of endless parties and special events such as mud wrestling, cage fighting, a soapbox derby and a polar bear plunge.  The dealership, once one of the smallest in the state, is now one of the biggest.

It took renegotiating with lenders, previous partnerships, and Harley-Davidson to keep the business going. "We just had our best year since 2003," Hastings said. "I think that most of us feel that we have weathered the storm."

Impact on H.O.G.
A dealership's closing can be personal for motorcycle enthusiasts since Harley Owners Group chapters are tied to the dealers that sponsor them.

Mary Baker, director of the former H.O.G chapter in Shreveport, La., said she was shocked to learn that the Shreveport dealership was closing last spring to merge with a location in Bossier City, La. "They pretty much blamed it on the economy but also said Harley-Davidson had lowered its production so the shops weren't going to get as many motorcycles as in the past," Baker said.

The Shreveport H.O.G chapter has since merged with the Bossier City chapter. Many members dropped out because the new chapter had a different feel to it, Baker said.

"But like anything in life, you adapt to change," said chapter member Ron Delaney. "You hate to lose a dealership that's been in business a long time. But, in essence, we didn't lose anything. We just consolidated and made things better," he said.

Some areas are saturated with dealerships, said Laurence Richardson, editor of Clutch & Chrome, an online motorcycle magazine based in South Florida. "I have seen where one guy had three locations within 20 miles of each other. And you had to wonder what some people were thinking when they built these huge dealerships," Richardson said. Motorcycle shops that did not expand much probably had an easier time weathering the recession.

"Some of these mega-mall stores have a lot of space to fill," Richardson said. "If you are limiting the number of new motorcycles they can have, then that's going to hurt them when they are trying to put product on the showroom floor."

Harley plans to ship 5% to 8% more motorcycles to dealers this year to bolster inventories drawn down in 2010. Harley is shedding millions of dollars in costs while, at the same time, planning for the future and the health of its dealership network.

"I think Harley-Davidson has knuckled down with a long-term plan and is starting to reap the benefits," Richardson said.

The Journal Sentinel's Rick Barrett is the proprietor of this blog for Harley enthusiasts and anyone else interested in the motorcycle industry and culture

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