Mar. 31, 2008 – Harley’s alphabetical answer for restraining dealer inventory
March 31, 2008
Filed under Columns
To keep up with Harley, you have to be up on its alphabet. It starts with the motorcycles, XL, FX, FL and VRS, with endless variations like FXDWG and the brand new FLSTB. To keep up on its dealers, you have to know what SUA, ARO and SRL stand for. This year the Motor Company has concocted what is perhaps the most important alphabetical label ever, RSO, which stands for retail sales objective.
In the 1980s, Harley-Davidson reinvented itself by recognizing just who it was and what it could offer. For 18 years demand was so strong Big Orange and its dealers could do no wrong. By 2006 it was apparent there was a real need to rethink the inventory allocation and distribution process that had evolved under market conditions that no longer existed. Too much inventory was in the wrong place at the wrong time and Harley-Davidson dealers seemed destined to have the same inventory burden as dealers in the rest of the industry. Senior management made clear they recognized the problem and would have an answer. What they have come up with is absolutely brilliant and courageous.
Dealers are allowed to set their own RSO. The supply of product will match that RSO, if district and regional managers can be convinced it is a real number. The plan will work if the Motor Company sticks by its announced plan to monitor and limit shipments if the dealer’s inventory exceeds established criteria for seasonally adjusted days supply. Increases in shipments will require the dealer’s operation passes through a number of “filters,” and this is where the courage comes in. The dealer has to sell the product appropriately, primarily service his/her local market and demonstrate they are providing an overall quality experience for the customer for the dealer to earn an increase.
Once a motorcycle is in a dealer’s inventory, he/she can do whatever they want. Sell it at any price to anyone anywhere. But, if you want to earn more inventory, you are going to have to play by the rules. By not forcing inventory on dealers or allowing dealers to delude themselves, and by forcing a level of integrity in the market place, the Harley-Davidson Motor Company is protecting the value of the brand and the value of the dealerships.
Dealers of other brands should not be waiting for their OEMs to learn from the Harley approach. The metric OEMs will cite every excuse in the world, but in the end will take a huge slice for brokering the product and placing the burden of inventory on the retail dealer. The net effect is the complete erosion of profitability and a dealer body trying to move what they have, rather than what the customer wants to buy.
As we go into a challenging year, the U.S. metric dealer body finds itself with an absurd 180-plus day supply of product in retail inventory. There is no value in the brands, and I can tell you point blank there is very little, if any, value in a metric dealership.
You can still make money in the metric segment, if you are smart enough and strong enough to control your inventory. Never buy more than what you can sell in the next 90 days. We are in a seasonable, fashion- and impulse-driven business. Retailers have to retail and distributors have to distribute. You cannot wait for your fellow dealers to come to their senses and learn a retailer buys at wholesale what can be profitably sold at retail. A great number of dealers in the U.S. are delusional and importers have learned how to feed their delusion and prey upon their fears. Control the only thing you can control, your dealership. It has never been more essential for a dealer to be lean on inventory.
There are more people than ever using our products, and there are more than ever who want what we offer. The consumer knows what is current and what is hot. Success in the retail business in 2008 will require you to keep yourself in a position to provide what these informed consumers want, not what you need to sell.
Harley dealers should appreciate that, for the most part, the Motor Company has saved them from themselves.
Ed Lemco has been involved with the powersports industry for more than 30 years. Lemco, the former owner of Lemco Management Group, is the founder and executive director of the National Council of Motorcycle Dealer Associations. Lemco currently operates a call center for dealers in St Croix. psb