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Peek at Polaris’ grand vision for Victory – February 21, 2007

February 21, 2007
Filed under Features

By Steve Bauer
Managing Editor
After posting its first profitable year since its inception in 1998, all indications point to even bigger things from Polaris’ Victory motorcycles for 2007 and beyond.
“2006 was a great year for Victory, with our retail sales up about 10 times the rate of the industry,” said Mark Blackwell, vice president of Victory and international operations. “The industry is very healthy, in particular the touring and cruiser segments, and that’s of course the areas we’re competing in.”
The company’s introduction of its Vision luxury touring model, an increased presence in the international market and creating a more refined dealer network are three areas the company will be focusing on in the coming year.

Lofty sales goals
Although Victory’s full year motorcycle sales increased 13 percent over 2005, to a total of $112.8 million, fourth-quarter sales decreased 10 percent, something Blackwell says was more about consumer’s feeling the pinch at the pump and variable rate mortgages, not a lack of interest in the motorcycle industry.
“We did see the market slow quite a bit in the third quarter, which I believe was a combination high gas prices and people with variable rate mortgages kind of starting to feel the crunch,” he commented.
“We noticed that at Sturgis attendance was way down, probably by about one-third. To me that’s not people losing interest in motorcycles or not buying motorcycles, it’s them trying to save their money and decide to skip the trip this year. The way I look at things, I always look at the level of interest. If we ever see that falling, then we probably need to start worrying, but right now it’s at record high levels. The attendance at the IMS shows so far this year has been running 6-7 percent higher than in the past, so we still feel the market outlook is very good, but it will probably grow at a slower rate.”
Although he expects a slower pace in 2007 and beyond, Blackwell believes Polaris’ expectations of $100-$150 million in additional revenue growth by Victory in the next three years are achievable.
“I’m quite comfortable with our growth forecasts. They’re ambitious but again we’ve been growing the past three years at about 10 times the rate of the industry,” Blackwell said. “They’re still small numbers, but as the numbers get bigger obviously that gets harder but also as the numbers get bigger we’re gaining more momentum, too. We hope to do the same thing in touring that we’ve done in cruisers, which is pretty modest, as we have approximately a 3 percent share of the premium cruiser market. We expect to be about 5-6 percent in the next few years.
With touring we’re starting from almost zero because we’ve been phasing out our Touring Cruiser, trying to get the inventory down for when the new models come out, so our share was at 1-2 percent and that’s gone down, so we’re going to start to reverse that with the Kingpin Tour and the Vision.”

Refining Its Dealer Network
One of the biggest issues Victory has been struggling with during the past few years is the quality of its dealer network, particularly finding the right dealers who will dedicate themselves to promoting the company’s line of products. Blackwell says the company is working hard to ensure it places its products where sales potential is high.
“Frankly speaking, upgrading the quality of our dealer network has been really hard,” Blackwell confessed. “We can make a product plan and design a bike that’s high quality and advertise and promote it. But the last 10 feet of that assembly line is the dealer, and we have really struggled to get our dealer network to the level we want. One important aspect is that our dealer network continues to expand. We’re at about 360 dealers right now, and we expect to bring on between 60-80 new dealers this year, so the strength of the dealer network is considerably better, and some of the dealers that weren’t totally engaged with our product before, after seeing the Vision in person, it’s gotten a lot of people excited.”
While continuing to add dealers, Blackwell notes the company has learned through trial and error which dealerships its product will thrive in. He says the company has found its best success in two main areas.
“When you look at the dealerships we’re successful in, about two-thirds of them are Polaris dealers, meaning they carry at least one of the other Polaris products,” Blackwell said. “The other one-third are specialty powersports dealers that don’t carry Polaris products. We don’t do very well in stores that have all the brands, for example Honda, Yamaha, Kawasaki. Generally those dealers sell on price, and the people who work there have a routine where the customer comes in and they show them a sea of bikes and price tags, you make your best deal, and it’s all about price.
“But when you’re buying a $16,000-$20,000 bike that you’ve dreamed about for 10 years it’s not about the money, whether you can save $100 or get some sort of discount. The consumer wants to make sure they get the bike they’ve always wanted, to deal with someone who’s really knowledgeable about it and can answer questions and who will make them feel comfortable about it. Most of our dealers who are most successful are very involved in the sport, they ride the bikes themselves, they wear the clothing, they live the lifestyle, they’re really into it. The only way we’ll go into a multi-line Japanese store is if the dealer really understands the Victory principle and is willing to create a special area for Victory and have at least one dedicated person who would be an ‘ambassador’ for our line.”
Not only is finding the right dealership important, but also the right market.
“We don’t target areas regionally, like the Southeast or Midwest, it’s more market by market. We absolutely have open areas that we’re targeting, but one of the mistakes we made in the beginning was that we set up a lot of dealers, but we didn’t set them up in the right places. A lot of our dealers were Polaris dealers in rural areas where maybe snowmobiles or ATVs sell well, but heavy cruisers or touring bikes are typically a more metro or suburban location. During the past five years we’ve been much more careful in studying the market and making sure we know how much volume there is in heavy cruisers and touring bikes, and even if the dealer gets a small market share, say 2-3 percent of these bikes, that he can sell enough bikes to be financially attractive.”

International Growth
One area Victory has been careful about venturing into is the international market. Besides introducing its product line in the United Kingdom, the company hasn’t expanded to other international markets, a conservative strategy Blackwell says he insisted upon when joining the company in 2000.
“When I joined Victory we were at the end of our second model year, and we were struggling,” he said. “We had some problems with the bikes, the dealers and some confusion among consumers regarding other American brands like Indian and Excelsior Henderson. At that time there were plans to be more aggressive in the international market, but shortly after entering the United Kingdom I told (Polaris CEO) Tom Tiller that we needed to put the brakes on, so to speak and get our house in order here at home first. It took a few years to get people comfortable with the products and really offer a superior bike. In the past five years we’ve finally built that base with our customer awareness, dealer network and product quality.”
With a more complete lineup of motorcycles and stronger consumer base and brand name, the company has outlined some more ambitious international growth initiatives Blackwell says are already under way.
“We’re currently in the process of entering into what I’d call some of the smaller markets that we feel have a lot of potential,” he said. “We’ve started to introduce Victory in Iceland, Mexico and Russia, and there are some Asian markets we’re looking at. The big markets like Germany, France and Italy we’re still studying right now and we’ll probably launch there in two or three years.”
When asked how much of a setback the failed partnership with KTM had on Victory’s plans to launch in the bigger European markets, Blackwell says it was significant in the fact that the company now has to research those markets on its own.
“Yeah, we didn’t get plans finished (with KTM), and certainly part of the KTM relationship was the opportunity to research those larger markets together, so since we didn’t go forward with them it caused us to regroup,” he noted. “Those huge markets in Europe, especially in places like Germany, you have to get it right the first time. You don’t get two chances, you have to do it right the first time, so we’re really doing a lot of research to make sure we understand what the customer requirements are, and trying to find the right dealer partners. Certainly with KTM it would have been a little easier, and there’s no doubt it’s going to be a little tougher without them, but we’re working on a plan as we speak.”

High Hopes For Vision
The key to Victory’s expansion into the luxury touring segment is the recent introduction of the company’s Vision line. Blackwell says the bikes, which will be available to dealers in the fall, have been on display at IMS shows in several cities, and have created a buzz among both dealers and those in the industry. He adds that the Vision line represents some of the company’s latest innovations in research and development, and the company’s hopes are that it will be a home run financially for 2008-09.
“We did more research on the Vision than we did on any other product in the company’s history, as far as I know,” Blackwell commented. “We dedicated nearly six years worth of research into this bike, and it wasn’t until about three years into it that we made the decision to go forward with the project. If you go out on the Internet and see the type of buzz it’s creating and keep in mind we’re not going to be delivering those until later this year, it’s really exciting. There are also indications that this line is going to help us over the hump in solidifying our dealer network, as well, because about one-third of our dealers have kind of wavered over whether they’re in the Victory business or not and you can’t have that.
“We’re not going to get a lot of financial lift from those models right away, but I feel in my heart that this bike will help solidify our brand position as the new American motorcycle.”

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