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Outlook: Choppy Seas Ahead for Sales of Entry-Level Power Boats

Posted on: Friday, 30 September 2005, 00:00 CDT

By Louis Hau, St. Petersburg Times, Fla.

Sep. 30--TAMPA -- The times are good for SportsUSA Marine Group, a Tierra Verde power-boat retailer.

SportsUSA expects unit sales to double this year, mostly from premium vessels that sell for about $100,000 to $333,000. President and chief executive James Simons observed with pride that "the high end does well."

Meanwhile, Outcast Watersports of Tampa expects sales to remain roughly flat this year. The Tampa retailer sells mostly entry-level power boats for about $11,000 to $55,000 to "generally middle-income, working-class" customers who are sensitive to rising boat prices, said owner Jon Reinke. Higher fuel prices are also hurting industry sales.

"I don't know where the line is, but for people who are making $100,000, there's no effect," Reinke said. "It's Joe Lunchbox who's feeling it."

SportsUSA and Outcast are among the 200-plus dealers, manufacturers and other exhibitors showing off their wares this week at the annual Tampa Boat Show, which runs through Sunday at the Tampa Convention Center.

Boasting a veritable armada of about 700 gleaming vessels on display, the boat show is celebrating its 40th anniversary with fishing seminars, a boating workshop for would-be female mariners and special activities for kids.

But beneath this show's shiny veneer, some dealers are uneasy about the state of the U.S. recreational boating industry, which has struggled in recent years to snap a prolonged sales slump.

According to the National Marine Manufacturers Association, 501,200 recreational boats were sold in the United States last year. That's up 4 percent from 2003, but down 15 percent since 1997. (The figures include personal watercraft and canoes, but exclude kayaks and inflatable vessels.)

Despite the recent concerns over Hurricanes Katrina and Rita, boat dealers say last year's hurricanes have not had a significant lasting effect on Florida boat sales. Still, Katrina prompted yacht manufacturer Brunswick Corp. of Lake Forest, Ill., to warn this month that it plans to curtail production in anticipation of lower wholesale demand during the off season.

On a broader level, dealers add that sluggish sales are a result of the increasing competition from an ever-expanding range of leisure activities that vie for a consumer's time and attention.

Fears that boating is losing its allure among American consumers has prompted the industry to organize a "Grow Boating" initiative. It's aimed at raising public awareness of boating, improving service-quality standards and working to ensure boaters' easy access to local waterways. Backed by money contributed by boat manufacturers, dealers and other trade groups, the marine manufacturers association plans to launch an advertising campaign next year.

A more fundamental challenge facing the industry is the continued rise in oil and gas prices. While that inevitably raises concerns among some would-be boat owners about fuel costs, a bigger industry concern is that much of a power boat is made of petroleum-derived materials, which has pushed prices even higher.

Such components include the resin that coats the fiberglass base of a boat's hull, the vinyl used to upholster seating, the plastic used in beverage coolers and some fuel tanks, and even the acrylic canopies that provide shade from the sun.

Higher petroleum prices have contributed to higher delivery charges and fuel surcharges that dealers have to pay to manufacturers. Those, too, are reflected in the sale price of a boat.

The result for many boat dealers has been smaller profits on each sale. Bay Area Watersports of Land O'Lakes sells power boats for $50,000 to $75,000 and has been enjoying annual sales growth of more than 20 percent, co-owner James Kranendonk said.

But to keep inventory moving, the business is accepting a thinner profit margin.

"I'd rather accept a slightly smaller margin than hold, hold, hold," Kranendonk said.

Even high-end dealers such as SportsUSA have begun providing factory incentives to customers. The company is offering to pay up to $2,000 of new customers' fuel costs during the first year of ownership if they buy select models. It's the first time the company has offered such an incentive, president and CEO Simons said. "The boat industry has to do this now," he said.

Simons added that dealers have be careful about raising prices, noting that many customers take three months to a year to finalize a purchase.

"They remember what the old price was, so we can't simply pass them (added costs) on," he said.

Amid such uncertainty, one bright spot is the increasing interest of baby boomers who are at the peak earning years or nearing retirement, said Michael McLamb, chief financial officer of MarineMax Inc. of Clearwater, the nation's largest recreational-boat dealer.

"Now that they're getting that wealth in the bank, they want to enjoy life, they want a nicer bottom line, they want a better car, all of that," McLamb said. "The luxury lifestyle is going to continue to fuel growth for our industry and, specifically, I think that the boomers are going to be playing a bigger role."

Meanwhile, Reinke of Outcast Watersports is hoping that the industry's plans to step up its marketing efforts pays dividends.

"There's a need for it," Reinke said. "I hope it starts working soon."

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Source: St. Petersburg Times

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