Recreational Boating: Staying Afloat
By: AccuVal Associates, Inc.
Over the previous five years, recreational boating industry revenue declined by an average of 14.5 percent each year. This consistent decline highlighted the sensitivity of the industry to changes in general economic factors such as interest rates, household disposable income and real GDP growth. As a relatively expensive and discretionary purchase, boat sales are more sensitive to broader economic conditions than most industries. However, 2011 is expected to be a turning point for the industry as the economic recovery takes hold and per capita disposable income rises, driving the demand for boats.
According to the National Marine Manufacturers Association (NMMA), 32.4 percent of the adult population, or 75 million people participated in boating in 2010. This is the highest proportion of participation in recreational boating since 1999 when 33.4 percent of adults were boating participants. Increases in boat show attendance and a renewed focus on national marketing campaigns also point to signs of recovery. Industry surveys have indicated that 2011 new boat sales are expected to rise 10 to 15 percent over 2010 levels.
SUPPLY
Industry capacity for new boats remains low
The economic downturn prompted a significant amount of industry consolidation, plant closings and adjustments in manufacturing capacity as demand dropped off. Boat builders were forced to reduce operating costs, postpone capital expenditures and adjust staffing levels. This reduction in capacity has affected the number of units that can be produced, as well as limited the development of new products. The number of boat dealers has also shrunk, reducing the amount of inventory and showroom space available. Industry experts estimate that as many as 1,500 dealers have failed since 2008, representing a 20 percent reduction. Manufacturers have also moved away from building boats on speculation to building boats only when customer orders have been received.
Used boats inventories reduced
The recession in the U.S. encouraged more consumers to look for affordable ways to engage in their boating activities. For many, acquiring a used boat became a more compelling option. Thus, much of the distressed product was cleaned out of the marketplace. Also, many used boat owners can't afford to sell or trade in their boats at a loss, as the market for used boats continues to yield good deals. Further, credit has tightened on new boats, and people are holding onto their used boats for longer periods of time.
U.S. imports of foreign manufactured boats expected to decline
The number of foreign imports by U.S. consumers is directly impacted by the buying power of the U.S. dollar. For the past decade, the U.S.'s largest trading partner for boat imports was Canada. As the strength of the U.S. dollar weakens against foreign currencies, imports become more expensive. High taxation imposed on the importation of boats into the U.S. also impacts the number of units that are purchased abroad.
DEMAND
Per capita disposable personal income (DPI) expected to rise
The recreational boating industry's key external demand driver is household disposable income. Since boating is considered a luxury activity, the amount of money consumers spend on these activities is directly impacted by the level of available discretionary income. According to the U.S. Department of Commerce, Bureau of Economic Analysis, DPI rose 0.2 percent in May 2011; some economists have forecast that DPI will increase at an average annual rate of 2 percent from 2011 to 2014. A steady rise in disposable income and employment and returning consumer confidence will support revenue growth in the recreational boating industry during the next five years.
Leisure time availability correlates with demand
The more leisure time people have available, the more likely they will be able to undertake activities such as boating. Baby boomers reaching retirement age have greater amounts of time available for leisure activities. According to IBISWorld, the average boat buyer is 49 years old, and many buyers in this age group are looking to trade in for a larger, more sophisticated boat. Additionally, baby boomers are increasingly living abroad, especially in warmer climates. This segment of the market is also likely to grow considerably in the next five years as this demographic cohort, the younger edge of the baby boom, continues the transition into retirement.
High fuel costs continue to impact industry
The recreational boat industry's performance is inextricably linked to the price of gas. This factor, combined with recent economic conditions rendering many consumers unable to afford large boats, is anticipated to cause the industry to move away from large, twin-engine leisure boats, and toward fuel-efficient and smaller size boats. Sailboats are also expected to benefit from fuel price volatility, as consumers become more eager to reduce their carbon footprint.
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