Marine Aftermarket Outlook with Ken Seipel, CEO of West Marine
- What are some of the broader trends you are seeing in the marine market?
Within the marine aftermarket space, we are seeing three key trends playing out:
- New boater registrations have been steadily increasing in the low single digit range for the last 12 months, which has been great for our business. As the economy has improved, we are seeing a growing appeal for boating within the “average income consumer” demographic, while demand within the “high income consumer” demographic has remained consistent.
- “Smart Boat” technologies are creating wide spread demand for aftermarket retrofitting, similar to the evolution of smart-homes a few years ago.
- Industry consolidation of smaller regional retailers and boat yards continues to evolve, which is creating an opportunity for larger players like West Marine.
- What are some of the tailwinds you see coming in the industry?
A tailwind that we have been benefiting from is retail prices for new boats dramatically rising over the last few years, which, in turn, has developed a strong resale market for pre-owned boats. More pre-owned boats in use are positive for the repair and maintenance business.
- What are some of the headwinds you see coming in the industry?
Some of the headwinds that we’ve been facing have been around the uncertainty of trade relationships with China and the effects it has on our global supply chain. We are also experiencing wage pressure in our distribution centers and entry level store positions as minimum wage increases continue to rise coupled with unemployment levels remaining low.
- How do you see Amazon/Walmart impacting the business going forward?
It’s been interesting to see how both companies have penetrated the marine aftermarket space. First Amazon, and now Walmart, have put pressure on prices and speed of availability of product for commodity items. Where we’ve been able to succeed and somewhat insulate ourselves is our ability to compete on speed and win on overall convenience of our store locations, breadth of assortment and our technical advice on complex products and projects. This in turn allows us a little upward room on price while still delivering a compelling experience and overall value proposition.
- What do you consider to be the most challenging element of being in retail today?
Consumer’s product knowledge, expectation of speed, shopping convenience and reliability have accelerated tremendously as digital shopping channels and smart phones have come of age. The challenge for traditional retailers is flawless, repetitive execution of the business model, while evolving to meet higher customer service, speed and product expectations both in store and on line.
- What are your goals for the company this year?
Our goal for 2019 is to improve company value by generating double digit EBITDA growth on single digit sales growth while achieving double digit growth in cash flow. In addition, we will develop a long range plan to guide continuous value creation over the next several years.
- What are the biggest opportunities for 2019?
Our business plan is entitled “Back to the Basics”. The plan is to significantly increase the execution of our business model by engaging our team to maintain a clear focus on our core boating customer, improving our product value proposition and price architecture and improving our operational practices for product procurement and distribution.
- What were the biggest challenges for the business both over the last 24 months, as well as going forward?
For several years leading into 2018, the company had become stagnant and did not keep business practices current with the evolving retail landscape. Our “Back to the Basics” business plan establishes up to date, current base line business practices that will give us a strong foundation to accelerate growth in 2020 and beyond.
- In which channel are you seeing the most growth?
Year to date, we are seeing balanced growth in our retail, pro and digital channels. As we look to maximize our digital channel opportunity, I expect our digital channel, long term, will be growing at a rate 10x to our retail channel.
- Where do you see sales trending in the next 12 months?
We are forecasting top line growth in the lower to mid-single digit range over the next 12 months.
- What strategies do you currently use to mitigate the impact of weather?
Weather predictability is obviously one of the more challenging elements about our business. To best prepare ourselves, we are focused on improving our service and product instock performance in our “Pro” channel. To build on that, we are developing “quick response” inventory techniques to ensure we meet demand immediately following weather events, such as hurricanes. We believe we can recover all lost business and most likely see an acceleration of sales during recovery efforts. On the flip side, our professional services wholesale channel tends to be steady and predictable regardless of weather as boat yards and other service providers often preschedule maintenance months in advance.
- What is the current pricing environment with your business?
Pricing in the Marine sector has become fragmented over the past few years due to the proliferation of “pop up.com” sites and aggressive initial pricing of small regional players trying to gain market share. At West Marine, we are updating our pricing architecture to ensure we consistently deliver a fair market price on our product and focus on “over delivering on the customer value proposition,” which includes our in store experience, technical expertise, breadth of assortment and availability of product.
- How does West Marine cycle relative to the broader marine space?
West Marine tends to be more stable than the broader marine space. Our business is more correlated with pre-owned boat usage, and density of boat docks adjacent to our store locations. The key for us is consumer boat utilization.
- What have you found to be the hardest positions to hire for?
Our biggest hiring challenge is staffing our two distribution centers with enough employees during the high season due to heavy demand for DC employees from Amazon and 3PLs.