OPE Industry Forecasts: How will business rate in 2008? (Part I)
The following is the first of a two-part series:
Outdoor Power Equipment recently asked several OPE industry leaders to shed light on the state of the industry heading into 2008.
Specifically, we asked the following questions:
1) Why should outdoor power equipment dealers be optimistic about the industry in 2008? (NOTE: If you’re a high-ranking official with an industry trade association, please respond on its behalf, too.)
2) How will the outcome of the 2008 U.S. presidential election affect the OPE industry?
3) How will growing concerns about the environment impact the OPE industry in the next 10 years?
4) What will be the top three trends in the OPE industry over the next five years?
5) What is your overall outlook for the U.S. economy and OPE industry in 2008?
OPE received the following written responses, in order, Dec. 7-21, 2007:
BOB WALKER
PRESIDENT
WALKER MFG. CO.
(FORT COLLINS, COLO.)
OPE: Why should outdoor power equipment dealers be optimistic about the industry in 2008? (NOTE: If you’re a high-ranking official with an industry trade association, please respond on its behalf, too.)
Walker: A continuing opportunity is reason for optimism in 2008. There is continuing need and continuing demand for dealer service in the OPE industry, and that means an opportunity to be independent and have your own business as a dealer. Dealer service is needed before the sale, at the time of the sale, and after the sale – dealers who serve best have the best opportunity.
OPE: How will the outcome of the 2008 U.S. presidential election affect the OPE industry?
Walker: The optimism or caution that comes from the campaign and newly elected president will affect the consumers’ outlook and OPE sales. The president can’t do much about the weather, but a president that is pro-business, anti-illegal immigration, and works to strengthen our economy will help our industry.
OPE: How will growing concerns about the environment impact the OPE industry in the next 10 years?
Walker: Reduce harmful emissions from power equipment (exhaust and noise); looking at cleaner, more efficient power sources; increased cost to consumers for environmental-friendly features; more regulations on landscape management.
OPE: What will be the top three trends in the OPE industry over the next five years?
Walker: More electronic fuel injection (EFI) engines used on professional power equipment; more throwaway (disposable) power equipment; fewer but stronger dealers.
OPE: What is your overall outlook for the U.S. economy and OPE industry in 2008?
Walker: The economy and OPE industry should both be fairly flat in 2008 (need some rain in key markets in order to avoid decline). Should see some expansion in 2009.
We have had a good year in 2007 and many blessings. Next year, we will celebrate the producing of the 100,000th Walker Mower – a real milestone in our 28th year in the industry.
TREY BROWN
GENERAL MANAGER
DOLMAR POWER PRODUCTS
(ALPHARETTA, GA.)
OPE: Why should outdoor power equipment dealers be optimistic about the industry in 2008? (NOTE: If you’re a high-ranking official with an industry trade association, please respond on its behalf, too.)
Brown: Weather effects aside, 2008 offers several challenges: a presidential election, credit crisis recovery, and re-ignition of the housing sector. The presidential election presents a good opportunity to stimulate immediate activity. Administration change tends to bring out both pessimistic and optimistic attitudes. Pessimists will prepare for the uncertainties of a new administration and its adverse impact on the economy by “stocking up” to endure the fallout. Optimists plan for opportunities of a new administration by “ramping up” for situations which may develop. The benefit to OPE dealers – both groups will be active during the 2008 season, which would indicate a strong year for business.
OPE: How will the outcome of the 2008 U.S. presidential election affect the OPE industry?
Brown: The political agenda of the president-elect will impact the steering influences of the financial markets and begin to influence everyday market activity late-2008 into 2009. Those factors will, in turn, determine whether the overall economy for OPE business will flourish or suffer. Wall Street’s candidate will certainly provide the best opportunity for activity amid growth in inflation, historic high fuel costs and a jittery credit market.
OPE: How will growing concerns about the environment impact the OPE industry in the next 10 years?
Brown: As with the automobile industry, consumers will make choices according to price, performance and technology – as it affects both fuel efficiency and environmental impact. Dolmar is well prepared to satisfy operator performance preferences and has a long-developed strategy of technological superiority for fuel-efficient and environmentally friendly products. Users demand performance – and boast of the environmental advantages as an afterthought. As a premium manufacturer, Dolmar will benefit from illustrating better performance through environmentally advantageous technologies.
OPE: What will be the top three trends in the OPE industry over the next five years?
Brown: First, improving product performance while developing methods to conform to increasingly more regulated compliance levels. The adaptation of new technologies to satisfy operator power, performance and weight requirements – while balancing new fuel formulations – will continue to challenge the industry.
Next, a greater integration of 4-stroke technology for handheld product will develop based on the issue previously listed. Making the overall 4-stroke experience as familiar as that of a 2-stroke will ensure greater acceptance in the market.
Finally, the availability of qualified technicians to service more complicated equipment – as technologies required to comply with regulatory levels become more sophisticated – will shape the level of acceptance and users’ confidence of our product.
OPE: What is your overall outlook for the U.S. economy and OPE industry in 2008?
Brown: Reports indicate an improving economy during the second and third quarters – mainly attributed to an upturn of the housing sector. The stability of fuel costs remains uncertain and could be a contributor to inflation. However, strong employment, improving consumer confidence and lower prime interest rates should prove beneficial for the OPE industry overall.
STEVEN M. BLY
SENIOR VP, OPERATIONS
ECHO INC.
(LAKE ZURICH, ILL.)
& CHAIRMAN
OUTDOOR POWER EQUIPMENT INSTITUTE (OPEI)
(OLD TOWN ALEXANDRIA, VA.)
OPE: Why should outdoor power equipment dealers be optimistic about the industry in 2008? (NOTE: If you’re a high-ranking official with an industry trade association, please respond on its behalf, too.)
Bly: While the industry forecast is for a flat year for 2008, many issues are impacting this forecast. Mostly notably, new housing starts and foreclosures are cause for concern. With foreclosures at a 21-year high and the new housing starts down in the 20-percent range, the housing industry is being described as the “worst shape since 1945.” That’s even before my time! The experts are advising us we have hit, or are close to, the bottom on the curve. I hope so.
There is, however, some optimism. New housing has started to improve; let’s hope it continues, and rebounds as predicted in 2009. The foreclosure rate will soften as the government freezes interest rates on adjustable-rate mortgages for qualifying buyers. While not a silver bullet, this would apply to over 1 million current homeowners who are faced with the reality of higher reset rates in the next several years. Other categories that are monitored, such as consumer price index, disposable income, etc., are under control. Bottom line: As the housing market improves, consumers – specifically homeowners – will purchase more outdoor products and landscaping services.
OPE: How will the outcome of the 2008 U.S. presidential election affect the OPE industry?
Bly: Regardless of which party is in control, both sides share in the concerns over home starts, foreclosures and emissions.
The single most important issue impacting our industry is emission regulations. Regardless of which party is in power, our industry, through OPEI, has been very proactive with both the California Air Resources Board (CARB) and the Environmental Protection Agency (EPA) on negotiating new emission regulations. This has proven to be successful and is being done in a collaborative way. Their concerns are for fewer emissions, and ours are for the safety and cost effectiveness of our equipment. Regardless of who is in office, these are global consumer-driven issues that need to be negotiated in the best interests for all parties.
OPE: How will the growing concerns about the environment impact the OPE industry in the next 10 years?
Bly: This has been the concern for our industry for the past 12-plus years. They have grown from California (CARB), to other states (EPA), to Canada, Europe, Japan, and are starting in Australia and even China. With the recent lean toward “green” worldwide, we can expect emissions-type regulations to continue. Improvements in the last 12 years on exhaust emissions must be recognized. On handheld products, exhaust emissions are down over 85 percent, and current CARB and EPA regulations will require wheeled products to decrease by an additional 35 percent over existing reductions. There is an industry need to start focusing on a “net carbon footprint.” With the reduction in exhaust emissions and improvements in fuel economy, our products have actually reduced greenhouse gas emissions.
Our products maintain green space (lawns, trees, etc.) that actually absorbs carbon dioxide. This is a very positive issue for our industry. We believe, once quantified, OPE products will clearly demonstrate that they are part of the overall solution. Simply stated, the green space our products maintain, absorbs significantly more emissions than our products emit. There is more to come in the future on this one.
Most importantly, governing bodies and news media need to start factoring into pollution studies the number of individual sources and the average length of time each operates. To compare an automobile that is driven for 1.5 hours/day, 10.5 hours/week, to a lawn mower, a grass trimmer or a chain saw that is operated less than one hour per week is illogical and not scientifically reliable.
OPE: What will be the top three trends in the OPE industry in the next five years?
Bly:
* “Greener” will become more common in our daily lives, globally, as emissions regulations are implemented worldwide.
* As Baby Boomers start to retire, they will be less likely to perform their own yard care, requiring more landscape services. They will continue to have pride and desire aesthetics in their landscaping. Businesses that supply OPE products, landscape design and total yard maintenance services will continue to grow.
* Look for continual price increases on outdoor lawn equipment due to the need for emissions controls, greener products and the overall commodity increases. We are experiencing ever-increasing costs in plastic, oil, cardboard, aluminum, lead, gasoline, steel, etc., resulting in unheard of increases in manufacturing costs. Think about this: Most OPE products do or will have catalysts for emissions control. The magic of the catalysts is that its metal components are enhanced by a coating of several precious metals. One of them is platinum. The current price for a troy ounce of platinum is $1,400!
Traditionally, manufacturing companies have been able to minimize retail price increases by working smarter and decreasing their costs in other ways. However, with emission requirements and commodity increases, it is no longer possible to absorb all of those costs.
OPE: What is your overall outlook for us economy and the OPE industry in 2008?
Bly: The overall economy is good. With the steady, slow improvement in the housing market, we should start experiencing positive trends on the economy in mid-2008. My opinion is the economy is not as bad as people would like us to believe. Most of us can remember the early ’80s when adjustable mortgages were at 15 percent, inflation above 10 percent, and you could get a CD for five years at 12 percent – with a free TV and a camera. We are a long ways from that.
The OPE market will continue to be slightly soft. When we compare 2007 to 2006, the only significant category that was down was chain saws – likely because of decreased hurricane activity, thank God. However, when bad weather does occur, chain saw sales spike, but other products – grass trimmers, blowers, etc. – suffer. People are more interested in replacing broken windows and roofs than the condition of their landscape.
The OPE market is predicted to be somewhat flat (in 2008). We should start seeing improvements as we approach 2009. Based on total volume, the OPE industry is faring much better during these times than most other industries, and we look for that to improve. My recommendation is to keep on top of the issues that are good for your business and your customers. When the market changes upward, you will enjoy the rewards.
GREG IMUS
VP OF SALES, MARKETING AND TECHNICAL SERVICES
SHINDAIWA, INC.
(TUALATIN, ORE.)
OPE: Why should outdoor power equipment dealers be optimistic about the industry in 2008? (NOTE: If you’re a high-ranking official with an industry trade association, please respond on its behalf, too.)
Imus: We OPE manufacturers see tremendous growth and demand for mid-range, as well as high-end, high-quality equipment. Independent dealers and distributors tend to carry the higher-quality equipment, so they stand to capture the most profit from this growth and demand.
Should the economy turn downward, the high-quality segment of the OPE industry typically does best, while sellers of low-price, entry-level products feel the impact most severely.
We also see a great number of new and improved OPE products coming to market in 2008. These products resonate deeply with what users ask for and want.
With regard to Shindaiwa, we have more new and innovative products in the pipeline now than at any time in our corporate history. So, we expect 2008 will be a banner year for Shindaiwa and our business partners.
OPE: How will the outcome of the 2008 U.S. presidential election affect the OPE industry?
Imus: Politicians generally make statements and take actions that are designed to attract the most votes and have a positive impact on the economy – at least in the short term. While this may or may not contribute to long-term solutions, it should help to offset or soften concerns about high energy costs and the ongoing sub-prime mortgage issues.
In the near term, I believe our political system will continue to push the “green button,” elevating environmental awareness and concerns. The positive qualities of ethanol and other low-emission fuels will continue to be touted and in the headlines. This will, in turn, continue to drive industries in the development of more fuel-efficient innovations and new products able to operate effectively (and efficiently) with E85 and other types of “modern” gasoline. Just recently, Congress passed a bill that will expand bio fuels by a multiple of six during the upcoming years.
Politicians respond to voters’ concerns regarding increasing energy costs, environmental quality, and safety standards by designing campaign platforms and policies around those concerns. When those platforms and policies become law, manufacturers often need to redesign products to comply.
Laws requiring compliance to stricter environmental standards, for example, may include regulations dealing with fuel efficiency and/or even lower emissions.
Shindaiwa 4-cycle products are already among the most fuel efficient and environmentally friendly available, while, at the same time, we have a complete range of 2-stroke units so dealers have a wide variety of choices.
OPE: How will growing concerns about the environment impact the OPE industry in the next 10 years?
Imus: The growing concerns about the environment drive the development of cleaner, quieter and safer products in the OPE industry. These concerns also generate more responsible and professional use of equipment by commercial end users with regard to their operating hours, worksite safety, and “clean and green” business practices.
This scenario creates a greater demand for technologically advanced, mid-range and high-end commercial OPE products. Conversely, ongoing environmental issues make it more difficult on manufacturers who fail to implement strong research and product development programs.
OPE: What will be the top three trends in the OPE industry over the next five years?
Imus:
1. Improved merchandising and product information in retail showrooms – whether at the independent OPE dealership or mass merchant.
2. Expanded use of the Internet and electronic commerce – both business-to-business and business-to-consumer.
3. More technologically advanced, fuel-efficient and environmentally friendly products.
OPE: What is your overall outlook for the U.S. economy and OPE industry in 2008?
Imus: Although several yellow flags are now flying, our guess is that the economy will be somewhat softer than this year, but, at the same, we believe we will not go backward economically.
With regard to the OPE industry specifically, a great deal of uncertainty exists as to whether the drought in Southern states will persist. Concerns include whether the drought reflects a long-term climate change or whether we’ll see the return to normal rainfall levels. We hope that this will be like previous droughts – a short-term weather shift, with a return to normal levels of rainfall.
Continued increases in fuel costs will generate greater interest in home heating alternatives such as firewood. We anticipate increased demand for chain saws as a consequence. We also anticipate strong demand for more fuel-efficient and high-torque products such as our 4-stroke handheld equipment.
DAN ARIENS
PRESIDENT
ARIENS CO.
(BRILLION, WIS.)
& VICE CHAIRMAN
OUTDOOR POWER EQUIPMENT INSTITUTE (OPEI)
(OLD TOWN ALEXANDRIA, VA.)
OPE: Why should outdoor power equipment dealers be optimistic about the industry in 2008? (NOTE: If you’re a high-ranking official with an industry trade association, please respond on its behalf, too.)
Ariens: I think the 2008 season will see a bump from pent-up demand in the previous season. Parts sales were up last year, while whole goods were down. I think people were finding a way to keep their old equipment for one more year, creating pent-up demand. That sets the industry up for a potential bounce-back effect in sales in 2008. A couple of significant rainfalls, and customers will be back.
There are also some new products targeted at the commercial and high-end consumer markets. The high-end consumer group (those who more likely purchase equipment at dealerships) is less impacted by economic ups and downs.
OPE: How will the outcome of the 2008 U.S. presidential election affect the OPE industry?
Ariens: I think the industry was reminded this past year how much impact weather has on sales. It seems the outcome of this election will take a backseat to weather issues.
OPE: How will growing concerns about the environment impact the OPE industry in the next 10 years?
Ariens: There is a lot of technology development going on, but we need to have interest from the market to make it feasible. I believe the industry will continue to make incremental changes until there is something that drives a true paradigm shift – which may come from inside or outside the industry.
I think we will see an attempt at more regulatory initiatives that will either directly or indirectly affect the industry and its customers. Within the industry, we know from experience that customers are not yet ready to pay for incremental improvements in environmental improvements. Dealers will need to communicate the impact of these proposals locally. As an industry, we also need to make sure customers and lawmakers understand the benefits of healthy lawns.
OPE: What will be the top three trends in the OPE industry over the next five years?
Ariens: Dealers who are going to be successful are those who can deliver and enhance the customer shopping experience and fully utilize their expertise as a sales tool.
The interest in zero-turn mowers will continue to grow. Homeowners appreciate the time savings, and the corresponding gas savings will be recognized.
The upscale rural segment of consumers will become a more important target, and good dealers will find ways to cater to their lifestyle by offering new services.
OPE: What is your overall outlook for the U.S. economy and OPE industry in 2008?
Ariens: I expect the economy to be fairly flat, but the OPE industry to see a small improvement due to the pent-up demand from the previous year.
GLENN R. BEYERL
VICE PRESIDENT
KPM EXCEPTIONAL, LLC
(KENVIL, N.J.)
& PRESIDENT
OUTDOOR POWER EQUIPMENT & ENGINE SERVICE ASSOCIATION (OPEESA)
(ESSEX, CONN.)
OPE: Why should outdoor power equipment dealers be optimistic about the industry in 2008?
Beyerl: Opportunities will exist for dealers to aggressively go after business in 2008. That is, aggressive in their approach to marketing their total value to their customers and prospects. Not simply low pricing, but value-driven pricing. The cost of doing business will continue to push out those who merely see low prices as the tactic. I see the beginnings of a clean-up of what I’ve often described as the “race to the bottom.”
Dealers are really looking carefully at their businesses. They are setting aside the time to work “on” their businesses, not just for the businesses. Those who have done so and developed actionable plans will reap the rewards.
After several years of end users repairing and re-powering their equipment, dealers should begin to see a ramp-up in replacement due to pent-up demand. Despite the well-published banking and credit woes, the Fed has definitely taken a proactive approach to support the economy and liquidity by lowering the Prime Rate a full 1 percent over the last 4-5 months. Our industry continues to be well supported by finance companies that really understand this business. They are not speaking of cutbacks or tightening, but are instead seeking new ways to be of greater service to the industry.
The industry remains highly weather dependent and seasonal, yet manufacturers, distributors and other channel partners are rolling out programs and tools that efficiently seek to remove some of the pain these factors can inflict.
OPE: How will the outcome of the 2008 U.S. presidential election affect the OPE industry?
Beyerl: At the end of 2008, the United States will elect a new president, following a two-term president. Responding on a non-partisan basis, (2008) should be a year of hope, of anticipation, of promise, of change. History supports this, and, as an example, bull markets have historically been associated with presidential election years, and 2008 is expected to be as well.
Pending changes in consumer lending laws, together with the Fed’s proactive involvement with liquidity, will be a positive influence, regardless of who becomes president. Growth in real estate values across the nation has subsided, and in some areas, values have declined. Families or individuals seeking to make ends meet will create a positive direction for our industry, whether they take a second job and outsource lawn-and-garden maintenance or they acquire a commercial mower or lawn tractor for their own use. The OPE industry has experienced tremendous growth, rather, resurgence of the homeowner/consumer-owned lawn equipment segment.
Commercially focused end users who may have taken their businesses in the direction of design and installation at the expense of maintenance have begun to see the benefit of maintenance work beyond pure sales revenue. Absent frequent contact with maintenance customers, the pipeline for new design work has dried up in some areas. Maintenance services are being brought back to the landscape contractors’ service offerings.
OPE: How will growing concerns about the environment impact the OPE industry in the next 10 years?
Beyerl: The voice of environmental concern will grow louder. The pure number of Green businesses will increase exponentially, and this will be more than a fad; it will become the new way of doing business. Surely, there will be regulation, locally, statewide, federally, but there will be more. Peer, market and employee pressure will drive more companies to go Green. This movement will likely be led by today’s 15 to 25 year olds.
Federal, state and local governments and their agencies will also implement standards for not only fuel/exhaust emissions, but blown debris and noise pollution. The pursuit of non-fossil fuels and alternative energy sources will remain a priority. Deployment of research and development funds toward hybrid, electric and alternatively powered engines for our industry’s equipment has already begun. In the shorter term, ethanol will play more of a role. Members of the OPE industry who are affected by farming – corn in particular – will experience an increase in demand for their products and services.
OPE: What will be the top three trends in the OPE industry over the next five years?
Beyerl:
* The trend of consolidation will continue and extend beyond manufacturers, to distribution, dealers and commercial end users.
* The trend of many new entrants entering the OPE industry annually will decline, largely due to a trend seen in 2007 of more recent entrants either closing or exiting the business during 2007.
* China-based businesses and others will continue to enter the supply chain of our industry; they will experience more of the real costs of doing business, and will find some of the perceived cost advantages diminishing.
OPE: What is your overall outlook for the U.S. economy and the OPE industry in 2008?
Beyerl: My overall outlook for the economy and the OPE industry is very positive looking to 2008. No industry exists as an independent economy, and each region or segment of an economy or industry has i