Friday, November 16, 2012

What Twinkies can teach us about the Scooter Industry

I was at Macys recently and almost purchased a shirt that read "Save the Twinkies." This was a month ago, I had no clue they were going out of business.

I love Twinkies they are extremely bad for you, they probably clog your arteries, but I used to eat these by the half dozen with milk in college after a long night. This was probably worse for my health than drinking or any type of extreme sport I could have engaged in.

This morning I was watching CNBC and the CEO Gregory Rayburn came on the show and said "The industry has overcapacity. We're overcapacity. Our rivals are overcapacity," this was reported on the CNN Money Blog as well

OVERCAPACITY. Which applies to the scooter business as well. It makes it a good time to be a consumer or rider of motorsports, a good time to open a store or stock up, but a bad time to be a Chinese importer or distributor.

For the store you can make a ton of money taking advantage of this, it is a buyers market for new scooters. Consumers - THIS WINTER IS THE TIME TO BUY A BIKE AS A RIDER, AND FOR STORE OWNERS = Take advantage of the great prices. 

Just don't rely that these cheap prices are sustainable or will last forever, they cannot. 

Eventually these factories and importers go the way of the Twinkie.

I was asked by a colleague why I am writing about this?

How does this help your sales?

Another email said "most of your clients don't get the Macro Economic implications of what you are talking about."

Yesterday someone said "My clients don't care about quality they only care about price"

All these statements for the most part are basically wrong.

I think we underestimate how intelligent some of the owners of these companies are. Yes, we have some store owners who will never change their mind, never sell online, never buy brand name, but we are not talking about this store owner.

This is exactly the type of conversation I like having with industry professionals. I fear the news outlets in our business "DUMB DOWN" the news or avoid talking about it altogether. Most multi-line dealers are extremely smart and have to deal with multiple suppliers, financing, insurance, licensing issues, managing employees, and understanding the procedures of a company like Honda or Yamaha which is no piece of "cake."

Ok, yes some small Chinese only scooter stores don't face this complex system, but its also not as easy as say a Subway shop that comes with a manual, you have to be an entrepreneur meaning you need to adapt and understand what is happening in the marketplace. The Saturation we saw in 2007 before the financial collapse of the US Motorcycle Industry came back in 2012 because a few Chinese importers thought the market was finally back and now we are seeing them liquidate or try to get out of the business. This affects everyone involved. There are more scooters headed to the auction now. I am not saying this to create fear, but to inform clients why they need to diversify.

Stock fewer scooters and more brand name accessories, differentiate yourself from the other guy.

BECAUSE RIGHT NOW BOTH THE BIG STORE AND SMALL STORE THINK THEY SHOULD JUST BUY MORE UNITS. This train of thought is wrong. If you want to be different offer something different than the shop that just has a bunch of cheap $999 scooters in it.

See my articles on building a destination point. Don't just have one exhaust on the shelf, put half a dozen. There is a reason Cycle Gear has a whole display of exhausts on the shelf and the local average scooter store has none.

Check out my videos on Cycle Gear stores to see my case study on this.

Take a look at this store in Central Florida, yes they have Chinese scooters but they also have a TK EXHAUST display.

They have scooters with accessories on them (NOT JUST THE FREE CHINA LUGGAGE BOX)

The owner of Manatee Scooters has invested in building a store with accessories. You visit other stores in the area if they have one exhaust your are lucky.

Check out his MRP exhaust display. For the cost of one more Chinese scooter he has built a store that can offer the same INSTANT Gratification a TWINKIE does.

You see when I wanted my sugar rush I would just gulp that Twinkie down, you cannot do that at a store that only has one exhaust and one helmet on display. This store has several on the shelf so at checkout the client can make that impulse buy. You cannot do this with a catalog on the counter, you have to invest in the inventory of the parts themselves.

Yes, it's true like in many industries you have stores that could care less about buying this brand or that brand. They just want price and that's all you will ever be able to talk about, but tell me is there a real professional that wants to build more than a price level company? If that was the case you could buy an imitation twinkie for half the price. The whole point is that it read HOSTESS on it.

This is what everyone is talking about in China as their motorcycle output machine looks at consolidation. Something the Chinese factories seem to have a problem with, but is necessary. It's what I have been talking about the last few days online.

The industry isn't reporting on it because its not in the interest of the magazines or press to mention this. Fewer companies means fewer advertisers and less dollars for trade shows like Dealer Expo or any other show.

The lower end segment of Asian ATV, Dirt, Scooter product under 250cc HAS EXTREME OVERCAPACITY. This isn't just scooters.

Helmet distribution in America mainly from China also has extreme overcapacity. The USA Helmet segment has over 80 Importers with only a dozen or so really profitable. A market that is controlled by two or three distributors with over 25% of the market like Tucker Rocky, Parts Unlimited, and Helmet House. It's a multi million dollar industry that right now is living off extended terms like CONSIGNMENT, 90 DAYS to pay for Helmets, and the same is happening in the scooter business.

I'm not saying this is all bad.

It's a GOOD time to be a consumer.

You can buy a scooter at a great price in the winter.

You can get a great deal on a helmet.

By all means you should go out and buy a scooter.

I love Twinkies, but someone else is bound to buy them and startover.

Right now stores should be focused on buying quality product.
Consumers can take advantage of great prices.
Dealers can use the winter time to build up drop shipping websites, stock great accessories, and try to compete in areas that are not saturated by the $499 scooter.

The $499 scooter will end up in the trash dump next year. NOBODY will fix it, there will be no repeat business. More than likely the store that focuses on this and doesn't follow the advice of industry professionals will end up in the recycle bin themselves. So there is some positive news out of all this.

Stock good product. Focus on new areas like social media and drop shipping, don't compete in a field that you can't win.

You cannot beat the Chinese factories at this game. Period, I don't care how many people go on CNN and try to sell you this line that America or Europe can compete. Competing in the price category is not an option for small business owners and small shops. YOU SET YOURSELF UP FOR FAILURE.

There will always be a Chinese store or factory direct outlet that can sell FASTER, BETTER, AND CHEAPER THAN YOU. So don't compete in that category. Make a new one.

Sell on Service, Brands, Quality. Yes, you need the cheap stuff, but don't base your business plan around it. I certainly don't and you shouldn't either.

The Chinese factory losses they can sustain in the powersports industry are larger than the top US distributors in the USA. Most US Distributors cannot sustain losses of $10 million dollars, but the bank of China will float a Chinese manufacturer abroad so they will survive this, its the smaller private label importers that won't. If you sell their product and are competing directly with them as they importer sells on Amazon, Ebay, and online direct odds are you won't survive competing with them directly.

So sell items that are different. Brand name items that can sustain you long term as well.

  • Take advantage of the great prices. 

  • Stock quality brand name parts (TK Exhausts, Airsal, Yasuni, Naraku, NG Disk Brakes) Make the store different from the other guy!

  • Consumers buy your scooter now, take advantage of the cheap prices.

  • Just don't rely that these cheap prices are sustainable or will last forever, they cannot. 

  • Eventually these factories and importers go the way of the Twinkie.

Stock up on Twinkies while you can.

No comments: