The New Harley ... Ready to Rumble!
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The New Harley ... Ready to Rumble! Harley redefined the motorcycle industry as it roared through the past two decades with impressive growth. Now, with aging boomers and a mercurial stock market, what’s the best marketing and media strategy to keep the New Harley roaring through 2020? We live to ride, and we ride to eat Wearing black leather and riding huge Harleys, a motorcycle gang thunders through northern Georgia as if en route to a rumble. But the only rumble for this gang--the Atlanta Harley Owners Group (HOG)--is the one in their stomachs. It’s another Sunday ride in the country for the group, and as usual it ends with a feast. “We live to ride, and we ride to eat,” says club assistant director B.K. Ellis, a systems analyst. Although educated professionals dominate the Hog world, there are still a number of would be hard-core guys with big tattoos and bad tempers, the sort who once typified the Harley customer. Most customers, however, would be playing hooky from $78,000-a-year jobs (the average salary of today’s Harley customer), riding $16,000 motorcycles (the typical cost of Harley’s biggest bike, a cruiser), and pledging fealty to an open-road cult that doubles as a $4-billion-a-year company. Owning A Hog is a Lifestyle Harley today has more to do with fraternity than with machinery. You buy a Harley, you join a ready-made motorcycle gang: the 600 U.S. HOG chapters, operated under the dealers’ aegis. Style is as important as speed. On dealers’ floors, leather-draped mannequins can outnumber the bikes. Harley has artfully parlayed the romance of the road and the independence of the biker to capture baby-boomers. Its core customers have reprised their 1960s rebelliousness with a product that bespeaks their 1990s success. By selling a lifestyle while competitors sold mere motorcycles, Harley left others in the dust for leadership in the most lucrative segment of the market, the big cruiser bike. It has a 45% share in the U.S., vs. Honda’s 23%. Some critics claim that Harley hasn’t built better bikes than its four main Japanese competitors, but it has built a far better brand. It licenses its logo to more than 100 manufacturers, which gives the company ubiquitous exposure. It fosters the HOG clubs, which are rolling convoys of free advertising. So even though it sells a niche product, Harley consistently ranks among the ten best-known American brands, in the company of Coca-Cola and Disney. 146 Harley’s Tank Not Full, But Far From Empty Harley also ranks among America’s top growth stocks since its 1986 IPO. Its 37% average annual gain runs just behind the 42% pace of another ‘86 debutante: Microsoft. While the earnings of many have gone into the tank, there’s still plenty of gas in Harley’s. Nevertheless, some of its key growth engines showed signs of sputtering. Its customer base has grayed, as the average age of a Harley rider has risen from 38 to 46 in the past decade. “It’s an upper-middle-class toy,” says Chad Hudson of the Prudent Bear fund, one of a number of prominent short-sellers convinced that Harley will skid, even as the economy continues to rebound. Last year retail sales of Harley-Davidson motorcycles decreased 21% worldwide, 28% in the U.S. and 10% in international markets. Industry-wide U.S. retail demand for heavyweight cruiser style motorcycles (651cc+) declined 21% overall. Revenue from Parts and Accessories totaled $144.6 million during the quarter, down 5%. Revenue from General Merchandise like Motorclothes® declined 3% to $66.8 million. Road Ahead Winding, But Company is Optimistic Harley-Davidson has ramped up for much higher production in the coming year. Economic forecasts indicate 10-15% higher demand for the category. Company financial forecasters are more optimistic; they expect to ship 60,000 to 70,000 motorcycles in the first quarter of next year, and by year’s end anticipate shipping in excess of 260,000 motorcycles to dealers and distributors worldwide. Nevertheless, robust growth and higher stock prices for Harley Davidson will no longer be routine as in the past decade. Not only has the world economy been transformed, but the demographic and lifestyle dimension of Harley’s target market is undergoing a tectonic shift. American sales of light sport bikes, aimed at 25- to 34-year-old men, increased 90% from 1998 to 2001. Suzuki, Honda, Yamaha, and Kawasaki have a combined 92% of that market. The 121,000 bikes sold in the category still pale beside next year’s goal of 262,000 Harley cruisers, a segment they own, but a segment that is expected to begin shrinking soon. But the youth of America have spoken. They prefer sleeker, sportier machines than the Harley hog, and Harley’s brass is listening. Demographic data suggests Harley’s future business is in Gen- Xers and -Yers, not exactly the forte of a company tuned to baby-boomers’ rhythms and values. Naturally the boomers’ kids want to ride anything but the old man’s model. They’re drawn to machines that are the anti-Harley. The company needs to make inroads with today’s twenty-something bikers. The prime age for motorcycle customers is 35 to 44, according to Donald Brown, a consultant to the industry. Brown says this age group’s numbers began to decline in 1999 and will continue to do so through 2016. Since Harley can’t replace all its boomer customers from a limited pool of baby-busters, it must reach deeper than before into the youth market. The result, says Brown: “It will have to compete more head-on with the Japanese.” Increasing Potential in Minority Markets As Baby Boomers who transformed Harley’s rumbling, lumbering bikes from countercultural totems into American icons entering their senior years -- the leading edge of the generation is turning 60 this year -- they’re increasingly in the market for knee and hip replacements, not Harley’s notoriously bone-shaking bikes. That’s forcing the Milwaukee, Wisconsin-based company to scramble to find new customers among women, blacks and Hispanics -- groups that have not been ignored, but that are seen as more important segments in the next decade. 147 But as Harley-Davidson tries to adapt to the changing marketplace, analysts say it needs to avoid the pitfalls that other boomer-favored businesses like Levi Strauss & Co. have fallen into as they tried to navigate a similar transformation. “Half their demand is from guys 40 to 50 years old,” says Bob Simonson, an analyst for William Blair & Company in Chicago. Joanne Bischmann, vice president of marketing at Harley, admits, “The demographics are changing” though she insists the change isn’t as dramatic as some have suggested. “But that doesn’t mean there aren’t other populations we don’t want to tap into.” To reach out to the black community, Harley has begun sponsoring the nationally syndicated show of Tom Joyner, an African American radio host whose program is heard by as many as 8 million U.S. listeners. Harley is also advertising during the nationally televised college basketball tournament that dominates the U.S. sports calendar from mid-March to early April and is sponsoring the Roundup, an African American version of the annual gathering of bikers in Sturgis, South Dakota. To reach younger Hispanics, the company is advertising in Hombre and Fuego -- two Latino men’s magazines -- and participating in low-rider shows. And to reach women, it’s putting a four-page insert into Jane, Allure, Glamour and two other Conde Nast magazines, featuring what Bischmann says are “real women riders.” It’s also hosting garage parties for women -- not unlike the get-togethers that Tupperware, Avon, Mary Kay and other U.S. direct marketers have used to target women successfully for decades. At a recent event that drew hundreds of African American riders from the greater Chicago area to a club in the city’s downtown Loop, the opportunities -- and challenges -- Harley-Davidson faces as it tries to change attitudes and win over new riders were on display. Among the attendees were the 11 members of Ladyz on Krome, an all-female club of Harley-Davidson riders, and another that goes by the nom de zoom “Kuiet Storm.” But the vast majority of the riders at the event, including Max “PT” Brown, a 32-year-old member of the 5th Gear Ridaz, another Chicago club, were owners of screaming street bikes like the Kawasaki Ninja. Brown called Harleys “awesome bikes” but added, “The younger riders don’t go for them. As you get older, then that’s when you go into the Harley-Davidsons.” Give Harley credit for not burying its head in the sand, as the Japanese did when they were atop the market in the early 1980s. They wrote off a near-bankrupt Harley, failed to respond to its resurgence, and then ceded to it the boomers and cruisers. That won’t happen at Harley, vows Bleustein. His message to a national meeting of 650 dealers: “The only thing that can stop us is if we get complacent. Even though we’ve been successful, we can’t stand still.” To that end, Harley has poured money into developing new, youth-oriented models. The $17,000 Harley V-Rod--a low- slung, high-powered number known formally as a sport performance vehicle and colloquially as a crotch rocket--is meant for hard-charging youths. Harley has also tried to go young with the Buell Firebolt ($10,000), its answer to Japanese sport bikes, and the Buell Blast ($4,400), a starter motorcycle.