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2018 Industry Forecasts (Part II)

Outdoor Power Equipment (OPE) recently invited many of the outdoor power equipment industry’s leading executives to share their thoughts about 2017 and the state of the industry heading into 2018. Specifically, we asked them the following questions:

1) What is new with your company/organization for 2018?

2) What were the OPE industry’s top stories in 2017, and what do you predict they will be in 2018?

3) What will be the OPE industry’s hottest trends in 2018, and how can OPE dealers capitalize on them?

4) What is your overall outlook for the OPE industry in 2018?

5) What advice do you have for OPE dealers in 2018 and beyond?

OPE received the following written responses, in order, Dec. 6-20, 2017:

 

BRIAN MELKA

PRESIDENT – ENGINES AMERICAS

KOHLER CO.

(KOHLER, WIS.)

 

1) What is new with your company/organization for 2018?

Brian Melka (BM): We have reenergized our focus on dealers and their positive impact on the industry. We’re pleased to have formed a new dealer council, which allows us to regularly secure feedback from our key dealers, and then move quickly to implement any suggestions from the group that will enhance their experience with us or their customers.

We’re also focusing on creating more immersive customer experiences. In 2017, we opened our Customer Experience Center in Kohler, Wisconsin. This new 24-acre site is dedicated to customer applications spanning the range of industrial, consumer and commercial projects. We’ve hosted more than a dozen groups over the past year, including OEMs, dealers, rental houses and end users. In 2018, we’re eager to welcome even more groups to the new facility so they can experience Kohler-powered equipment firsthand in harsh, real-world applications.

Finally, we anticipate continued strength in the commercial segment. While this has always been an important part of our heritage at Kohler Engines, 2017 was one of the strongest years of commercial growth in our company’s history. Our success in the commercial and industrial segments will continue to be fueled by new products, new applications, and continued expansion into new regions around the world in 2018 and beyond.

 

2) What were the OPE industry’s top stories in 2017, and what do you predict they will be in 2018?

BM:

  • Dealers are stronger than ever. We’ve seen dealer business continue to perform very well relative to big box channels. The market continues to respond favorably to the higher level of service provided by dealers nationwide.
  • EFI technology is now mainstream. With 20 years of EFI leadership, our Kohler EFI has moved from innovative niche product to mainstream applications – covering a broad range of commercial and consumer applications. As more and more engine manufacturers recognize the strong market response to our EFI, the end of the carburetor is coming quickly. In addition to fuel savings, end users are now benefiting from many other EFI advantages, including cooler/more durable engines, more on-demand power, better fuel tolerance, and easier starting.
  • Side-by-side UTVs are no longer just for recreation. UTVs have come on strong over the past few years as demonstrated by the growing number of brands now available and the expanded presence for UTVs at GIE+EXPO and other industry shows. Diesel UTVs, in particular, have become very popular for landscapers, municipal grounds managers, and farmers and ranchers. As an OPE dealer, there’s a great opportunity to add diesel UTVs to your offering and provide a broader range of models to your existing customer base. If you’re not currently offering diesel UTVs, you really should consider adding them.
  • Disaster recovery efforts were impressive. The OPE industry responded strongly to the devastating 2017 hurricanes in Texas, Florida, Puerto Rico and Mexico. It was encouraging to see such a diverse group of organizations come together to focus on assisting those in need.

 

3) What will be the OPE industry’s hottest trends in 2018, and how can OPE dealers capitalize on them?

BM:

  • Made in the USA matters. Our research shows that products engineered or manufactured in the USA are in demand. Users want to support their local economy, and are willing to “buy up” to make this happen. They’re showing lower tolerance for non-branded or completely outsourced products. Particularly in the dealer channel, users aren’t interested in unbranded products built in low-cost regions. Even Millennials, who have historically been brand agnostic, are now demonstrating a stronger desire for U.S.-based manufacturing. Dealers who showcase products made or engineered in the U.S. will gain a competitive advantage among this important consumer segment.
  • Batteries continue to grow, but come up short. Battery-powered products continue to make a push in entry-level consumer applications, but haven’t demonstrated the cost/benefit or performance required for large consumer or commercial jobs. Pros who make their living with outdoor power equipment and consumers with large properties will continue to demand strong, engine-based solutions.

 

4) What is your overall outlook for the OPE industry in 2018?

BM:

  • Strong, but cautious. We see significant opportunity heading into the year with a strong spring likely. However, the view for the full year is still a bit murky. Housing starts will continue to drive demand in consumer products, so we will be paying close attention to this important indicator throughout the year. Brands that capitalize early on opportunities are most likely to benefit in 2018, so having product available early could be critically important to success this year.
  • We’ve seen many consumers “buying up” in the portfolio, and by that I mean there’s a move from opening price point products into the middle or premium range of products. We expect this to continue in 2018, with demand for increased power, larger mowing decks, and locally engineered products outpacing low-end products among consumers. In the commercial space, our outlook is even better. Aging fleets, in combination with the availability of new technologies that significantly enhance productivity, will drive substantial equipment replenishment among industry pros.

 

5) What advice do you have for OPE dealers in 2018 and beyond?

BM: Focus on service. What I hear from end users, more often than not, is that service is the biggest differentiator between dealers. Our research shows that dealer service drives 50 percent of the buying decision. After launching more innovative products over the past five years than in the history of our company, we really want to focus now on dealer support. Dealers who are supported create better service experiences, leading to more satisfied customers and additional sales growth. We’re fully committed to helping our service dealers find success in 2018 and beyond.

 

 

TED FINN

CEO

GARDNER INC. AND AFFILIATES

(COLUMBUS, OHIO) &

PRESIDENT

OUTDOOR POWER EQUIPMENT AND

ENGINE SERVICE ASSOCIATION (OPEESA)

 

1) What is new with your company/organization for 2018?

Ted Finn (TF):

Gardner Inc.: Gardner Inc. has seen a lot of changes over the last two years, and this year will be a year of relative calm and execution. We have made significant investments in technology and building a platform that makes ordering with Gardner easier and more seamless. Nearly 70 percent of our orders come in online, and we are trying to make that even easier, while still maintaining a personal experience with our outside and inside sales teams.

On the product side, we are fortunate to work with several of the great innovators in our industry, including Kohler, MTD, Husqvarna and Oregon. It is always exciting to embrace and bring new product to market, and we will once again have that opportunity this year.

OPEESA: OPEESA had a solid financial year due to the previous leadership, and we are continuing to invest in supporting healthy channel development for whole goods and parts from manufacturers through distributors and ultimately through dealers.

 

2) What were the OPE industry’s top stories in 2017, and what do you predict they will be in 2018?

TF:

Gardner Inc.: While I would say the headline news would be consolidation among dealers, distributors and manufacturers, I believe the top stories for Gardner and the dealer network were yet another year of no meaningful snow (during the typical season) and a challenging environment for hiring. I am not sure it gets enough press how hard it is to find quality labor and individuals that are trade certified. Technicians are particularly difficult to hire and keep, and I think the industry is going to have to figure out a way to invest in a training infrastructure that ensures there are enough technicians to support the service side of this business. EETC (Equipment & Engine Training Council) has been reenergized, and is doing some great things related to this issue.

As I write this, we are headed into the typical snow season, and there is a record dearth of snow cover. While this is out of our hands, it never hurts to be hopeful that, as an industry, we have at least an average snowfall year. We all need it.

I suspect the top story in 2018 will yet again be battery power, but specifically how it will unfold in the dealer channel. Battery has been embraced fairly well at the mass retail stores, but not quite as much through the dealer network. It will have profound impacts on dealers’ business as the service model is vastly different. I think it will be interesting to see how this dynamic plays out.

At the risk of being long-winded, I think another story to watch is what Stanley Black and Decker will do with the Craftsman brand. It is too early in the season for me to prognosticate, but it will certainly be interesting to see what the implications are for service, the dealer channel and mass retail.

OPEESA: Tax reform and LIFO repeal were two topics that OPEESA was working on diligently behind the scenes. While we do not have a lobby group of our own, OPEESA is a member of NAW (National Association of Wholesale Distributors), and our executive director, Nancy Cueroni, is a former board member of that organization. Periodically throughout the year, we have, as an organization, written letters to the powers that be regarding what these policy changes would mean to our constituency. It is good to have a voice in D.C. during these political times.

The big stories in 2018 for OPEESA will no doubt be weather, labor (both at the distributor and dealership levels) and tax reform. The political environment is important to stay on top of, and OPEESA is very strong at doing this.

 

3) What will be the OPE industry’s hottest trends in 2018, and how can OPE dealers capitalize on them?

TF:

Gardner Inc. and OPEESA: I think the hottest trends challenge dealers and distributors alike. Battery power is now shifting from an industry “push” to a consumer “pull,” particularly on handheld product. As mentioned before, battery power product is here to stay, and we have our team trying to work with dealers on how to manage the change in service model. What might have been a product sale and annual service revenue could just become a product sale. That is a different business model than the old model. That said, chargers and batteries become a new product in and of itself that need to be stocked and supported.

EFI technology, while not new, is a trend that has really gained traction on whole goods throughout the industry. Knowing and understanding how to deal with EFI will be a differentiator between dealers, as more and more of this product comes in for service in the next several years.

 

4) What is your overall outlook for the OPE industry in 2018?

TF:

Gardner Inc.: As it stands, I am bullish on the OPE industry for 2018. Dealers’ health from Gardner’s standpoint seems solid. A good, late cutting season in the Northeast and fairly decent weather conditions in our territory have flushed out a good amount of inventory at the dealerships. It is late enough in the season to get a good read on our booking program, and it is always great to see more and more dealers participate in spring booking programs to maximize margin throughout the supply chain. Last year, I think primarily because of the election and economic uncertainty, the industry was quite conservative on any purchasing decisions, and I think that uncertainty has subsided a bit. That said, like any year, I think weather could potentially derail what I think should be a very solid OPE year.

OPEESA: One of my favorite things about being involved at the board level with OPEESA is that, at every meeting, we get together and share how each of our companies is doing. Hearing what I have heard recently, I think the biggest determinants of how successful the industry will be in 2018 are (in order): 1) weather; 2) labor; 3) interest rates; 4) politics; 5) the Internet as a sales channel. All of that said, the general consensus is positive going into 2018 – especially if we can get some much-needed snow.

 

5) What advice do you have for OPE dealers in 2018 and beyond?

TF:

Gardner Inc. and OPEESA: You run your dealership far better than I would; that much is clear. So, take this advice for what it is: a suggestion. These are some of the things we are approaching as a management team, and I think they are very relevant to dealers.

It is easy to go season to season in this industry. We all do it. I do it. But this year, more than most, I think it is important to take a look at the macro environment and understand what is going on and how it affects each of us. There are two major macro-changes in 2018 that we all need to be aware of and plan accordingly. First, tax reform has passed; at the time of writing (Dec. 11, 2017), the House and Senate bills have not been reconciled. The bottom line is that corporate taxes are going down substantially. At the moment, it is unclear exactly what will happen to pass-through entities. It is important that you talk to your advisors to determine how you can optimize your tax structure as an entity. Second, there is good consensus that interest rates are going to increase. With the tax reform, could this accelerate the rate of increase? Smarter people than I would have a better view on this. However, I have been back in the industry for 10 years now and, like some of you out there reading this, have not seen high interest rates during this time period. I think it is a good time to determine what increasing interest rates mean to your business. I would particularly analyze anything that has a variable interest rate (e.g. variable mortgages, line of credit, floor financing).

Lastly, the Internet is here to stay. It is a rapidly growing channel for all of the product that we all sell. Some of you use it to your advantage; some of you steer clear. I think the best way to approach this is to have a strategy. Understand pricing and the dynamics of a customer that wants to shop online vs. in a brick-and-mortar store. I don’t know that there are any right answers here, but my suggestion is to have a strategy and execute on your strategy.

 

JEFF DEWOSKY

VICE PRESIDENT AND GENERAL MANAGER

HUSQVARNA NORTH AMERICA

(CHARLOTTE, N.C.)

 

1) What is new with your company/organization for 2018?

Jeff Dewosky (JD): At Husqvarna, we have an exciting year ahead of us. We have several new product launches lined up for 2018, including our first-ever stand-on mower, a new zero-turn series, new professional battery products, and new Automower models, just to name a few. We are also launching our Cloud-based Fleet Services system in Q2, and are excited to finally roll that out in the U.S., and help commercial fleet owners become more efficient. Overall, Husqvarna’s main concept is the full trailer – we are the only manufacturer that can fill your entire trailer, from handheld to wheeled to robotic.

 

2) What were the OPE industry’s top stories in 2017, and what do you predict they will be in 2018?

JD: Sustainability was a huge topic throughout 2017 – we’ve seen it influence every part of the industry, and it will continue to dominate in 2018. The regulatory impact that’s coming to our industry will hopefully be on everyone’s mind as communities look to further reduce carbon emissions and deal with drought situations.

 

3) What will be the OPE industry’s hottest trends in 2018, and how can OPE dealers capitalize on them?

JD: If the past years have been any indication, we will continue to see battery-powered products finding broader adoption in the consumer and professional spaces. I think we are getting really close to a tipping point in the commercial industry, as sustainability continues to become more and more of a driver for them and products continue to get better. We are excited to contribute to this positive trend, and continue to innovate in this space as states are developing new rules for equipment carbon emissions. The best way for dealers to capitalize on this is to continue to embrace and support the technology and innovations we’re offering them to help professionals and homeowners be more efficient and more sustainable.

Robotics will be the other 2018 trend. As you could see during this year’s GIE+EXPO, robotics is happening everywhere. As the manufacturer of the world’s best-selling robotic mower, we’re obviously biased, but we think it’ll be a major driver in the consumer and commercial markets in the coming years. That’s why we’re launching our commercial Automower solutions in 2018, and will continue to lead the charge in robotic mower innovation.

 

4) What is your overall outlook for the OPE industry in 2018?

JD: Husqvarna is extremely optimistic about what the coming year has in store for the industry. 2017 presented a lot of advancements in technology and sustainability that we feel will not only continue in 2018, but will vastly improve. We’re excited to be part of that momentum and to be leaders in several fields. But especially when it comes to sustainability, the entire industry has to work toward a common goal and in the same direction.

 

5) What advice do you have for OPE dealers in 2018 and beyond?

JD: Our advice is to embrace new technologies, and continue to educate themselves about the new products and innovations coming their way. Dealers are no longer just sellers of equipment – they are also serving as customer service points and first-in-line consultants about how to maximize productivity and efficiency. In that capacity, being able to offer innovative new solutions and technologies will become more and more important.

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