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U.S. marine fabric market in calmer waters

August 1st, 2011 / By: / Marine, Markets

The U.S. marine fabric market hit rough seas during the recession, but solid improvement is underway.

Although the U.S. marine fabric end product manufacturer market has experienced negative annual growth since 2008, it is now working its way toward firmer footing in 2011.

The marine market hit with an economic downturn in the second half of 2008 experienced one of its worst years in terms of revenue in 2009. Weak retail market conditions in 2009 resulted in an approximate 19 percent decrease in new boat unit sales compared to 2008. However, the U.S. marine fabric end product manufacturer (EPM) market improved in 2010, with a more subdued 5-7 percent decline in growth due to tepid marine retail markets.

There were 517,745 new boats sold in 2010, a decrease of 10 percent compared to 2009. On top of this, total pre-owned boat sales reached 929,900 units, a decrease of 2.4 percent over 2009. Marine aftermarket accessories sales held their ground, increasing 6 percent to $2.4 billion in 2010 versus $2.3 billion in 2009.

The decline in marine retail demand is expected to level out in 2011. Additionally, it is anticipated that the 2011 marine retail market for smaller boats (under 28 feet long) will outperform mid-to-larger-sized boats. In fact, on a rolling 12-month basis (June 2010 to June 2011) unit sales of outboard boats (under 40 feet long) increased for the first time in more than five years.

The typical midsized boat category (28-35 feet long) and priced between $100,000-$300,000 has been hurt by the mortgage crisis, which caused financing to dry up. Boat manufacturers will try to match boat production and wholesale shipments relative to retail boat sales in 2011.

Revenue growth will be largely dependent on retail boat demand. According to consulting firm Spader Business Management, through April 2011 the average boat dealer reported new boat sales were up 13 percent, and new boat inventory levels were about 10 percent higher than the end of April 2010. This indicates that if the economy and consumer confidence is better in the second half of 2011, there is support for an uptick in sales for marine EPMs in 2011. Unfortunately, the U.S. economy has not shown strong growth with GDP reaching 0.4 percent in the first quarter—the lowest quarterly GDP reading since Q2/2009, when it reached -0.7 percent. The consumer confidence index, a key marine industry barometer, has been up and down in the first half of 2011 with worry about current business and labor market conditions.

IFAI market research conducted a business climate survey with marine end product manufacturers and suppliers in June 2011. Survey results show that marine fabric suppliers have been feeling the impact of a sluggish operating environment resulting from competition from low-cost fabric imports (especially from China) and price discounting. Many budget-conscious consumers have held off on buying new boats and accessories in 2011 as well. As a result, many marine fabricators have diversified their product portfolios to more effectively compete. Repair work, updating of older boats, making custom boat covers for used boats, and awnings are some of the areas of expansion.

2010 trends and their impact

Suppliers felt the impact of the weak economy with lower fabric sales revenues. Pressure from low-priced imported fabrics, especially from China, impacted sales and narrowed profit margins. Squeezed by pressure to discount prices to get business and the increasing cost of materials, many suppliers were finding it difficult to pass along price increases to their customers and experienced smaller profits. With materials in tight supply, there was simply less inventory to sell. With fewer large boat sales, and more small boat sales, suppliers needed to work harder to generate more sales dollars.

EPMs turned to diversifying and manufacturing different products (such as awnings) in order to generate sales. With restricted lines of credit, consumers were not able to spend as much, particularly on larger purchases. Some EPMs found that the lack of qualified employees restricted business expansion and at times impacted the quality of work as well.

Consumers chose to buy more used boats at competitive prices, which lowered the number of new boat sales. However, this offered more opportunities for repair and replacement work for EPMs. Customers were also more likely to wait until “the last minute” to order materials; sometimes EPMs had to turn away business because there was not enough time to fill an order.

“Off-the-shelf” boat covers available from catalogs and websites created more competition, and boat dealers needed to develop their online presence to retain boat cover sales. Although material costs (fuel, vinyl, foam) were higher, EPMs found that they sometimes needed to maintain or lower prices to keep customers from switching to competitors who were discounting their prices. Generally, fewer customers translated into fewer projects, pushing EPMs to work harder, longer and smarter to get and retain business.

Change in 2011

Suppliers and EPMs in IFAI’s marine fabric climate survey cited a variety of changes they were seeing in 2011, from an increasing repair market driven by slow growth in the new boat market, to the dramatic increase in the prices of key materials, especially petroleum-based fabrics.

Specifically, suppliers noted that the high price of some raw materials will cause many fabricators and OEMs to be open to buying alternative fabrics. There are still negative numbers in the growth of new boat production and sales year-over-year, but the decrease is smaller.

End product manufacturers again cited the trend toward more repair work and updating existing boats, particularly older and smaller boats. With an oversupply of low-priced vessels, new customers for boats could be brought into the market.

Some fabricators have turned to lower cost and lower quality materials, and employing less skilled, cheaper labor to reduce costs. However, lower-cost fabrics entering the market will also be carrying longer warranties.

But with customers more frugal in how they spend (buying smaller boats and used boats) more shops may close their doors, especially those that don’t adapt their business to the slow boating sales environment. Shops that flourish will have a leaner operation in terms of controlling their expenses, and in time and materials employed in manufacturing.

2011 outlook

Suppliers see a flat new boat market for the remainder of 2011. Many price-conscious EPMs will continue to seek less expensive materials and labor to win business from price-sensitive customers. Boat manufacturers and fabric suppliers will closely monitor the retail boat-selling market to coordinate boat and fabric production volumes appropriately.

EPMs see the marine fabric market slowly coming back. The current slump in boat sales will change how they market their products, using web-based tools, discounting prices and increasing advertising budgets. They see raw material prices remaining high compared to 2010, which will affect their ability to compete with imports from China. They also expressed concern that the market will continue to have a hard time finding skilled craftspersons for custom work.

However, survey respondents reported their sales outlook for 2011 versus 2010 was 65 percent favorable—27 percentage points higher than in 2008, the first time the marine fabrics EPM/supplier climate survey was administered. Only 10 percent of EPMs and suppliers reported an unfavorable sales outlook for 2011, which is 21 percentage points better than 2008. The mean rating of 3.8 indicates the EPM/supplier sales outlook for 2011 is much more favorable than in 2008, when the mean rating was 3.1. (This is based on a scale of 1 to 5, from “much worse” to “much better.”)

Although sales growth in the U.S. EPM marine fabric market is expected to still be slightly down in 2011, EPMs and suppliers feel sales will be much improved over the past few years; in fact, suppliers reported a more optimistic sales outlook for 2011 (reporting a mean score of 4.3) than did EPMs, who reported a mean score of 3.6.

The message gleaned from the IFAI marine fabric climate survey is that although the marine fabric end product market has had annual declines in sales growth since 2008, sales growth has declined at a slower rate in 2010 and 2011; decline in sales growth should begin to flatten out by year-end 2011. If the economy improves at a more upbeat pace in the second half of 2011, the marine market could bounce back faster than anticipated. And that would make for smoother sailing for marine fabric suppliers and fabricators.

Jeffrey Rasmussen is IFAI market research manager. He can be reached at jcrasmussen@ifai.com or +1 651 225 6967.

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