27-RV Market in Hostility
A leader may be dominant in its industry and still fail. There have been many examples in recent years, including Sears and GM. The RV industry has seen a dominant leader, doing many things right, fail outright. Fortunately, a new set of leaders emerged who did even more things right. Here is the tale.
Posted 6/9/08
The RV market is in hostility. A hostile market sees low returns on investment, even for the industry leaders. One of the largest players in the market, Fleetwood Enterprises, has seen five straight years of losses. Another leader, Winnebago Industries, while still profitable, has seen four consecutive years of falling sales. This hostility has been caused by a rapid and deep fall-off in demand.
Once an industry enters hostility, it will usually witness a “flight to quality” where customers migrate away from weaker competitors toward those offering a better value proposition. (See the Perspective “Success Under Fire: The Policies to Prosper in Hostile Times” in StrategyStreet.com/Tools/Perspectives).
Few companies, even the largest, perform well in hostile markets. For every Toyota there are several companies like GM, Ford and Chrysler. Many of the policies that make a company successful in normal times get in the way during hostility. In fact, some of the rules for success seem downright counter-intuitive. Briefly, there are five rules that seem to be patterns for companies who succeed in hostile markets:
- Strive for a good mix of both large and medium-sized customers. Ignore demands of small customers.
- Cover a broad spectrum of price points. Avoid over-reliance on the high or low price points.
- Differentiate your product and company on the basis of Reliability. Unique product Features are less valuable.
- Turn price into a commodity. Seek payback in sales volume, not in price.
- Emphasize productivity and economies of scale in the cost structure, but remember that good value for the customer comes first. You can’t cut unit costs without customers buying the units.
For more description of these patterns and their implications, see “Staying Alive in a Hostile Market” in the Tools/Perspectives section of StrategyStreet.com.
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Update 2022:
After reaching a low of 165,700 shipments in 2009, the industry boomed to shipment totals of 600,240 in 2021. During that time the less expensive towable products gained a great deal of share compared to the more costly motorhome segment. The industry is centered around Elkhart Indiana which hosts a large network of related transport equipment companies, including utility trailer makers and specialty bus manufacturers who source from common supply chains.
The industry is long out of hostility. The industry leaders in 2009 have had mixed results. This story is revealed in the outcomes of three of the industry leaders in the 2008 market: Fleetwood Enterprises, Winnebago and Thor. Fleetwood struggled and fell. The motorized recreational vehicle assets of Fleetwood Enterprises were acquired by a private equity firm in 2009. The other parts of the company were acquired by competitors. In 2010, Heartland Recreational Vehicles acquired the remaining active trademarks of the towable brands of Fleetwood. Winnebago was a winner. Winnebago has seen its sales rise with the industry, with profitable results and positive cash flow. Thor comes out somewhere in the middle. Thor has also seen significant growth and profits with inconsistent positive cash flow.
Surprisingly, we have found that failure of competitors in an industry moves more market share than does the success of competitors offering better products. See HERE for an explanation.
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Update 9/25
The RV industry has consolidated into only three major players today. At one time Fleetwood Enterprises was the dominant leader in the RV industry. They lead with highly reliable products skewed strongly to the high-end, Performance Leader, of the market. But they failed and a new set of leaders emerged to dominate the industry and take it out of Overcapacity. These new leaders included Berkshire Hathaway, Thor industries and Winnebago. Berkshire and Thor each control more than 35 % of the industry’s market share. The top three leaders control about 84% of the industry.
These leaders established their positions through aggressive acquisition programs of smaller competitors. They then offered the market several benefits common to successful industry leaders in other markets:
– They offered multiple price points in the market (Function). Everything from towables to motorhomes across multiple brands.
– They adopted new technology and materials to produce more efficient, cost-effective RVs (Function).
-Each leader emphasized product quality and brand reputation with both its distributors and final customers (Reliability).
-The leaders each offered dependable and convenient dealer networks to service their customers (Reliability and Convenience).
-The leaders benchmarked their prices against one another, ensuring that no competitor would take advantage of the others and effectively turning price into a commodity for the final customers.
-They created significant economies of scale through operational efficiency and tight cost controls.
These difficult to copy tactics gave the three industry leaders control of an attractive market. Prices have risen substantially over the last five years as the industry leaders control pricing and demand increases. Returns in the industry are high despite the fact that the industry maintains highly cyclical nature.
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HOW CAN THESE BLOGS HELP ME?
If you face a competitive marketplace, read these blogs. We wrote them to help you make better decisions on segments, products, prices and costs based on the experience of companies in over 85 competitive industries. Much of the world suffered a severe recession from 2008 to 2011. During that time, we wrote more than 270 blogs using publicly available information and our Strategystreet system to project what would happen in various companies and industries who were living in those hostile environments. In 2022, we updated each of these blogs to describe what later took place. You can use these updated blogs to see how the Strategystreet system works and how it can lead you to better decisions.