Sounding like a 1970s Edgar Winter hit tune, Harley-Davidson (NYSE:HOG) is hoping that free rides
are the ticket to higher revenues.
The motorcycle maker is in the midst of a protracted sales slump, with third quarter sales down 1.4% worldwide
and 2.5% in the U.S. That led it to reduce dealer shipment guidance 4% to a range of 265,000 to 270,000 motorcycles.
Harley admits one of the issues may be its insistence on holding the line on pricing. The company has preferred to
protect its margins, though much of the rest of the industry has resorted to discounting. While Indian Motorcycle
maker Polaris Industries (NYSE:PII) notched a 154% gain in motorcycle sales, it came at a cost, as gross margin
percentage tumbled 126 basis points company-wide. In contrast, Harley’s margins remained largely unchanged.
Of course, there are reasons for the disparity besides promotional pricing. Motorcycles make up a comparatively
small part of Polaris’s sales, just 11%, while off-road vehicles make up almost 57%. It generates 40% more sales from
parts, clothing, and accessories than it does selling bikes. But it was currency exchange rates that comprised the biggest
component of its decline (60%, in fact, mostly from Canada) with the incremental costs associated with its motorcycle
business coming in below the company average.
Of course, Harley’s not immune to the allure of what promotions could do for it, so it’s taking a different route instead,
one that it hopes will drive a path to long-term sales growth. One of the bike maker’s initiatives has been designed to
attract new motorcycle riders to the brand. Harley’s core customer is the 35-and-older white male who for years has
been the backbone of its motorcycle sales. But in the wake of the economic recession, which hit that demographic
hard, worldwide bike shipments tumbled from a high of almost 350,000 in 2006 to 270,000 last year. As a result,
Harley has changed its focus on the type of rider it goes after.
Rather than simply pursuing upper-middle-class white males, the bike maker is reaching out to a broader demographic,
many who are also largely first-time bike riders to help lessen Sliding Bike Sales. The launch of its urban-oriented Street
500 and 750 models was a play directly for these riders, one that has been fairly successful. Year to date, Street bikes are
Harley’s only style to have seen an increase in year-over-year shipments to dealers.