Watermark boat sale strikes a nerve

When SNEWS ran a quick news short in last week’s Outdoor Did You Hear?…, we never imagined the response those few words about a 20-percent discount with July ’04 dating would generate. Phone and email commentary to our offices ranged from vitriolic to mildly concerned — all from reps and Watermark competitors. Those who contacted us worried that the discount and extended dating would serve to flood the market and devalue a boat market just as things looked as though they were stabilizing.

Kelly Woolsey of Confluence spoke to us and asked us to convey the following message:

“Watermark does it again, just like in 2001, right in the heart of the season. There goes the perceived value of a kayak and retailer margins out the door. What about all of the excess inventory retailers still have sitting on their floors? Is Watermark going to extend them a 20 percent off that inventory and extend the dating too — they should.

Watermark should be thanking us for selling their boats right now since Wilderness is selling and retailers can’t get our boats (ed note: read Confluence story two weeks ago for the reason), so they are going to satisfy their customer by giving away a Perception at a discount.

The real issue is that Watermark has too much product, or their retailers do, or too much capacity that is not being met, so they are paying retailers to take on their problem for them.”

Naturally, SNEWS picked up the phone and began searching for those retailers who were overstocked. What we discovered were plenty of retailers who were perfectly happy to take some boats off Watermark’s hands at a discount to improve their margins if they could. Primarily, retailers were quite nonplussed about the whole thing.

One major watersports retailer, who asked not to be named, was more blunt than most. “I’m perfectly happy to assist either Watermark or Confluence in their continuing efforts to race to the bottom of the market.” OUCH!

What has become apparent is there is a market shift at the specialty level, with the big three (Johnson, Confluence and Watermark) no longer occupying the primary vendor choice for most at the mid- to high-end anymore, for a wide variety of reasons. Impex, Liquid Logic, Eddyline, and other companies focusing on the specialty dealers are reaping added sales and attention.

A number of retailers wondered if there would be price matching by the other dealers, triggering a price war, but we doubt it — at least not on the surface.

“We are going to stay our course and provide good products and service to our dealers and play on the heart strings of our dealers. Hopefully, they will say we want to support a company that is providing us with such strong product and service, product that is not overproduced and at good margins,” said Steve Jordan, vice president of sales for Liquid Logic. “Bottom line for us is we can’t and don’t want to play the price game simply because we are not trying to expand our distribution into channels we can’t service.”

SNEWS does know of several dealers who have used the Watermark deal already as leverage to obtain extended dating and even increased discounts from one or two of the other major boat suppliers, and we’d expect to see more of that. If a retailer is dealing in sufficient quantities of boats, and pays the bills on time, that is a strong position to negotiate from.

Of course, none of the above really answers the question of what Watermark’s motivation is. Some have openly accused the company of trying to flood the market channels with boats and orders prior to Outdoor Retailer, to preempt any deals Confluence or Johnson might put forward at that time by tying up storage space and open-to-buy dollars.

Our answer to that is, so what? That’s nothing new in business. Columbia regularly does that with its Earlybird model, as does Patagonia and The North Face and Nike…the list goes on and on. If you’re a big enough company, Early Buy programs make sense in an ever-competitive market. Nobody is forcing retailers to buy into the programs, are they?

Some have speculated that Watermark might actually be trying to stuff the market with boats to pump up its receivables so it can then increase the size of its bank loan. Possible, but again, this doesn’t seem like the most plausible reason going.

Others have told us it is clear that Watermark is sitting on way too much inventory, either at the factory, or in the supply chain. We’ve checked around, looked under carpets, behind doors, and while it does look as if Watermark is jettisoning some excess whitewater inventory on Sierra Trading Post of all places (as is Confluence), we can find no real evidence to support that assertion either. Quite a few retailers have told us they’ve done nicely with Watermark boats this year, thank you very much, just as they have with Confluence and Johnson.

The most likely reason for the deal comes from insiders. We have heard for a few months that 2004 boats will be using a new resin blend. SNEWS also suspects that Watermark is sitting on quite an oversupply of old resin. Best way to get rid of it? Ramp up production of “old” 2003 boats made with the old resin, which is why some of these boats may have cosmetic features that are from the 2004 line as molds are being changed already. Now, what retailer in his right mind is going to take on 2003 models with 2004 models waiting right around the corner, unless a sweetener is tossed in — discounts and very attractive dating. Naturally, Watermark doesn’t mind putting its competitors into a bit of a tizzy at the same time either. The Watermark team offered up a very warm and friendly, “No comment,” when asked.

Of course, Watermark didn’t exactly do this as smoothly as possible. You see, the company sent out a fax from the company’s customer service department on Friday, July 11 — we know because we have a copy of the fax promotion in our office, and the retailers who contacted us to alert us to the deal also did so on Friday. Several folks who received the fax were laughing, because they aren’t even retailers, but that’s beside the point. We know of at least one retailer, a really, really good one, that never received a copy, leaving them to read about the deal in SNEWS. Having the rep then tell that retailer that they didn’t know about it either didn’t exactly ring true — if that is indeed what happened.

As far as a potential inventory glut, price drop, devaluation of the market, whatever, one retailer, who also asked not to be named, perhaps sums it up best, and we quote, “The fact is that this is a simple example of a given product at a given price with generous terms. Buyers need to take that into account in the same way they would with any other open-to-buy they’d put together for preseason or in-season orders. Inventory management, the need to maintain a decent margin, the need to be competitive in a marketplace — none of this changes. The greatest mistake a buyer can make is to toss away the basics of good business to jump on what seems at first glance a super deal. Good deals are not good deals if they do not return on investment for the business. At best this is an opportunity for a retailer to position themselves in their market with a better chance to maintain or increase their margins. The risk, with the long dating, is reduced. But a risk reduced is still a risk and everyone needs to be vigilant on that end. The biggest mistake is to do what we retailers so often do, which is to jump on an item at a lower price and immediately drop the retail price to match, giving away what could be dollars in our tills. The concern is that with an offer like this, all it takes is for one dealer in an area to drop prices forcing everyone else to match.”

SNEWS View: Here is the bottom line. Deals will abound in the months to come as manufacturers, both in paddlesports and in the general outdoor market, seek to move excess inventory, stimulate sales, or take a bite out of a competitor’s backside. It is up to the retail community to remain on guard, as our retailer said so elloquently above. If you get a deal from a manufacturer and sell the product at full retail, you garner a larger margin, and that’s a good thing. If you get a deal from a manufacturer, and then you use that to play to the market around you with discounted product, that forces other retailers to react, and that is when everyone suffers as margins plummet and the perceived value of your full-margin boats will likely suffer too. Most of the retailers we spoke with told us that IF they took advantage of the deal (and it looks as though many are as the latest word from retailers is they’re being told production is backed up), they’d look to use it to buy boats for year-end deals if needed, special Christmas promotions perhaps, at an improved margin for sure, and, hopefully, by July 2004, have them sold at a good return. Now that’s good business.