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Harley Davidson, is it too late for a turnaround?

  • Market scenario for motorcycles
  • Present challenges and threats
  • Area of opportunity 

 

Harley Davidson is an American motorcycle manufacturer, which was established at Wisconsin in 1903. It has since been a leading player with a solid brand presence. Harley motorcycles appeal to a wide range of customers due to its iconic brand. The company also has a strong customer loyalty. But Harley Davidson has been struggling to boost its sales with a stagnant revenue for a decade due to several factors.

In North America, the U.S. is the primary stronghold for the company and represents more than 71% share of its revenue. Although, Asia is the largest motorcycle market in the world, here Harley currently generate around 10% of its sales revenue. The firm has a large and unwavering customer base in the U.S., but the average age of its existing customers is increasing. Harley Davidson is unable to generate sufficient traction among the young generation as they prefer speed, agility and lower prices of cruiser motorcycles, which are manufactured by other companies. Harley Davidson is struggling for a comeback on its strong growth trajectory experienced in the pre-2000 era.

In the past century, Harley’s strategy centred around North America and also served it well, although this failed in the 2000s as global recession deeply impacted the developed markets at the beginning of the new century and this had a tremendous effect on Harley’s revenue growth performance. In addition, tough economic conditions, increase in the average age of loyal customers and shift in the preference of young buyers also had a bearing on the fortunes of the company. Further, 2000 onwards Asia emerged as the biggest market in the world, Harley was unable to generate a strong traction as the market is highly price sensitive and selling premium high-priced motorcycles limit the market penetration.

Moreover, parallels can be drawn between General Motors and Harley Davidson’s revenue performance since 2008. The inclination of consumers shifted over the years along with intense competition from new and existing rivals (Tesla and Toyota for General Motors. Ducati, Honda and Royal Enfield for Harley Davidson) and made both the companies fell prey to these changes. General Motors began the process of restructuring its operations with the sale and closure of several divisions in the world owing to non-performance. Televisory believe that Harley Davidson should expand its focus on the fast-growing markets around the world since a lack of revenue growth is impacting its business performance and the shutdown of Kansas city factory was an outcome of the same.

 

Motorcycle market scenario

Furthermore, two of the biggest global markets for motorcycles are in India and China. The U.S. which is the largest market for Harley Davidson has been experiencing a low growth rate for motorcycles. India is witnessing a strong growth in motorcycle sales and the country recently dethroned China (2017) to emerge as the major market for motorcycles. The market in China is rapidly declining since 2013 and on an average saw an annual decline of more than 5%. Hence, internationally, the opportunities for motorcycle manufacturers are reducing and India is emerging as one of the key markets for most motorcycle manufacturers as it is showing signs of sustainable growth.

Present challenges

Televisory’s research identified few of the prominent challenges faced by Harley Davidson in terms of growth in sales. This mainly revolved around lack of appeal among the young generation, expensive price of its products, which resulted in limited penetration, especially in the Asian market. Further, stiff competition from cheaper Asian imports in the U.S. and a rise of the average age of its existing customers created a shift as they moved towards more safer modes of transportation. 

The Asia-Pacific region was the fastest growing segment for the company, but recently there has been a slow down due to price sensitivity of demand and stiff competition from local players selling more economical models in the above 250cc segment. There is a similar price sensitivity in South America and the growth is weakening YOY for the company due to cheaper Asian imports, which are competing head on head with Harley. On the contrary, North America, which is the stronghold of the company, is flagging due to change in preference of the young and the ageing of present customers. Europe is a lot more volatile in relation to growth rates, but is in a similar situation with a high competition from local players such as Ducati and Triumph.

Harley saw growth of sales in Asia, but the powerful cruising bikes come with an expensive price tag, which limits its presence in the region. The Asia-Pacific sales growth were averaging around 10% YOY since 2011, but these dropped to 2% in 2016. Additionally, North American unit sales, which represent the largest share of sales are also declining since 2014. This caused an overall decline in the sales of the company.

Harley Davidson is making sincere efforts for a turnaround and it introduced newer models and also increased the total number of models from 28 (2011) to 41 (2016). However, the sales are unimpressive due to a recent change in the preference of customers.

Royal Enfield threat

The Royal Enfield, which is owned by the Indian commercial vehicle manufacturer Eicher Motors saw a strong growth in its international sales in the last 3 years. It posted a solid CAGR of 36.9% for its international revenue with a total of 25 exclusive stores in 13 countries. Likewise, Royal Enfield surpassed the unit sales of Harley Davidson in FY 2014 and its sales saw a rapid growth since then. The more economical models sold by the company are witnessing a strong traction in the global market mainly due to its dominant market share in India (95%) in the above 250cc segment and its growing international appeal. The vintage look of the motorcycle with its traction sound and economical price tag appeal to motorcycle enthusiasts all across the globe. Currently, Royal Enfield earn a small percentage of its revenue from the international market, but is expanding its global volume growth and presence as compared to declining sales performance of Harley Davidson. Thus, it is a potential threat to the dominant U.S. player.

Areas of opportunity

India has emerged as the largest motorcycle market in the world. The country has a huge population of young people with an increasing purchasing power. Harley Davidson which caters to the high-end segment of the market can create a strong appeal among motorcycle buyers inclined towards Royal Enfield. Televisory is of the view that Harley Davidson can revive its growth through India. The motorcycle market in India is filled with a variety of economic models, but with a rise in the per capita income, Harley Davidson is in a good position to capitalize on its brand legacy and can potentially see a rapid sales growth in India. Harley motorcycles are costly and the company will have to count on its brand image to gain a share in the Indian market. Harley is trying to market itself in India with its freedom riding revolution via owner riding appeal and ownership status. It will face a stiff challenge in the creation of demand as its motorcycles are expensive and are almost more than double the cost of the segment leader Royal Enfield. Further, Bajaj Auto, which is one of the major Indian motorcycle manufacturers has taken initiatives to boost the growth in above 250cc segment. This can increase the competition for Harley Davidson in India. A three-way battle could be fought, this would not be in the best of interest for Harley Davidson as its motorcycles are relatively expensive and the brand awareness in India is lower than the two local manufacturers.

The growth of sales in India will remain a key factor for the company as motorcycle markets globally are hitting the saturation levels creating an inflexion point in the sales of the company. The company is trying to shift its focus on the development of next-generation motorcycles and the young Indian population with a rising purchasing power can provide Harley Davidson with a right platform.

Overall, India is emerging as a major global motorcycle player and if Harley Davidson can capture the attention of its young people, the company would end up with a strong volume growth trajectory in the future. India can play a crucial role in the growth of Harley Davidson.

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