Harley-Davidson

Harley Targeting “Many Roads” Out of its Present Impasse with Dealer Strategy and 2022 Product Plan Reveal

As revealed when Harley-Davidson released its Q2 2018 Fiscals (July 24), the Motor Company subsequently unveiled what it had trailed as its “accelerated strategy for growth” announcement on July 30.
Called “More Roads to Harley-Davidson”, it is a growth plan for the period through to 2022 and adds detail to the “what next” question (following the M-8 Tourers and Softails) in the context of CEO Matt Levatich’s 10-year strategic announcements made in January 2017.

We need stronger dealers who will drive a performance framework to improve dealer financial strength and the Harley-Davidson customer experience

“In a fast-changing world with new consumer demands, these accelerated actions support Harley-Davidson’s 2027 objectives with increased focus and strategic investment to reinvigorate the U.S. business while accelerating the pace of international growth.”
Levatich states that “the bold actions we are announcing leverage Harley-Davidson’s vast capabilities and competitive firepower - our excellence in product development and manufacturing, the global appeal of the brand and, of course, our great dealer network. Alongside our existing loyal riders, we will lead the next revolution of two-wheeled freedom to inspire future riders who have yet to even think about the thrill of riding.”

‘keep current riders engaged’
 
Described as being the result of a “comprehensive, top-to-bottom assessment” incorporating a “customer first” perspective, the “More Roads to Harley-Davidson” plan addresses three broad strategic areas - new products, dealer strategy, and how the plan will be funded – in short, the latter is basically to fund the new products from judicious management of resources and smart fiscal governance.
The headline news is of the new products – in addition to the outcome of the ‘Project Livewire’ program resulting in new electric powered Harleys on sale at some point in 2019, the company has confirmed its long rumored entry into the Adventure Tourer market, which with a new ‘modular’ engine platform will address the calls for it to finally make its brand a significant player in the burgeoning middleweight motorcycle market, and to take the ‘Bar ‘n Shield’ into the lightweight displacement segment, especially in Asia.

“Our existing world-class dealer network is an integral part of the company’s accelerated strategy and critical to overall success”

In terms of its response to its tariff driven announcements of June though the company is still not yet ready to announce where its European inventory will be manufactured.
However, of equal significance to the new model plans is that Harley has now gone public with an insight into the frustration it clearly has been feeling with its traditional core dealer network. Whilst they are making every effort to assure its long-standing dealers, they clearly see their legacy dealer footprint as being as much of an obstacle to the skin-shedding that the company clearly needs to conduct as it is to being an opportunity for it to move forward.
Either way, Harley has responded to the pressure it has been under from many investors, analysts and commentators, to say nothing of urban dwelling potential ‘New-Gen’ consumers to start finding a way to take the brand “downtown” that is not limited to PG&A and aftershave.

In new product terms, Harley says its mission is to “keep current riders engaged and inspire new riders by extending heavyweight leadership and unlocking new markets and segments.”
In terms of addressing dealer performance, Harley states quite openly that it believes it needs “stronger dealers” who will “drive a performance framework to improve dealer financial strength and the Harley-Davidson customer experience.” 


 ‘the company’s first Adventure Touring motorcycle’

Speaking to dealer geography and to better embrace the buying transaction habits of the new consumers it needs to engage with, Harley says it is to invest in “broader access” and to “meet customers where they are,” and facilitate how they want to engage with a “multi-channel retail experience.
“We expect this plan will result in an engaged, expanded Harley-Davidson community with a more diverse rider base, along with industry-leading margins and cash flow,” says Levatich.

“Leveraging our industry-leading design and strong manufacturing capabilities, Harley-Davidson plans to offer its most comprehensive line-up of motorcycles, competing in many of the largest and fastest growing segments with a full portfolio of motorcycles across a broad spectrum of price points, power sources, displacements, riding styles and global markets.
“The highlights will include extending the company’s leadership in heavyweight motorcycles by continuing to develop improved, more technologically advanced Touring and Cruiser motorcycles that will keep existing Harley-Davidson riders engaged and riding longer.
“Introducing a new modular 500 cc to 1250 cc middleweight platform of motorcycles that spans three distinct product spaces and four displacements - starting with the company’s first Adventure Touring motorcycle, the Harley-Davidson Pan America 1250; a 1250 cc Custom model, and a 975 cc Streetfighter model, all of which are planned to launch at the beginning of 2020. Additional models to broaden coverage in these product spaces will follow through 2022.”
 

 ‘new modular 500 cc to 1250 cc middleweight platform’

Harley also states that it is to develop “a more accessible, small displacement (250 cc to 500 cc) motorcycle for Asian emerging markets through a planned strategic alliance with a manufacturer in Asia.  This new product and broader distribution is intended to fuel Harley-Davidson’s customer access and growth in India, one of the largest, fastest growing markets in the world, and other Asian markets.”
Ambitiously, Harley also states that it intends to lead the electric motorcycle market by “launching Harley-Davidson’s first electric motorcycle, LiveWire, in 2019 - the first in a broad, no-clutch “twist and go” portfolio of electric two-wheelers designed to establish the company as the leader in the electrification of the sport. LiveWire will be followed by additional models through 2022 to broaden the portfolio with lighter, smaller and even more accessible product options to inspire new riders with new ways to ride.” It is thought that these will include electric scooters and mopeds, ‘PedElecs and bicycles.
In terms of its “broader access” pledge, Harley-Davidson will “advance its market delivery approach and meet today’s customer needs by creating high-engagement customer experiences across all retail channels – including improving and expanding the company’s global digital capabilities by evolving the Harley-Davidson.com experience to integrate with and enhance the dealership retail experience for existing and new customers.
“Establish strategic alliances with global leading e-commerce providers to extend access to Harley-Davidson to a pool of millions of potential new customers” and develop “new retail formats - including smaller, urban storefronts globally to expose the brand to urban populations and drive sales of the expanded Harley-Davidson product portfolio and expand international apparel distribution.”
 
 ‘develop new retail formats’

Clearly aimed at leveraging the very different character of much of its dealer network as it plans for the mid twenty-first century, Harley’s requirement for “stronger dealers” will have to be managed in the context of its existing network. The company says that its existing “world-class dealer network is an integral part of the company’s accelerated strategy and critical to overall success.
“The company will implement a performance framework to significantly enhance the strength of the dealer network and the customer experience, enabling the best-performing and most entrepreneurial dealers to drive innovation and success for themselves and Harley-Davidson - while providing the premium customer experience the brand is known for across an increasingly diverse product and customer base.
“Harley-Davidson is iconic because we’ve never been static,” said Levatich. “In moving forward, we are tapping into the spirit that drove our founders back in 1903 and every one of the employees and dealers who rose to the challenges faced along the way.  Our plan will redefine existing boundaries of our brand – reaching more customers in a way that reinforces all we stand for as a brand and as a company, and we can’t wait to kick it into gear.”
Addressing the “funding and financials” the company says that “in addition to building riders, the company expects “More Roads to Harley-Davidson” to create more value, stabilize and strengthen the existing business, improve Harley-Davidson Motor Company Return on Invested Capital (ROIC), increase revenue and earnings, and allow the company to return more cash to shareholders.
 
 ‘meet customers where they are’

“The accelerated strategy will require significant investment to change the trajectory of the business globally, and the company plans to fund it entirely through comprehensive cost reduction and reallocation of previously planned investment and resources including operating investment through 2022 of $450 to $550 million and capital investment through 2022 of $225 to $275 million.  In total, the company plans “More Roads to Harley-Davidson” to generate more than $1 billion of incremental annual revenue in 2022 as compared to 2017.
The company says that it “believes its accelerated strategy is in line with and reinforces its objectives to drive revenue growth and expand operating margins and expects to fund strategic opportunities while maintaining its current investment and return profile and capital allocation strategy.
“Harley-Davidson’s funding principles will focus on stabilizing and strengthening the existing business, enhancing the premium brand, and investments in profitable, growth-oriented projects. We expect these principles, along with a disciplined capital allocation focus, will allow Harley-Davidson to execute with improved cost competitiveness and overhead efficiencies.”