STRATEGIC PLAN
Future Conditions:
The Basis For Developing Scenarios
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After discussion, the group determined that a number of these trends and forces are well understood, and their effects are quite predictable over the coming years. These "given" conditions will exist under all scenarios. These "given" conditions, and their probable expression over the next five years include:
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Dealers will decline by half in five (plus or minus) years. The survivors will be bigger, better businesses, with more educated management, perhaps with very different skills. OEM's will try to service these big dealers directly, bypassing distributors. As dealers split into the very large and the very small, there will be opportunities for new "Large Dealer" associations and "Buying Groups" of smaller dealers. OEM's will have less control over the large dealers or the parts they buy. Some dealers will stop selling whole goods, becoming strictly repair shops. The large dealers will become much more demanding of their suppliers. The "Chain Model" with branded dealerships in multiple locations, can be expected within five years.
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OEM's will continue to acquire down-line and may increasingly buy each other. This is already happening, as OEM's now own a number of formerly independent aftermarket parts companies. They see the aftermarket as a growth opportunity, and so should we. This consolidation is likely to be fastest in the landscape equipment area.
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Big-Box Retailers will continue to expand their number of outlets until they over-saturate the market. They will continue to pressure the whole goods manufacturers on pricing - forcing greater consolidation there. If they don't already represent a majority of the dollars in aftermarket sales, they will within five years - cherry picking only the fastest moving regular maintenance parts. As retailers push for lower price points, they will reinforce the economics of throw-away equipment, rather than repair. We doubt whether these retailers will do repair themselves, rather farming it out to specialists. All this will drive dealer margins on whole goods lower. The dealers who survive will be either higher-margin niche players, or service-only operations.
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Landscapers will increasingly want and need higher quality equipment than homeowners. Currently this is a niche served by dealers, though the big-box retailers are increasingly focusing on this market, in addition to the low-margin consumer products. OEM's are likely to try to add "mid-level" products to this mix, leading to product and parts proliferation. there will be big opportunities for aftermarket parts suppliers to furnish parts to repair shops for brands that shop does not carry. The larger landscapers will attempt to cut out middlemen and the OEM's will cooperate happily.
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The EPA will continue to increase pressure on the industry. We believe the precedent set in California (parts that meet OEM Specifications don't need independent testing) will hold, which will open the market for our parts in big ways. On the whole, this will be very positive for the industry and aftermarket suppliers should be firmly behind this initiative. It will lead to faster development of alternative energy sources and improved technology - all of which will still require parts. Some of our parts will become obsolete, but others will replace them.
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At the same time, several forces are not as predictable. We know they will continue to cause change, but exactly how this change will be expressed is not well known. These are the "Variable Forces" upon which three differing pictures of the future will be built. These variables are:
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The Internet. It is already showing the ability to remove territorial boundaries and make it possible for anyone to do business with anyone else in the chain. There is a question of how fast this will be adopted and how far it will change the way business is done in the industry over the next five years.
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Alternative Power Sources are under development now. Some outdoor power equipment is already electric, and some is battery powered. Consumers have shown a preference for portable electric products as long as they are powerful enough to do the job. EPA and other regulations are also accelerating this development. The real question is how fast these technologies will be successfully introduced. Government actions (i.e., trade-in programs, etc.) could have a big impact here as well.
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Throw-away vs. Conservation values are in tension now, and there are forces pushing both directions. If one or the other is dominant, it will have different impacts on the industry.
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Wild cards - things which could make a major impact in a particular direction, also exist. Our scenarios will consider three wild card conditions: free-trade with China, grass that doesn't need cutting, and laser mowing systems.
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The Outdoor Power Equipment Aftermarket Association
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