Harley-Davidson is accelerating its plans for the coming years

Jochen Zeitz started riding motorcycles at the age of 16. The president and CEO of Harley-Davidson Inc. stopped in his 20s before starting again in his 30s. “It’s a stage in life that you have…

Jochen Zeitz started riding motorcycles at the age of 16. The president and CEO of Harley-Davidson Inc. stopped in his 20s before starting again in his 30s.

“It’s a stage of life where you have to get old to be ready to ride a Harley, have the time and the money to do it, and that’s a huge asset for us,” Zeitz said during a recent Harley Investor Day.

In the 1990s and 2000s, baby boomers helped push Harley-Davidson to new heights. In recent years, many observers have wondered if the company could resist the abandonment of the sport of motorcycling by its main customers and if it could attract new vehicles.

But enticing an 18-year-old to buy a Harley isn’t what Zeitz has in mind.

“It’s really not focusing on the right thing,” he said.

Harley estimates suggest that between 2015 and 2021 around 800,000 Harley riders have stopped riding, while around 2 million have left but may return in the future. These losses were offset by approximately 3 million new and returning riders, increasing the number of Harley riders from 2.9 million to 3.1 million.

“The main focus should be on reaching customers who want to start riding again,” Zeitz said.

From 2021 to 2030, Harley estimates it will be able to add 5.7 million new and returning riders, offsetting 1.8 million riders aging off the bike and 3.2 million leaving with the potential to return. .

The result would be 3.7 million Harley riders in 2030, an increase of nearly 20% from current levels.

Reaching these levels is part of the second stage version of “The Hardwire” plan, a strategic vision for the company through 2025. The updated version of the plan, released at Investor Day, sets targets more ambitious for the growth of the company.

The original plan called for mid-single-digit revenue growth for Harley-Davidson Motor Company and LiveWire, Harley’s electric motorcycle brand. The new plans call for growth of 9% to 11%, which would bring Harley’s motorcycle business back to the sales levels it saw in 2018, but not quite the levels of 2015 and 2016.

Harley is in the process of turning LiveWire into its own public company through a sale to a Special Purpose Acquisition Company, or SPAC. Harley will remain the majority owner of the new LiveWire.

In 2018, operating margins reached 8.5% for the Milwaukee-based motorcycle manufacturer. The latest Hardwire plan calls for Harley-Davidson and LiveWire combined to reach an operating margin of 12% by 2025, closing in on 2017’s 12.5% ​​and still lagging 2016’s 14.7%.

Profitability has been a point of attention for Zeitz and his team since taking office in early 2020. Harley cut operating expenses by $135 million, reduced its product line by 40% and exited 40 markets around the world.

Harley’s latest plans call for $400 million in productivity by 2025, including optimizing its manufacturing footprint, investing in automation, reducing reliance on expedited freight, realigning the supply base and material cost optimization.

“The next big cost-cutting opportunity is across the entire supply chain,” said Gina Goetter, Harley’s chief financial officer, adding that the company is considering manufacturing “to optimize delivery times and improve profitability on all the markets in which (it) competes.

Goetter said the manufacturing reassessment would inform Harley’s investments in factories in Pennsylvania and Thailand and allow the company to increase margins, stay ahead of inflation and invest in his activities.

Harley has already invested in introducing a new engine platform, Revolution Max, which has allowed it to enter new categories like adventure touring and launch new sportster models.

“We’re starting to get people to think a little differently about who the Harley-Davidson customer is and what a Harley-Davidson product is, and I think that’s a really good thing,” Brad said. Richards, vice president of design at Harley, said at Investor Day.

The efforts paid off. Motorcycle segment revenue was nearly back to 2019 levels last year, even though the company shipped 25,000 fewer units. The segment’s operating margin fell from 6.3% in 2019 to 9%.

Now the company is scaling up the latest Hardwire plans, even amid challenges such as inflation, supply chain constraints, rising interest rates and economic uncertainty.

“Now is the time to elevate our ambition beyond the current environment,” Zeitz said.

Part of the reason Harley plans to invest $300 million in the coming years across its core product categories is that it expects continued growth in internal combustion engine motorcycles through 2030 at less. Company estimates suggest demand for the touring category – its most iconic and profitable offering – will grow in line with the market, and sales in North America – where Harley is strongest – will outpace growth in the rest of the world. .

At the same time, Zeitz and his team also rely on products other than motorcycles to meet the revenue targets they have set, including a strong parts and accessories business and a focus on licensing and clothes.

“We haven’t really viewed licensing as a business opportunity that goes beyond generating royalties, but actually helps build brand appeal,” said Zeitz, who was previously Chairman and CEO of Puma.

“Think sunglasses, for example, think shoes, think bags, and all of that was never really run as a business,” he added. “Now obviously that’s my background, and I’m like, ‘Wow, that’s pretty extraordinary that a brand like Harley-Davidson gives the keys to their house to control and manage with a competent team what this company should be. ”

Zeitz lamented that in the past Harley had three different T-shirt licensees competing for space at dealerships, licensees had to decide where they would sell products, and there was no concerted channel strategy.

Going forward, Zeitz is planning a multi-level approach to channels that will include dealers, experience centers, e-commerce and potential business partners.

“I’m not thinking of department stores, I’m thinking of ones that can really live up to the brand values ​​and positioning that could carry our selective products,” he said.

The company will also offer both performance gear for cyclists and lifestyle apparel for cyclists and fans of the brand.

“The first t-shirt you buy is the first step into motorcycling,” Zeitz said.

The brand positioning that Harley focuses on is desirability.

“Done well, Harley-Davidson desirability preserves the value of our customers’ purchases, builds our brand beyond our riders, ensures loyalty and drives engagement,” Zeitz said, adding that the company has the opportunity to extend sales to non-pilots. “There is a large community that has a passion for the Harley-Davidson brand despite not being a rider.”

The emphasis on desirability also shows up at dealerships, where Harley has made a concerted effort to limit inventory. Worldwide, the company’s dealers ended the first quarter with 28,000 motorcycles in stock, compared to 74,000 in the same period of 2019.

The result is touring bikes selling for less than 2% of Harley’s suggested retail price, down from 5% to 10% below in 2019.

Electronic component supply issues hampered production in the first quarter, and executives said inventories were likely to rise from current levels. Since Investor Day, Harley announced a two-week suspension of production after a supplier identified issues with a part, likely making it difficult to increase stock levels immediately.

“It’s likely to be a lot closer to where we are today than where we were in 2019,” Edel O’Sullivan, commercial director at Harley, said of inventory levels at Investor Day. .

Harley’s plans also include dealership owners investing $2 billion in dealerships over the next decade to upgrade and modernize facilities, strengthen Harley brand representation, welcome riders and non-riders alike. and provide a more digital integrated sales process.

There will also be “optimization” of the Harley dealer network while maintaining market coverage, O’Sullivan said.

“It’s not just the number of dealerships, but we’re also looking very closely at the format of those dealerships,” she said, noting that not all dealerships need to be the same size. .

Zeitz said there could be a prioritization of the dealer network with some locations focusing on service, while others emphasize experience.

“It’s not just about selling motorcycles,” he said.

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