27-RV Market in Hostility

The RV market is in hostility. A hostile market sees low returns on investment, even for the industry leaders. One of the largest players in the market, Fleetwood Enterprises, has seen five straight years of losses. Another leader, Winnebago Industries, while still profitable, has seen four consecutive years of falling sales. This hostility has been caused by a rapid and deep fall-off in demand.

Once an industry enters hostility, it will usually witness a “flight to quality” where customers migrate away from weaker competitors toward those offering a better value proposition. (See the Perspective “Success Under Fire: The Policies to Prosper in Hostile Times” in StrategyStreet.com/Tools/Perspectives).

Few companies, even the largest, perform well in hostile markets. For every Toyota there are several companies like GM, Ford and Chrysler. Many of the policies that make a company successful in normal times get in the way during hostility. In fact, some of the rules for success seem downright counter-intuitive. Briefly, there are five rules that seem to be patterns for companies who succeed in hostile markets:

1. Strive for a good mix of both large and medium-sized customers. Ignore demands of small customers.
2. Cover a broad spectrum of price points. Avoid over-reliance on the high or low price points.
3. Differentiate your product and company on the basis of Reliability. Unique product Features are less valuable.
4. Turn price into a commodity. Seek payback in sales volume, not in price.
5. Emphasize productivity and economies of scale in the cost structure, but remember that good value for the customer comes first. You can’t cut unit costs without customers buying the units.

For more description of these patterns and their implications, see “Staying Alive in a Hostile Market” in the Tools/Perspectives section of StrategyStreet.com.

Posted 6/9/08

Update:

After reaching a low of 165,700 shipments in 2009, the industry boomed to shipment totals of 600,240 in 2021.  During that time the less expensive towable products gained a great deal of share compared to the more costly motorhome segment.  The industry is centered around Elkhart Indiana which hosts a large network of related transport equipment companies, including utility trailer makers and specialty bus manufacturers who source from common supply chains.

The industry is long out of hostility. The industry leaders in 2009 have had mixed results.  This story is revealed in the outcomes of three of the industry leaders in the 2008 market: Fleetwood Enterprises, Winnebago and Thor. Fleetwood struggled and fell.  The motorized recreational vehicle assets of Fleetwood Enterprises were acquired by a private equity firm in 2009.  The other parts of the company were acquired by competitors.  In 2010, Heartland Recreational Vehicles acquired the remaining active trademarks of the towable brands of Fleetwood.  Winnebago was a winner. Winnebago has seen its sales rise with the industry, with profitable results and positive cash flow. Thor comes out somewhere in the middle. Thor has also seen significant growth and profits with inconsistent positive cash flow.

Surprisingly, we have found that failure of competitors in an industry moves more market share than does the success of competitors offering better products. See HERE for an explanation.

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