They should have seen it coming

Friday, 7 June 2019
Melbourne, Australia
By Selva Freigedo

  • Harley is slowly dying…
  • How trends shape the economy

Harley-Davidson [NYSE:HOG] is an American icon.

The motorcycle maker has been around since 1903, when William S. Harley and Arthur and Walter Davidson partnered in Milwaukee, Wisconsin.

It has survived two world wars and numerous crises, like the great depression and the dot com bubble.

For decades Harley has been a sign of rebellion, immortalised by classic movies like Easy Rider and The Wild One.

Harleys are also a luxury. The truth is, they are expensive.

But their customers are fiercely loyal.

They ride around in their loud Harleys cladded in Harley jackets, helmets, bandanas, you name it. Many even have tattoos of the logo.

They may own one, two, even four Harleys at a time.

Because Harley is more than a motorcycle maker. It’s a community, a lifestyle.

But in 2006, Harley’s sales peaked and then started to decline. Yep, two years before the 2008 financial crisis.

There was no apparent reason. At least, no reason that was apparent to Harley.

As you will hear today, this is something Harley Davidson could have easily predicted if they had looked at their customers. Something they should have been prepared for.

But Harley didn’t see it coming.

What happened in 2006?

I’ll explain after the markets.

Markets

Overnight, the Dow Jones Industrial Average closed 181.09 point higher, or 0.71%.

The S&P 500 gained 17.34 points, or 0.61%.

In Europe, the Euro Stoxx 50 index finished down 1.54 points, or 0.05%. Meanwhile, the FTSE 100 was up 0.55%, and Germany’s DAX closed down 27.67 points, or 0.23%.

In Asian markets, Japan’s Nikkei 225 is down 2.06 points, or 0.01%. China’s CSI 300 is down 0.90%.

In Australia, the S&P/ASX 200 is up 24.48 points, or 0.38%.

On the commodities markets, West Texas Intermediate crude oil is US$52.93 per barrel. Brent crude is US$61.67 per barrel.

Turning to gold, the yellow metal is trading for US$1,335.25 (AU$1,914.09) per troy ounce. Silver is US$14.89 (AU$21.31) per troy ounce.

One bitcoin is worth US$7,760.29.

The Aussie dollar is worth 69.76 US cents.

Harley is slowly dying…

2006 was a landmark year for Harley Davidson.

As you can see below, motorcycles sales peaked in 2006, well before the 2008 recession.



chart image
Source: Economy and Markets
Click to enlarge

The US economy was booming. Credit was flowing, and people still had plenty of disposable money. So why did sales start to plummet?

Well, as Harley Davidson finally began to realise, they had a huge problem: their customers were ageing.

Harley’s customer base has been the same for a long time. Harley’s main customers are typically white males over the age of 35.

The company has appealed to rebellious baby boomers. Wealthy boomers had been repeat customers as they reached ages of 30, 40, 50…but at 60 they were starting to go off motorcycles.

In 2006, the Baby Boomers — the largest generation in history — reached peak motorcycle buying age.



chart image
Source: Economy and Markets
Click to enlarge

Harley realised then that they needed new customers. Their main customer base would be shrinking in the next few years.

And that’s what Harley has been doing ever since. They have tried to expand their appeal to different demographics like women, Hispanics, African Americans, Millennials…but they are not having much success.

Sales are still decreasing. Total worldwide motorcycle sales for 2016 were 260,289, way lower than the close to 350,000 they sold at the 2006 peak. Sales were even lower in 2017…lower again in 2018, at 228,051.

The truth is that while riding on a Harley was everyone’s dream decades back, that’s not the dream for rebellious Millennials today.

Millennials don’t identify with Harleys like their parents did. Instead they associate it with their parents. To rebel means to be nothing like them.

Harley is still going. In fact, a little over a month ago, Harley-Davidson made history. The motorcycle maker had sold 5 million bikes.

But Harley is also changing.

They are venturing into completely different markets. They are bringing to market electric bikes, and smaller models like scooters, to expand into emerging markets.

But in the process the brand is changing.

I mean, a Harley scooter? Where is the fierce image or the deafening, iconic Harley sound?

And as I said, Harleys are expensive. There are cheaper scooter or electric motorcycle competitors around.

Harley is fighting for survival. But they are fighting against a powerful trend: demographics.

How trends shape the economy

Harley-Davidson didn’t see the change coming. As Harley-Davidson sales soared in the mid 2000s, Harley ramped production instead of doing what they should have done, cut it down.

But someone else did see it coming: Harry Dent.

Years earlier Harry forecast that the company would struggle to find growth after 2006. And he was right.  

How did Harry know before the company did?

Well, every year, the US government department conducts a survey where they look at the spending behaviour of US households on an array of products.

This gives Harry a wealth of data.

Harry’s research team then analyses all that data. They look at what stage in life people are in and what people are spending money on. Together with Harry’s Spending Wave theory, it allows Harry to track what each generation is doing and what they are spending their money on at every stage of life.

Harry can then predict what can happen to the economy, an industry and even an individual company, like Harley Davidson.

It is how Harry could tell in advance that Harley’s sales would drop as their core customers aged.

The Baby Boomer generation is one of the biggest cohorts in history. One with a lot of money.

Boomers may not be buying Harleys, but they are still spending. As they age, their spending patterns are changing.

Where will they spend their money as they go into their 70s and 80s?

That’s what we (Harry Dent and Selva Freigedo) do at Harry Dent’s Boom and Bust letter.

We try to predict trends by looking at today’s consumers. We look at how they behave and where they are spending their money.

After all, that is the definition of economics, the study of human behaviour, and their relationship and interaction with money.

To find out more about Harry Dent’s Boom and Bust letter, click here.

Regards,

Selva Friegedo,
For Port Phillip Insider