Racking Up Profits

Dec 3, 2009

The automotive aftermarket usually considers vehicle racks a contractors’ domain. (We featured a sampling of this segment’s utility offerings in the Showcase section of our August 2008 issue.) Here, the focus shifts to racks that accommodate large athletic gear: skis, snowboards, mountain bikes and kayaks.

Until recently, trucks and SUVs were the go-to rack-applications. However, growth in the sport-rack industry indicates that owners of crossover wagons and even sedans are attaching “X”-gear from these cars more than ever.

When budgets tighten, amateur armchair economists might guess that outdoor recreation wanes. The current state of the gear-rack industry doesn’t support this theory: “2008 is running just about even with 2007,” says Dan Epting, CEO of Perrycraft, Winston-Salem, N.C. “And 2007 was up about 13% over 2006.”

Mike Steck, Beaverton, Ore.-based Yakima’s senior director of customer marketing and sustainability, agrees that sales are up. The product mix has definitely shifted, though.

“The trend is moving from SUVs [and trucks] to more efficient vehicles,” Steck says. While Yakima’s bed-product sales are declining, smaller applications such as CUVs (e.g., Jeep Liberty) and sedans are more than compensating.

And at Thule, of Seymour, Conn., the rack manufacturer’s public relations and communications manager, Karl Wiedemann, concurs. He says, “We are finding that people are downsizing their vehicles and buying either roof or hitch rack systems to carry their gear.”

Perrycraft’s Epting mentions that not all of Perrycraft’s pickup products are down: “We’ve seen a relatively nice increase over the past two years with racks and accent roof rails for crew-cab pickups.”

The common denominator: Less OE cargo space creates a higher demand for aftermarket racks. As Yakima’s Steck says, “We provide space and functionality.”

Reaching enthusiasts

Targeting buyers of recreational racks isn’t nearly as straightforward as reaching Sportsman drag racers wanting performance carburetors. Do you identify potential customers by vehicle or by sport? Perrycraft’s Epting acknowledges this challenge: “That’s one area of marketing we need to improve on,” he says.

Yakima prioritizes outdoors enthusiasts in general, spending print budget in such consumer magazines as “Outside,” “Backpacker” and “National Geographic Outside”. It also uses a niche agency, CGPR, to tap into broad-reach media, achieving exposure in the New York Times and on “Good Morning America.” “These third-party ‘endorsements’ are much more valuable than advertising, and we couldn’t afford to buy there,” says Steck. He adds, “Consumers are wary of messages that come [directly] from manufacturers.”

Megan Thompson, Broomfield, Colo.-based Bestop’s print materials marketing manager, says, “Bestop will continue to get its message out through a mix of media: print, electronic, broadcast and event. By utilizing our branding campaign and asking the question, ‘How Do You Bestop?’ we get a wealth of answers with the goal of connecting to all of our customers in whatever niche.”

In the pay-to-be-seen arena, event representation appears mandatory. Yakima is one of the more active manufacturers, using its Road Warrior Tour mobile “booth” to attend about 75 consumer events annually, ranging from triathlons to Interbike to music festivals. Trade-wise, Yakima exhibits at SEMA, plus a handful of outdoor-industry trade and consumer-selling shows. “Trade [exhibiting] isn’t a big part of our mix due to cost,” Steck notes.

For consumer interaction, the Web is perhaps the highest priority. Yakima uses its site to “demystify and simplify” cargo management for consumers. As a relationship-builder with outdoors enthusiasts, Yakima’s site also promotes its Planet Payback environmental-stewardship program.

Most “rack-ufacturers” tie their marketing budgets to sales/revenues. So, “bought” exposure is expected to stay steady or slightly increase for 2009. Thule’s Wiedemann offers, “We have always kept our marketing budget consistent; however, we are being much more cautious with where we spend it,” adding that Thule tailors campaigns to individual enthusiast groups.

Supplying product

Most sport-rack manufacturers subscribe to the lean-manufacturing model popularized by companies such as Toyota: frequent, smaller runs instead of fewer, larger ones. “Forecasts are only so accurate, and you don’t want to get caught with your pants down,” explains Yakima’s Steck.

Perrycraft’s Epting provides a few manufacturing details: “We try not to back-order, and our record of complete order fulfillment is in the high 90% range,” he says. “We’ll jump through hoops to prevent back-ordering if there is any possible way to avoid it. Occasionally we get hung out to dry by a parts vendor to the point that there’s nothing we can do except back-order an item. We definitely don’t wait for the next cost-effective production run of a particular product. We are very quick and agile when it comes to production capability/flexibility, and our people love the ‘challenge’ of accomplishing the seemingly impossible for a customer.”

Doing a majority of its manufacturing in-house helps optimize Perrycraft’s fill rate. Similarly, Bestop uses a 250-person manufacturing force in its Colorado headquarters, outsourcing a few jobs to other American vendors.

According to Thule’s Wiedemann, Thule produces 85% of its North American-market products in the United States. He elaborates, saying, “By being a lean manufacturer and sourcing materials locally we can quickly adjust to market changes and product surges.”

In addition to building against actual demand instead of from estimates, Yakima opened a West Coast distribution center last year to expedite order-filling. Warehouses in Memphis, Tenn., and Riverside, Calif., “have cut distribution time in half and saved 40,000 gallons of fuel last year,” says Steck.

Sales tools for restylers

Rack manufacturers realize that shipping desirable product is only part of the equation. Helping their distributors and jobbers sell is equally important. Perrycraft offers an aggressive program. “We provide free product literature as well as free POP units in most cases – miniature racks mounted on molded polystyrene sheet stock,” Epting notes. “We’ll [sometimes] provide full-size units for a [shop’s] showroom display.”

Like most manufacturers, Perrycraft has a ZIP-code-driven retailer locator on its website. “Most of the retailer names are provided by the various WDs who distribute our products,” Epting says. “Unfortunately, I don’t think some WDs realize how valuable this type of pull-through marketing can be for their retailers, which in turn impacts the WD’s sales volume.” The call-to-action here is for prompt updates when new jobbers come onboard or current jobbers change locations or add branches.

Thule calls its newest POP “TIPP”: Thule Interactive POP. It’s an interactive kiosk that allows consumers to “rack” their vehicles and print a shopping list of parts.

Yakima’s POPs include stackable displays containing actual products as well as wall poster kits that include product hangers. Branded signage is also available. While Yakima doesn’t have an official co-op program (“We work with sales reps on a case-by-case basis,” Steck says), it does drive sales with paid Internet searches during specific promotions. “We do a really good job of consumer promotions with mail-in rebates,” Steck says. “The retailer does nothing. We eat the margins, but it leads to re-orders.”

Bestop, too, runs rebate promotions, devoting a page on its website to these campaigns. POPs are administered through Bestop’s Authorized Dealer Install Program. Benefits of this program above and beyond exclusive POPs include new-product previews and premier listing on Bestop’s online where-to-buy engine. Overall, Thompson says that the Bestop site is “a great selling tool for our dealers but also an information source for our customers, as well.”

Perrycraft does offer a formal co-op program at the WD level, and encourages its WDs to pass some or all of the earned co-op through to the jobbers within the WD’s own advertising programs.

Freight incentives also help grease the product-movement wheels. Thule gives businesses on open accounts free freight at $2,000. Perrycraft currently pays freight on $3,000 shipments to a single destination in the continental United States. Yakima also offers free freight at $3,000, as well as buy-in specials for orders of 20 hitch products and 10 cargo boxes.

In training

Further, product training is another critical part of moving product. Yakima uses its weekend Road Warrior team to conduct training during the week. Perrycraft’s sales reps have regular sales/product knowledge sessions with WDs. Thule relies heavily on dealer feedback: “These dealers are on the front lines of the purchase and are voiced in the quality and features of Thule,” Wiedemann says.

According to Thompson, one of Bestop’s main messages in training sessions is that the company “tests our products in various fashions before putting them in a box to the consumer.”

At the retail level, jobbers always are interested in buying direct. The line between wholesale and retail varies among manufacturers. “We have a couple different buy-in levels to qualify as a WD,” Perrycraft’s Epting says, adding, “We review our WDs’ annual purchases to insure they are maintaining reasonable levels of inventory and a good product mix.”

Thule’s Wiedemann says, “Dealers can buy from our national and regional WDs and on a direct basis,depending on the size of the account. We do about 80% direct to shops.”

Mi-rack-ulous opportunities

Like the rest of the aftermarket, the recreational rack industry has its challenges. Atop Perrycraft’s list is the cost of raw materials and freight. “Both have escalated exponentially over the past 24 months,” Epting says. “About 40% of our raw material vendors have dropped their prepaid freight policies since the first of the year, which has obviously hurt us some, although several of them have offered an extra 2% or 3% in payment terms to help offset the freight cost.” Manufacturers can sometimes absorb some of these costs, but price increases are a reality.

Although manufacturers such as Thule partner directly with certain OEs, the aftermarket comprises the bulk of all rack sales. Steck mentions that Yakima-which has Subaru sponsorship for its Road Warrior marketing team- considers the sporting-goods segment its “bulk channel.” However, Steck mentions that the outdoors industry generally doesn’t offer product installation, and the typical sports-gear rack customer usually needs professional mounting more often than an automotive enthusiast would.

So, it’s a no-brainer for restylers and, especially, all shops that carry toppers and hitches to also sell and install racks. The fact that most recreational-rack manufacturers don’t sell consumer-direct (and don’t plan to in the foreseeable future) reinforces the viability of one-stop sales and installation.

Thule is one company that uses Shopatron “direct” Web sales to drive customers to their local retailer or, failing that, to ship to their homes. Off Road Unlimited, also sells direct, offering its Defender line of utility roof racks through its online shopping cart as well as via select distributors. Evolved from the classic Con-Ferr “portal” racks, Defenders are manufactured in one-piece models as well as in UPS-able bolt-together styles. This line doesn’t have equipment-specific mounts (lights, tool, jerrican and spare-tire brackets are available), but the average outdoor enthusiasts can easily secure their gear to Defenders with motorcycle straps.

The bottom line

All indications point toward a steady 2009 for the rack industry. Most manufacturers are adding applications for smaller, more economical vehicles. Bestop is even increasing its new UTV line to reach the hunting/fishing segment of the outdoor-enthusiast market. Perrycraft is in the process of revising/improving some existing products. Thule is seeing a surge in roof-rack/box system sales: “Boxes are a great way for people to have cargo space when they need it and remove it when they don’t,” Wiedemann notes.