Observations from last year's Southampton Boat Show

A glamorous

lady wearing a ‘Sunseeker’ badge smiled devastatingly in my direction as I

strolled past the dazzling motor yacht upon which she stood. Instinctively, I

glanced over my shoulder to see who had gained her attention. There was no one

there. Then it dawned – was there a glimmer of the punter about me perhaps?

Looking at my drab jacket and corduroy trousers, I somehow doubted that. But in

this economic climate, who could blame a company’s employee for latching onto

any possible new customer?

The autumn

morning was dry and bright as I walked among the luxury motor yachts towering

above me, a stone’s throw from the small boats, chandlery stalls and general

boating paraphernalia to be found at the Southampton Boat Show.

What better

place to research the state of the British marine industry, which currently

contributes around £1bn to the UK economy while providing 12,500 jobs.

Proud

legacy
Competition

from overseas competition is increasingly strong but the desirability of UK

marine products remains high.

There used

to be small boat builders in every port in Britain. True artisans of the noble

craft, using traditional building methods and tools, many unchanged for

centuries. When the wonder material of GRP hit the mainstream in the 1960’s, it

opened the door to ‘series production’. Building time and therefore costs were

reduced. The door to a new market opened wide and a slew of high tech companies

joined the traditional builders keen to embrace this new ‘wonder’ material. It

all looked rosy for a while. Anyone who can remember the Earls Court Boat Shows

in the 60’s and 70’s will recall the mass of builders with wide ranges of

yachts and power boats. It could be argued that this was the golden age of

British leisure boat building. Then it all changed….

An amalgam

of economic downturn, soaring oil prices, inflation, the introduction of VAT

and lack of buyer confidence meant order books thinned and many builders went

under in the 1970’s and 1980’s. If it all sounds depressingly familiar, that’s

because it is. Familiar but happily, not quite the same. Then, big builders

meant big overheads. Many had expensive premises, high operating costs and a

large staff. In business, growth needs increased revenue. In boatbuilding, this

often leads to larger factories to meet demand.  A hiccup in the economy is all too likely to quickly hit the

leisure sector, of course. This was exactly the story in the 1970’s. Orders

decreased and then, with the undercapitalized builders having further funding

cut off by the banks, the result was disaster. The good news today is that we

have retained many smaller builders, theoretically meaning more control in

troubled times and less call on cash volumes.

Market

atmosphere
As I walk

among the stands, I am struck by the number of lovely little British made

yachts and dinghies. I can see evidence of traditional skills here, and stooge

around picking up on the market atmosphere. I tune into a few conversations and

tap into the general vibe. Carefully examining a lovely little trailer sailer

in the classic style, I earwig a conversation between someone I take as the

builder and a staff member. They are complaining about cost of materials and

the expense of attending a boat show. I pick up a brochure, smile approvingly

at the boat and nod to them. I get a half glance in return. The pair looks

deflated so I move onto another stand.

This one

has some classic wooden dinghies and day sailers. A man on the stand watches me

as I run my fingers over the gunwale of a little beauty. I take a step back to

admire her. Will he come over to chat I wonder? I hope so but he turns away. No

enthusiasm it seems. It’s a similar story on a couple of other stands and so I

head off to the marina. Perhaps I will get a sense of positivity down there.

Here as

expected, I find the majority of berths occupied by French and German big

‘white yachts’ and powerboats. As I dawdle along the pontoons, I can’t help but

notice that their sales staff look pretty miserable too. There is a definite

lack of that smiling bravado one was so used to at boat shows of old. Is it me

though? I am just looking through my backward facing rose tinted goggles? I

quickly become objective and decide that is not the case. No, they are

miserable. Still, my mission is to report on what’s happening with the small

Brit’ builders so I make my way around in search of them.

I come

across a few good looking yachts from established south coast yards. Some

visitors are stopping to look at them and I overhear their approving comments –

mainly about not being just the standard mass produced items. I know what they

mean. A tick in the box then. But these people looked old. As I make my way

down the pontoon again, my thoughts turn to the future. How could the industry

gain interest from younger buyers? Was it possible to create desire within the

next generation of future boat owners in these recessionary times to provide

orders when the economy improved?

Financing

of stock
I spied a jaunty and good looking small

power boat from a yard based in the landlocked midlands. I am invited aboard

and leap into the cockpit, immediately struck by the finish and the quality of

the fit-out.

In the

light and airy wheelhouse, I fall into a dialogue with a gent who turns out to

be the yard owner and his East Coast agent. We talk about the boat, her target

market, the economy and most interestingly (for me anyway), the financial

challenges faced by a small boatbuilder in Britain today. The conversation

turns to the nemesis of the small company – cash flow. Not for the first time

today, I find myself asking about stock financing. When you are building a boat

for a customer, it is the norm to take money in stage payments. That way the

cost of the build is covered – in stages. But new build lead times can be long

in a small yard and a customer who wants a boat ready for the start of the new

season might be disappointed. That customer may well go elsewhere.

The answer

is to build for stock. A few hulls built and ready for final detail fit out can

work wonders for the business. It also means that any agents in the UK or

overseas can take a new boat into stock for local customers to view, which is

infinitely preferable to looking at a brochure or a website. I chat about the

benefits of stocking with the agent and he tells me that this would mean

another three sales next year totalling £450,000.

If lack of

cash flow prevents building for stock, the solution is finance provided by a

bank or lender. Predictably, this is not as easy as it sounds. All the builders

I spoke to who had approached their bank for stock financing were either turned

down or offered so many hoops to jump through that it just wasn’t viable.

I recalled

my work at a bank in America. We welcomed stock financing (we called it ‘floor

plan’) because we secured our funding on the asset’s cost price. In the event

of the customer defaulting, we knew that we could recoup our investment. The

chaps agreed that it was a good idea; our British banks would need more

convincing though. I headed back to the park. It was time for an ice cream and

a think.

I ordered

my ‘99′ from a smart ice cream van. The vendor had been working at every

Southampton Boat Show since 1976. I reckoned he could give me as good an inside

track on the performance of this one as anybody. He was free with his candid

information, which I digested along with my cone. According to Mr Whippy Man,

this show was the least attended he could remember. He also revealed a house

hold name motor yacht builder took orders for £4m on Tuesday and the world’s largest sailing boat

producer would need to sell four 50 footers to cover the cost of renting the

space and building the stand. Phew! This was one ice cream man who knew more

about super yachts than his Lyons Maid tubs. When I asked him about our small

builders, he shook his head resignedly. He reckoned the majority had lost

heart.

I find a

spot to sit down and make a few notes.

Summary
Unless you

have been on another planet since 2008, it should come as no surprise that just

about every business in the UK is struggling not only to sell but to finance

for growth… The leisure industry is always hit hard by economic downturns but

this time, the recession is very deep and it’s global nature is especially

tough on exports. We are all familiar with news items on bank lending issues,

and despite government ‘initiatives’, our least favourite institutions continue

to make only minimal contributions to Britain’s industry that desperately needs

growth to move out of recession. It strikes me that our boat building sector is

exactly the type of industry that banks and government should be supporting. We

have wonderful skills and products that help generate jobs, local growth and

exports all wrapped up with a sense of national pride in our maritime nation.

If we are

not careful, our boat builders will lose heart and give up. In business,

sometimes one can only bash a head against a wall for so long….

I take a

look up from my notebook and see a small gaff rigged boat perched ready- to- go

on her trailer. Will she be sold I wonder, and to who? Maybe someone trading

down from a larger yacht or a dinghy sailor going on to a first cruiser

perhaps? My thoughts turn to our children’s generation; after all they are key

to the future of the leisure boatbuilding industry in this country. Have our

boat builders created the desire for them to aspire to lovely little craft such

as this or have the global yacht producers and other elements of the leisure

sector won their hearts and subsequently, their future disposable income?

I conclude

that the industry has not really considered this enough, despite determining

its future. It’s too busy trying to survive – living hand to mouth.

What can be

done then? Well I believe quite a lot. For a start, the industry needs to find

lending sources willing to provide stock financing and support to improve cash

flow, whilst securing strong order books. Builders need to think more

about smarter business management

opportunities.

These include; growing their brand

across global markets through social networking, PR, marketing, improving

websites, on line communication, adding value through branded brokerage and

accessories. Builders might also consider re-fits on boats that they have

previously built and if they don’t have the space at their own yard, maybe they

could outsource the work to a trusted partner. Perhaps take on a part-time

business manager or non-exec director to help with these activities and

facilitate additional financing. Such a role could be funded by paying a small

retainer or maybe on results equals reward basis.

Finally, my

experience at the show confirmed to me that many stand representatives seemed a

bit lethargic. I tried my best to look like a prospective customer but usually

just got a blank reaction. I realise that working at boat shows is hard but

surely not brightly engaging with interested parties is just a waste of the

cost and effort involved in paying for and setting up the stands. Times are

tough but surely we must all put on a positive face.

The industry

has suffered in the past and I got the feeling at Southampton that many are

resigned to a bleak outlook. We cannot change the macro-economy but we can

alter our course to give the best chance of a safe passage when the global wind

changes direction…

Russell

Stevens

September

2012