PrinFairSeeker... do they have a long-term viable business model

[Hugin]

Thread drift produced an interesting topic

I think you make quite a lot of assumptions there about brand loyalty and the need for the start small-upgrade-buy bigger cycle

Yes, you are right..... the road to hell is paved with easy or just plain wrong assumptions. I know brand loyalty is far from the only factor..... and in the current economic climate probably not even the most important.
But I believe the most common mistake one can make is to assume tomorrow will merely be a continuation of today... that everything else but the date stays the same. I'm not implying you are making this assumption; but maybe somewhere in a boardroom, someone is.

Loads of buyers of these 50-60 foot boats that you think are too big for entry level boat are sold to first time buyers.

There is a context behind this situation of course. Looking at the boating industry today it seem to consist of almost nothing but mega-yacht and super-yacht builders. And of course one-off builders and PrinFairSeeker and many more luxury brands focusing on the 40-100ft segment. It's almost unbelievable they all can find buyers.

But looking at the general development in the world it become quite understandable and obvious why it is like that. The last 20 years have seen a big shift in income distribution almost everywhere. The top one percent has more than doubled their already sizeable share of wealth in a world economy that is itself growing (most of the time). The few percent just under the top1% are doing pretty fine too. These groups are the ones that can afford a 40, 60 or 80ft as "entry level". The traditional middle-class OTOH is being squeezed..... they are the ones NOT buying 20-30ft entry level boats. Well, some are of course - otherwise bayliner, Benetau, Bavaria and Galeon would already have gone under - but not as many as would have if the income distribution had been as egalitarian as 30 years ago.

But as all economists know..... the economy is cyclic - in more than one way. There are the well know boom-bust cycles. But there are also income equality-inequality cycles (they are longer than the boom-bust cycles). At some point the pendulum will swing the other way....... it will have to (and this is not a wish or call for socialism, quite the contrary in fact) otherwise capitalism can not be sustained as a system. When it happens - and I'm not the one who can predict if it will be next year or in 10 years - then the pool of mega- and super-yacht buyers risks drying out relatively quickly. At that point the manufacturers wooing the presently subdued middle-class will be the winners and the "recruitment system" becomes of greater importance than now.

When FairPrinSeek analyse their customers they have loads who work in their 30s then have a budget of £0.5mill to several £mill in their mid 40s or whenever.

Yes, exactly... they base their strategy on an analysis of the situation today...... they don't take into account that the big bonuses from the City (stereotype, I know!) may dry out for these segments when - and it pretty certainly is a "when", not an "if" - the egalitarian pendulum starts swinging the other way.

It's actually Jenneau/Beneteau who are out on that limb

I don't think so. When the going gets tough, the cost conscious with contact to the middle-class market get going; as per the explanation above.

You mentioned Bentley operating at the top end of the market. Owned by VW (of course, who else) and now being slowly positioned as the ultimate upgrade for the top-end Audi-drivers. VW even assembles Bentleys in Germany now.... alongside VW Phaeton. I visited the assembly plant in Dresden a few months ago and was surprised to see the Bentleys there. VW have complete faith in their ability to upgrade customers to more expensive models....... but maybe they are just building customer loyalty better than everyone else.

 

[rafiki_]

Hug in, I think you are being a bit UK/Eu centric. Much of the growth for Fair/Prin/Sun is in the emerging economies, particularly China and Brazil, where there are rapidly growing pools of significantly rich, not interested in anything below 50 ft. Hence Sunseeker now owned by the Chinese. Azimut has put a factory into Brazil etc. it is the builders of smaller boats that have suffered most in the recent recession.

 

[PowerYachtBlog]

Both Azimut and Ferretti are using there Brazilian factories as service centers nowadays AFAIK.

China and Brazil are not the holy grail of boating and they will never be, even Beneteau Group admits this.
For most they will make a couple of % points to the most in the coming years.
The best market in 2013 was the US, West EU is still picking up
and is waiting for Italy (to loosen its grip on yachts ie less taxmen controlling the harbors) and Spain to go out of the recession.
In 2003-08 Italy was the largest EU market of boats.

If we speak of known everywhere brands;
The top three UK builders have performed OK (all three where bought out during the recession tbh) and Azimut handled the crisis better by having a global position
with around fifty dealers World wide.

Comparing the Auto market to the yacht IMO will always be very wrong, a boat is more like a second house then another car, some will buy one and stay with it till they can some change every couple of years.
A boat if taken care of can be good for a lot of years, a car is more an utility use it, burn it, change it....

FairPrinSeeker have abandoned smaller sizes mostly for an improving standard of there boats, which would make a smaller boat at a very high cost and little to nothing profits, equals not competitive with the likes of Beneteau.
TBH nowadays 11-12 meters is not considered very big which is where the known EU builders; Absolute, Azimut/Atlantis, Fairline, Princess, and Sunseeker start from..

 

[bumpy_the_dog]

You make a really interesting point. I've just finished wading through 600 odd pages of Picketty's "Capital In The 21st Century". He argues that the 40 year period following the 2nd World War, which was when the explosion in popular boating really happened, was an historical aberration, and that there's no reason why the current trends squeezing the middle classes won't just continue.

I do sometimes wonder where the next generation of UK boaters will come from? Many twenty somethings today are struggling under three huge financial burdens that my baby boomer generation didn't have to worry about; student debt, eye wateringly expensive property, and the demise of private sector defined benefit pension schemes. If I'd have had to deal with those three I'm not sure I'd have ever found the financial wherewithal to get into boating.

 

[ontheplane]

+1

Unless we

a) Go back to student grants not loans
b) Build a vast number of homes to at least kill house price inflation, if not actually drop the prices somewhat (not popular with those who already have a house - NIMBY etc)
and
c) Dunno what the answer is there...

then we will have a whole generation growing up who can barely afford to live.

I had boats for years in my 20's - I ran a nice 28 footer for a while, along with a mortgage and everything else - but I earned then almost the same as I earn now.... and that was 20 years ago.

Now I have a young family, a big mortgage (10 times my first mortgage, yet my salary is almost the same) - I used to sell cars - the cheapest Peugeot you could buy then was £6995 and it didn't even have central locking - now you can get a decent brand new car, well equipped for that money - a Dacia can be bought new for £5995 so cars haven't gone up, but food has, mortgages and most of all energy - all pretty much essentials in life.

I have little or no spare money these days - and I wouldn't want to be 20 yrs old and just starting out now - I think it's getting harder and harder to survive.

 

[npf1]

Great thread!

Worth also contemplating the short-term situation: when the number baby boomers into boating drops off, who's going to buy their boats?

Loads of new boats in the 35-50ft range sold in 2003-2008, many funded by nice pensions and property inflation. I can't imagine there'll be similar numbers in the next wave of soon to be retirees who'll have anywhere near that level of spare cash to spend on boating.

 

[Hugin]

Hug in, I think you are being a bit UK/Eu centric. Much of the growth for Fair/Prin/Sun is in the emerging economies, particularly China and Brazil, where there are rapidly growing pools of significantly rich, not interested in anything below 50 ft

My impression is that Europe and US still are the absolute dominant markets. Yes, it is surrounded with lots of publicity and fanfares when a boat manufacturer moves into China, but mostly I think it is a case of going from ZERO sales to a few sales locally. China is an interesting case.... the growth rates are coming down and everyone knows the economy has to shift from export driven to more domestic consumption..... that requires a middle-class which again means the top few percent will get a smaller piece of the pie in the future. Another thing is the Chinese culture...... I've read that most boats sold in China are bought by companies or independent entrepreneurs..... and used mostly for representative purposes. Cocktail parties and dinners with business associates. Of course then a 30ft won't do.... nor impress (which I assume is the idea). This coupled to the fact that the Chinese are not at all use to the concept of leisure time..... therefore buying a boat for leisure purposes is unlikely to catch on anytime soon, small or big. Yes, there's 1,4bn people in China...... but that's actually a misleading indicator regarding true market potential.

I honestly don't know much about the Brazilian market, except Brazil has for decades had one of the most unequal income distribution among emerging markets...... and has frequently been in trouble for the same reason (read: hyperinflation). Will this situation continue or will Brazil get a middle class..... or a doze of socialism (as has happened frequently in Latin America). Either will be bad for the boat builders supplying mainly the millionaires.

Hence Sunseeker now owned by the Chinese.

Volvo is Chinese owned. Steyr Motors of Austria is Chinese owned. The remains of Saab was bought up by Chinese. And hundreds of other Western companies likewise. I don't think it really relates to the market potential locally in China. That's the trade surplus returning to the economies issuing the money.

it is the builders of smaller boats that have suffered most in the recent recession.

Yes, of course because their clients - the middle class - was squeezed while the top few percent had a party. My point was that this situation will at some point turn around and the middle class will reclaim their usual share of the pie.... and there is only one group to reclaim it from; the top few percent.

 

[rafiki_]

Not sure it is important, but I think Magna Steyr is a mix of Canadian and Russian money, not Chinese to my understanding. My point was that the the big growth for boats in the future is the increasingly affluent far east, China and some day India. US/Eu are mature markets, with little opportunity for real growth. Russian money has also helped the super yacht market to expand during the hard days of the recession.

 

[Hugin]

You make a really interesting point. I've just finished wading through 600 odd pages of Picketty's "Capital In The 21st Century". He argues that the 40 year period following the 2nd World War, which was when the explosion in popular boating really happened, was an historical aberration, and that there's no reason why the current trends squeezing the middle classes won't just continue.

I didn't have the opportunity to read Picketty yet, but intend to do it in the autumn. Picketty is French, therefore he is by definition a socialist and builds a case arguing capitalism must be reigned in, chained, regulated and preferably completely abolished.
Jokes aside; if he makes the case that the trend towards greater and greater economic inequality will continue 4ever, then I believe it would require the abolishment of democracy and general elections. Inequality and pressure on the middle class is already creating changes in the political landscapes of a number of countries in especially Europe. The pendulum will swing back again unless you completely strip the middle class of its political clout. For the time being most people believe their economical woes is caused by a normal post-bust crisis, but you can't sell that that explanation much longer.

 

[Hugin]

Not sure it is important, but I think Magna Steyr is a mix of Canadian and Russian money, not Chinese to my understanding.

Magna Steyr and Steyr Motors are two different companies... headquartered in Graz and Steyr respectively.

My point was that the the big growth for boats in the future is the increasingly affluent far east, China and some day India. US/Eu are mature markets, with little opportunity for real growth. Russian money has also helped the super yacht market to expand during the hard days of the recession.

Assuming there IS any significant global growth potential. What if that is not the case? What if boating globally is a mature market... and in some areas even a saturated market? I recently read a Google-translated (from Slovenian) interview with the CEO of Seaway...... he basically admitted that their Skagen brand currently only exists as a website and the 70ft OceanClass (originally developed as Skagen 70) has so far reached hull #2. OceanClass 57 and 88 models were announced almost 2 years ago, but still only exist as computer animations on a website. I would be surprised if there were not many other super yacht builders putting up the same brave facade, touting their new mega$ models hoping for some business. Of course PrinFairSeeker DO produce boats, but how many compared to Beneteau-Jeanneau and the other assembly-line producers.

 

[gjgm]

I didn't have the opportunity to read Picketty yet, but intend to do it in the autumn. Picketty is French, therefore he is by definition a socialist and builds a case arguing capitalism must be reigned in, chained, regulated and preferably completely abolished.
Jokes aside; if he makes the case that the trend towards greater and greater economic inequality will continue 4ever, then I believe it would require the abolishment of democracy and general elections. Inequality and pressure on the middle class is already creating changes in the political landscapes of a number of countries in especially Europe. The pendulum will swing back again unless you completely strip the middle class of its political clout. For the time being most people believe their economical woes is caused by a normal post-bust crisis, but you can't sell that that explanation much longer.

I think you might enjoy the Lounge, but meantime I am not convinced that 35ft boat manufacture in Europe is going to be revived either by resin infusion or a rise of a politically disgruntled population living south of Frankfurt

 

[PowerYachtBlog]

Not sure it is important, but I think Magna Steyr is a mix of Canadian and Russian money, not Chinese to my understanding. My point was that the the big growth for boats in the future is the increasingly affluent far east, China and some day India. US/Eu are mature markets, with little opportunity for real growth. Russian money has also helped the super yacht market to expand during the hard days of the recession.

Unless something unexpected happen you will see that growth to boat building will come again from Europe and is coming right now from North America.

Speaking of middle class even the person who buys the 10 meter (35 feet) needs to be at the high end of this, since keeping maintaining this equals to about 10-15k EUROS a year, if you have a loan going in for 300k you will be be spending 30k a year on the boat alone.
That is an average UK wage for you, just for paying the bills of your 10 meter boat if you understand what I mean.
Considering that UK has among the highest EU wages that's not a joke.

A boat for everyone exists but its not ten meter, and if you want to go affordable you need to go minus seven six meters.
We can keep blaming boat builders for not building smaller boats, but a problem is also the expense to keep a boat which has pretty much doubled in the past decade due to the boom the industry got from 2003 till 08. That is excluding fuel costs.

There seems to be a certain market vacuum between nine to eleven meters, which is left for a few builders to compete, while for some others it is very hard to turn a profit in this size or smaller.

Yes we go to the boat shows and admire twenty meters plus vessels with the impression that because we where shown by the salesman we can afford it, but even if its used price will slash in a few years time the problem will always be about keeping such
a large sized yacht, then really in purchasing it.

 

[henryf]

Boating is never intended to be a mass market hobby and no business model requires it to be. In America it might be possible to run a business making sub 10m boats because the number of sales means you can use volume production methods.

Here in the UK profit is made on very big boats where production methods honed on the smaller craft means the 30 and 40 metre mega yachts are good value for money and have mass appeal (to those who can afford them). We are fortunate that British design is broadly liked and respected.

It's a world market not a UK market. Of the 3 I don't know if Fairline make big enough boats to be sustainable. I also don't see any killer designs in their line up. Sunseeker make lots of big boats and have been doing so for a while so are well established - their brand marketing is superb.

Princess have excellent use of space, flat floors, huge glass areas and clean lines. They also took the shrewd decision to increase size at the top of their range. At the bottom end 40 foot is just big enough to make money. It also keeps them honest, if you can make money on a 40 foot boat your 40 metre boats are going to be good value.

In my humble opinion, I'm not an economist.

Henry

 

[petem]

Boating is never intended to be a mass market hobby and no business model requires it to be. In America it might be possible to run a business making sub 10m boats because the number of sales means you can use volume production methods.

Here in the UK profit is made on very big boats where production methods honed on the smaller craft means the 30 and 40 metre mega yachts are good value for money and have mass appeal (to those who can afford them). We are fortunate that British design is broadly liked and respected.

It's a world market not a UK market. Of the 3 I don't know if Fairline make big enough boats to be sustainable. I also don't see any killer designs in their line up. Sunseeker make lots of big boats and have been doing so for a while so are well established - their brand marketing is superb.

Princess have excellent use of space, flat floors, huge glass areas and clean lines. They also took the shrewd decision to increase size at the top of their range. At the bottom end 40 foot is just big enough to make money. It also keeps them honest, if you can make money on a 40 foot boat your 40 metre boats are going to be good value.

In my humble opinion, I'm not an economist.

Henry

I agree Henry. I worry most about Fairline, when I see their lineup next to their competitors it amazes me how small their boats look. Is it too simplistic to say that they need to relocate if they are to survive?

 

[Bandit]

One small correction, if the post no 7, if by "Volvo" the post means Volvo Penta is owned by the Chinese that is incorrect, Volvo cars are owned by the Chinese, Volvo Group sold Volvo Cars to Ford who sold them a few years later to the Chinese.

Volvo Penta is owned by Volvo Group of Sweden who are the manufacturer of earthmoving equipment, diesel engines, Volvo Trucks and bus , Renault truck and bus, and Mack etc see http://www.volvogroup.com/group/global/en-gb/volvo group/our_brand/pages/ourbrands.aspx

The recession has crippled the Boat building industry and the production levels are now far lower than they were in 2007.

The second hand values have dropped significantly and there are bargains to be had.

In 2007 it was ok to "Flash the Cash" in today's straightened times it is not viewed positively.

Boats are not essential , I suppose a roof over your family's head, one or two cars per family and a good standard of living all come well before a boat it is a luxury item.

Boats are not an appreciating asset, they depreciate fast and cost a lot to run each and every year.

Fuel costs have rocketed for motor boats I still remember 15p a litre.

There is more money to be made building a larger boat than a 40ft and below boat. I rue the fact that the UK big builders do not build 30 to 40ft family boats.

 

[PowerYachtBlog]

We are fortunate that British design is broadly liked and respected

Henry do you have an idea how a British boat looks? Can I tell you Broom, that is a British looking boat design.

Sunseeker, Fairline, and Princess for all there good will are just making Italian/Med looking cruisers and yachts built in Britain.
There is nothing British about the top three nowadays (since about a decade or more tbh) if you talk about looks and design, both inside and out.

 

[rustybarge]

One small correction, if the post no 7, if by "Volvo" the post means Volvo Penta is owned by the Chinese that is incorrect, Volvo cars are owned by the Chinese, Volvo Group sold Volvo Cars to Ford who sold them a few years later to the Chinese.

Volvo Penta is owned by Volvo Group of Sweden who are the manufacturer of earthmoving equipment, diesel engines, Volvo Trucks and bus , Renault truck and bus, and Mack etc see http://www.volvogroup.com/group/global/en-gb/volvo group/our_brand/pages/ourbrands.aspx

The recession has crippled the Boat building industry and the production levels are now far lower than they were in 2007.

The second hand values have dropped significantly and there are bargains to be had.

In 2007 it was ok to "Flash the Cash" in today's straightened times it is not viewed positively.

Boats are not essential , I suppose a roof over your family's head, one or two cars per family and a good standard of living all come well before a boat it is a luxury item.

Boats are not an appreciating asset, they depreciate fast and cost a lot to run each and every year.

Fuel costs have rocketed for motor boats I still remember 15p a litre.

There is more money to be made building a larger boat than a 40ft and below boat. I rue the fact that the UK big builders do not build 30 to 40ft family boats.

The sub 12 meter boat sector seems to be a Scandinavian speciality, look at Nimbus, Botnia, Saga, Finnmaster etc etc. and although they have suffered a chequered history they still continue to manufacture small boats. They have proved that there is a niche market for well constructed high quality products for high end consumers.

the British used to have a share of that market with the Nelson type hull forms, Seaward, aquastar, Lochin, Dale etc but they neglected to modernise their designs to compete with the Scandinavians.

IMO there still exists in the UK a market for hand made high end designs: the emerging markets like china have enormous respect for Industrial heritage of Britian and it's engineering; look at the sales of Rolls Royce.

nobody can compete on price with the brick economies; but we can compete on quality and engineering provenance.

 

[Tranona]

The sub 12 meter boat sector seems to be a Scandinavian speciality, look at Nimbus, Botnia, Saga, Finnmaster etc etc. and although they have suffered a chequered history they still continue to manufacture small boats. They have proved that there is a niche market for well constructed high quality products for high end consumers.

Those builders exist because like the US builders they have a large domestic market for their style (and size) of boats.

 

[jrudge]

Having just bought a large Fairline I wanted to see how this thread panned out before commenting.

Over time all three of these brands have been making bigger boats and cutting down on the smaller segment. The fundamentals of most businesses are the same - you can choose to make a lot of sales to many people in the mass market, or a few sales in the higher end market, and you profit will probably be similar ( this is a gross over simplification but having moved form a pile it high sell it cheap model to a high value low volume model in my own business the high value end is a much nicer market to be in, and far more profitable).


If you look at the life cycle of a boat someone has to design it, make the mould, market it, take it to shows, sell it, process the paperwork - all of which will not vary that much regardless of its size. Making a bigger boat will cost more ... but in the scheme of things probably not that much more. So the bigger market will carry more profit as long as you can actually sell stuff and your brand can take it ( Sealines could not) - someone above commented on boats existing only on a web site which is where this model breaks down.

Boating is a global market and it is true that there is always money at the top of a market. Where in the world that will be may move, but if someone has made a few pennies then they usually want something to show for it and a boat is on that list for many.

The growth in wealth on the top 0.1% / 1% or whatever has been significant. It may falter, but it is not going to vanish over night without notice. All markets change and all companies adapt their model to what is going on in the world.

Henry - we would nave guess you are a Princess owner!

We bought a Fairline as we liked it. The Sunseeker seemed more cramped and had a down galley. The Princess 64 was lovely and we almost ( very almost) bought one. The master has a chaise long we would never use, and the step in the saloon was not ideal, and you could not get out of the side deck door without doing a hip weaving manoeuvre! . The S65 had a nice spacious feel and the best fly bridge. There was not really much in it. Fairline ( Essex) were much nicer to deal with, Princess gave the impression look, but sir can't afford it. Sir can and crossed the road and bought one whilst his kids caused havoc but got given key rings! So horses for courses, there was no bad option, just our preference, and as JFM has mentioned several times in threads, any boat is a compromise.

All three of these manufacturers are very very good at what they do, and all make beautiful boats.

Fairline are hampered by being inland. I was there last week and I know they have looked at moving to the coast ... but coastal waste land has now been converted into luxury flats making this a relative non starter. They goto 78 feet which is the top of the self drive market. Would their brand support bigger boats? I honestly don't know, but the bigger the boats get the less buyers there will be. Princess and Sunseeker are doing well in that market ( on the face of it). Any market is made up of all sorts of players in all sorts of segments, you don't have to mirror someone else.

So back to the question - do they have a long term business model. Manufacturing of boats is capital intensive and is probably not the place to get highest return on your capital, but that are all building boats and selling boats, they all have an excellent reputation, so for the forceable future, I think the answer is yes.

 

[PowerYachtBlog]

I think the story of Sealine is far away from what people are saying here, yes they went down, but may be it was an inflated buying price and debt on the company from the US Investment Bank (sorry cant remember the name) who bought it from Brunswick.

People here are saying small boats cant sell and this and that, Sealine sold 200+ units of SC35 (mostly in North EU, very unpopular in the Med it seems) in a couple of years, even if it was similar priced to a Fairline 38 Targa.
Unfortunately at the time Sealine was mostly selling only SC35s.....

Also remember that all three British builders where sold during the recession; Princess to LVC in 09, Fairline to a new fund management, and Sunseeker from Brathwaithe to the Irish investment bank and then to a Chinese corporate.
You can say that they all got covered before it was late unlike Sealine who was a bit unfortunate from a certain POV, but in reality the story showed that all had problems of there own, especially if you see the selling price they sold.