Published: September 05, 2008 11:50 pm      

Harley may not find easy riding

EDMOND — As you know, I write a lot about demographics and the effect on the economy and various companies. Understanding demographic trends can be important to businesses as well as your investment portfolio.

A good example is Harley-Davidson. Times are tough lately for America’s most iconic motorcycle company. As the Financial Times reported on July 18, “Harley-Davidson yesterday said that its quarterly earnings fell 23 percent as increasing international sales had failed to offset difficult economic conditions in the U.S. Domestic shipments at the motorcycle maker shrank by almost a quarter.”

In a period of high fuel prices and tight family budgets, it’s not surprising that high-end chopper sales are down sharply. But there is more going on here than just gas prices and tight budgets.

For several years now in my lectures, I have used Harley-Davidson as the perfect example of a demographically driven business. The big Harley cruiser with all its chrome and loud pipes has a special mystique in the American mind, a symbol of freedom, American culture and the open road. It’s also a symbol of another great American tradition — the male mid-life crisis! Now before anyone gets offended and sends me nasty e-mails, I’m a motorcycle rider also and a huge fan. My mid-life crisis started at 16 though and never ended.

Demographically speaking, most large cruiser type motorcycles like Harley are bought by white males between the ages of 45 and 55 years old. Not all, of course, but certainly a large percentage. Part of the reason is that most young men can’t afford them.

If you look at a chart of Harley-Davidson stock, it’s no coincidence that the stock took off about the time the oldest baby boomers reached 45 years old in 1991. After the boomers age into their late 40s and early 50s, Harley’s prime demographic market will shrink for decades. In fact, the largest numbers of the baby boomers are now 48 years old and the numbers drop off fairly rapidly after this. I’m not suggesting that you buy or sell Harley-Davidson stock, but when the youngest of the boomers pass age 55, it’s clear that Harley won’t be selling as many high-end motorcycles. Hopefully they have a plan for this.

For Harley to prosper in the coming years, the company will have to diversify its product line and/or make its bikes appealing to other demographic groups, such as younger men. Unfortunately, this probably will mean having to offer a lower-priced machine that better fits in a younger rider’s budget. International sales also are a potential source for growth, but the same problems remain. Rich Europe’s aging demographics do not favor premium motorcycles, and the younger emerging markets of Asia and Latin America do not yet have high enough incomes to pay Harley’s price.

This just goes to show, failure to understand demographic changes can wreak havoc on the business strategies of even well-managed, top-notch companies.

This past month also saw the bankruptcy and closing of another American icon: Bennigan’s, the Irish-themed bar and grill that has been a fixture in the American suburbs for decades. Bennigan’s probably will not be the last American casual dining chain to close its doors.

Casual chains, starting with Norman Brinker’s Chili’s, were a phenomenally successful concept that met the needs of young baby boomer families. But as the last of the boomers’ children leave the nest, these chains will have to appeal to a new generation of parents with their own distinct tastes. Some will be successful and others will fail. The end result will be a suburban restaurant landscape that looks very different from ours today. The old, familiar names that survive and prosper will be those that are able to effectively reinvent themselves to appeal to the next generation. Thanks for reading. See you on the road.

NICK MASSEY is a financial adviser and owner of Householder Group Estate & Retirement Specialists in Edmond. He is also a frequent guest analyst on CNBC and Bloomberg.