Sunday Strategist: How Do You Boomer-Proof Harley-Davidson?

(Bloomberg Businessweek) -- A years-long effort to retool itself for younger customers and minorities is reaching an inflection point with a slate of new bikes and branding. Consider a recent ad featuring a young, bearded bro on a Low Rider. “Some meditate lying down. Others lean into it,” it reads.

In terms of creative content, that’s a long way from a Tim Allen movie and a Kid Rock concert. Indeed it should be, Harley’s old-school business continues a painful, protracted crash. In the most recent quarter, motorcycle revenue skidded by 10 percent and U.S. retail sales have popped into positive territory only once in the past five years.

The company is in its current pickle largely because it focused for years on its best customers, selling expensive, high-margin motorcycles to affluent—typically older—riders. In short, Harley took the easy money, particularly in the run-up to the 2008 Recession.

Not surprisingly, a chart of Harley riders by age looks like a rolling hill that peaks at 54. A population histogram of the U.S., however, looks like a two-humped camel, with a Gen X valley between the high points of Millennials and Baby Boomers. 

“For 100 plus years, we've woken up every morning and told ourselves, ‘Our job is to make great motorcycles,’ and we did a great job at that,” CEO Matt Levatich said on a conference call Tuesday. “It is quite a different challenge to wake up in the morning and say, ‘We now need to build riders.’”

To that end, the company has launched a robust program to train the moto-curious. Meanwhile, it’s renting bikes, dangling sweet financing deals for first-timers and opening merch stores in urban centers. It's also bolting together a line of smaller, cheaper bikes, including a $649 Harley for three-year-olds, stretching the math on “lifetime-value” projections into new, unsettling territory.

Respect the hustle; Harley is no longer cruising and it shows. Last year, the Harley-Davidson added 527,000 new riders in the U.S., an expansion of roughly 25 percent. Yet, over the same period it lost 472,000 riders and an unsettling share of those refugees were the greenhorns that Harley had recently recruited, according to Levatich.

In short, Harley’s move down-market is as fraught as one might have expected. Now, it is losing its best customers to age and its worst customers to indifference, while spending heavily on marketing to sell smaller, cheaper, less profitable bikes. To make matters worse, a potential glut of used bikes are poised to make the journey from garage to Craigslist, further weighing on the market.

“Becoming something you’re not is incredibly difficult,” Morningstar analyst Jaime Katz told me. “But it’s really the only choice they have.”

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To contact the editor responsible for this story: Silvia Killingsworth at skillingswo2@bloomberg.net

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