Harley-Davidson Inc.’s motorcycle unit is skidding dangerously, but its teddy bear business has already crashed.
On Tuesday morning, the company posted a quarterly update that was dismal all around. Perhaps most alarming, however, was a 17% drop in revenue from general merchandise, a sales slump that outpaced declines in dollars derived from bikes, parts, and financing.
Souvenir sales were even worse in the first quarter when it recorded a 21% drop in merchandise revenue. The company that rides on the strength of its brand appears to be moving far less apparel, jewelry, and do-rags than it has in the past.
In terms of cash flow, the merchandise dip is small beer. Historically, the category only accounts for somewhere around 5% of Harley revenue. But it is unquestionably a gauge of brand cache.
Among those who don’t ride, a Harley leather jacket is an affordable Entrez to the club, not unlike a pair of Ferrari driving loafers. And one would think there would always be a bullish market for deluxe leather riding chaps ($275).
The company no doubt is far more alarmed about the disappearance of motorcyclists—as it should be. In the first half of the year, US registrations of large motorcycles declined by almost 7%, according to data released Tuesday.
Harley, meanwhile, cut its sales forecast and laid out plans to fire factory workers. As boomers—which represent a huge chunk the market—transition from the roadhouse to the retirement home, every bike-maker in the industry is trying to lure young customers with smaller bikes.
Harley is going down this path as aggressively as any of its rivals. It now has nine models that retail for less than $12,000. However, a brand cache is going to be critical for this group. People who like Harley-Davidson, meanwhile, still tend to skew older, male, and politically conservative, according to YouGov, an analytics company that runs a proprietary index of brand perception.
For a rookie rider who knows little about motorcycles, what a brand represents mechanically may matter less than what it means culturally. Now, more than ever, Harley-Davidson needs to keep its cool. Bloomberg
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