In a previous blog post I talked about the slowdown that has happened in the RV industry lately. I think what people really latch onto in this discussion is that RV shipments for the manufacturer are down. Yes, they are down for the forth straight month, but is it really time to panic? I don’t think so and here is why.
The RV Manufacturers have been running at full speed for the last 8 years, or close to it. Manufacturers have been adding on to their plants to meet dealer demands for their products. Dealers have struggled at times to have the necessary inventory for their customers…but there is always another dealer down the road, right? Therefore they build their inventory so they don’t miss a sale.
Even though the expected shipments are down for the fourth month in a row, a survey group has reported that sales of RVs are at an all time high. How can that be? That is because there is a big difference between expected manufacturers shipments and sales to the consumer. A dip in expected shipments may have nothing to do with sales to the consumer. Here’s an example:
Let’s say Ralph buys cereal for his supermarket, and a certain brand (lets call it Fruity-O’s), sells out every week by Wednesday. So what will Ralph most likely do to protect himself and his customers so they can enjoy their Fruity-O’s every morning? Well the first thing he is going to do is increase his inventory, by bringing more truckloads of Fruity-O’s into his store to meet that demand. Now he is probably going to increase his safety stock as well so that every-time a truck arrives he has at least a days worth of inventory still on hand. This safety stock inventory will cover him for an unexpected run on Fruity-O’s or if a truck arrives late. Now, to further protect himself Ralph might also place orders with the vendor further out into the future to make sure his supply is insured.
Ralph at some point, based on sales trends or just to reduce holding costs, may want to trim some of his inventory down so he’s not carrying as much. He will do this by cancelling or rescheduling his deliveries. The impact to the customers demand is not affected because he currently has plenty of Fruity-O’s inventory. This makes Ralph happy because his customers can still get the cereal and wont need to buy from the competitor down the street; and he has just saved money on inventory reduction.
The expected shipments from the supplier are obviously impacted because Ralph doesn’t want the excess inventory. Therefore, the suppliers anticipated (or expected) shipments are down. This doesn’t thrill the supplier but once the inventory gets realigned things will probably get back to normal. This may require the manufacturer to temporarily throttle back on production so they protect themselves from obsolete inventory, because lets face it, Ralph doesn’t want Fruity-O’s with an expired shelf life.
Well the same thing is happening in the RV industry. In the above story, Ralph is your local RV Dealership. The Dealerships need to move old inventory off the lot before taking a risk on excessive new inventory. Given how robust the RV sales have been, dealerships were fine carrying a lot of extra inventory (perhaps too much). Now as they look at their inventory and want to prune back, it probably won’t affect their sales, just the shipments coming from the suppliers.
Obviously the suppliers can’t be holding 2018 travel trailers on their lots and pushing them to dealers in 2019. So they need to adjust their shipments and production schedules accordingly – hence the decline in anticipated shipments.
There is always a tug back and forth on optimizing inventory. So if sales still look strong, and I believe they are, then we are looking at a readjustment of inventory.
A case in point: Dave Titus, is the owner of International RV Wholesalers in Elkhart, Indiana. He has reported that he was over-exuberant on placing orders for RV’s in early 2018. Now he is readjusting his inventory, however sales of RVs were still up for the year by 10% over 2017.
Some industry experts believe the readjustment on inventory may continue through the first four months of 2019.
That is not to say that the RV market may not cool down some. There are a lot of RVs on the road right now, new and used. As I mentioned in my previous post, the RV industry likes people to pull ahead and but their new models earlier and earlier. You can only go so far with that strategy (my opinion). Is there a correction in process? Maybe, but at least for now I think it might just be an inventory adjustment.
Meanwhile in Indiana, RV manufacturers are apparently pulling down their projections for 2019. I’m not sure that is an indication of a slump, it’s just makes sense. Let’s see how 2019 develops.
Is there an RV Industry Slowdown Part 2
In a previous blog post I talked about the slowdown that has happened in the RV industry lately. I think what people really latch onto in this discussion is that RV shipments for the manufacturer are down. Yes, they are down for the forth straight month, but is it really time to panic? I don’t think so and here is why.
The RV Manufacturers have been running at full speed for the last 8 years, or close to it. Manufacturers have been adding on to their plants to meet dealer demands for their products. Dealers have struggled at times to have the necessary inventory for their customers…but there is always another dealer down the road, right? Therefore they build their inventory so they don’t miss a sale.
Even though the expected shipments are down for the fourth month in a row, a survey group has reported that sales of RVs are at an all time high. How can that be? That is because there is a big difference between expected manufacturers shipments and sales to the consumer. A dip in expected shipments may have nothing to do with sales to the consumer. Here’s an example:
Let’s say Ralph buys cereal for his supermarket, and a certain brand (lets call it Fruity-O’s), sells out every week by Wednesday. So what will Ralph most likely do to protect himself and his customers so they can enjoy their Fruity-O’s every morning? Well the first thing he is going to do is increase his inventory, by bringing more truckloads of Fruity-O’s into his store to meet that demand. Now he is probably going to increase his safety stock as well so that every-time a truck arrives he has at least a days worth of inventory still on hand. This safety stock inventory will cover him for an unexpected run on Fruity-O’s or if a truck arrives late. Now, to further protect himself Ralph might also place orders with the vendor further out into the future to make sure his supply is insured.
Ralph at some point, based on sales trends or just to reduce holding costs, may want to trim some of his inventory down so he’s not carrying as much. He will do this by cancelling or rescheduling his deliveries. The impact to the customers demand is not affected because he currently has plenty of Fruity-O’s inventory. This makes Ralph happy because his customers can still get the cereal and wont need to buy from the competitor down the street; and he has just saved money on inventory reduction.
The expected shipments from the supplier are obviously impacted because Ralph doesn’t want the excess inventory. Therefore, the suppliers anticipated (or expected) shipments are down. This doesn’t thrill the supplier but once the inventory gets realigned things will probably get back to normal. This may require the manufacturer to temporarily throttle back on production so they protect themselves from obsolete inventory, because lets face it, Ralph doesn’t want Fruity-O’s with an expired shelf life.
Well the same thing is happening in the RV industry. In the above story, Ralph is your local RV Dealership. The Dealerships need to move old inventory off the lot before taking a risk on excessive new inventory. Given how robust the RV sales have been, dealerships were fine carrying a lot of extra inventory (perhaps too much). Now as they look at their inventory and want to prune back, it probably won’t affect their sales, just the shipments coming from the suppliers.
Obviously the suppliers can’t be holding 2018 travel trailers on their lots and pushing them to dealers in 2019. So they need to adjust their shipments and production schedules accordingly – hence the decline in anticipated shipments.
There is always a tug back and forth on optimizing inventory. So if sales still look strong, and I believe they are, then we are looking at a readjustment of inventory.
A case in point: Dave Titus, is the owner of International RV Wholesalers in Elkhart, Indiana. He has reported that he was over-exuberant on placing orders for RV’s in early 2018. Now he is readjusting his inventory, however sales of RVs were still up for the year by 10% over 2017.
Some industry experts believe the readjustment on inventory may continue through the first four months of 2019.
That is not to say that the RV market may not cool down some. There are a lot of RVs on the road right now, new and used. As I mentioned in my previous post, the RV industry likes people to pull ahead and but their new models earlier and earlier. You can only go so far with that strategy (my opinion). Is there a correction in process? Maybe, but at least for now I think it might just be an inventory adjustment.
Meanwhile in Indiana, RV manufacturers are apparently pulling down their projections for 2019. I’m not sure that is an indication of a slump, it’s just makes sense. Let’s see how 2019 develops.
john.martini.patterson@gmail.com
December 30, 2018
Blog, Industry Commentary
rv commentary, rv industry, RV manufacturers, slowdown, travel trailer blog, Travel Trailer Blogs, Travel Trailer Nation, travel trailer nation blog