Future of Sea Ray

Chip S

Chip S

Active Member
Jun 17, 2019
432
Bordentown, NJ
Boat Info
1993 Sea Ray 200 Overnighter
Engines
2023 Mercury 150 hp Four Stroke Outboard
Sea Ray is only building bowriders now. The 320 Sundancer has a small cabin, but is basically a large bowrider. Is this a smart direction for Sea Ray to go? They will be competing with Regal, Crownline, Chaparral, and Four Winns. They will also be competing indirectly with more entry level boats like Bayliner, Starcraft, Tahoe, and Stingray. The bowrider market is very competitive. Does Sea Ray have what it takes to compete?
 
In a word, Yes. We came to that conclusion three years ago when we began our search for our retirement boat. Clearly Sea Ray has decided it can make more money by punching out a lot of smaller boats to a less critical audience than building a smaller number of high ticket items for a more picky customer base. It strikes me that it is more of a philosophy change than a response to a market shift.

People are still buying large boats. Just look at the success of Back Cove and Sabre. Back Cove has expanded in the sub 40' market by offering 300hp outboard models and concentrating on single engine diesels. That with upmarket features like real wood paneling and teak soles and quality fit & finish, BC is filling a market segment that Sea Ray used to support with the 3xx series boats. Sabre in the 40 plus market truly delivers on the yacht part of its name with top of the line materials and construction.

I also think that Sea Ray's last big boat designs really pushed the envelope with the science fiction inspired Euro look like the 400. Sure its trendy, but sometimes you just want a boat that looks like a boat.
 
I am a sea ray loyalist, but I think they are starting to miss the mark again. Their boat designs are aesthetically fine, but not overly innovative. However, I think at the price point ($330,000 for a 31’ OB boat, +$1m for a 40’ open bow) they are missing the quality and design features the market will eventually expect. What was once a premium brand, is really only a premium brand in name. It lures in the new buyers with more money than boating experience. It is because of all the little details where I think their demise will eventually happen. Fit and finish is not great for that price point, some material selections are borderline, wiring is a complete mess and honestly looks like a shade tree mechanic did it in some cases. They miss key items like gutters around the seat bases for draining if caught in a storm, they put carpet under the seats on the sidewalls, small items that experienced buyers notice. Once this mad tear of boat buying at any price ends, and it will soon, they will struggle to compete at their price points.
 
paulswagelock said:
It lures in the new buyers with more money than boating experience. It is because of all the little details where I think their demise will eventually happen. Fit and finish is not great for that price point, some material selections are borderline, wiring is a complete mess and honestly looks like a shade tree mechanic did it in some cases. They miss key items like gutters around the seat bases for draining if caught in a storm, they put carpet under the seats on the sidewalls, small items that experienced buyers notice. Once this mad tear of boat buying at any price ends, and it will soon, they will struggle to compete at their price points.
Click to expand...

500% agree with everything here.

And to be fair, the fit/finish has been a steady decline for SR.

I looked closely at a 2015 410 Sundancer a year ago. Lovely boat, but the engine room is a disaster. Cable spaghetti, unmarked hoses, no battery boxes--it didn't hold a candle to its competition from a quality craftsmanship perspective.

As to the bowrider segment, it's a wide range in terms of price point. You can charge (and get!) $1M for a 40' bowrider, but you can't have Walmart-style customer service, it needs to be Nordstrom (which is what Cobalt and Formula provide).

I think SR is on a mass market path. Honestly, I wouldn't be surprised to see the 400SLX fade away.
 
Sea Ray is giving the market what it wants. I'm in a 40'x12' slip in a yacht club. There are 50 slips on my dock. When I moved in 10 years ago we called it the land of 320 DA. There were 15 on the dock many lined side by side. 40 of the 50 slips were cabin cruisers. Flash forward to today and 10 slips are empty. There are 2 320 DAs left. There are 10 cabin cruisers the rest are deckboats and a few sailboats. The weekend evening parties are over as the deck boat owners are gone by 6pm. When we overnight at the dock we are often the only ones there.
Most young families can't touch a new cruiser that costs more than their house. Sea Ray is giving people what they want. Entry level boats that they can afford. With the baby boomers getting out of the market there just isn't demand for cruisers.
 
A lot depends on where you boat. My own opinion is sea ray is missing the mark. You can make more than one type of boat. Bow riders, deck boats and day boats are fine -- all day long on a quiet lake. But on the great lakes, not so much. Offshore, nah. They have pretty much abandoned that market. Their bean counters obviously know where the money is.
 
I don't have any unique insight into Brunswick's strategic planning, but look at the brands in their portfolio and where they make their money. In 2019 they did $3 billion in sales in propulsion (engines), $1.3 billion in boat sales, and in 2019 they acquired Freedom Boat Club and a financing operation. Their boat brand portfolio is mostly smaller boats, and, not coincidentally, boats that can use their engines. They recognize that not everyone can afford a new boat, so they tap into that with Freedom Boat club, which also creates a pull-through for their boats and motors.

2019 Operating Margin on propulsion (their highest revenue area by 3x) was 16.2%
2019 Operating Margin on boats was 4.3%, up from essentially being breakeven the prior two years.

In their 2020 quarterly results they broke out their parts business and those revenues were on par with their engine business, with a higher margin (19.7% vs 14.8%) In their parts business they own Attwood, Ancor, BlueSea Systems, Marinco, ProMariner, Garelick, and all of that other stuff we buy that is crazy expensive, but we need.

2020 9 months through September Boats were at a 4.1% operating margin.

2020 through September they made $203 million in operating earnings (contribution margin) on engines, $248 million on parts, and $39 million on boats. They make 5 times as much money on engines as they do on boats, and more than 6 times as much money on parts as they do on boats.

Are you starting to get the picture as to why they aren't interested in building large yachts?
 
Another idea here that might suggest the death of the "smaller" cabin cruiser: millennials (of which I'm a member :)).

Most of us grew up with our own space, comfy beds, high-threadcount sheets...we don't really care much for packing into sleeping quarters like sardines (which is really the case with sleeping on a 30'-35' cruiser).

I only considered a boat with sleeping space where I could have my own (separate) shower, staterooms with privacy doors (not curtains), etc. It's pretty difficult to engineer such items into a 30'-35' footprint.

The 35' bowrider, on the other hand, was perfect. We could load up 10-12 friends, it had a proper head and a private area to change clothes, and we could also charge through rough waters (a 35' hull is a 35' hull).
 
yobub said:
I don't have any unique insight into Brunswick's strategic planning, but look at the brands in their portfolio and where they make their money. In 2019 they did $3 billion in sales in propulsion (engines), $1.3 billion in boat sales, and in 2019 they acquired Freedom Boat Club and a financing operation. Their boat brand portfolio is mostly smaller boats, and, not coincidentally, boats that can use their engines. They recognize that not everyone can afford a new boat, so they tap into that with Freedom Boat club, which also creates a pull-through for their boats and motors.

2019 Operating Margin on propulsion (their highest revenue area by 3x) was 16.2%
2019 Operating Margin on boats was 4.3%, up from essentially being breakeven the prior two years.

In their 2020 quarterly results they broke out their parts business and those revenues were on par with their engine business, with a higher margin (19.7% vs 14.8%) In their parts business they own Attwood, Ancor, BlueSea Systems, Marinco, ProMariner, Garelick, and all of that other stuff we buy that is crazy expensive, but we need.

2020 9 months through September Boats were at a 4.1% operating margin.

2020 through September they made $203 million in operating earnings (contribution margin) on engines, $248 million on parts, and $39 million on boats. They make 5 times as much money on engines as they do on boats, and more than 6 times as much money on parts as they do on boats.

Are you starting to get the picture as to why they aren't interested in building large yachts?
Click to expand...

In that context a move to more smaller units suggests a survival tactic by producing more customers for engines, parts (engine & proprietary boat) and services.
 
Our previous boat was a 26 foot cabin cruiser. When that was totaled in a storm we couldn't find any good, used 26 foot boats and ended up with the 20 foot boat we have now. My wife prefers staying in hotels/bed and breakfasts when we travel by boat now, but she would not have a boat without at least a small cabin with a head in it. A bowrider would never make the grade for us.
 
It's not just Sea Ray, Four Winns has all but exited that segment as well. Regal appears to be interested in it though and has some new models coming out each year.
 
firecadet613 said:
It's not just Sea Ray, Four Winns has all but exited that segment as well. Regal appears to be interested in it though and has some new models coming out each year.
Click to expand...

Regal and Crownline are the only two brands that seem to still be making small cabin boats. Hopefully there will be enough buyers to keep them in the market.
 
Henry Boyd said:
In that context a move to more smaller units suggests a survival tactic by producing more customers for engines, parts (engine & proprietary boat) and services.
Click to expand...
I guess you could call it a survival tactic, but it is really just a good use of capital. Think about how much Sea Ray has to invest in building a large yacht, then how long they have that capital tied up before seeing the revenue. It also creates much higher inventory and cash flow risk in a down economy. Their current product mix probably turns much faster, so they see the cash, get the profit, and then can invest that cash in the inventory again.

If they were making huge margins on the boat business it might be a different story, but their segments that are making the money are also lower risk.
 
yobub said:
I guess you could call it a survival tactic, but it is really just a good use of capital. Think about how much Sea Ray has to invest in building a large yacht, then how long they have that capital tied up before seeing the revenue. It also creates much higher inventory and cash flow risk in a down economy. Their current product mix probably turns much faster, so they see the cash, get the profit, and then can invest that cash in the inventory again.

If they were making huge margins on the boat business it might be a different story, but their segments that are making the money are also lower risk.
Click to expand...

Its survival in the sense that their boat building business is less about building boats and more about supporting and expanding the customer base for the benefit of the peripheral businesses they acquired for vertical integration. Turns out the component business is more profitable than the core. Talk about tail wagging the dog.

But think about it, they build boats to sell engines, drives, (mercruiser) head systems, fridges, AC (Dometic), boat fittings, hatches (Taylor Made) and so on. Then in a couple years they get to sell replacement parts on all that stuff.
 
It's interesting that while their boats contribute the least margin of all their product lines, everyone still considers them massively over-priced. It seems to me they can't afford to sell them cheaper than they already are unless they become a loss-leader for their other supporting brands. Is their cost basis so much higher than a lot of the competition's? If so, why? It doesn't appear that they have better materials than much of the industry.
 
copb8tx said:
It's interesting that while their boats contribute the least margin of all their product lines, everyone still considers them massively over-priced. It seems to me they can't afford to sell them cheaper than they already are unless they become a loss-leader for their other supporting brands. Is their cost basis so much higher than a lot of the competition's? If so, why? It doesn't appear that they have better materials than much of the industry.
Click to expand...
Keep in mind that the figures I posted were for all of the Brunswick boat brands combined (Boston Whaler, Lund, Bayliner, etc), not just Sea Ray. I've never spent much time looking into their finances, but I'll see if there is any historic data breaking out performance by brand. Probably not, but it would be interesting to see.

I can speculate as to why boat margins would be low, but I'd prefer to work from facts.
 
copb8tx said:
It's interesting that while their boats contribute the least margin of all their product lines, everyone still considers them massively over-priced. It seems to me they can't afford to sell them cheaper than they already are unless they become a loss-leader for their other supporting brands. Is their cost basis so much higher than a lot of the competition's? If so, why? It doesn't appear that they have better materials than much of the industry.
Click to expand...
Seems to me that part of the issue is that even though Sea Ray would be buying parts from another Brunswick company, they are likely not getting any internal discount. Companies are typically set up with each business unit have it's own profit/loss center. They are independently operated and won't sacrifice their profitability in order to "help out" another division. Therefore the parts business profit is healthy while the integrated product (the finished boat) is less healthy.

I see this in my own business. We have to buy inventory from our parent company, and have to negotiate incredibly hard on the FOB price to make it competitive for our market. I also work with a wholly-owned subsidiary that does software development and some managed services. My division it it's main client. That division is entirely responsible for being profitable, even if the revenue is from inter-company transfers. They don't give us much of any price breaks - in fact it's a common complaint that their services are very expensive. I'll also mention that our GP % for our captive finance company is better than the GP % of our hardware sales, and that pushes us into profitability on a consolidated basis.

Business is weird.
 
b_arrington said:
Seems to me that part of the issue is that even though Sea Ray would be buying parts from another Brunswick company, they are likely not getting any internal discount. Companies are typically set up with each business unit have it's own profit/loss center. They are independently operated and won't sacrifice their profitability in order to "help out" another division. Therefore the parts business profit is healthy while the integrated product (the finished boat) is less healthy.

I see this in my own business. We have to buy inventory from our parent company, and have to negotiate incredibly hard on the FOB price to make it competitive for our market. I also work with a wholly-owned subsidiary that does software development and some managed services. My division it it's main client. That division is entirely responsible for being profitable, even if the revenue is from inter-company transfers. They don't give us much of any price breaks - in fact it's a common complaint that their services are very expensive. I'll also mention that our GP % for our captive finance company is better than the GP % of our hardware sales, and that pushes us into profitability on a consolidated basis.

Business is weird.
Click to expand...

The test for Sea Ray is if they could stand on their own against Formula, Sabre and others. Their competitors don't make boat engines and transmissions so in a level playing field ......could they survive and prosper without intercompany charges and Brunswick overhead?

Certainly not with its present management team. I believe that most of the remaining SR team would give this bunch a no confidence vote in a heartbeat. Why? Because they were hired to sell the company not run it.

Don't get me wrong about Sea Ray. As a supplier for 14 years there was no better team to work with for most of that time. A few years back when Brunswick didn't like the margins.....they brought in their consultants to sell the business for less than 1x revenue. Gone was the boating mindset and the executives who actually loved the Brand and its customer base.


They couldn't find a buyer due in part to them giving up their Sales channel to MarineMax (who remains profitable). One bad decision after another will not bring Sea Ray back.

I sincerely hope that a buyer shows up that cares about the brand and its customer base. If that doesn't happen, SR will continue to shrink as a business and its customers will be sold other brands by MarineMax.
 
b_arrington said:
Seems to me that part of the issue is that even though Sea Ray would be buying parts from another Brunswick company, they are likely not getting any internal discount. Companies are typically set up with each business unit have it's own profit/loss center. They are independently operated and won't sacrifice their profitability in order to "help out" another division. Therefore the parts business profit is healthy while the integrated product (the finished boat) is less healthy.

I see this in my own business. We have to buy inventory from our parent company, and have to negotiate incredibly hard on the FOB price to make it competitive for our market. I also work with a wholly-owned subsidiary that does software development and some managed services. My division it it's main client. That division is entirely responsible for being profitable, even if the revenue is from inter-company transfers. They don't give us much of any price breaks - in fact it's a common complaint that their services are very expensive. I'll also mention that our GP % for our captive finance company is better than the GP % of our hardware sales, and that pushes us into profitability on a consolidated basis.

Business is weird.
Click to expand...

I would argue that this vertical integration hurts all the internal brands. Mercruiser has a solid customer for their engines and drives because their Brunswick boat brands can't sell Volvo-Penta, which means Mercruiser has a lot less incentive to provide a competitive product because they have some level of guaranteed business. It hurts Sea Ray because they have no choice but to supply Mercruiser, probably as you note at a high internal price. This hurts the finished boat brand's profit margin and the customer gets products with less innovation (engines) and the finished product has some cost/quality sacrifices because they're forced to buy products within the parent company and can't negotiate pricing well.

Ultimately I think a lot of this ends up in a spiral of declining quality and increased prices. If Sea Ray got spun off and suddenly could pick any power plant they wanted, Volvo, Cummins, Yamaha, Yanmar or Mercruiser they would be able to negotiate better and innovate better themselves.
 
You must log in or register to reply here.

Forum statistics

Threads
113,163
Messages
1,427,599
Members
61,072
Latest member
BoatUtah12
Back
Top