Category Archives: Economy

Business Comes & Goes, So Does a Culture

There were days when we would go downtown to shop. It wasn’t like going to the grocery or hardware store. No, this was something special, and we would dress for the occasion.  Mother would take her dress gloves out of the drawer, and along with her dress and high heels, she would take out a hat from a box. I would wear dress slacks, shiny shoes, and a sport coat. There were times when I too would wear a hat.

We rode the bus from uptown to downtown, and we weren’t all that out of place in the way we dressed. Most of the other people riding would be dressed in what we might now refer to as business casual.

Minneapolis_downtown_Powers_dept_store_1950sUpon arriving downtown, we might walk down the street and look in various store windows to see what was on display. Most of them of course were pitching their current sales, but there was competition among the variety of retailers as to who might have the most attractive window display.

Minneapolis_Emporium_diner_1950s

Emporium tea room 1940-50s Minneapolis

Eventually we would enter a store, either through double doors which we would pull open, or by entering a revolving door which you or someone else would push to rotate your part of the large glass triangle, until you could enter the store. What awaited your eyes were a couple of things. Usually a store greeter, but not the disinterested couch potatoes who might greet you at Walmart. No, these would be smartly dressed people that knew how to smile. The other thing immediately noticed were the row upon row, of neatly arranged aisles with well placed merchandise on shelves, in displays, or on mannequins. As you made your way to the center of the store, there would be several elevators. Each elevator had a person inside the elevator who would open up the doors, or gate and doors for you to enter. They would then close the doors after everyone that could or wanted to get on. You then would tell them your floor, and they would make the selection for you. Each of these ‘operators’, wore some type of uniform, some with hats, most also wore gloves.

Sears_Tower_1988_1All that changed quickly as the suburbs began to erect large enclosed shopping malls. There were of course what we call strip malls. Stores that shared a large common parking lot and each retailer store were aligned side by side. That didn’t nearly have the impact of the enclosed shopping mall. Once they were constructed, many of the downtown stores simple opened their store in the new mall. This took a big toll on downtown retailers. They typically paid higher rates for taxes, most didn’t have convenient parking. They relied on nearby parking decks and lots, or those like us, who took city transportation. The downtown retailers didn’t maintain their greeters, elevator operators. Even their display windows became less interesting, a far simpler asthetic became the norm.

Those times seem strange to people unfamiliar with that era. Most downtowns have morphed into high rise condominiums, or permanent apartments. Either that or they were torn down as if part of a failed social experiment.

All that has changed again. Many shopping malls are skeletons of what they once were. Some malls have closed entirely. All this due to the evolution brought on by the Internet. The Amazon shopping model has become the new norm. First it was mail order. The big retailers like Sears, JC Penny adapted well. Then the Internet became a ready made 24/7 sales facility. Display windows are now the Internet tabs to click and expand. People still shop, the delivery times are quick and you might not even get out of your night clothes. Social interaction is minimized.

New_York_Lord_Taylor_store_closing

Oldest department store company in the US is disappearing entirely from Fifth Avenue after 104 years

The New York Post just came out with a lament on how much the retail store front is disappearing, and how it’s changing the character of the city.

Chicago_Sears_stores_closing_1

Sears closed last store in Chicago Illinois

The Chicago Tribune opines over the loss of the last Chicago Sears store. The once mighty retail giant, headquartered in Chicago is gone. There building tower still stands, but was sold off years before.

It’s fundamentally changing business, but furthermore, it’s removing us from personal interaction and social restraint. If social media is the replacement for the way friends might meet at the mall, or take day trips downtown, it’s a poor substitute.

Along with the loss of social skills comes another challenge, the need for fewer people. Just like the elevator operators, greeters and floor persons, all will disappear when picking and delivery become fully automated.

Retail has indeed changed, and so too has the culture.

Another Harley-Davidson Story

Harley-Davidson is an ongoing story in the news, not because it’s a huge company, rather it’s an American icon. An icon that President Donald Trump used to spread his message about keeping American manufacturing here.

Then came an announcement that normally wouldn’t receive much attention outside of the motorcyclist industry and its loyal biker cadre. Harley-Davidson, the big HD, was going to move some of its production to somewhere in the EU, due to increasing costs for motorcycle imports into those markets. The reason announced, increasing costs, due to increasing tariffs.

Paul Krugman is an American economist who is currently Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for The New York Times. A regular contributor to the NYT of economic opinions, most especially, anti-Trump. He’s almost gloating with glee to add this latest on how he thinks the disastrous Trump economic policies are beginning to be exposed in the latest announcement by Harley-Davidson and the subsequent comments of displeasure by Donald Trump.

Paul_Krugman_at_the_German_National_Library_in_Frankfurt

Paul Krugman – public domain image

His column, Trump Versus the Hog-maker, excoriates the increasing pressure the Trump administration has placed on international trade, which for years hasn’t been the “open market”, many had supposed.

I prefer you click on the above link and read his post before you continue with mine. I’m going to refer to it and other announcements which I will provide in links.

If you’re not familiar with Donald Trump’s reaction to the Harley-Davidson offshore production announcement, click in this link to read as background.


Let me start with a few givens…

  • I’m not an economist.
  • I don’t know how the long-term effects of the Trump influenced economic decisions will play out over time.
  • I don’t think Paul Krugman, or any other economist knows how they will work out, either.
  • His June 28th opinion column is less about economics and more about politics.
  • By the end of this post, I’m more interested in you thinking about what’s being told to you, rather than just accepting it, because someone with huge public recognition says it to be so.

Let’s also start with a few pragmatic assumptions.

  • Paul Krugman doesn’t want to see the economy fail to prove his point, right?
  • Donald Trump doesn’t demand fair trade policies just because he thinks it will only benefit himself, right?
  • Harley-Davidson made these offshore production decisions before Donald Trump made any tariff proclamations?

Wait a minute? What was that last assumption?

Let’s examine what has taken place by rewinding to the past HD proclamations, and what are the industry trends.
— Quoted from CNN article June 26, 2018 – Trump vs. Harley-Davidson: What’s Really Going On? —
Harley says moving more production overseas is its “only sustainable option” in the wake of the growing trade war.

So what’s really going on?

Americans are buying fewer motorcycles. People outside the United States are buying more, and Harley wants to build bikes closer to its international customers.

Last quarter, Harley’s sales in the United States fell 12%, but they grew 6.8% in Europe, the Middle East, and Africa. In Latin America, sales grew 7%.

In 2017, Harley-Davidson said they would close their plant operations in Kansas City, and expand manufacturing in Thailand. That was long before Tariffs were announced.  (CNN June 26, 2018)

HD_motorcycle_shipments

Harley-Davidson is a publicly traded company and like any such company answers to stock holders. During this downward cycle, they’ve attempted to put the best spin on a market reality, their primary buyer base is getting older. Younger motorcycle buyers in the USA aren’t as large a percentage of the population as they were when looking back over 40 years. Any quick look at who is buying what kind of transportation in the USA will find, younger buyers have made a clear choice for trucks and cars, but not a large number of motorcycles. That’s different in Asia, where you can find motorcycles are far cheaper to buy and operate, than cars.

During the low-cost & easy to get a loan for luxury items prior to 2008, many an aspiring motorcyclist were caught up with the cache of the name, HD. Harley is also competing with their 10-year-old, like new bikes for market share. It’s now common to find 10-15 year old Harley’s with less than 10,000 miles,  many less than 5,000 on the odometer. stack of money

The problem for Harley-Davidson, like other companies when it comes time to explain things, they opt for any opportunity to get out from under adverse stockholder scrutiny. Harley-Davidson made the decision several years ago to move some of their production offshore. RideApart November 14, 2013 .

Harley-Davidson worldwide retail motorcycle sales were down 6.7 percent in 2017 compared to 2016. U.S. retail sales decreased 8.5 percent and international retail sales were down 3.9 percent.

During 2016, the company reported its best-ever retail sales results in Asia Pacific and EMEA. The company added 40 new dealer points internationally. (Europe-MiddleEast-Africa). PRN

“Our actions to address the current environment through disciplined supply and cost management position us well as we drive to achieve our long-term objectives to build the next generation of Harley-Davidson riders globally,” said Matt Levatich, president and chief executive officer, Harley-Davidson, Inc. “We finished 2017 with over 32,000 more Harley-Davidson riders in the U.S. than one year ago, and we delivered another year of strong cash generation and cash returns to our shareholders.”

Corporate Tax Rateharlyvintage-ad-2

For 2017, Harley-Davidson’s effective tax rate was 39.6 percent compared to 32.4 percent in the prior year. The increased tax rate was largely due to the impact of the write-down of deferred tax assets related to the 2017 Tax Cuts and Jobs Act.

The Company expects its 2018 full-year effective tax rate to be approximately 23.5 to 25.0 percent, down considerably behind the expected benefit of the new tax legislation.  HD 2017 Investor Relations

If you examine the individual components of a HD motorcycle, you will find some of the American brand name is first made overseas, then assembled in the US to claim it as an American made product. Wheel, brake, and electrical components are made outside of the US. It’s nearly impossible to determine the exact percentage of parts made in America. There are several thousand “manufacturing customers” of HD.
Here’s what can be easily found.

Menominee Falls, Wisconsin – Powertrain
Tomahawk, Wisconsin – Windshields, composite plastic parts
Kansas City, Missouri – Assembly, Powertrain <— Closed
York, Pennsylvania – Fabrication, Paint, Final Assembly
Manaus, Brazil – Assembles models sold in Brazil
Bawal, India – Manufacture of Street models for India, Italy, Spain, and Portugal

harley_vintage_3History is littered with defunct motorcycle companies, as well as resurrected ones. Many of the resurrected ones died again during the last recession.

According to a Harley Davidson 2013 annual report:

Six in 10 customers are from outside the United States.
Two out of every three new dealerships are in “emerging markets”.
>>>>
3.5 billion people live in cities globally
50% of the population is under 30
The strategy is to grow outside the US faster than growing inside the US
The strategy inside the US is to grow the ‘outreach segment,’ which includes women, young adults 18-34, African Americans, and Hispanics
In 2013, this outreach segment grew twice as fast as ‘core’ customers.

Their newest bikes, the Street 500 and Street 750, were engineered with the young urban rider in mind – smaller, more efficient bikes.

Harley-Davidson has committed to manufacture and assemble the motorcycles used in the United States. But companies aren’t blind to their ability to export motorcycles to the world at large, or to recognize other segments of their market, nor should they be. To expand in these new areas and markets, in many cases, they’ve opened facilities overseas or outside US borders. The flexibility to export using foreign facilities certainly doesn’t seem like a bad thing for an American company as it grows.

Analysts are divided about what impact the protectionist measures will have on the broader economy. That’s understandable. We’ve seen the greatest of prognosticators under the “Boffins hat” of an Economist predict the opposite of what does happen.

Another Half-Truth News Story

The latest headlines are talking about Harley-Davidson is moving manufacturing overseas. Specifically, it’s being tied to tax and tariff policies that President Donald Trump has announced. What it largely fails to do is place the current Harley-Davidson story in perspective of it’s past announcements, as well as the changing markets.

For background, I’m posting a few past announcements made by Harley-Davidson, which I will also refer to by another name, the “Motor Company”.

Let’s take a little more spin-off the current news cycle. They’re not doing a good job of truly informing you…

In 2014, an article came out about the changing fortunes of the Motor Company.

Sales were significantly down in 2014. They still had profits.

Forbes Announced in 2015
Harley-Davidson Pre-Earnings: U.S. Retail Sales Could Return To Strong Growth In Q1

In 2017 — “While we expected the U.S. industry to be challenged, we were disappointed by the unexpected magnitude of the industry softening in the quarter,” Harley CEO Matt Levatich told analysts.

But investors are concerned that Millennials aren’t interested in the “hog” lifestyle that energized previous generations.
Levatich said Millennials were buying used bikes in encouraging numbers, but the company must persuade them to buy their new motorcycles.

harley-davidson-sales-2014-to-2017

HD Sales Continue Downward Trend

“It’s up to us to inspire even more of them to ride and to engage with Harley-Davidson’s products and experiences ..” he said.

Here’s what happened… dwindling-domestic-sales
“It’s unlikely the news will lose Harley-Davidson any fans it hasn’t already lost to cheaper, smaller and more reliable brands that are often foreign-owned. The “Made in the U.S.A.” crowd has merged with the “Make America Great Again” masses, and neither really seem to care that red baseball caps are sewn in China. And in recent years, Harley-Davidson has been courting a younger, more culturally diverse audience anyway.”Ad Age June 2018

That’s because the “Baby Boomers” are retiring or dying, Ad Age, and the millennials aren’t the target market. Asia and Europe are, and that ship has sailed before this latest June 25, 2018 news cycle started generating stories about Trump trade policy an it’s effects.

“The core customer base for Harley comprising baby boomers is aging, and millennial customers have looked to hold off on extravagant purchases, a term which can be associated with heavyweight luxury motorcycles, especially after a prolonged period of slow economic activity. However, 2015 could be different.” – Forbes April 2015

motorcycle-sales-statistics-01

In 2013, Americans purchased nearly 466,000 motorcycles, with the iconic Harley-Davidson (NYSE:HOG) laying claim to a good chunk of those domestic sales. But riders — and investors — might not realize that there’s a world full of cycle enthusiasts outside our borders that dwarfs the U.S. market.”

With the understanding that foreign markets, especially the Asia-Pacific region, are the key to generating millions of motorcycle sales on annual basis, I offer this challenge: Can you guess which motorcycle brand is the world’s top seller?

.. if you said Honda (NYSE:HMC) then you should have real bragging rights as you correctly guessed the world’s top-selling motorcycle brand.” – Motley Fool Investor August 2014
Motorcycle_Business_graphics_2014


The adoption of electric and hybrid motorcycles to emerge as a prominent trend in the global market

A recent trend observed in the motorcycle market is the increase in the adoption of electric motorcycles in some regions such as Europe and South Africa. With the governments focusing on electro mobility and reducing pollution, zero emission vehicles are being increasingly promoted through attractive incentives and schemes.

Chasing younger riders, Harley Davidson announces plans for a production electric motorcycle

It shouldn’t come as a surprise, but it still does to anyone who’s grown up with a very fixed image of what Harley-Davidsons are all about: outlaws, choppers, carefree big-bore dinosaur burners that never moved with the times because they never had to.

Matt Levatich, H-D President and CEO, summed up his company’s view thus: “The EV motorcycle market is in its infancy today, but we believe premium Harley-Davidson electric motorcycles will help drive excitement and participation in the sport globally. As we expand our EV capabilities and commitment, we get even more excited about the role electric motorcycles will play in growing our business.” – New Atlas 2014

Royal Enfield – An Indian company – Now Largest Big Bike Manufacturer in the World

Royal_Enfield_Indian_motorcycle_2

Indian Motorcycle took over British product > 50 years ago

Royal Enfield set to buy Ducati as new 210 hp 1100c V4 Stradale engine. They have plans for their own super bike.

Royal_Enfield_motorcycle_production_world

Royal Enfield an India based company now largest manufacturer of motorized bikes

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If you’re “ShocKed” by the news of Harley-Davidson, recognize there are larger forces at play on the world stage than Presidents and political alliances. Changing demographics are driving this and other changes. The best HD can do, or for that matter any company, is adapt to survive.

I still stick with what I own… A 750cc Honda. Honda_Motorcycle_750_ACE