This week, Harley-Davidson announced a new global strategy.
The company affirmed its commitment to the large and profitable motorcycles that have made it a worldwide icon. But it also revealed that it will expand its business in Asia and roll out a new platform for smaller motorcycles.
Contrary to the performance of its stock, Harley's business is actually pretty good. It's cruiser bikes and other big cycles aren't cheap, which means that they can be quite profitable and enjoy a loyal customer base.
But the motorcycle market in the US has been declining for years. Young people aren't riding, and new bikers aren't showing up as they did in the past.
Harley has been dealing with this downturn, but also casting an eye toward growth markets. India looks particularly attractive. But although motorcycles are a favored form of transportation there, people prefer small displacement bikes. Massive Harley v-twins aren't practical.
It will be up to CEO Matt Levatich to oversee the difficult new strategy.
Here's how it will shake down:
Harley-Davidson has long been known for its iconic cruiser bikes — large, powerful motorcycles that are designed to take on sprawling American highways.
Harley isn't giving up on big bikes — not by a long shot, given that these expensive machines are highly profitable. But over the past decade, it has been diversifying its lineup.
The company is under pressure these days, despite its core business performing well. So CEO Matt Levatich will oversee a new strategy.
Over a multi-year period, Harley has held its own with the business, but Wall Street has penalized the stock. Despite the motorcycles generating good profits — the gross margin is above 30% — investors are nervous about the customer base getting older and requiring serious money to buy the bikes.
Younger people aren't taking up motorcycles like they used to, and that's led to a long slide in the size of the market in the US, which is already quite competitive. The Harley image of open-road freedom doesn't necessarily dovetail with the enthusiasm of millennials for city living.
Harley doesn't want to get stuck in the past, so it's taking steps now to revamp its business without betraying the loyalist, who after all haven't stopped buying bikes.
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Credit: Thomson Reuters