Harley shifts gears in effort to sustain success

July 8, 2002

Submitted by Ron


As Harley-Davidson Inc. prepares to kick off its 100th anniversary celebration this week, company observers and its own customers marvel at its success and, notably, its run of record results since the mid-1980s. But they also wonder whether Harley at the dawn of its second century can remain forever on the high road. After all, the wealth effect of the '90s has evaporated into a wealth deficit amid today's jittery stock market, posing a threat for a company that charges up to $25,000 for a toy that grants entry into an exclusive club.

An even bigger concern is the graying of America and Harley's prime customer base, the baby boomers. While that should not translate into sagging sales or an end to Harley-Davidson's streak of record results anytime soon, how will Harley stay hip as the decades go by and its core customers pass from the eras of hippies and hip-hop to the age of hip replacements? When fathers and sons set out for a bite to eat, often it's an outing around the corner that takes an hour, maybe two. When Jordan Reich and his son, Jason, set out on their Harleys, they hunger for more than a meal. They hop on their motorcycles and take the back streets to Sheboygan, where the local Harley dealership doubles as the Cruisers burger-and-custard shop. The Reichs are part of the new breed of riders. Their background isn't blue-collar: They hail from Bayside - dad is a Shorewood lawyer; son is a Brown Deer shipping manager. They joined the club after Harley's 95th anniversary celebration in 1998.

"I was standing down on the corner of Michigan (St.)," Jordan said, "when the parade turned toward me with all those bikes and all that noise. I had never heard so much noise in my life. It just went on and on and on."

Their ride to Cruisers on a recent Saturday brought them to a small town where they stopped for gas.

"People ran up and started asking questions," said Jordan Reich, who was wearing a blue-denim shirt with the sleeves ripped off. "When they first see you, they don't know if you're going to tear the town apart. It's kind of funny - everybody hears about the 'bad boy' image, but 99 percent of Harley riders are the nicest people you'd want to meet."

Harley executives are glad to have both the Reichs as customers. More often than not, however, it is the fathers and not the sons who buy a Harley. Demographics have been on Harley's side since the early 1980s, said Don Brown, a motorcycle industry consultant who is known as the industry's numbers-cruncher and economic forecaster. Japanese bikes were less expensive and built more like hot rods, attracting a younger set. Harley's niche, cruising bikes known as heavyweight cycles, catered to a different customer. They capitalized on the baby boomer demographic and created a niche at the premium end of the motorcycling market. But now, as boomers - whose age ranges from 37 to 56 - approach retirement, the average age of someone buying a new Harley has gone from 38 to 45 years old in just nine years. At some point, this confluence of great timing and powerful branding could no longer be a boon for Harley. Whether that's five, 10 or 20 years from now remains to be seen.

Harley's challenge is not merely to attract a younger rider. The asking price of a Harley is much higher than that of its competitors.

"It's not just getting that younger demographic; it's getting the younger person with the kind of income that can afford to pay a premium for a Harley," Brown said.

At the same time, Harley executives defend their efforts to continue catering to baby boomers, the biggest target market for anybody selling anything. The surge of older, wealthier white-collar riders such as the late Malcolm Forbes and local rider Jordon Reich shows how the formula can still work.

"The baby boomers are still pretty young, in motorcycling terms. The oldest one won't turn 60 until 2006, and there's a lot of years of riding left in you at age 60. I sure hope so," said Jeff Bleustein, Harley-Davidson chairman and chief executive officer.

But to be around to celebrate its 110th or 125th an niversary, Harley ultimately will have to move beyond its baby boomer niche. Spending four hours commuting every day to downtown Chicago, where she works in mergers and acquisitions as an assistant vice president, Celeste Mathieus was searching for a completely different way to spend her weekends. She began riding last year as a passenger on her brother's motorcycle and quickly fell in love with the Harley experience.

"I didn't always want to wait to be asked to go out for a bike ride. I wanted to go anyway - I wanted to go on my own," she said.

Now the Racine resident has a hobby she can share with her brother and his girlfriend, who both have Harleys.

"It's nice to be a passenger, but in the professional world more women are more independent, and they don't necessarily want to be a rider - they want to be the driver. It's nice to be able to do both," Mathieus said.

She is not alone. Of the six new riders training for motorcycle safety last weekend at Uke's Harley-Davidson/Buell in Kenosha, five were women. Motorcycle riding traditionally has been geared toward men. But men have become more open to seeing their wives or girlfriends riding on the bike next to them rather than sitting behind them, Mathieus said.

Enter the V-Rod.

The shiny silver cycle - the company's most radical cycle design in generations - is Harley's attempt to appeal to a new generation of bikers. It is sportier, peppier and faster than the traditional Fat Boy and Road King touring motorcycles, which embody Harley's retro image. Along with the Buell Firebolt, the V-Rod is the company's pitch to bikers who have been riding Japanese or European motorcycles.

The company also started Rider's Edge, a training program to teach proper riding to new riders. On its corporate Web site, much of which focuses on Harley's past and present, a new feature debuted this year, an introduction to motorcycling for new riders. The percentage of buyers who are women has doubled in the past 10 years, but nine out of every 10 buyers are men. And the V-Rod's introduction in 2001 has met with some skepticism and grumbling among hard-core HOGs, who wonder whether Harley really wanted to risk alienating them.

In its first few months on the market, the critically acclaimed V-Rod became a must-buy for Harley's best customers - collectors with five bikes already in the garage. As a result, new buyers are waiting at the end of the line with no V-Rods available for them.

"It'll take awhile before the V-Rod is available enough to reach its target customer," Bleustein said.

"As Harley makes sportier bikes, it creates more challenges for itself...", said Brown, the industry consultant. With its new models, Harley is competing on the home turf of its competitors, the Japanese and European motorcycle makers. That will require a different set of skills, such as competing with the advanced technology Japanese manufacturers employ.

"Right now everything seems to be going for them, but there are things pecking away at them," said George Reis, a stockbroker and Harley buff from Two Rivers. "These things are providing a challenge to them."

In his 40 years on a two-wheeler, one ride stands out for Don Wineland: Rolling Thunder, the run to the Wall. Each spring the Vietnam Veterans Memorial in Washington, D.C., is a somber beacon of black granite for hundreds of thousands of riders clothed in blue and black. They are the survivors, arriving at the Wall with a roar but paying respects in silence.

"It's tough to be there," said Wineland, 52, who spent a year in Vietnam. "To remember the 58,000 that didn't come back. It's tough."

For Wineland, to ride his Harley, a 1991 FXRT Sport Glide, is to be part of the persistence of a made-in-America triumph - the company's near-bankruptcy but a speck in the corporate rearview mirror.

"It's the only American-made bike that's survived," Wineland said. "At one point at the turn of the last century, there were 40 or 50 American motorcycle manufacturers. Harley's been a survivor. It's been a tough road for them, but they survived."

Harley is unfazed by detractors. Bleustein can still recite from memory the headline a few years back in which a Forbes magazine headline asked, "Is the Hog Going Soft?" And even this year, after the same magazine put Bleustein on its cover and honored Harley as its company of the year, Harley hasn't been immune to the questions spawned by Enron, Andersen, WorldCom and the litany of blue-chip busts that have rocked confidence in the stock-market economy. Just months after putting Bleustein on its cover, Forbes included Harley in an article raising questions about the premium price of hot stocks, asking, "Is your darling deceiving you?"

"We'll get through this," Bleustein said. "We'll have to answer more questions along the way, but we're not concerned about that because we're straightforward and transparent."

Harley plans to focus on the basics, Bleustein said. That means capitalizing on a wealth of 100th anniversary free publicity to build demand. It also means increasing production by expanding factories, including its Tomahawk plant and a new facility in York, Pa. That factory will begin production late next year, just months after the birthday bash's grand finale on the shores of Lake Michigan in downtown Milwaukee.

"I have been here for 27 years, and I can never remember a day in that whole time where there wasn't someone betting against us," Bleustein said. "The naysayers will always be looking to find some hole, but we're looking harder than they are to find holes, and we close 'em up before they become a problem."

Robin Hartfiel, editor-in-chief of the industry trade magazine DealerNews, has seen Harley take on all comers and thrive. "It's always been that the bubble's going to burst. That's what the doomsayers keep claiming, and Harley's always proved them wrong."