consultants to the trade

Marina Dock Age, November 2009

MARINA OPERATIONS
By Dennis P. Kissman

Drop in new boat sales Impacts marinas

So how much of an impact is the precipitous drop in new boat sales having on marinas? I think it is safe to say that the impact varies from one marina to another. For this article we are going to define three categories of marinas and see how the decline in new boat sales impacts each. The three categories for marinas include:

• full service marinas with a boat sales operation

• marinas with both wet slips and dry stack storage but without boat sales

• new marinas that have recently opened or are presently under construction.

There is one general assumption that we can all agree on and that is without new boats coming into the marketplace, the demand for wet slips and dry stack storage is not increasing. Thus, the marina owner is competing for existing business, which is more difficult and requires a different strategy.

New or renovated marinas

Of the three identified categories, the one having the most difficulty in these economic times is the marinas that have recently opened or are currently under construction. Unless a new marina has a superior location in the marketplace, the only way for it to gain market share in this economy is by having the lowest rates. The problem with trying to compete on rates is that a new marina will usually have the highest per slip or rack investment of any of its marina competitors. If a marina cannot cover the return on its investment, it is only prolonging the inevitable. In the long run, it is not only hurting the rest of the marinas in the marketplace but also itself. 

Under this scenario the best advice I can offer is to charge rates that will make a marina financially viable when competing in a good economy. In the meantime attempt to renegotiate your agreement with your lender until the economy turns around. Remember that the boating public is hurting as much as marinas are, so boaters are making decisions based strictly on price because there is no loyalty in this economy.

Marinas with dealerships

I have often said in the past that the boat sales business is completely different than that of marinas. Therefore a marina that includes a dealership needs to identify itself as either a boat dealership with a marina or a marina with a boat dealership.

With this economy, however, I am rethinking my position and believe that having boat sales as part of a marina may be a positive for marina occupancy. There are several of these combined entities that seem to be successfully weathering this crisis.

I had the opportunity to discuss the situation with Jeff Olson, general manger of Saratoga Boatworks, who operates two combined boat dealerships and marinas in upstate New York. I asked Olson how he is coping with these economic times, and he told me that his business model is evolving. As a result, he is packaging his product differently than he did a couple of years ago. His focus is on selling more than boats by offering his customers a total boating experience called “Worry Free Boating,” which includes everything from dockage to winter storage and all the services required for his customers to have a peace-of-mind boating experience.

This is not a new idea, but the execution of the plan makes the difference between success and failure. People are still buying boats, both new and used, but not in record numbers, and buyers are much more conscious of the value they are receiving for their money. Programs that appear to be a sham without adding real value to the deal are falling by the wayside. Now is not the time for marinas to cut corners to save a few pennies because in the future that could cost them dollars in potential business.

Olson estimates about five percent of his customers have left boating due to the economy. But thanks to his new and used boat sales, Olson has been able to keep his marinas at 100% occupancy without being pressured to cut dockage rates. This is an example of how a marina can benefit from a dealership that manages its costs.

Marinas without dealerships

Now the question is how a full service marina without a dealership copes with this economy. It appears that most marinas in stabilized markets are not cutting or raising rates, although there are indications that individual deals on rates are being made. This is a very bad practice because boaters do like to talk, and the quickest way to alienate customers is by charging different rates for the same service.

If a marina needs to make a rate reduction, then that reduction should be universal. The decision to reduce rates should be made carefully though because if a marina reduces rates by 20 percent, it will take several seasonal cycles to get the rates back to where they were regardless of how fast the economy recovers.

Besides focusing on the rate reduction question, marinas also need to focus on accounts receivable. Remember that boats do not disappear, but owners often do. Marinas need to stay vigilant and watch their accounts receivable closely to ensure they get paid and to ensure that boat owners don’t just take off and leave marinas with the headache of disposing of some old boat. Marinas should immediately look into any change in a customer’s payment pattern.

Conclusion

There is no doubt that a decline in new boat sales will have a long term impact on the demand for slips at new and existing marinas. This means that marinas must upgrade their facilities now so they stand out in the boater’s mind. Furthermore, marinas that include dealerships need to make themselves into one-stop shops that offer customers everything they may need. As Olson has shown, such a setup can keep occupancy rates up at a time when other marinas have empty slips.

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Dennis P. Kissman is president of Marina Management Services in Boca Raton, Fla. He can be reached by phone at 561/338-5800 or via e-mail:

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Marina Dock Age, September / October 2009

MARINA OPERATIONS

By Dennis P. Kissman

How municipal marinas are coping with the current financial crisis

It seems that at least once a week a news story crosses our desk describing a municipality that is in various stages of debate and/or deliberation on what to do with its existing or planned marina development. Topics range from spending money on planning new marinas to identifying better operating plans for existing marinas.

The common theme of these stories is money, particularly when the marina is a financial drain, which creates the political sticking point for public debate. It is not surprising given the current economic climate that these municipal marinas are being forced under the microscope. During previous years, municipal coffers were flush with money and operating budgets were approved that often subsidized municipal marinas. But under current conditions, the marina line item in the budget has come under scrutiny.

So what options do municipalities have to operate their existing marinas in a financially responsible manner, and what are the specific challenges facing municipal marinas compared to private ones?

Management operations

For a municipality with an existing marina, there are three options available for the operation of the marina. They are: the municipality maintains full management responsibility for the marina, the marina could hire a third party management firm, or the marina could be leased.

As municipalities wrestle with the options available to them, they must address a number of questions and obstacles. For example, what benefit does the marina provide to the surrounding community? Does the marina support itself financially? If not, where is the money going to come from?

For many municipalities, maintaining management control would be the status quo, and to some members of the community this may keep the marina from reaching its full potential. The option of leasing the marina is a big step, requiring lengthy terms and relinquishing all control of the marina. A lease becomes a bigger political issue if the marina is a focal point of a city or downtown area, more so than if the marina is on the outskirts of town our out of the public eye. The remaining option would be to review the opportunity to bring in a third party to take over the management of the marina.

Third-party management

Let’s examine the third party management option for municipal marinas in a little more detail because many municipalities have considered that option a bit more often with the current economic situation.

Many cities have been sending out requests for qualifications (RFQs) and even requests for proposals (RFPs) to operations consultants to manage the city assets at the waterfront. These bidding processes have a direct correlation to the down economy as the slips that were once full are now going empty.

This circumstance has prompted cities and towns to work much harder at keeping boats in the marinas and revenues in line with previous years. To complicate this snowball effect further, the cities have taxpayers to answer to and the taxpayers do not want to subsidize the marina if it cannot support itself.

Most municipalities know that private entities can run a business much more effectively than a government. That is why many towns are looking to private enterprise to manage some of its operations, like the marina, to increase profits.

The question is, “Does this all make sense in the current economic climate?”

The answer is yes and here’s why.

Retain ownership-Municipalities like to control the assets that are owned by taxpayers. With private third-party management, the municipality remains in control and is still able to oversee the operations of the marina.

Operations costs-It is typically more expensive for a municipality to operate a marina because government protocol calls for a detailed process that must be followed before any purchase is made with taxpayer money. This process slows the operation of the marina and increases procurement costs. In most circumstances, a private manager working on behalf of the municipality does not have the same constraints, making the process more streamlined and fluid.

Operations experience-Most cities recognize the value in having a marina, but do not understand the maintenance requirements, depth of knowledge, and personnel needed to manage the facility. A marina management company has that knowledge and can trim overhead and staffing costs by hiring knowledgeable staff with years of experience to operate the facility. A marina management company can provide the municipalities with ongoing physical, financial, and marketing recommendations to improve the marina through a team of trained and skilled professionals that do nothing more than manage marina facilities.

Perception–Many nonboaters see boats as lavish discretionary purchases, and view the marinas they’re kept in as private sanctuaries for the boats and their well-to-do owners. To separate the city from that perceived misuse of taxpayer money, a third-party manager can operate the marina, and the city will benefit from the additional revenue that the marina generates.

Profit thoughts vs. political thoughts–With a management company operating a municipal marina, the marina is operated like a private enterprise. Profit rules the operational considerations for the facility, while political needs, wants, or discussions are pushed aside for the business needs of the facility. Another benefit with a privately operated marina is that it now can compete fairly in the marketplace with privately operated marinas that don’t have government restrictions.

Separation of accounting–A management company can take on all the accounting related needs for a marina, which will allow the city to get an easier to understand snapshot of how the marina is performing in regards to operating costs and profits.

Limited management oversight–In the case of many small municipality operated marinas, they may not be able to afford a management firm to run its facilities. However, some expert advice from a marina management consultant could be the ticket to a better-run facility. In this case, a management consultant can look at a facility operated by a municipality and offer a new set of priorities or implement changes based on market needs, industry wide trends, or even on current operations. A limited management oversight program would offer a municipality the experience and knowledge of a management firm without a long-term contract.

Perspective

The ultimate goal of any municipal marina is to be financially independent. That is why in today’s difficult financial times, municipalities should look to an experienced operator to validate its operations plan moving forward and possibly take over the operations of the facility to create a financially independent marina. Such an arrangement would allow for municipally owned marinas to operate on a level playing field with privately owned facilities, which would be a win-win situation for both the privately owned marina and the municipality.

Dennis P. Kissman is president of Marina Management Services in Boca Raton, Fla. He can be reached by phone at 561/338-5800 or via e-mail:

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