Motorsports Outlook COVID-19 Edition – Interview with Marc McAllister of Tucker Powersports

What were the first indications that Covid-19 was going to have an impact on Tucker?
When I joined Tucker in the final week of March this year, Covid-19 had already dramatically impacted the business as weekly sales had dropped by almost 50% versus the prior year. The powersports dealers we sell to, across the country and globe, were closing their doors or reducing staff and operations to comply with local requirements. We were also getting hit with supply chain issues as our suppliers across the country were being impacted by ’Stay-at-Home‘ orders and our Asian supply sources were closed due to the virus’ spread earlier in Q1. We clearly had to take quick and deep actions to mitigate the impact to the Tucker business.

Once you realized that the virus was not going to be contained to Asia and was likely to spread to the U.S., how did the management team proceed?
Since the virus was impacting our supply chain and customers, we were forced to make rapid, meaningful changes across the business. Luckily, we were deemed essential since we supply components to keep vehicles serviced, particularly motorcycles and utility vehicles, so we were able to continue operating our distribution centers. This allowed sales to continue but at a reduced rate.

We made the difficult decisions to furlough ~60% of our salaried staff at our Fort Worth office, close two remote offices, and furlough some of our field sales team to reduce operating expenses. As a result, we were managing the day-to-day with a skeleton staff and supporting our customers across the country with a reduced field team. Additionally, we cut our discretionary spend by about 50%. The combined results of these changes allowed us to operate effectively in April and deliver positive results in a leaner, more effective, and efficient way.

How have you seen Covid affect your supply chain?
What an interesting year this has been from a supply chain standpoint. Initially, our supply chain was impacted by slowdowns from our Asian suppliers as they dealt with the domestic challenges of the virus. We then experienced North American interruptions as our domestic suppliers dealt with local ordinances and their own supply chain issues. As we moved into April, the isolation of social distancing drove families outdoors to find an escape and the powersports industry accelerated significantly, which strained the supply chain as demand outstripped supply. We then had to play ’catch up‘ with our inventory.

Has Covid impacted Tucker’s decisions on which product categories to offer?
While we have not made any product portfolio changes yet, the situation has accelerated our exploration of several adjacent powersports categories. The increased demand over the past three months has allowed us to look for more growth while strengthening our core business.

We are also taking this opportunity to understand additional channel opportunities. Our online channel grew meaningfully during Covid and it continues to drive strong results for the business. As a result, we are looking at how we can optimize the usage of our nationwide network of distribution centers and make best use of our on-hand inventory to more effectively support our online and drop-ship customers.

How did Covid impact your ability to deliver to your customers on time? How did this impact differ from what your competitors experienced?
During the first weeks of Covid, we fully maintained our ability to deliver products to customers on time. But as online purchases increased, our transportation partners started to struggle with the surge in delivery orders. To ensure we were achieving the level of customer service we strive towards, we worked daily with our partners to preserve our ability to fulfill orders nationwide via next-day, ground delivery. The operations team at Tucker did a fantastic job maintaining a solid delivery performance throughout. Our efforts since the start of March are indicative of the importance that Tucker places on its customer relationships and this would not have been possible without our strong vendor relationships.

While I don’t know the exact details of our competition, both of our large competitors did have delivery issues in April and May, which was reflected in their external customer communications.

Do you believe the demographics of motorsports participants have changed as a result of Covid?
Definitely. We have seen an explosion of interest in powersports over the past few months. This seems to be driven by family participation, which is a change versus the past few years, but may represent the sudden acceleration of a slower trend. Either way, it is a great sign for the health of the industry and the future of powersports participation.

What was the low point for sales over the last two months? What were sales last week? What does next months’ sales picture look like?
The low point for the year was the last week of March and first two weeks of April. During this period, we were down over 40% versus prior year. We have since seen a return to ‘normal’ and delivered strong results in May, June and July. Last week was another strong sales week, up over prior year by 6%. As we look forward, we expect the market to remain strong, which should translate to increased profitability for Tucker versus 2019 during the back half of the year.

How have you seen Covid affect your customers/end markets?
Our end customers have reacted to the Covid pandemic by seeking out ways to get outdoors in a socially distanced way, which has driven strong growth for the motorsports industry. Our customers have also shifted some of their buying behavior towards online purchases, so we have had to adapt operationally to a different mix of packages in our facilities.

What is the operating status of your facilities? How much of the workforce have you brought back?
I am happy to say that our distribution centers have continuously operated at full strength throughout Covid. Across our offices and in the field, we bounced back to full strength by early June and there are no plans to change that.

What does the demand picture look like going forward and how are you modeling that?
During March we were predicting a tough road ahead, but this was prior to the uptick in demand experienced by the powersports industry, which began in late April. Consumers’ desire to return to the outdoors has driven demand for all forms of powersports that has far surpassed expectations and resulted in product shortages. In response, OEMs and distributors, like Tucker, have been playing catchup for the past three months and it looks like this will continue through the end of the year. As there is still quite a lot of uncertainty in the market related to the pandemic and its macro-economic impact, we are modeling out a base case, an upside case and a downside case (i.e. return to Stay-at-Home) when making strategic decisions.

How will the business operate differently going forward?
We are certainly going to continue to be a leaner organization. The need to optimize the business’ cost structure during the early days of Covid taught us how lean we can actually be, and the cost reductions that were put in place have benefited our margins. The pandemic also drove us to focus our marketing efforts and be creative with our powersports industry partnerships. Lastly, the consumer’s increased focus on e-commerce will continue to impact how we look at our drop-ship capabilities and broader operations, and I expect this to be the case across the industry.

What were some lessons or insights you gathered over the past few months that will stay with you going forward?
Looking back on the past four months and what we have been able to accomplish here at Tucker, it is clear that Covid has had a significant impact on how we manage our business. Throughout this challenging period, we have successfully demonstrated our ability to serve as a leading distributor in the powersports industry. Our customers have been very clear that they value their relationship with Tucker and we will do everything in our power to maintain their trust by providing the highest level of customer service.

Additionally, our team has really pulled together. The lean crew that ’kept the doors open‘ during the challenging weeks in late-March and early-April did a fantastic job, which ensured that the rest of the team could return to work after things normalized in May. Now that we are all together, the team and the culture is stronger than ever and the full team is once again focused on delivering for our customers.

Having made tough decisions that allowed Tucker to survive through the depths of the pandemic, the management team now realizes there are no sacred cows, which has allowed us to re-think all of the potential opportunities for the business going forward.

Lastly, our successful navigation of the challenges since March and our ability to increase profitability during this period have proven how important Tucker is to the powersports industry and that the fundamentals of the business remain strong.