Travis Boats & Motors, Inc.
Travis Boats & Motors, Inc.
Travis Boats & Motors, Inc.
Sales: $182.30 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: TRVS
NAIC: 441222 Boat Dealers
Travis Boats & Motors, Inc. is one of the leading boat retailers in the United States. The company has aggressively acquired independently owned operations as well as opening new superstores, a strategy that has allowed the company to expand from just one location in 1979 to about 40 in 2000. Retail outlets are located in the southern states of Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee, and Texas. Unlike MarineMax, a larger competitor that specializes in Sea-Ray brand boats that start around $40,000, Travis Boats starts at a lower price point ($15,000) and offers boats from a variety of manufacturers. Because it has no competitors of similar size in its niche of the retail market, Travis Boats has been able to pursue a plan to consolidate the industry while keeping its acquisition costs low. Selling an array of brand-name fishing, water-skiing, and recreational boats, Travis Boats offers a variety of options at a posted price, thus eliminating the haggling that many customers dislike about the boat-buying experience. Travis Boats also takes advantage of its volume purchasing power with manufacturers by creating Travis Edition “packages” that allow the company to add features that smaller competitors are unable to match. At a lower price Travis Boats can include such options as a trailer, boarding ladder, more powerful motor, depth finder, stereo, upgraded interiors, as well as extended service contracts and insurance. In addition, Travis Boating Centers include a multi-bay service department plus a large stock of parts and accessories.
Travis Boats was founded in Austin, Texas, in 1979 by Mark Walton. While a student at the University of Texas, majoring in business, he cleaned boats at a local shop. It was there that he recognized that customers were uncomfortable negotiating every option when buying a new boat. That simple insight led him into the boat-selling business that began with a single store named after the country of its location, Travis.
During the 1980s Travis Boats was slow to expand. Its first foray outside of Austin was San Antonio, Texas, where a new outlet was built. Travis then bought existing Texas operations at Midland, Dallas, and Abilene. While the company learned how to manage a multi-store operation before attempting further expansion, the boating industry underwent significant turmoil, which would have a significant impact on Travis Boats in the 1990s.
1990 Luxury Tax: Crippling of Boating Industry
Boat sales in the United States peaked at $7.9 billion in 1988. A downturn in the economy then hurt the industry, adversely affecting sales and triggering a significant number of layoffs. The situation, however, would soon turn much worse with the imposition of a luxury tax in 1990.
To many, the 1980s was a decade of help-the-rich Reaganomics, and both Democrats and Republicans began to sense an anger in the electorate about the state of the sluggish economy and the mounting budget deficit. According to the Congressional Budget Office, from 1977 to 1988 the total tax burden on the wealthiest one percent of Americans fell by six percent, whereas the poorest ten percent paid 1.6 percent more. The budget package of 1990 was prepared at a time in which there was a widespread perception that the rich were not pulling their weight. Congressional Democrats insisted that any tax increase should target the rich, but Republicans were averse to raising income tax rates that had just been cut for the wealthiest taxpayers in 1988. In an attempt to reach a compromise, Congress looked to the luxury tax that had been imposed by the federal government during World War II and not phased out until 1965. The Treasury also had examined the concept during the Reagan administration, but it was never proposed. Defining what constitutes a “luxury” was considered too difficult, and overcoming resistance from the affected industries was even more problematic.
After much give and take, Congress decided in 1990 on a bipartisan budget plan that called for a ten percent luxury tax on the purchase of furs and jewelry in excess of $5,000, autos in excess of $30,000, and boats and yachts in excess of $100,000. The National Marine Manufacturers lobbied against the proposal, pointing out that a weak economy already had cost the boating industry 100,000 jobs. Jim Schaefer of Miami boat builder Richard Betram & Co. was quoted at the time as saying, “The unfortunate thing about a rich man’s tax is they’re going to put a lot of poor people out of work.” No matter how persuasive the economic arguments against the luxury tax, however, political considerations prevailed.
Almost as soon as the tax went into effect, the boating industry complained bitterly about the harm it was causing. Although the sale of boats costing more than $100,000 accounted for less than two percent of units sold in 1990, they generated about 22 percent of total revenue and sustained much of the industry’s overhead costs. In the first half of 1991 after the luxury tax went into effect, sales of boats priced at $100,000-$300,000 dropped 61 percent, and sales of boats priced in excess of $300,000 fell 87 percent. The tax also depressed sales for boats priced at less than $100,000, as many customers mistakenly thought the tax applied to all boat sales. To avoid the tax, people turned to used boats, or purchased from a foreign builder and registered their boats in Canada, Mexico, the Bahamas, or other Caribbean islands. The downturn in boat sales also had a ripple effect on the businesses that serviced and supported the boating industry. The country’s balance of payments also were adversely affected. In 1990, $792 million worth of pleasure craft were exported, as opposed to $265 million worth of imports. Furthermore, it was becoming apparent that the luxury tax would take in far less than what it would cost in lost revenue and unemployment benefits.
Six months after the luxury tax went into effect, the Senate Finance Committee held hearings to consider proposals to re-peal all or part of the tax. Critics of the repeal effort claimed that retailers spiked sales at the end of 1990 by encouraging people to avoid the tax by buying early. Others blamed the downturn in sales on the recession that was affecting even the sale of used boats. The Bush administration took the position that it was simply too early to tell what effect, if any, the luxury tax had on the boating industry.
The reality was that the industry went into a freefall. Revenues dropped and jobs were lost. It would take another two years and a change in presidents before the luxury tax would finally be repealed as part of the Clinton economic plan that passed the House and Senate in August 1993. Within a year, boat sales, as well as the economy in general, began a healthy rebound.
Travis Boats in the 1990s: Expansion Beyond Texas
Although many boat dealers went under during the rough times of the early 1990s, Travis Boats seized the opportunity to grow by picking up weaker competition. Having already expanded to more Texas cities in the later 1980s, Travis Boats now began to move into other Southern markets, such as Louisiana and Arkansas. During the period 1995–97, the company added outlets in Tennessee, Alabama, Florida, Georgia, and Oklahoma. A pattern of aggressive acquisition was established: The best dealer in town was the desired target. Walton describe his approach of “friendly persuasion” in a 1997 article in Forbes: “We make it clear, not in a mean way, that we sure like that market and we would like them to join us, but if they elect not to, that we would be friendly competitors, but— nonetheless—competitors.” When competing against established retailers, Travis Boats used its size to full advantage. The company could command a better wholesale price, and a wider variety of boats, by offering to take delivery of one-third of its orders in the off-season, a time when manufacturers normally would have to suspend operations. Travis Boats also was able to arrange financing for its customers. Even though smaller rivals joined purchasing co-ops, they were unable to match Travis Boats’ competitive edge. When acquiring a local dealership, Travis Boats also was sensitive to established customer relationships, generally taking a year to phase in the Travis Boats name. In the meantime, the company provided employee training in the Austin headquarters.
With 12 outlets in operation, Travis Boats made a public offering of its stock in 1996, selling 46 percent of the company, or 1.88 million shares, at $9 per share. With this infusion of cash, Travis Boats began a period of accelerated growth. Its five-year goal was to reach $300 million in revenues and expand to 17 Southern states, a region that accounts for 57 percent of the continental shoreline and 43 percent of all inland water, as well as 35 percent of all domestic boat-related sales in the United States.
By 1999 Travis Boats doubled its outlets to 24 and was recognized by Forbes as one of the “200 Best Small Companies” of 1998, based on benchmarks such as profitability, sales growth, earnings per share, and return on equity. Travis Boats ranked #25 on the list. In early 1999 the company acquired six more existing dealerships and opened one new store. Florida was a particular target area, as outlets in the state doubled. Travis Boats then opened two new Florida stores in early 2000. By the fall of 2000, Travis Boats outlets numbered 39, fully a third of which were located in Florida. The company’s home state of Texas was now second, with eight stores.
We think buying a boat should be as carefree as a day on the water. That’s why all our boats come with clearly marked, no-haggle prices. Dealer prep and delivery are included, so there are no hidden costs.
The rapid expansion of Travis Boats was not without complications. Its stock, after reaching a high of $29.125 in April 1998, dropped steadily over the next two years. During the summer of 2000 Travis Boats dipped below $4 per share. In July of that year, the company’s board of directors expressed confidence in its stock by announcing a Limited Stock Repur chase Program. During the same week, Travis Boats released information that revealed a mixed financial situation for the company. While sales increased during the previous year, profits fell. Nevertheless, Walton claimed that the company was well positioned for going forward.
Meeting the Challenge of a New Century and the Internet
The coming of the new century posed challenges for all retailers, let alone the boating industry. Selling boats via the internet became an area of concern for Travis Boats in 2000. With financial backers that included the founder of CarsDirect, a company that had already made an impact by selling cars over the Web, BoatsDirect.com threatened traditional marine dealerships, even as large a player as Travis Boats. BoatsDirect allowed consumers to research, review, and purchase boats on-line, as well as arrange for financing and delivery. Although the internet company maintained that it would purchase boats through a network of dealers, traditional retailers feared that they would lose money, with the result that many small dealers would be forced out of business. Whereas car dealers enjoyed some legislative protection to prevent encroachment on their markets, boat dealers were fearful that manufacturers would simply bypass them for direct sales to consumers through the internet. BoatsDirect made it clear that its intent was to be a volume seller and ultimately to offer every boat line possible.
Travis Boats’ response to the internet challenge was to introduce a new line of boats to be sold exclusively over its Web site. The Travis e.dition line was intended to be low-cost fishing boats, pontoon boats, and family runabouts targeted at the first-time or value-driven buyer. Several weeks later another player, pcBoat.com, announced that it had signed a deal with the largest boat retailer in North America, West Marine, Inc. Despite already having its own Web retailing operation, West Marine agreed to co-brand its site with pcBoat. The Atlanta-based internet company also purchased the Powerboat Guide and Mauch’s Sailboat Guide to provide research content for its customers. Yet another internet competitor, San Francisco-based Boats.com, announced plans to launch its Web business.
Aside from the changing dynamics of the boat retailing business, Travis Boats still had the traditional problems with which to contend. First, sales tend to be seasonal. Second, with any downturn in the economy, boats are among the first luxury items to suffer. Finally, there is the weather. Hurricanes along coastal territories of Travis Boats could disrupt sales, while inland, drought conditions or excessive rains could have similar adverse effects. By continuing to expand throughout the southern United States, the management of Travis Boats hoped, at least, to lessen the regional threat of bad weather. With so many uncontrollable variables in its future, the company came to see the virtue of continued growth as a business necessity.
Holiday RV Superstores; MarineMax; West Marine, Inc.
- Travis Boats is formed.
- U.S. boat sales peak.
- Luxury tax cripples boating industry.
- With repeal of luxury tax, boating industry rebounds.
- With 12 outlets, Travis Boats makes public stock offering.
- Travis Boats expands to 24 outlets.
- Travis Boats acquires The Boatworks; outlets number 39; begins internet sales.
Aguayo, Jose, “We’re Gonna Consolidate This Industry,” Forbes, August 11, 1997, p. 65.
“Budget Fallout,” Wall Street Journal, October 2, 1990, p. B1.
Denn, James, “Boat Dealers Faced with Challenge from Dot-corns,” Boating.
Hampton, Phil, “Boating Casts Off Bad Times,” USA Today, August 19, 1994, p. 1B.
Hiestand, Michael, “Tax Sinks Luxury Sales to Rock Bottom,” USA Today, October 10, 1991, p. 5C.
Johnson, Sharen Shaw, “Tax Debate: Who ‘Should Take the Hit,’” USA Today, October 9, 1990, p. 1A.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” SEC Form 10-Q, May 19, 2000.
Manor, Robert, “Ahoy! Boating Industry on the Lookout for a Fair Wind,” St. Louis Post-Dispatch, February 12, 1992, p. 1B.
Moran, Brian, “Rival Makes Waves for Travis Boats’ Net Plan,” Austin Business Journal, July 3, 2000.
“Sales Jump, Profits Fall for Travis Boat Dealer Chain,” Boating, July 26, 2000.
Weil, Jonathan, “Travis Boats Appears to Have Its Motor Running for a Rebound,” Wall Street Journal, January 27, 1999, p. T2.
Wessel, David, “Consideration of Luxury Tax Is Touching Off an Old Debate,” Wall Street Journal, September 11, 1990, p. A2.
Wessel, David, and Jackie Calmes, “Momentum Grows Against Luxury Tax As Critics Complain It Enriches No One,” Wall Street Journal, June 12, 1991, p. B1.