Harley Davidson Has Far Worse Problems Than President Trump or EU Tariffs

Harley Davidson Has Far Worse Problems Than President Trump or EU Tariffs

On Monday, Harley Davidson, America’s leading manufacturer of motorcycles, announced it was going to open a plant in Europe.

Ostensibly this is to counter tariffs the EU will be imposing on its products if imported from the USA. President Trump reacted vociferously on Tuesday, threatening much bigger taxes on Harley if it brings to the USA any parts or motorcycles from its offshore plants in Brazil, Australia, India or Thailand. He also intimated that Harley Davidson was likely to collapse.

Lots of heat, not much light. The issues for Harley Davidson are far worse than an EU tariff.

Harley Davidson has about 1/3 of the US motorcycle market. But in “heavy motorcycles,” those big bikes that are heavier and generally considered for longer riding, Harley has half the market. Which sounds great, until you realize that until the 1970s, Harley had 100% of that market. Ever since then, Harley has been losing share – to imports and to its domestic competitor Polaris.

It was 2006 when I first wrote about Harley Davidson’s big demographic problem. Basically, its customers were all aging. Younger people were buying other motorcycles, so the “core” Harley customer was getting older every year. From mid-30s in the 1980s, by the year 2000 the average buyer was well into their mid-40s. In 2007, I pointed out that Harley had made a stab at changing this dynamic by introducing a new motorcycle with an engine made by Porsche, and a far more modern design (the V-Rod.) But Harley wasn’t committed to building a new customer base, so when dealers complained that the V-Rod “wasn’t really a Harley” the company backed off the marketing and went back to all its old ways of doing business.

Simultaneously, Harley Davidson motorcycle prices were rising faster than inflation, while Japanese manufacturers were not. Thus, as I also pointed out in 2007, it was struggling to maintain market share. Slower sales caused a lay-off that year, and despite the brand driving huge sales of after-market products like jackets and T-shirts, which had grown as big as bike sales, it was unclear how Harley would slow the aging of its customer base and find new, younger buyers. Harley simply eschewed the trend toward selling smaller, lighter, cheaper bikes that had more appeal to more people – and in more markets.

Globally, the situation is far more bleak than the USA. America has one of the lowest motorcycle ridership percentages on the globe. Americans love cars. But in more congested countries like across Europe or Japan and China, and in much poorer countries like India, Korea, and across South America motorcycles are more popular than automobiles. And in those countries Harley has done poorly. Because Harley doesn’t even have the smaller 100cc,200cc, 400cc and 600cc bikes that dominate the market. For example, in 2006 (I know, old, but best data I could find) Harley Davidson sold 349,200 bikes globally. Honda sold 10.3 million. Yamaha sold 4.4 million. Even Suzuki sold 3.1 million – or 10 times Harley’s production.

But, being as fair as possible, let’s focus on Europe – where the new Harley plant is to be built. And let’s look exclusively at “heavy motorcycles” (thus excluding the huge market in which Harley has no products.) In 2006, Harley was 6th in market share. BMW 16%, Honda 15%, Yamaha 15%, Suzuki 15%, Kawasaki 11% and Harley Davidson 9%. Wow, that is simply terrible.

Clearly, Harley has already become marginalized globally. Outside the USA, Harley isn’t even relevant. The Japanese and Germans have been much more successful everywhere outside the USA, and every one of those other markets is bigger than the USA. Harley was simply relying on its core product (big bikes) in its core market (USA) and seriously failing everywhere else.

Oh, but even that story isn’t as good as it sounds. Because in the USA sales of Harley motorcycles has been declining for a decade! Experts estimate that every year which passes, Harley’s customer base ages by 6 months. The average rider age is now well into their 50s. Since Q3, 2014 Harley’s sales growth has been negative! In Q2 and Q3 2017 sales declines were almost 10%/quarter!

As its customer demographic keeps working against it, new customers for big bikes are buying BMWs from Germany – and Victory and Indian motorcycles made by Polaris, out of Minnesota (Polaris discontinued the Victory brand end of 2017.) BMW sales have increased for 7 straight quarters, and their European sales are growing stronger than ever – directly in opposition to Harley’s sales problems. Every quarter Indian is growing at 16-20%, taking all of its sales out of Harley Davidson USA share.

Going back to my 2016 column, when I predicted Harley was in for a hard time. Shares hit an all-time high in 2006 of $75. They have never regained that valuation. They plummeted during the Great Recession, but bailout funds from Berkshire Hathaway and the US government saved Harley from bankruptcy. Shares made it back to $70 by 2014, but fell back to $40 by 2016. Now they are trading around $40. Simply put, as much as people love to talk about the Harley brand, the company is rapidly becoming irrelevant. It is losing share in all markets, and struggling to find new customers for a product that is out-of-date, and sells almost exclusively in one market. Its move to manufacture in Europe is primarily a Hail-Mary pass to find new sales, paid for by corporate tax cuts in the USA and tariff tax avoidance in Europe.

But it won’t likely matter. Like I said in 2006, Harley Davidson is a no-growth story, and that’s not a story where anyone should invest.

How Ants Kill Elephants – The Amazon.com, Sears & Walmart Story

How Ants Kill Elephants – The Amazon.com, Sears & Walmart Story

The US e-commerce market is just under 10% the size of entire retail market. On the face of it this would indicate that the game is far from over for big traditional retail. After all, how could such a small segment kill profits for such a huge industry based on enormous traditional players?

US ecommerce Statista

Yet, Sears – once a Dow Jones component and the world’s most powerful retailer – has announced it will close 100 more stores. The Kmart/Sears chain is now only 894 stores – down from thousands at its peak and 1,275 just last year. Revenue dropped 30% versus a year ago, and quarterly losses of $424M were almost 15% of revenues.

But, that ignores marginal economics. It often doesn’t take a monster change in one factor to have a huge impact on the business model. Let’s say Sales are $100. Less Cost of Goods sold of $75. That leaves a Gross Margin of $25. Selling, General and Administrative costs are 20%, so Operating Income is only $5. The Net Margin before Interest and Taxes is 5%. (BTW, these are the actual percentages of Walmart from 1/31/18.)

Now, in comes a new competitor – like Amazon.com. They have no stores, no store clerks, and minimal inventory due to “e-storefront” selling. So, they are able to lower prices by 5%. That seems pretty small – just a 5% discount compared to typical sales of 20%, 30% even 50% (BOGO) in retail stores. Amazon’s 5% price reduction seems like no big deal to established firms.

But, Walmart has to lower prices by 5% in response, which lowers revenues to $95. But the stores, clerks, inventory, distribution centers and trucks all largely remain. With Cost of Goods Sold still $75, Gross Margin falls to $20. Fixed headquarters costs, general and administrative costs don’t change, so they remain at $20. This leaves Operating Income of …$0.

(For more detailed analysis see “Bigger is Not Always Better – Why Amazon is Worth More than Walmart” from July, 2015.)

How can Walmart survive with no profits? It can’t. To get some margin back, Walmart has to start shutting stores, selling assets, cutting pay, using automation to cut headcount, beating on vendors to offer them better prices. This earns praise as “a low cost operation.” When in fact, this makes Walmart a less competitive company, because it’s footprint and service levels decline, which encourages people to do more shopping on-line. A vicious circle begins of trying to recapture lost profitability, while sales are declining rather than growing.

Walmart was (and is) huge. Even Sears was much bigger than Amazon.com at the beginning. But to compete with Amazon.com both had to lower prices on ALL of their products in ALL of their stores. So the hit to Walmart’s, and Sears’, revenue is a huge number. Though Amazon.com was a much, much smaller company, its impact explodes on the larger competitor P&L’s.

This disruption is felt across the entire industry: ALL traditional retailers are forced to match Amazon and other e-commerce companies, even though there is no way they can cut costs enough to compete. Thus, Toys-R-Us, Radio Shack, Claire’s and Bon-Ton have declared bankruptcy in 2018, and the once great, dominant Sears is on the precipice of extinction.

All of which is good news for Amazon.com investors. Amazon.com has 40% market share of the entire e-commerce business. The fact that e-commerce is only 10% of all retail is great news for Amazon investors. That means there is still an enormously large market of traditional retail available to convert to on-line sales.

The shift to e-commerce will not be stopping, or even slowing. Since January, 2010 the future has been easily predictable for traditional retail’s decline. The next few years will see a transition of an additional $2.5 trillion on-line, which is 5X the size of the existing e-commerce market!

As stores close new competitors will emerge in the e-commerce market. But undoubtedly the big winner will be the company with 40% market share today – Amazon.com. So what will Amazon’s stock be worth when sales are 5x larger (or more) and Amazon can increase profits by making leveraging its infrastructure and slow future investments?

Twenty years ago, Amazon was a retail ant. And retail elephants ignored it. But that was foolish, because Amazon had a different business model with an entirely different cost of operations. And now the elephants are falling fast, due to their inability to adapt to new market conditions and maintain their growth.
_________________________________________________________________________

Author’s Note: In June, 2007 I was asked to predict WalMart’s future. Here are the predictions I made 11 years ago:

  • “In 5 years (2012) Walmart would not have succeeded internationally” [True: Mexico, China, Germany all failed]
  • “In 5 years (2012) Walmart would no new businesses, and its revenue will be stalled” [True]
  • In 5 years (2012) Walmart would be spending more on stock repurchases then investing in its own stores or distribution” [True – and the Walton’s were moving money out of Walmart to other investments]
  • “In 10 years (2017) Walmart would take a dramatic act, and make an acquisition” [True: Jet.com]
  • “In 10 years (2017 Walmart’s value would not keep up with the stock market” [from 6/2007 to 6/2017 WMT went from $48 to $75 up 56.25%, DIA went from $134 to $180 up 34.3%, AMZN went from $70 to $1,000 up 1,330% or 13.3x]
  • “In 30 years (2037) Walmart will only be known as “a once great company, like General Motors”
Amazon Alexa Is Becoming Ubiquitous – And That’s an Apple Threat

Amazon Alexa Is Becoming Ubiquitous – And That’s an Apple Threat

One in five American homes with wifi now has an Amazon Alexa. And the acceptance rate is growing. To me that seems remarkable. I remember when we feared Google keeping all those searches we did. Then the fears people seemed to have about Facebook knowing our friends, families and what we talked about. Now it appears that people have no fear of “big brother” as they rapidly adopt a technology into their homes which can hear pretty near everything that is said, or that happens.

It goes to show that for most people, convenience is still incredibly important. Give us mobile phones and we let land-lines go, because mobile is so convenient – even if more expensive and lower quality. Give us laptops we let go of the traditional office, taking our work everywhere, even at a loss of work-life balance. Give us e-commerce and we start letting retailers keep our credit card information, even if it threatens our credit security. Give us digital documents via Kindle, or a smart device on the web grabbing short articles and pdf files, and we get rid of paper books and magazines. Give us streaming and we let go of physical entertainment platforms, choosing to download movies for one-time use, even though we once thought “owning” our entertainment was important.

With each new technology we make the trade-off between convenience and something we formerly thought was important. Such as quality, price, face-to-face communications, shopping in a store, owning a book or our entertainment – and even security and privacy. For all the hubbub that regulators, politicians and the “old guard” throws up about how important these things were, it did not take long for these factors to not matter as convenience outweighed what we used to think we wanted.

Now, voice activation is becoming radically important. With Google Assistant and Alexa we no longer have to bother with a keyboard interface (who wants to type?) or even a small keypad – we can just talk to our smart device. There is no doubt that is convenient. Especially when that device learns from what we say (using augmented intelligence) so it increasingly is able to accurately respond to our needs with minimal commands. Yes, this device is invading our homes, our workplaces and our lives – but it is increasingly clear that for the convenience offered we will make that trade-off. And thus what Alexa can do (measured in number of skills) has grown from zero to over 45,000 in just under 3 years.

And now, Amazon is going to explode the things Alexa can do for us. Historically Amazon controlled Alexa’s Skills market, allowing very few companies to make money off Alexa transactions. But going forward Amazon is monetizing Alexa, and developers can keep 70% of the in-skill purchase revenues customers make. Buy a product or service via Alexa and developers can now make a lot of money. And, simultaneously, Amazon is offering a “code-free” skills developer, expanding the group of people who can write skills in just minutes. In other words, Amazon is setting off a gold rush for Alexa skills development, while simultaneously making the products remarkably cheap to own.

This is horrible news for Apple. Apple’s revenue stagnated in 2016, declining year over year for 3 consecutive quarters. I warned folks then that this was a Growth Stall, which often implies a gap is developing between the company and the market. While Apple revenues have recovered, we can now see that gap. Apple still relies on iPhone and iPad sales, coupled with the stuff people buy from iTunes, for most of its revenue and growth. But many analysts think smartphone sales may have peaked. And while focusing on that core, Apple has NOT invested heavily in Siri, its voice platform. Today, Siri lags all other voice platforms in quality of recognition, quality of understanding, and number of services. And Apple’s smart speaker sales are a drop in the ocean of Amazon Echo and Echo Dot sales.

By all indications the market for a lot of what we use our mobile devices for is shifting to voice interactivity. And Apple is far behind the leader Amazon, and the strong #2 Google. Even Microsoft’s Cortana quality is considered significantly better than Siri. If this market moves as fast as the smartphone market grew it will rob sales of smartphones and iTunes, and Apple could be in a lot of trouble faster than most people think. Relevancy is a currency quickly lost in the competitive personal technology business.

Reshaping the Power Grid – The Tesla Way

Reshaping the Power Grid – The Tesla Way

Tesla has stuck a deal to put solar panels and Powerwall batteries on 50,000 homes in Southern Australia. The homeowners will not pay for the equipment. They won’t even own it. Instead the equipment will be owned by the utility company, and the 50,000 homes will become a “virtual” power plant – operating as independent pieces of a giant grid. For everyone in the system this will lower power costs by over 30%, and improve the performance where outages are a big problem.

This is really, really smart. The old way of thinking about power generation was a big plant, usually coal, gas or oil powered. Or, a giant group of solar panels in a desert, or a giant group of windmills. Or, a nuclear-powered plant. This centralized generation is then shipped over power lines to homes and businesses.

The problem is that transmission can lose anywhere from 20% to 80% of the power. Thus, the bigger the plant in theory the lower the power cost – but that is only for generation. After factoring in the cost of transmission losses, and the cost of building and maintaining transmission lines, the cost can be quite high. And thus the resulting never-ending increases in electricity prices even as traditional feedstocks go down in cost. Decentralized power generation, in a grid of small production, nearly eliminates transmission losses and uses renewable sources in the most favorable way.

Nobody should be surprised that Tesla is a leader in this program. Back in September, 2016 when Tesla took over (or merged) with Solar City I strongly made the case that this would be a good move. The ability to make solar shingles, solar panels and store large power amounts in whole-building batteries is a game changer for how we make, and consume, electricity. As utility commissions keep realizing the problems with building ever-larger centralized plants, decentralized systems that truly utilize grid management are simply a smarter, cheaper, better way to power our homes and offices.

Most people think of Solar City as “just another home solar system.” That would be wrong. Solar City has the ability to power entire towns and regions with their system of production, storage and grid management. And that is great for Tesla shareholders. Tesla has shown it is a game changer with products like the Model 3, and the combination with Solar City actually creates a utility industry game changer, as well as auto industry game changer, that could put a hurt on companies like Exxon. Now, like when I recommended buying Tesla in January, 2015, you should be thinking long term about the opportunity for outsized returns a game-changing company like Tesla provides.

Japan Demographics- A “Trend Bomb”

Japan Demographics- A “Trend Bomb”

“Business Insider says Japan has become “a demographic time bomb.” I guess it’s about time somebody realized that demographic trends are important, and that they can be effective for planning!

Japan demographic trends, National Institute of Population and Social Security Research

It was September, 2016 that I pointed out how important using demographic trends was for planning – and made it clear that Japan was facing a huge problem due to an aging population and unwillingness to allow immigrants. In January, 2017 I reiterated the importance of incorporating demographic trends into planning, demonstrating how they can be important for predicting workforce availability, cost of living, taxation and other critical business issues.

Take for example the NFL. In 2017 the league took another big ratings decline. The second consecutive year. But this was not hard to predict. In September, as the season started, I made it clear that kneeling players were not the problem for the NFL – the demographics of its primary viewers was the big problem. And I predicted that ratings would take a hit in 2017. Demographics have been clearly working against the league, and unless they find a way to bring in younger viewers – probably through rules changes – things are going to get a lot worse, affecting revenues and thus owner profits and even player salaries.

Are you incorporating demographics in your planning? If not, why not? Don’t know which demographic trends are important, or how to apply demographic trends to your business? If you’re stuck, not understanding this critical trend and how it will impact your business, why not give us a call?”

Retail Transformation Continues and Will Impact Your Portfolio

Retail Transformation Continues and Will Impact Your Portfolio

Business Insider is projecting a “tsunami” of retail store closings in 2018 — 12,000 (up from 9,000 in 2017.) Also, the expect several more retailers will file bankruptcy, including Sears.

Duh. Nothing surprising about those projections. In mid-2016, Wharton Radio interviewed me about Sears, and I made sure everyone clearly understood I expect it to fail. Soon. In December, 2016 I overviewed Sears’ demise, predicted its inevitable failure, and warned everyone that all traditional retail was going to get a lot smaller. I again recommended dis-investing your portfolio of retail. By March, 2017 the handwriting was so clear I made sure investors knew that there were NO traditional retailers worthy of owning, including Walmart. By October, 2017 I wrote about the Waltons cashing out their Walmart ownership, indicating nobody should be in the stock – or any other retailer.

The trend is unmistakable, and undeniable. The question is – what are you going to do about it? In July, 2015 Amazon became more valuable than Walmart, even though much smaller. I explained why that made sense – because the former is growing and the latter is shrinking. Companies that leverage trends are always worth more. And that fact impacts YOU! As I wrote in February, 2017 the “Amazon Effect” will change not only your investments, but how you shop, the value of retail real estate (and thus all commercial real estate,) employment opportunities for low-skilled workers, property and sales tax revenues for all cities impacting school and infrastructure funding, and all supply chain logistics. These trends are far-reaching, and no business will be untouched.

Don’t just say “oh my, retailers are crumbling” and go to the next web page. You need to make sure your strategy is leveraging the “Amazon Effect” in ways that will help you grow revenues and profits. Because your competition is making plans to use these trends to hurt your business if you don’t make the first move. Need help?

Hallmark- Unsung Innovation based on Trends

Hallmark- Unsung Innovation based on Trends

Here in late 2017, the biggest trends are: the 24 hour news cycle, animosity in broadcast and online media, fatigue from constant connection and interaction, international threats and our political climate. The holiday season is in the background struggling for attention.

How are people tuning out of this cacophony to get in the mood for the holidays?

The answer: Christmas movies!  And which channel has 75% share of the new movies in 2017?  If you have watched any TV since October, you’d know that it’s The Hallmark Channel.  THC has produced over 20 original movies for the 2017 Christmas season and has seen viewership grow by 6.7% per year since 2013.  THC is on track to surpass the 2016 season in viewership and its brand image is solidly wholesome.

Starting in October, THC runs seasonal programming with its successful “The Good Witch” series (no vampires!) and continues with “Countdown to Christmas” featuring original Hallmark-produced content.

Hallmark spent decades preparing to capture the benefits of these trends.  It had become a source of family oriented, holiday-themed programming especially popular in recent years.  Once only an ink and paper company, Hallmark expanded strategically in the 1970s with ornaments and cultural greeting cards and again in 1984 with its acquisition of Crayola drawing products.  The company moved into direct retail in 1986 and ecommerce in the mid-1990s.  Hallmark eCards was launched in 2005.

Hallmark capitalized on branded media content originally to support the core business and it now generates profits as a standalone business.  In 2001, the Hallmark Channel was launched.  The Hallmark Movie Channel was developed in 2004 which became Hallmark Movies and Mysteries in 2014.  This year, the Hallmark Drama channel was launched further leveraging the brand.

Many companies sponsored radio shows in the 1920s through the war years.  Serials featuring one company’s products appeared in 1928 on radio.  In 1952, Proctor and Gamble sponsored the first TV soap opera featuring one company (“The Guiding Light”).  But The Hallmark Hall of Fame was there first on Christmas Eve in 1951 sponsoring a made-for-TV opera, “Amahl and the Night Visitors.”

Written by Gian Carlo Menotti in less than two months and timed for a one hour TV slot, “Amahl” has become, probably, the most performed opera in history.

 

Hallmark wasn’t the first mover in sponsored media content, but it had learned to experiment with new media. The company was positioned to take advantage of the trend toward family friendly broadcast content and this year was ready to give the nation a place to rest and escape from the chaos.  A bit like the story of Amahl and Christmas itself.

Once just a card company, Hallmark followed market trends to expand its business and become a leader in content marketing which is now one of the hottest areas in all marketing.  And both the new video content and large library were ready for the current trend- streaming video!

Facebook’s Path To Communication Domination

Facebook’s Path To Communication Domination

Facebook shareholders should be cheering. And if you don’t own FB, you should be asking yourself why not. The company’s platform investments continue to draw users, and advertisers, in unprecedented numbers.

sms messaging is declining

With permission: Statista

People over 40 still might text. But for most younger people, messaging happens via FB Messenger or WhatsApp. Text messages have thus been declining in the USA. Internationally, where carriers still frequently charge for text messages, the use of both Facebook products dominates over texting. Both Facebook products now are leaders in internet usage.

And as their use grows, so do the ad dollars.

digital advertising now greater than tv

With permission: Statista

As this chart shows, in 2017 ad spending on digital outpaced money spent on TV ads. And TV spending, like print and radio, is flat to declining. While digital spending accelerates. And the big winner here is the platform getting the most eyeballs – which would be Facebook (and Google.)

Looking at the trends, Facebook investors should feel really good about future returns. And if you don’t own Facebook shares, why not?

NACD Board Governance Study 2017-2018

nacd logo

 

As a Fellow with NACD, I have spoken at meetings and met members around the US. I’ve heard the comments echoing the sentiments of this year’s study.  I’ve written at length about how to reduce the risk and how to see unexpected trends while there is still time to react.

Excerpt from NACD website:

This year’s survey offers great insight into how directors and boards view the next 12 months. Which major business trends do they expect will have the greatest impact on their companies? What are the areas where they hope to improve board performance next year? Which topics are the ones on which directors want to spend more time during board meetings? In addition, we assess how boards are currently engaging with management on the increasingly complex challenge of formulating strategy and drill down on the growing board imperative of corporate-culture oversight.

With permission from NACD, you can download this year’s study here:

The NFL Has A Bigger Problem Than Kneeling Employees – Demographics and Trends

The NFL Has A Bigger Problem Than Kneeling Employees – Demographics and Trends

LANDOVER, MD – SEPTEMBER 24: Washington Redskins players link arms during the national anthem before their game against the Oakland Raiders at FedExField on September 24, 2017 in Landover, Maryland. (Photo by Patrick Smith/Getty Images)

A recent top news story has been NFL players kneeling during the national anthem.  The controversy was amplified when President Trump weighed in with objections to this behavior, and his recommendation that the NFL pass a rule disallowing it.  This kind of controversy doesn’t make life easier for NFL leaders, but it really isn’t their biggest problem.  Ratings didn’t start dropping recently, viewership has been declining since 2015.

NFL ratings stalled in 2015

NFL viewership had a pretty steady climb through 2014.  But in 2015 ratings leveled.  Then in 2016 viewership fell a whopping 9%.  During the first 6 weeks of the 2016 regular season (into early October)viewership was down 11%.  Through the first 9 weeks of 2016 ratings were down 14% before things finally leveled off.  Although nobody had a clear explanation why viewership declined so markedly, there was widespread agreement that 2016 was a ratings crash for the league.  Fox had its worst NFL viewership since 2008, and ESPN had its worst since 2005.

Colin Kaepernick kneels 2016, CNN photo

Interestingly, later analysis showed that overall people were watching 5% more games.  But they were watching less of each game.  In other words, fans had become more casual about their viewership.  People were watching less TV, watching less cable, and that included live sports.  And those who stream games almost never streamed the entire game.

And this behavior change wasn’t limited to the NFL.  As reported at Politifact.com, Paulsen, editor in chief of Sports Media Watch said, “it’s really important to note the NFL is not declining while other leagues are increasing.  NASCAR ratings are in the cellar right now.  The NBA had some of its lowest rated games ever on network television last year… It’s an industry-wide phenomenon and the NFL isn’t immune to it anymore.”  So the declining viewership problem is widespread, and much older than the recent national anthem controversy.

Live sports is not attracting new, younger viewers

Magna Global recently released its 2017 U.S. Sports Report.  According to Radio + Television Business Report (RBR.com) the age of live sports viewers is scewing older.  Much older.  Today the average NFL viewer is at least 50.  Similar to tennis, and college basketball and football.  That’s second only to baseball at 57 – which was 50 as recently as 2000.  But no sport is immune. NHL viewers are now typically 49.  They were 33 in 2000.  As simple arithmetic shows, the same folks are watching hockey but few new viewers are being attracted.  Based on recent trends, Magna projects viewership for the Sochi Olympics and 2018 World Cup will both decline.

I’ve written before about the importance of studying demographic trends when planning.  These trends are highly reliable, even if boring.  And they provide a lot of insight.  In the case of live sports watching, younger people simply don’t sit down and watch a complete game.  Younger people have different behaviors.  They watch an entire season of shows in one day.  They multi-task, doing many things at once.  And they prefer information in short bursts – like weekly blogs rather than a book.  And they are more interested in outcomes, the final result, than watching how it happened.  Where older people watch a game play-by-play, younger people simply want to know the major events and the final score.

To understand what’s happening with NFL ratings we really don’t have to look much further than simple demographics — the aging of the U.S. population — and the change in viewing behavior from older groups to younger groups.

Unfortunately, according to a recent CNN poll, while 56% of people under age 45 think the recent demonstrations are the right thing to do, 59% of those over 45 say the demonstrations are wrong.  In its “core” NFL viewership folks don’t like the kneeling, so it would appear the NFL should heed the President’s advice. But, looking down the road, the NFL won’t succeed unless it finds a way to attract a younger audience.  With younger people approving the demonstrations NFL leadership risks throwing the baby out with the bathwater if they knee-jerk control player behavior.

Understanding customer demographic trends, and adapting, is crucial to success

The demonstrations are interesting as an expression of American ideals.  And they are gathering a lot of discussion.  But they are not what’s plaguing NFL viewership.  Today the NFL has a much bigger task of making changes to attract young people as viewers.  Should leaders shorten the game’s length?  Should they change rules to increase scoring and create more excitement during the game?  Should they invest in more apps to engage viewers in play-by-play activity?  Should they seek out ways to allow more gambling during the game?  Whatever leadership does, the traditions of the NFL need to be tested and altered in order to attract new people to watching the game if they want to preserve the advertising dollars that make it a success.

When your business falters, do you look at long-term trends, or react to a short-term event?  It’s easy for politicians and newscasters to focus on the short-term, creating headlines and controversy.  But business leaders have an obligation to look much deeper, and longer term.  It is critical we move beyond “that’s the way the game is played” to looking at how the game may need to change in order to remain relevant and engage new customers.

Note how boxing recently brought in a mixed martial arts fighter to take on the world champion.  The outcome was nearly a foregone conclusion, but nobody cared because it brought in people to a boxing match that otherwise would not have been there.  If you don’t recognize demographic shifts, and take actions to meet emerging trends you risk becoming as left behind as cricket, badminton, horseshoes, bocce ball and darts.

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