Does This American Icon Have Any Room Left for Growth?

Motorcycle manufacturer Harley-Davidson (NYSE: HOG  )  clearly dominates the heavy motorcycle market. But many investors wonder whether this American icon has enough market room left for growth.

Historically, the stereotypical Harley-Davidson owner was characterized as a male over the age of 45. With over 50% market share, there may not be enough customers in that demographic to maintain company growth in the future.

Moreover, an old new competitor named Indian has recently entered the motorcycle market. The Polaris (NYSE: PII  ) -owned company has deep historical and cultural roots; it was a popular motorcycle producer in the early to mid-1900s. The rekindling of this old classic may spark interest among motorcycle enthusiasts, which could in turn hurt revenue prospects for Harley-Davidson.

Reaching out to younger riders
To fend off competitors and refresh the brand's image, Harley's trying to appeal to younger audiences with new motorcycles and a new ad campaign that highlights the cycles' integrated technology. Women are another popular marketing target; the company's aiming a lighter, easier-to-handle "SuperLow" model at that demographic.

Harley-Davidson has a strong opportunity to grow sales by appealing to a broader audience. In 2012, sales of motorcycles to other demographics grew twice as fast as sales to Harley's traditional customer base. If its marketing strategy succeeds, Harley could increase its future market opportunity and revenue growth.

International appeal
Harley-Davidson enthusiasts are found internationally as well. International sales made up 35% of Harley's total bikes sold in 2012. The company sees a great opportunity moving forward in emerging markets; more than 46% of its global customers are first time buyers. The number of motorcycles Harley Davidson sold internationally grew by 7.7% in 2012 compared to 5.5% for domestic sales.

Asia and Latin America are currently driving most of international revenue growth, but Harley-Davidson's bikes may be too expensive for these markets. The average price for a Harley-Davidson motorcycle is around $18,000, whereas the gross national income per capita in Latin America is $8,999. 

China might offer a better growth opportunity. Harley entered the market in 2006, but it's struggled to gain solid footing in a country dominated by affordable bikes with small engines. Moreover, those same small engines have prompted national regulations that prohibit motorcycles in urban centers and some freeways.

A long road ahead
Harley-Davidson shares have risen 54% in the last 12 months due to solid earnings and increased market consumer confidence. In order to see continued success, the company must address several hurdles. The success of Indian Motorcycle Company is important to watch in the near future, as it could compromise market share from Harley Davidson. Internationally, China could offer the company additional room to grow with the right marketing campaign that could spark interest in the heavy motorcycle concept.


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