August 15, 2017

South Dakota's Summer Tourism Season Is In For a Change

  • Subline: Is the Sturgis Motorcycle Rally about to ride off a demographic cliff?
The Sturgis Motorcycle Rally is a major economic force across the Black Hills of South Dakota. The Sturgis Motorcycle Rally is a major economic force across the Black Hills of South Dakota.

The quiet is almost eerie.

It turns out that after 10 days of sharing a community with several hundred thousand motorcyclists, you get used to the noise. The constant highway rumbling fades into the background and becomes the new normal. Then, when the Sturgis Motorcycle Rally officially concludes and the bikers return home, the sudden silence seems a little… weird.

In a region with a population of about 200,000, it’s impossible not to notice the Rally. Roughly 400,000 people descend upon the Black Hills for the annual event, making it one of the largest biker gatherings in the world. And of course, where there are lots of people, there’s lots of money. The 75th annual rally in 2015 generated as much as $1 billion for the local economy. In a state with a GDP of roughly $33 billion, that’s a major impact. No wonder local journalists, municipal officials, and the rest of us like to read the tea leaves to try and pin down visitor numbers. Was attendance up this year, or down? What did the traffic counts say? How about sales tax receipts? Garbage collection? (You’d be surprised how much you can learn from waste management statistics.)

That interest has taken on new meaning in recent years, because the motorcycle industry has a problem: demographics. For years, American motorcycle manufacturers (with Harley-Davidson accounting for about half the market) have known that their most loyal customers are Baby Boomers. Since Boomers are a large demographic group with a lot of wealth, that worked out really well for the bike industry - and as the industry goes, so does the Sturgis Rally. The event grew exponentially in the 1980s and 1990s, transforming into the outsized economic engine that it is today.

But by the turn of the century, it became clear that younger generations weren’t becoming motorcycle riders in big numbers. Knowing they needed to expand their customer base to younger consumers if they were going to stay relevant, the industry launched initiatives to actively cultivate new blood. They created new marketing campaigns. They made product changes.

There seems to be some successes. A few years ago, Harley’s own data showed that, for the first time in years, the average age of their customer ticked down a notch. And third-party research indicates that Harley is the motorcycle-of-choice among riders in the 18-34 age bracket (hello, Millennials), as well as among several minority groups. Harley-Davidson CEO Matthew Levatich loves to talk about his company’s successes in wooing younger buyers, and out in the Black Hills, local boosters tell journalists they’re seeing loads of young riders coming to the Sturgis Motorcycle Rally.

As a media relations guy, I’m happy they’re telling the right story. But as a marketing guy, I’m nervous.

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While Harley may be winning on market share with younger consumers, younger consumers simply aren’t buying as many bikes as their parents and grandparents. Economists and financial analysts have done the math, and Millennials - young Millennials in particular - have a measurably lower interest in riding motorcycles. One analyst estimates that motorcycle ridership has already stagnated, and will decline over the next five years. Harley’s own sales figures seem to support that projection: U.S. sales fell 3.9% in 2016, and sales in Q2 of this year were down 9.3%. And it’s not just Harley: the entire American motorcycle market has shown largely negative sales numbers recently. Though Indian Motorcycles has shown impressive signs of growth over the past few years, corporate owner Polaris acknowledges the industry as a whole is “flat,” and their broader motorcycle segment posted lower sales figures last quarter.

Harley, Indian, and other manufacturers are doing all the right things in an effort to attract new customers, but there are larger cultural forces at work. I had lunch last week with a local economic development official, and as we watched the middle-aged Rally crowd endlessly rumble past the restaurant, we tried to understand why younger generations aren’t as interested in motorcycles. Is it because motorcycles represent feelings of freedom and rebellion, and Millennials are finding those feelings in other things? Or, since young Americans aren’t having children or working traditional desk jobs in the same numbers as their forebearers, maybe they don’t feel the need to get out on the open road on the back of a bike?

If we had the answers, I concluded, I could land a big fat consulting contract with someone.

But there is no easy answer, and there’s no simple way to convince an entire generation that they should be more interested in a product. Of course, it’s possible that something in the American zeitgeist will shift in the near future, and perhaps Millennials will suddenly discover the joys of chrome and leather and the open road and start snapping up Sportsters and Softails left and right. After all, the motorcycle market in other parts of the world is looking rosier. Young people in Asia and even Western Europe seem more amenable to motorcycling than their American counterparts. A shift is possible.

But if nothing changes, the American motorcycle industry is in for a bit of a contraction - and so is Sturgis. It’ll be a slow process, and it’s still years away, but the regional tourism industry will surely start to consider the implications. The average Rally brings in about 400,000 people, and in 2015 there were a record-breaking crowd of 800,000 (give or take) for the 75th anniversary of the event. What happens to local economies if those numbers begin to tick down? What if the 100th anniversary crowd in 2040 doesn’t top 250,000 people?

It’s a long-term planning exercise, but it is becoming more urgent. The youngest Baby Boomers are in their late 50s. The oldest are in their 70s. Unless there’s a sudden change in consumer buying habits, the summer visitor season in western South Dakota could be in for a big transformation.