COVID-19 Impact on Small Equipment Industries

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COVID-19 Impact on Small Equipment Industries

Trends surrounding the impact of COVID-19 on the farm equipment, construction equipment, recreational equipment (e.g. 4x4s, ATVs etc), and residential equipment (e.g. lawn mowers) industries are as follows: lost sales due to supply/value chain disruptions, financial aid helping to bolster consumer demand, reductions in commodity prices and production, companies switching up their product output to help fight against Covid-19 PPE shortages, switching to online sales channels, and declining levels of demand. A deep dive into these findings has been presented below.

Farm Equipment

1: Lost Sales Due to Decreased Levels of Farming

  • Many farm equipment manufacturers are losing sales and customers due to decreased levels of farming which thereby decreases the demand for such equipment. This same trend occurred during the 2008-2009 recession.
  • Reuters predicted that sales of farm equipment would decrease 14% in 2020.
  • A survey of farmers in California found that "about one-third of respondents reported being unable to undertake routine planting, cultivation or crop care activities due to lack of personal protective equipment." This equipment, including things like gloves and protective outerwear or eye protection, is required for some types of farm operations.
  • John Deere says they expect to see their sales of farm and turf equipment to drop 10-15% in 2020. In a statement, the company said that farmers have been reluctant to buy equipment due to decreased demands for their crops and livestock.

2: Financial Aid for Farmers and Outdated Farm Equipment Helps to Bolster Demand

  • On the downside, demand for farm equipment has been dampened as a result of lowered commodity prices for farmed goods, including meat and dairy, during COVID-19.
  • On the plus side, the U.S. Department of Agriculture delivered a $16 billion aid package for farmers to help offset these lower commodity prices, while farmers will also benefit from lower prices of fuel and fertilizer.
  • As a result of these benefits, the USDA believes that net farm income will actually be up 3.3% YOY in 2020. Zack's Equity Research has stated that these improvements in farm income will help "enable farmers to invest in equipment purchases."
  • Kubota has been responding to this trend by giving relief in their own way to help spur demand for their products by offering no payments for 90 days on new equipment purchased between April 1st 2020 and May 31, 2020. A statement on their website reads as follows: "Kubota dealers will be offering no payments for 90 days on new equipment purchases financed by Kubota Credit Corporation, beginning April 1, 2020, through May 31, 2020. This offer is good across all Kubota equipment lines and in addition to all current promotions."

Construction Equipment

1: Reduction in Commodity Prices and Production

  • An article published on May 27, 2020, by IHS Markit notes that COVID-19 has weakened construction equipment demand and prices. According to the IHS Markit PEG Engineering and Construction Cost Index, "the materials and equipment sub-index recorded the third consecutive month of falling prices."
  • The IHS Markit PEG Engineering and Construction Cost Index reported the materials and equipment section of the index at 35.0 (below the neutral mark of 50). Additional insights about this index can be found here.
  • Caterpillar has stated that their second-quarter results will be even worse than the first in 2020, and as a result, the company has taken to slashing it costs and paring its production as demand for its products significantly decreases.

2: Switching Product Lines to Support the Fight Against Covid-19

  • Some manufacturers in the construction equipment industry have decided to help the fight against COVID-19 by shifting their manufacturing efforts to produce high-demand equipment, such as masks, ventilators and face shields.
  • Kubota Canada used 3D printers to make straps for face masks and shields during COVID-19.
  • John Deere and Yanmar Tractor partnered to equip a tractor to spray disinfectant in the City of Indaiatuba.

Recreational Equipment

1: Switching to Alternate Sales Channels

  • While recreational equipment such as ATVs, motorsports vehicles and motorcycles have traditionally been sold through dealerships, some companies in this industry have been switching to online sales amid the pandemic.
  • In late March 2020, PowerSportsBusiness, an online magazine, reported that powersport dealerships were increasing their use of drop shipping, curbside pickups, and online selling.
  • In response to COVID-19, Polaris "introduced the company's Click.Deliver.Ride program, which allows customers to work with local dealers to select vehicles online or by phone and have the vehicle delivered to them." Prior to COVID-19, home delivery was restricted.
  • On the whole, the greater automotive industry witnessed similar upticks in online sales, with the online segment accounting for 27% of all automotive sales in April 2020, compared to 5-10% prior to COVID-19.

2: Significantly Decreased Demand

  • Big ticket items, including recreational equipment such as ATVs and campers, are witnessing significantly decreased demand as a result of COVID-19.
  • IBISWorld reports that the "revenue decline for the ATV manufacturing industry will likely be revised further downward as demand for industry vehicles stall and operators cut back on output in 2020."
  • A study conducted by Stats Canada found that the intent to purchase ATVs and watercraft over the next 6 months fell 59%, with only 2% reporting intent as of March 2020, and only 1% reporting intent in April 2020. Intent to purchase campers and recreational vehicles was also at 2% and 1% in March and April, respectively.
  • Polaris saw their sales fall by 6% during Q1 of 2020. In a statement published in late April 2020, the company said: "Polaris opened 2020 on an upswing, with retail demand significantly outpacing our expectations, but the abrupt impact of COVID-19 in mid-March drastically altered our momentum. [...] We expect the COVID-19 pandemic, and its corresponding shock to the economy, to be a substantial challenge for the global economy and our business through the remainder of the year and possibly longer."

Residential Equipment

1: Decline in Sales

  • As retail sales fall sharply across verticals, data shows that the lawn and garden equipment industry has been no exception.
  • According to IBISWorld, revenue in the lawn and outdoor equipment stores industry is expected to fall by 14.1% during 2020 as a result of COVID-19 impacts.
  • In Italy, sales of lawn and garden equipment were down 23.1% during Q1 2020 and are expected to remain down 9% for the duration of 2020.
  • In May 2020, Reuters reported a 3.5% decrease in garden equipment during the preceding month.
  • Husqvarna Group, a global leader in the lawn and garden equipment market, says that while demand is starting to pick up, they witnessed and overall drop in sales of 10% across April and May 2020. In the first quarter, the company reported an 11% drop in sales after an initial prediction from the company of 3%.

2: Supply Chain Disruptions

  • The lawn and outdoor equipment market is witnessing disruptions in its supply chain due to COVID-19, according to IBISWorld.
  • In early June 2020, the National Association of Manufacturers said that 35.5% of all manufacturers were having supply chain disruptions due to COVID-19. One of the primary causes for this disruption had to do with a slowdown of production in China, which is a hub of the global manufacturing supply chain. One article notes that China has lost over $50 billion in export revenue and "manufacturers whose supply chains are dependent on primary or secondary suppliers based in China are most likely to experience disruption."
  • Both Reuters and Husqvarna attributed declining sales in this industry to supply chain disruptions. Husqvarna's CEO said that since April, the company was experiencing "continuous small supply chain disruptions."