Future of DiveShops?

[Cert1967]

Colorado scuba market as a microcosm of the industry - its not always a race to the lowest price.

IMO boulderjohn has accurately summarized the Colorado dive market - but I believe the left several important factors. The travel market and the high end dive consumer.

Our warm water reservoirs attract few local divers - they are terrible - and their limited visibility makes training divers difficult. A few divers may venture to our high mountain lakes, but I suspect you would look long and hard to find one. An 8 hour plus drive from the central mountains - the home of BeaverDivers - will land you at the Blue Hole of Santa Rosa, NM. The town offers little in the way of accommodations or restaurants. It's 500 miles from Vail and 400 miles from Denver. The site is best dove in a dry suit, although a full 7mm head-to-toe will do for some.

Or 6 hours from Vail and 8 hours from Denver you can dive the Homestead Crater. Add on extra time in the winter for ski traffic and snow and it could be well an overnight trip. Its a favorite destination for final open water cert dives for our lds. Just how "open" it is is debatable, but you can certainly leave the exposure protection at home as it is almost hot tub like - 95-100F. As a stand alone dive destination I doubt it does little non-training business with Colorado divers.

Ever hear of someone coming from Puget Sound or Key Largo to dive these sites?

Does this sound like much fun when you can fly non-stop from DEN-CZM in about three and a half hours?

The successful local dive shops do several things well in Colorado. First they train divers and second they sell them a high end equipment. Third is TRAVEL.

I suspect that travel related commissions and "free" spots for shop's staff provide both a significant revenue stream and a strong incentive for their employees. How high can the net commission go? Perhaps ~30%. Its relatively easy to buy equipment on the web - DRIS, LP, ST and the EdgeHog sellers are great examples - but not as easy to be assured that a 15k+ trip for two on the internet is right for you when you are new to the sport and haven't traveled to dive centric destinations. The greater the distance from home and the higher the cost the more significant this becomes. Selling services requires no inventory, little space, some knowledge and returns good commissions against minimal cost exposure - to say nothing of the opportunity to sell equipment/service to the traveling diver.

Add in the reluctance of live aboards and dive resorts to pass along discounts to direct book divers that they give to aggregators/agents and its very good business for our lds. On a first time trip to Indonesia are you comfortable dropping a sizable amount of money booking directly or would you choose to book via the shop owned by a native-born-raised Indonesian? And most high end shops in CO have done many trips to the best destinations around the world.

When will web price competition begin to significantly dent this market and commission model?

Local lore has it that Colorado has the highest per-capita number of divers in the US. Its possible - we are a young active state with a booming ski industry and high incomes - this would seem an ideal market for new/current/returning divers. However, it's a little hard to believe this claim in a state where its difficult to get a nitrox fill, compressors run mostly to fill tanks for the pool/training and almost no one owns a tank.

Against this backdrop it seems that the most successful shops are not the low price setters in the marketplace. Its more the opposite - new divers seem willing to may a little more for the shop with an on-site training pool, fully stocked showroom and schedules that meet theirs. The most successful shops rent gear for trips, which is an entre to gear sales or return rentals. And just like ski rentals - high end skis rent for $70-90/day in Vail - the demand is for pricey rental gear.

At the start of the www boom a shop in Greenwood Village, CO - Underwater Phantaseas - opened in an upper end strip mall. The location was smack dab in the middle of the Denver Tech Center and the metrics of the local trading area have some of the highest incomes in Colorado. They prospered - moving to their own building complete with pool, showroom, service area and good locker-room facilities. They added swim classes and an active b-day party + scuba party for kids. Their internet presence is minimal - you can look but not buy on-line. They seem to do a big travel business, both group and individual. While they have some good instructors/dms, they have trained many dms and instructors that have the card, but limited experience - perhaps for the revenue stream? UP is right on suggested retail, prices their training at the upper end of the market and seems to prosper.

Many posts in this thread have suggested that the economics of the scuba market push prices/business to the low cost providore. This simply isn't true in Colorado. boulderjohn works at/for a high end shop that has a booming travel business - in fact it hosts an annual travel exposition with a number of high end ops attending. I stopped by a few months ago and asked for at least a close price match of LP's price and they demurred. The gears are at the high end of the market.

A1 Scuba is an old dive shop turned new, with on-site pool/training and a large travel department. They have a unique tie-in with the Denver Aquarium. No where else can you scuba/train with sharks in an ocean setting in our state and at a mile above sea level to boot. And they are not cheap, MSRP driven and reluctant to cut prices.

Just as there is a market for high end first/biz-air/hotel/auto/home/clothing - there is also a market for full cost / full service scuba shops. As an example, Aldora's prices are not dragged down by the low cost CZM ops, many divers like CZM's higher end lodging and BxTS/LU seem to be doing just fine in spite of low end ops that offer a double-dip for much less. The Arenui is booked way out at top dollar and its expensive to get to and from, both in dollars and time.

There will always be fierce competition for shops that compete on price. Not everyone - be they an entry or experienced diver is interested in a remote mail order / web purchase, even at a better price than the lds. Another model is to provide high value and superior service, while maximizing ancillary travel/swim/party biz. You might even be able to earn a good living, as it seems the best high end shops in Colorado do. Perhaps even start with a million and end up with two.




***********************************************
From the Homestead Crater Website - does the 35 mins at 35 ft sound exciting?

Scuba Experience
A one-hour scuba diving introduction with equipment included.
Any day of the week: $100
Scuba Dive
Certified divers can explore the warm waters of The Crater for a maximum of 35-minutes and a depth of 35-feet.
Weekdays (Monday - Thursday): $22
Weekends (Friday - Sunday): $27
Rental equipment: $25
Tank only: $7.50
Scuba Tune-Up
Includes academic and in-water review to bring your diving skills up to date.
Any day of the week: $100 per person
Equipment not included.
Scuba Certification
Public certification classes are also offered at The Crater. Classroom study, homework, and in-water pool instruction are included. After passing the certification test, students will receive four crater dives over a two-day period. Starting at $395 per person.

 

[RJP]

Local lore has it that Colorado has the highest per-capita number of divers in the US. Its possible - we are a young active state with a booming ski industry and high incomes - this would seem an ideal market for new/current/returning divers. However, it's a little hard to believe this claim in a state where its difficult to get a nitrox fill, compressors run mostly to fill tanks for the pool/training and almost no one owns a tank.

Why is that hard to believe? By your own admission the typical CO diver travels somewhere else to dive. Why would a CO shop pump nitrox? Why would a CO diver own a tank?

As the saying goes "You can't take it with you..."

 

[socaldiver2]

I believe the shops that build relationships with local divers will do well. I spent a considerable amount of money at my local shop. 2 complete kits and a couple of drysuits in the last 6 months. The reason I bought there was convenience and to get educated on gear from people diving locally. Price wise it was ok. I could have saved a few bucks shopping all over the internet.
The problem I have is every time I go in he treats me like he just wants to shove more gear at me instead of what is best for me. I don't feel he is working with me at all. I am now shopping elsewhere and directing new divers elsewhere. What will build a long term business? Squeezing every dollar of profit out of regular customers and upsetting them or working with them to create long term customers with good word of mouth?


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[RJP]

Shops that have knowledgeable, professional staff and forward thinking business practices will adapt and change and have the best chance at success.

Just saw this on someone's LinkedIn feed. Thought it apropos...

 

[Cert1967]

Why is that hard to believe? By your own admission the typical CO diver travels somewhere else to dive. Why would a CO shop pump nitrox? Why would a CO diver own a tank?

As the saying goes "You can't take it with you..."

The point of my reply was that a LDS in Colorado does not have the benefit of divers coming thru their door for fills that drive customers to LDS in areas where local diving is good. There’s limited reason for nitrox, helium or oxygen clean tanks in Colorado. O2/HE are available; it just takes a lot of effort to get this type of fill locally.

DEMA states that there are about 1.4m annual dives in CA. That’s a lot of trips to the LDS that proportional do not occur in Colorado and this makes the local LDS biz all the more difficult.

While you, “can’t take it with you”, you can spend it other than at a LDS. Diving competes with many leisure activities in Colorado – think skiing – and skiing is an expensive undertaking. I suspect that divers in Florida might spend some of their money fishing and that this consumer behavior is the norm across the country.

A customer thru the LDS door is an opportunity to cement relationships and sell more gear and services. I would venture that many shops in CO most often see their customers prior to destination trips, once or twice a year. That leaves the revenue stream of instruction and outfitting new divers as the primary revenue source, setting aside travel for the moment. But what about those new certs as a selling opportunity?

Looking for the source data showing CO having the country’s highest per-capita diver percentage, the data is somewhat suspect. DEMA’s 2013 annual report has a section entitled, “Fast Facts, Recreational Scuba and Snorkeling”. Reading it the future of the industry looks grim.

DEMA’s estimate of active US divers is 2.7 to 3.5 million. The 30% variance, using the 2.7 figure as the base, indicates to me that DEMA has little grasp of the size of their member’s market. DEMA’s last minute announcement – prior to this year’s annual trade event – of a job board hints at their ineptitude. A good idea, but announced too late to be fully capitalized on.

Where does CO stand? DEMA’s annual report states that three certification agencies contribute to their year-by-year certification by state compilation. PADI is certainly a contributor to this compilation, but they are notorious for limited and self-serving disclosure of their metrics. I suspect SSI is a contributor and the third, who knows? IMO the accuracy of the cert numbers is suspect – the contributing agencies likely keep their cards breasted. In a no-growth industry the agencies are competing to be the lead cert organization at the LDS level, just like the shops are competing with each other for customers.

Using the 2010 DEMA certification data compared to 2010 census, CO indeed is the per-capita market leader in new certs by a wide margin. How we rank in active divers in little more than a wild guess – DEMA numbers on the total size of the active diver market are suspect. So, where does Colorado stand per DEMA?

State	2010	Certs	Certs/Pop	VAR-CO	Cum 05-12	%Cum
Colorado	5,000,000	4,700	0.093%	0%	41,000	8%
Florida	19,000,000	13,700	0.073%	28%	115,000	22%
VA/MD/DC	14,000,000	7,900	0.055%	70%	61,000	12%
California	37,000,000	18,600	0.050%	87%	162,000	31%
Texas	25,000,000	11,000	0.044%	114%	89,000	17%
New York	19,000,000	7,800	0.040%	132%	59,000	11%
Totals	119,000,000	63,700			527,000	100%

The question of where the certifications occurred is not answered by the data. PADI and the other contributing agencies certainly know if the cert was in CO or occurred elsewhere – let’s say for example a CO diver certed in Cozumel. Add in split referral certs and the picture is all the more confusing. In the end the certs in CO are spread thin and have declined markedly. CO certs were 5.7k in 2005 and 4.9k in 2012. Without regard as to whether the cert was in CO – the numbers reflect a declining market and cut-throat competition among the LDS.

So, what about the health of the industry and its future and what are the metrics?

Turning to Dive Center Business’s 2014 report, “How Stable is Diving's Retail Base?” it’s clear the industry is in deep trouble. DCB uses the number of dive stores opened vs. dive stores closed as their key metric. Some of Dive Center’s key findings in the 2014 report;

· The 58 stores that closed during 2013 represent a 4 percent failure rate, in the low range of average small-business failure rates in the United States.
· In the longer measure, during the five-year period from 2009 to 2013, 290 dive stores opened for business in the United States while 395 closed, for a net loss of 105 stores.
· The current U.S. retail base is at 94 percent of its pre-2009 level.
· During the 14 years since this survey began, 1,229 new stores opened and 1,459 closed, for a net loss of 230 stores. Dive retail is 87 percent of its 1999 retail base.
· The rocky mountain area saw 13 stores open and 19 close in the last five years.
· The north east saw 35 stores open and 55 close in the last five years.

DCB’s data leaves a huge gap – the missing metric is obviously the revenue that the shops generated. Were the shops that closed merely the weak sisters or a reflection of the industry’s health? DCB reports the shops that closed in 2013 had been open an average of almost 15 years, so likely it’s a little of both. The owners and employees undoubtedly suffered due to these closings.

Is there a proxy for the dive industry – that is a company whose business results are a fair reflection of the industry?

Among the major players – Aqua Lung. Scubapro, AUP, Mares – it appears that only Scubapro’s data is available. Scubapro is of course a division of Johnson Outdoors, a publicly traded company with the symbol JOUT. JOUT is subject to SEC rules and regulations and of course SOX. Their numbers are accurate. Air Liquide SA – 15 billion euros in sales last year – does not break out Aqua Lung numbers and in any event likely loses more gas in a year than AL’s sales contribute.

For argument’s sake let’s look at SP’s numbers for the last three years as a proxy for the industry. Numbers are in millions.

Scubapro	Sales	Profit	%PtoS	Sales Delta	Profit Delta
2013	85	5.7	6.7%	-3%	-11%
2012	88	6.4	7.3%	-2%	78%
2011	90	3.6	4.0%	100%	100%

Assuming that SP is an industry proxy, what does this show? Sales are declining and profits are trending up. I will leave it to you to speculate as to how they are improving margins on declining sales.

SP has significant leverage both in sourcing product and demanding sales in the wholesale channel. Perhaps it’s their factory in Batam, Indonesia – close to Taiwan – where their recently recalled PDCs were made. SP’s annual report states they out-source the production of BCDs, neoprene, and plastic parts (whatever they are), perhaps too Taiwan? They too – along with Nike, Adidas, Macys, Target, Walmart – have discovered SE Asia and Bangladesh as the low cost geographic center for sourcing product.

If SP’s sales are down slightly how is the rest of the industry fairing?

The LDS in Colorado and across the country are often asked to compete on the web. Unfortunately, they have neither the capital, human talent, pricing advantage, nor in-depth knowledge of social media to do so. DRIS and ScubaToys are the exception and DGE and DSS are strong nich players. Where does this leave the LDS? IMO the lower half are only fighting for the left-over scraps. Add in the effect of Hog/DR and their ilk and it’s a dogfight for survival, let alone market share. One wonders why a visit to an LDS that hasn’t seen a sale in several days in unpleasant when you are only window shopping?

IMO opinion the sweet spot for the LDS is likely the higher end of the market. I posted about consumers who buy BMWs, designer goods and have high disposable income combined with discretionary leisure time. This is the sweet spot of the market – consumers who won’t be taken advantage of, but are willing to spend where they find a high level of customer service and products than connote high value.

The highly successful LDS of the future will cement customer relationships with superior service, a stress-free shopping environment, consumer friendly warranty and return policies, on-site training facilities and a strong travel component. Where there is a local dive market they will likewise deliver superior goods and service to their divers. Make no mistake Leisure Pro – and its ilk – are formidable competitors. They undoubtedly demand and receive more favorable terms and have manufacture’s sales personnel lined up at their doors. Think not? Well then how does LP have more AL product than your LDS and offer better prices to boot? AL knows exactly where the product came from, don’t kid yourself.

In this thread many posters have talked-up their LDS, surely they won’t be the one to fail. This flies in the face of industry consolidation – someone’s LDS, just not yours – will be the next one to fail.

Colorado has many outstanding LDS. BeaverDivers is a hybrid in the market. While their web execution and social media execution is sloppy - no doubt they are successful. And a key component to their success is travel – BD’s trips are marketed at the top end of the travel market and undoubtedly generate several profitable revenue streams. A1 in Littleton, Underwater Phantaseas in Greenwood Village, and boulderjohn’s store in Boulder are prime examples of stores than minimize price completion – cementing loyalty with superior service, high end product and large travel departments.

In your market look at your broader community – the number of LDS will surely shrink at a great loss of capital and personal tradegy. Just as your local department store – think Rich’s in Atlanta or Dayton’s in Minneapolis – has consolidated, so will the LDS/SCUBA business. The market is brutally efficient and the industry and local dive shops will be no exception.

For the doubters – let’s look at the LSS – that is the local ski shop. In years past most neighborhoods in the Denver/Boulder metro area had a local ski shop. Their challenges were close to what the dive industry LDS faces today. These shops are almost to the store front gone. Christies survived, perhaps they might be a model for a LDS that will survive and prosper in the out years? Small business ownership of multiple outlets as a model for success?

The reasons why the dive/scuba industry isn't growing are immaterial. The end game – that is the future of the industry – will result in some temporary inconvenience for the individual diver, great loss for many LDS owners, and ultimately more efficient choices for most divers. Perhaps Colorado – as it does in cert percentages – will lead the way.

 

[RJP]

IMO opinion the sweet spot for the LDS is likely the higher end of the market.

I've been saying for some time "One way to become a rich man in scuba diving... is to make scuba diving a rich man's sport."

And before everyone bites my head off, I simply mean to bring them in... not price the rest of us out.

The "why" is obvious. The real challenge is the "how" really.

DEMA, however, seems to think the "why" is enough. When you look at what they offer when they say "Let DEMA Help You Find and Reach New Customers Effectively" you'll find that they focus on two things:

1.) For many retailers, 85% of their customers live within 15 minutes of their location
2.) People with more money are potentially better customers than people with less money

Based on this, they offer the LDS "15-min Drive-Time" maps...

DEMA suggests that the map above provides:

Information that can help with projected growth potential, growth trends, and the presence of a targeted population, as well as give a long term view of your business and provide insight into the potential shifts needed in marketing and strategic planning to accommodate these changes.

​

Blah, blah, blah

"So you're saying I should target people with money... who live near my shop?"

Gee... thanks!

And, sure DEMA have other data that shows that many of these people play golf, and tennis, and own their own homes, and take 2.35 weeks of vacation per year, etc. And they have plenty of data illustrating what current divers look like demographically.

But despite what DEMA suggests, data do not "provide insights" in any way.

What no one seems to have really done anything about is determining what we need to SAY to those people to get them interested in diving. This requires understanding...

• What "need" do these people have that can be uniquely met only by spending money at a dive shop?
• How do we position diving so that people will see - and believe - that diving meets this need?
• What do we need to promise these people they will get out of diving?
• What is the messaging and creative campaign that best communicates this promise?
• Through what channels can we best deliver this campaign?
• What is the specific call to action we want them to take based on this messaging?
• How does the LDS best pull that through to convert this potential diver into an actual diver?
• How do we enhance and evolve their experience over time, so that they remain divers?

That requires much more than knowing where they live and how much money they have. (And it doesn't require combatting online sellers.) But it does require actual INSIGHTS. And uncovering those insights requires either some work on the part of the industry as a whole, or some way for the LDS to be able to navigate those questions on their own.

Frankly, I don't see the "industry as a whole" working on this issue. Everyone is content to try to steal market share from someone else, rather than growing the pie.

So it falls to the LDS to tackle this... and they'll need more help than they're getting currently.

 

[boulderjohn]

Where does CO stand? DEMA’s annual report states that three certification agencies contribute to their year-by-year certification by state compilation. PADI is certainly a contributor to this compilation, but they are notorious for limited and self-serving disclosure of their metrics. I suspect SSI is a contributor and the third, who knows?

I assume the three are PADI, SSI, and SDI. If you look in the Denver metro area at least, I believe there are no other agencies represented by dive shop affiliation. The third could be NAUI, but the only NAUI instruction I know of in the state is at the University of Colorado and one shop teaching NAUI tech. There is very little tech instruction going on in the state--almost all those numbers are basic OW divers.

 

[FinnMom]

We do need to appreciate though, that having a commercial space, staff on site etc. is more expensive than running Internet sales. If we want to have a place we can stop buy and get something TODAY, we have to give him reason to keep his doors open.
This doesn't justify ridiculous prices or a "my stuff is the only good brand all else is junk" attitude.

 

[Steve_C]

Bringing in wealthy folks:

From my observation of the "really wealthy" people I know, they like to spend money. They chose to spend their money at expensive places. They like to be made to feel special and that they are doing something in a way that not just everybody can do it. If they are to dive, they will like swank dive boats, 4 star hotels, a catered experience. Top notch guides. They will travel first class.

Look at big game fishing. Many fish from big boats, with hired crew, and stay in delux accomodations.

 

[boulderjohn]

Look at big game fishing. Many fish from big boats, with hired crew, and stay in delux accomodations.

I was talking to an avid hunter recently. He was also a diver, but not actively. I mentioned some technical diving I had done and how I had had to do things to avoid the ridiculous daily cost of deep decompression diving in Cozumel. As an individual, I would have had to pay for a technical divemaster to lead me (by law), all my costs of gas, all the divemaster's gas, and a boat fee, coming to close to $800 per day. I thought that would blow his mind. Nope. That's about what he pays per day on a routine hunting trip.