Harley-Davidson: A Big Brand with Tiny Sales

Somehow Harley-Davidson (NYSE: HOG) made it onto the Interbrand list of Best Global Brands 2011. With a valuation of $3.5 billion, it sits near smartphone giant HTC and very close to Starbucks (NASDAQ: SBUX). Its presence is proof of how often fame cannot be turned into revenue, at least to any impressive extent.

For the sake of comparison: Harley had sales of only $1.43 billion in the first quarter and net income of $172 million. Harley’s annual revenue last year was slightly below what it was in 2007. Meanwhile, Starbucks’ revenue in its most recently reported quarter was $3.2 billion. The coffee store company made $310 million. Revenue from 2007 to 2011 rose by 25%. The financial results of the two companies do not offer much of a comparison.

Starbucks’ opportunities for growth also well outstrip Harley’s. Starbucks will add about 1,000 net new stores worldwide in its current fiscal year. It plans to open hundreds of stores in China. If it can follow in the steps of Yum! Brands (NYSE: YUM) and McDonald’s (NYSE: MCD), Starbucks revenue in the People’s Republic may be only second to that in the United States.

The secret to Harley’s brand valuation is probably its longevity. The company was started in the first decade of the previous century. The brand is widely known in the U.S. and, to some extent, abroad. But knowing a brand is not the same as using the products under its name. Harley is the victim of a narrow set of products with a modest market beneath the umbrella of a brand that is well-known.

Starbucks, at the other end of the spectrum, is only four decades old. Its primary advantage as a company with a well-known brand is that tens of millions of Americans drink coffee. A cup of coffee from Starbucks may be relatively expensive, but it is within the reach of modest middle-class people.

Harley is proof that brand valuations do not always translate into a successful business with impressive prospects.

Douglas A. McIntyre