Along the trail, fortunes diverged for Polaris, Arctic Cat

Another chapter of rich business history will close when Arctic Cat, Inc., one of the original Minnesota Twins of the Minnesota-born snowmobile industry, completes its just announced sale to the conglomerate Textron.

Maybe it's been a long time since anyone's called Arctic Cat and Polaris Industries the Minnesota Twins, but it's not just a clichéd way to describe two local rivals. These two share an awful lot of DNA, brought into existence by some of the same people and in the same rural part of the state. They built largely the same products.

They are two of just a few snowmobile makers that survived a brutal slump that just about killed them both. They have since prospered, but not in the same way. Over the last 25 years, Polaris has grown its sales at an average annual growth rate of nearly twice the rate of Arctic Cat. And on the day Arctic Cat announced its sale at a value of $247 million, the stock market valued Polaris at about $5.7 billion.

With the notable exception of a late entry of Arctic Cat into the all-terrain vehicle market, trailing Polaris by roughly a decade, you can't easily put your finger on a strategic mistake or a stroke of luck that could explain how their fortunes diverged.

One key could be the way they recovered from near-death experiences in the early 1980s. Polaris emerged first and was sooner to the market with improved products, meaning it grew a little bigger, a little faster. That momentum led to more dollars going to marketing and product development and let it launch even more fresh designs. It's a lead it never gave up.

Maybe that's the lesson here, that once again in business it's not one hot product or key acquisition or single brilliant strategic decision that makes all the difference.

Both Arctic Cat and Polaris are now based here in the Twin Cities, but they got their starts way Up North, as very early pioneers in the snowmobile industry. The corporate ancestor of the current Polaris really invented the snowmobile, in Roseau, less than a dozen miles from the Canadian border. This machine was so odd in the 1950s that trade-show visitors crowded the booth to see just how it could make snow.

The company that became Arctic Cat got formed by former Polaris principal owner Edgar Hetteen in Thief River Falls, about an hour's drive from Roseau, and not long after the Polaris snowmobile business got rolling. The industry was still in its infancy with a scattershot dealer network, but Arctic Cat quickly became established as an innovator.

The industry boomed in the 1970s with Arctic Cat leading the way. Total unit sales for the industry soon zoomed to half a million in the North American market, as more than 100 manufacturers jumped in. In addition to upstarts with brands now long forgotten, there were Harley-Davidson snowmobiles sold back then as well as those made by Deere & Co., in the familiar John Deere yellow and green.

The boom faded and a brutal fight for survival ensued. The current Polaris Industries was really born in the early 1980s when the parent company Textron — yes, the same company now buying Arctic Cat — wanted to get rid of it. Polaris executive W. Hall Wendel Jr. agreed to lead a buyout.

As that deal took shape, demand softened again and Arctic Cat was headed for a bankruptcy filing. Still a leader in snowmobiles, the company had long since decided it was too risky to be a weather dependent, seasonal business. It had tried boats, minibikes, even lawn-and-garden equipment.

Unlike Polaris, which kept its doors open as it began life as an independently owned company, Arctic Cat actually was shut down for a time. With Hetteen once again playing a role, a new company was formed in 1983 to acquire the name and other assets and resume production, promising loyal customers the Cat is back.

At Polaris, Wendel and his team also looked to diversify, as they knew how hard it is to run a highly seasonable business efficiently. One logical market to try was the all-terrain vehicle market.

This looked a little like the early years of the snowmobile market, with relatively crude ATVs being snapped up by enthusiasts followed by broader consumer acceptance and then surging sales. The big difference is that the producers were largely Japanese motorbike makers, not homegrown companies.

In the spring of 1985, Polaris introduced its first ATVs. What's interesting about a product like the Polaris Trail Boss of 1985 is that it wasn't a copycat, because Polaris had learned from its long experience developing snowmobiles. Among other things, Polaris put a floorboard under the driver's feet, kind of like its snowmobiles had, instead of a foot peg.

Within a few years Polaris had hundreds of dealers in parts of the country where it rarely if ever snowed, and 10 years after its first ATV was sold the ATV product line accounted for a third of its $1.1 billion in annual sales.

That was the year, 1995, Arctic Cat shipped its first ATV. By the 2004 fiscal year ATVs made up more than half of Arctic Cat's sales. But that was a threshold Polaris had crossed back in 1998.

Looking back over 25 years, through recessions and other ups and downs, it looks as if Polaris just slowly pulled away from Arctic Cat, although the gap widened considerably since the Great Recession. About 25 years ago Arctic Cat's sales were consistently about half those of Polaris, and now the figure is closer to 14 percent.

The buyer of Arctic Cat, Textron, is best known for its Cessna aircraft and Bell helicopters but also makes products like E-Z-Go golf carts and Cushman utility vehicles. It's at least a little interesting that Textron wants back into a business it long ago gave up on. Of course, buying Polaris back was out of the question.

Textron doesn't have nearly the capacity to pull off the acquisition of a company as valuable as Arctic Cat's Twin.

lee.schafer@startribune.com • 612-673-4302