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Industry Remains Positive with Down Econom

Published April 1, 2008


AGOURA, CA—Last year industry veterans said bike sales grow when the economy goes soft. But as they look ahead now, many are taking in a deep breath as it seems this recession may be different.

If there’s one person who should be concerned, it’s Ashton Johnson, owner of Sundance Cycles in Agoura, California. The two largest employers in his neighborhood have shed employees. Biotech giant Amgen laid off 1,600 workers and Countrywide Financial laid off thousands.

Many Hollywood writers who were out of work due to a writer’s strike live close by. In addition, house prices have tumbled in recent months and a series of recent fires in nearby Malibu devastated the area.

“My sales are flat, but I’ve been a shop owner for 25 years and I’ve seen this before,” said Johnson. “I expect some customers will be cautious and buy a Giant or Trek when they had been hoping for a Serotta, but they will still buy a bike. I’m in a wealthy area and while the home value of my customers has gone down, they are not going to move,” he said.

Johnson’s customers are facing tough times, but he expects most to eventually return to shop at his store. These cautious shoppers, however, will be a harder sell.

Housing Impacts High-End. Fair Wheel Bikes in Tucson, Arizona, sells high-end bikes to riders thought to be immune to economic downturns, and $600 mountain bikes to college students.

“I don’t see the economy impacting students as they don’t have a lot of money. But we won’t know until school starts this fall,” said Jason Woznick, general manager at Fair Wheel Bikes.

A good portion of his sales is in boutique bikes and parts sold through the Internet, and that business is growing.

“I’m not sure the economy impacts the customer of a really expensive bike,” Woznick said. He admitted that high-end sales to walk-in customers have slowed. He attributes that to the 25 percent drop in house values in Tucson.

Industry observers say rising house values fueled the growth in high-end sales over the last three years. They now say falling values will impact future sales.

Harley: A Case Study. Harley Davidson appeals to the same affluent, enthusiast older male that has kept high-end bike sales brisk. Some in the industry look to Harley’s sales for a hint as to what may be in store for the bike industry.

“Harley Davidson is the canary in a cage for us. And I think the canary is starting to smell something,” said John Harrington, Easton-Bell Sports’ senior vice president of research and development.

Harley’s U.S. retail sales fell 14 percent in the fourth quarter of last year, and a Citigroup survey of Harley retailers found a dip in sales during January and February of 5 to 8 percent.

Harrington said that sales of Easton’s carbon crankset have been brisk, but he’s noticed an overall slowing in sales of aftermarket components. He expects sales to pick up, but worries that a slowing economy will temper sales of high-end parts or upgrades.

For example, a male consumer may justify buying an $8,000 bike to his wife, but won’t get away with spending another $2,000 on a wheelset—especially when a bike already comes equipped with a good wheelset.

While no retail sales numbers are available, bike shipments to retailers were down 18 percent in January, according to the Bicycle Product Suppliers Association. But suppliers and retailers are quick to note that cold, wet weather is to blame more than the economy.

They expressed concerns about the media’s coverage of the economy, which could lead consumers to be cautious about spending.

The Pricing Issue. Still, one of the largest issues facing the industry is pricing. The falling dollar is driving up prices and the frequency at which suppliers may need to raise prices is alarming. This is the result of being unable to estimate how fast and how far the dollar will fall.

“Every time a container of Assos arrives, I’m recalculating our margins to make sure we can hold prices. We used to try and hold prices steady for a year, but that is no longer possible. Now it is one or two price changes during the season on some items,” said Rudy Riemer, Ochsner’s sales manager.

Complicating matters further, said BTI vice president Preston Martin, is the amount of foreign currencies he has to follow. In addition to importing parts from the UK, Switzerland and Asia—all with their own currency markets—the company exports to other distributors and retailers in the Americas.

Since August the dollar has fallen 8.5 percent against the Canadian dollar, euro, British pound, Japanese yen, Chinese RMB and Taiwanese dollar overall.

Even though the Chinese RMB and Taiwanese dollar are somewhat tied to U.S. currency, the dollar fell against them 6.6 and 8.6 percent, respectively.

Currency-driven price hikes are in addition to the 12 to 20 percent price hike on 2008 bikes due to rising labor, raw material and energy costs.

The price of crude oil has jumped 96 percent in the past year to a high of over $110 a barrel. As a result, retailers can expect higher shipping costs.

With gas prices just shy of $4 in some parts of the country, retailers say they also may have to raise prices to provide some relief to their employees’ pockets.

“It’s getting expensive for our guys to drive in to work,” said Stephen Howard, owner of Livermore Cyclery in Livermore, California. “I need to give those guys a bump in salary, which means I have to raise prices to offset those increases.”

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