BY MARC SANI
TAIPEI, Taiwan—Jay Graves was walking the aisles at the Taipei International Cycle Show when he bumped into Tony Lo, Giant’s chief executive officer; their conversation quickly turned to how consumers will react to higher bicycle prices.
“For enthusiasts who know price levels, they will be disappointed,” Graves told Lo. “But average consumers won’t have a clue. If the bike industry makes a big deal about prices, then it becomes a big deal among consumers,” Graves warned.
Graves, owner of the Bike Gallery in Portland, Oregon, has a point. The media has been pointing out for months that prices on goods are going up, and that includes bicycles and accessories.
Still, as Graves and others note, today’s bicycles are technological marvels yet suppliers—driven by competition for market share—have consistently under-priced them, and retailers have under-sold them.
“Consumers have been getting more bike for less money for years, and yet they weren’t buying more of them. But with price inflation, customers may have to start accepting higher prices,” Graves said.
Everyone knows 2009 prices are going up. Estimates range from a low of 5 percent to as high as 20 percent per unit.
New bikes are going to cost more and retailers need to think about strategies to manage what could be a chaotic and uncertain year. Based on a variety of interviews, here are some points to consider:
• 2008 model bikes will be a better value than most 2009 units—spec is likely to be higher and prices lower. Depending on local market conditions, avoid blowing out 2008 bikes in June or July.
• Inventory control in a weak and uncertain economy is key. Dealers need to focus on turns. Be wary of suppliers with excess inventory. Deals can tie up cash and leave retailers with too much inventory heading into winter.
• Down-spec’ing is a tried and true method when it comes to supplier cost control. Product managers know how to get creative when they have to. While many 2009 models have been spec’d, bikes delivered later in the season may sport lower-quality parts. Eyeball spec sheets and pricing. Look for down-spec’ing in 2010.
• Pay attention to price differentials among any given category of bikes. For example, a five-model line of cruisers may have a $25 step-up in price between each model. When ordering, try to maintain a $100 differential and cut the number of SKUs on hand.
• Keep an eye on road bike inventory. Road bike sales dipped last year, yet some suppliers may have overestimated demand for 2009.
• Retailers, who have yet to support local advocacy efforts, should re-think their position. Advocates, with retail support, generally increase local bicycle sales. Try to support them.
Giant’s Tony Lo, speaking to members of Taiwan’s A-Team, a group of key industry suppliers, noted that there is tremendous pressure on the cost side of the business. Most suppliers are looking at double-digit increases for carbon fiber, aluminum, rubber and other raw materials. But, he added, “The big test will be how consumers react to higher prices.”
On that point, some optimism is still about. Titus chief executive officer Pat Hus is bullish on the year.
“I think the cost of fuel is helping us. With the economy soft, not as many people are flying off to Hawaii. Instead, they’re sticking closer to home and going to Moab,” he said.