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Supply Chain Issues Affect First Quarter

Published May 30, 2008

BY MATT WIEBE

PHILADELPHIA, PA—Cold, wet weather and supply problems took a toll on bike shipments to dealers during the first quarter.

While individual members of the Bicycle Product Suppliers Association reported strong shipments in April and May, most couldn’t agree on whether the market can heat up enough to gain back the business they lost in the first quarter.

Bike sales fell to $145.4 million in the first three months, a 10 percent drop from last year’s $161.7 million. Unit shipments were down 18 percent, suggesting that a bike’s average selling price was higher than last year.

“Apart from the weather, which slowed sales, the combination of issues facing suppliers—materials cost and availability, China’s Blue Sky initiative and the exchange rate—has pushed lead times up to as much as 12 weeks, so bikes have been late getting to the market,” said Chris Speyer, the new chairman of the BPSA’s statistics committee and Raleigh’s vice president of product and marketing.

China’s Blue Sky initiative shuts down steel mills around Beijing for the Olympics, disrupting the supply of steel.

Speyer doesn’t think the bike business has slowed at retail as much as the BPSA report suggests. However, low inventory levels mean suppliers are not getting bikes as soon as they would like, so they have less to sell to dealers.

Only two categories showed positive sales growth: rigid mountain bikes, up 52 percent, and 24-inch juvenile bikes, up 18 percent. Both categories account for only 2 percent of suppliers’ overall sales.

Road, front- and full-suspension mountain bikes, which are large sales categories for suppliers, were down 6, 11 and 18 percent, respectively. Though slow, road bikes still outsell most other categories.

Categories with the biggest drops were 26-inch comfort, 20-inch juvenile and 19-inch and under. All were down more than 20 percent.

“Even in Southern California we had a real winter this year, which really slowed bike sales,” said Dan Bon, Nirve Sports’ president, who thinks sales will turn around when the weather warms up.

“Around here there has been an increase in high school kids riding, the first time I have seen that since the ’70s bike boom,” Bon added. He believes many of these new cyclists are riding to spend less on gas.

Inventory levels were down 24 percent in dollars and 21 percent in units. Low inventory levels had more to do with issues in the supply chain than poor forecasting, according to Speyer.

All vendors require longer lead times for goods. But even that doesn’t guarantee on-time delivery. Vendors have had problems finding raw materials at affordable prices.

Pushing lead times back as much as 12 weeks requires better forecasting from suppliers, but with prices increasing weekly, material shortages and economic uncertainty, the ability for suppliers to accurately forecast has worsened. Retailers don’t provide significant sell-through data, which could help them forecast.

Complicating the sales picture further is the fact that 2009 model year bikes will hit dealers’ floors in the middle of the 2008 selling season. Rising material costs, supply issues and lengthened lead times also will affect 2009 bike inventory.

With the cost of bikes going up, it’s easier to justify the price hike on a 2009 model than to price an early 2008 bike 15 percent less than a late 2008 bike. Extending the model year also helps suppliers deal with longer lead times.

Model year introductions have been a contentious issue between suppliers and retailers, but that’s especially true this year as the season got off to a late start.

“Since the new bikes were shown at Interbike, we have only had about four weeks of the selling season to know what is selling to our customers. This is frustrating because very soon current model year bikes will be in short supply and we will not be able to reorder as distribution becomes focused on the following model year,” said Kevin Coggins, owner of The Spin Cycle in Cary, North Carolina.

Supplier sales of parts and accessories fared better than bike sales: Saddles were up 52 percent and tires were up 23 percent. But the BPSA warns that gathering and tabulating data for P&A sales is difficult and results are unreliable. It’s considering pulling the section from its reporting.

“When tires and saddles take a bump like that you immediately think old bikes are being brought out of the garage, but on the whole our business as a P&A distributor was up quite a bit more than the report says,” said Dave Goeppner, Hawley’s director of marketing.

Goeppner and other distributors reported year-to-date sales that are substantially above last year’s numbers despite cold weather. He’s surprised mainline bike suppliers reported weak sales.

Goeppner points to a few factors that contribute to robust distributor sales. With soaring fuel prices, minimum order amounts for free freight have gone up, pushing dealers to place fewer but larger orders.

He also noted that P&A distributors are selling more than parts now. Most have added bike lines. Hawley added Storck, and its $9,500 0.7 IS is selling above expectations. P&A distributors only report parts sales to the BPSA, not frame or complete bike sales.

As bike suppliers grow their P&A business to supplement earnings, it seems distributors are having better luck adding bikes to their lineups.

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