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Suppliers Rally Retailers, But Caution Reigns

Published November 3, 2008

BY MATT WIEBE

WATERLOO, WI—Since Interbike, one of Wall Street’s largest investment banks, Lehman Brothers, went bankrupt. U.S. legislators approved an $850 billion Wall Street bailout package to which the market responded by falling to its lowest level in five years. Consumer spending is substantially lower than it was last year and the credit market seemingly dried up overnight.

Bicycle retailers, like the population at large, are following economic news hourly and wondering what the future holds for their businesses.

“Retailers are on the front line. They are following the news closely and planning their strategies. It’s important as a supplier to keep communication open, especially in times like these, so I sent a letter to let them know what we are thinking,” said John Burke, who heads up Trek, the channel’s largest supplier.

In the letter he sent out in October, Burke noted that the industry did well during previous economic downturns, and there is evidence it could repeat this past success. Governments have upped spending on cycling infrastructure, and higher fuel prices and environmental issues are pushing new customers into bike shops.

As further evidence of a strong bike market, Trek said its global sales were up significantly this year, by 10 percent in September alone. And its survey of select Trek dealers found their business was up over 10 percent in September.

Burke also noted that the company’s lines of credit with J.P. Morgan and Bank of America are with banks that remain solvent.

“I think what retailers want to hear is our plans to have bikes in stock when they need them so they can keep spinning their inventory. And in these uncertain economic times, managing inventory is going to be more important than ever,” he added.

Midseason introductions are an unnecessary complication to inventory control, according to dealers. Responding to this, Burke said Trek will continue its carry-forward strategy, bringing back bikes that see no change in a new model year, and is taking other measures to ensure it has product in stock when dealers need it.

Burke wasn’t alone in reassuring dealers; John Thompson, Specialized’s national sales manager, also sent a letter to its dealers claiming a strong balance sheet and strong lines of credit. He suggested, on the other hand, that not all suppliers may be in as good of fiscal health.

“Yes, I’m nervous about my business but I appreciate hearing John’s perspective on the economy and how it will affect the bike business,” said Brad Hill, owner of Goodale’s Bike Shops in New Hampshire. Hill also received the letter from Specialized.

“However, here in northern New England the weather can be just as devastating as a bad economy. While we had a better year than last year and I was short bikes during the season, I’m still not going to be aggressive with my pre-season orders,” he added.

Tom Decaro, owner of Albuquerque Bicycle Centers in Albuquerque, New Mexico, also is coming off one of his best seasons ever, but he, too, is taking a cautious approach.

“We had tremendous growth this year. Our hybrid sales were through the roof. But I will keep a very close eye on inventory and probably run a bit leaner than I have,” Decaro said.

It appears retailers are not certain the industry’s success during past economic downturns will be repeated, in spite of the rhetoric.

Fred Clements, the National Bicycle Dealers Association’s executive director, said reports from member retailers are mixed on how the season went, and not everyone has thrived in this economy.

“While I like to think that shops doing good planning who pay attention to the details of their business are still doing well, it is clear good retailers in some cities are having a bad year,” Clements said.

According to the Bicycle Product Suppliers Association’s tally of wholesale bike shipments, units shipped were down 5 percent while sales were up a modest 2 percent through August. This offers some evidence that bike sales are down with the economy this year, as many retailers sense, even if they had a good year.

Unlike most shops that wrapped up their season as the bad economic news escalated, for retailers in hot southern climates the news is breaking as they enter their high selling season.

“From the start of our season so far, the weekend warrior business has almost dried up completely, but our commuter business has really taken off,” said Justin Lafferty, a mechanic at Landis Cyclery in Phoenix.

“You are always optimistic that business will pick up, but unlike everyone else, all the bad economic news is breaking now as our selling season gets started. I expect this will not be one of our best seasons when it is over,” he added.

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