BY MATT WIEBE
LYNDON STATION, WI—Most people in the bike industry will tell you that it is generally immune to the vagaries of the general economy. The bike business is recession-proof.
Or is it? This industry wisdom turns out to be as true as the myth that drinking a Coke after eating Pop Rocks will explode your stomach.
Every recession since the ’70s bike boom has cut into industry sales, in some cases substantially—bike sales dropped from 14.1 million units in 1974 to 7.3 million in 1975.
“I keep hearing that the industry is recession-proof but that is not my experience of past recessions,” said Jay Townley, partner in the Gluskin-Townley Group. Townley has been tracking industry statistics since joining Schwinn in 1966.
“Had the recessions of the ’70s and ’80s not killed the bike boom the industry would be very different today. But the back-to-back recessions took away all the momentum we had at the start of the boom,” he added.
Townley attributes this widespread misconception to many suppliers and shop owners having no firsthand experience of the lengthy ’73 or ’81 recessions. And he noted that few people pay attention to historic industry sales statistics.
According to the National Bureau of Economic Research (NBER), the non-partisan group that defines recessionary periods, there have been 10 recessions since World War II.
Two of these recessions, one from November 1973 to March 1975 and one from July 1981 to November 1982, extended more than a year and cost the industry dearly. The NBER recently announced the current U.S. recession started in December 2007, making this the nation’s third sizable recession.
Even the smaller recessions of 1980, 1990-1991 and 2001 all impacted bike sales negatively. From a historical perspective, recessions hurt bike sales. So it should come as no surprise that supplier shipments of bikes to dealers through the third quarter were down 4 percent, according to the Bicycle Supplier Products Association (BPSA).
Nick Andrade, Pacific’s IBD sales advisor, said that although the industry feels bikes are a necessity, “most families will choose to put food on the table before buying a bike,” he said.
Andrade saw firsthand the impact of the ’73 recession on the bike boom.
“We couldn’t get enough bikes and then the bike boom was over. When people don’t have money how can they buy bikes? Of course the recession is going to impact our business,” he said.
Arnold Kamler, Kent International’s president, thinks much of the denial about the impact of the recession is due to the stock market crash happening after the sales season. He expects attitudes about the severity of the recession to change quickly in February and March.
“Bicycles don’t sell better in a recession, it’s just that they look like a better value during a recession, so sales don’t drop off as fast. But the recession will have an impact,” Kamler said.
Unlike earlier recessions, when there was a sizable domestic manufacturing base, more than 95 percent of bikes sold today originate in Asia. Long lead times hinder a supplier’s ability to adjust inventory to market conditions. Orders for the 2009 season are placed before suppliers have analyzed holiday sales and consumer confidence moving into the new year.
In 2007, well before the troubles on Wall Street were exposed, the BPSA was sufficiently alarmed by sales trends to commission an extensive study of the bike market to help it shrug off its sales slump. Despite these warnings about the health of the bike business, many still believe the industry will not bear the brunt of the economic downturn.
“It’s optimism or hope, and there is nothing wrong with that. But the truth is recessions have been devastating to the bike industry,” said Howie Cohen, who started in the bike business working in his parents’ bike shop in 1946.
“I was very surprised the industry didn’t benefit from high gas prices this year, since the cost of gas was much higher than it ever got in the ’70s. And back then it was clearly responsible for a substantial portion of the bike business. The only thing I can say is that the industry would probably have had a much worse year without the high gas prices,” he added.
Cohen recalled that the ’50s and ’60s saw small downturns in the economy, but none of them had a noticeable impact on bike sales, and suppliers and retailers did not pay much attention to the economy.
“So we were totally unprepared for the impact of the recession in the early ’70s and it shows. We went from a 14 to 15 million unit bike market in ’73 and ’74 to a seven million unit market in ’75 and ’76, and a lot of people went out of business,” Cohen said.
This is exactly what motivated Townley to pull together these historic industry statistics. “My concern is that the industry sees what is coming,” Townley said. “According to a recent World Bank report, the prediction is for a global and extended recession. The bike business is not recession-proof and we need to prepare.”