BY MEGAN TOMPKINS
TAIPEI, Taiwan—The Chinese symbol for crisis consists of two characters representing danger and opportunity. Attendees at the Taipei Cycle Show last month pointed to this dichotomy as proof that even as they brace against a downturn in business due to the global economic crisis, they see positive trends that point in favor of bicycling.
Industry executives walking the halls of the Nangang Exhibition Center were remarkably upbeat and confident that the worldwide bicycle industry will weather this storm.
But as evidence of the international economic tsunami taking its toll, manufacturers voiced concerns over inventory levels and delayed and canceled orders. Taiwanese manufacturing lines have slowed as bike suppliers have pulled back orders and delayed purchases for next model year.
As further indication that bike production has slowed, component suppliers said their sales to original equipment manufacturers are sluggish. While most bike spec was finalized before the show, many suppliers have held off on setting quantities for 2010 models to see how this season unfolds. Summing up the attitude of suppliers, SRAM’s John Nedeau said there was no sense of urgency to their buying.
OEM orders to the component maker have dropped significantly in the past six months. Stan Day, SRAM’s chief executive officer, said for the nine months through September SRAM’s sales were up 40 percent, but in the last quarter ending December its sales were flat. Day projected that SRAM would finish the first quarter with sales down 25 percent. “That’s painful,” Day said.
Jerry Huang, Jagwire’s chief executive officer, said the company’s aftermarket sales are flat compared to last year, but sales of its cables—which it supplies to most of the industry’s bike brands—are down. He expects OEM sales to wind up down 20 to 30 percent this year. But, he said, the market was due for a correction after years of strong sales.
“To see the reality, we need to look back to the past. Two years ago it was crazy; now it’s just back to normal,” Huang said.
Given pullback from manufacturers, some executives expressed concern that the industry could face shortages in some categories if consumers open their wallets later this spring. Some predict there could be a shortage in the U.S. market for bikes in the $1,200 to $2,000 price range. Company executives are keeping an eye on weather patterns and inventory levels and could ask suppliers to ramp up orders quickly to backfill stock.
Component makers are positioning to meet increased demand if the industry turns a corner this spring. Day said SRAM can fill just-in-time orders because of its ability to manufacture with short lead times.
Jason Rico, U.S. sales agent for Alex Rims, said Alex can deliver wheels in 45 to 60 days. But he said prompt delivery could be a challenge if suppliers don’t prepare vendors for add-on orders. “They need to warn factories if things aren’t as grim as they seem that they will need product quickly,” Rico said.
Despite concern over inventory and production, most industry experts are predicting that the worldwide bicycle industry will escape with minor damage.
Suppliers said they are buoyed by the fact that U.S. retailers remain optimistic and are carrying little inventory on their balance sheets. Many had faith that sales would stabilize with good weather in May and June.
Day said he is confident that enthusiasts will continue to drive retail sales, citing increased registration at events like the Sea Otter Classic and sold out triathlon series nationwide. He also anticipates greater potential under the new administration to broaden cycling infrastructure in the United States and attract new cyclists.
Tony Grimaldi, chief executive officer of Cycleurope, the second largest supplier of bicycle brands to Europe, said while the bicycle business in Europe is fractured with certain countries faring better than others, he too, is encouraged by government interest in building cycling infrastructure. He said, for example, Sweden is investing 800 million euros in cycling infrastructure.
Taiwanese manufacturers also expressed optimism that the renewed national interest in cycling will bolster the domestic market. Taiwan’s new president, Ma Ying-jeou, has given Taiwan’s industry a major boost since his swearing in last May. He rides a bicycle and has publicly pushed the nation’s more than 23 million people to embrace the bicycle to cut energy costs and improve health.
Ma Ying-jeou opened the Taipei Cycle Show by telling a packed room of international guests that the bicycle industry is entering a phase of unprecedented promise and potential.
He sparked a round of applause when he said the industry is “primed for stardom” because of the bicycle’s positive impact on energy consumption, the environment, health and fitness. In Taiwan, high gas prices have driven bicycle sales to new records as car owners switch from four wheels to two, he added.