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Trends Balance Out as Industry Weathers Storm

Published May 29, 2009

BY MATT WIEBE

The recession hit consumer spending last year harder than anyone anticipated, especially car makers GM, Ford and Chrysler. But the big economic hit arrived in October, well after the bike season wound down, so the industry dodged the bullet.

The Bicycle Product Suppliers Association reported unit shipments up a modest 2 percent, a rate of growth matched by overall bicycle imports, which also were up 2 percent. That’s not bad considering the fourth quarter delivered a body blow to automakers, appliance manufacturers and homebuilders.

“The economy decelerated so quickly it killed the automotive industry yet the bike industry seems to be weathering the storm,” said analyst Bill Fields, Fields Associates’ president.

“Boutique brands were really hit hard, but the full-line suppliers less so. Still, I imagine we will be seeing further consolidation this year by some of the largest companies,” he added.

The industry mantra that kept everyone smiling at the start of last season was the belief that a bad economy and high gas prices would drive consumers into shops in droves.

Indeed, environmental and economic concerns last year drove some positive trends:

• Consumers purchased bikes for utility purposes boosting sales of pavement bikes;
• Service, parts and accessories brought in shop dollars; and
• Distributor business grew on sales of replacement parts and accessories.

But last year’s overall growth cannot mask the 13 percent drop in unit sales the BPSA reported in the last quarter of 2008.

Bike sales were up substantially going into June last year, but once gas dropped below the $4 a gallon mark bike sales plummeted. And the economy, which tanked in the fourth quarter, accelerated already declining sales.

Economic woes escalated these negative trends:

• Price points moved down, pushing most buying activity below $1,000;
• High-end road and mountain bikes languished on sales floors; and
• Bad forecasting left suppliers with historic inventory levels coming into 2009.

Sales. Retailers observed that new bike sales transitioned from high-end enthusiast product to sub-$1,000 bikes seemingly overnight.

“We noticed in May of 2008 that sales of our bikes over $3,000 had stalled. Consumers are looking for bargains,” said Kay Liggett, owner of Criterium Bicycles in Colorado Springs, Colorado.

Boutique brand Seven Cycles saw modest growth in sales last year, however, company president Rob Vandermark notes that so far this season has not been as kind.

“Our sales were up a little last year, in part because the price points of Trek and Specialized moved into our territory, which shifted perception. Now we are competitive with those brands even though our pricing has stayed the same,” Vandermark said.

He is glad Seven introduced its entry-level $3,300 custom steel and $4,000 titanium Ultegra-equipped Gateway models last year.

But the same forces slamming pocket books shut pushed former bike riders into garage recesses to rescue old bikes. And shops selling used bikes were swamped with business.

Retailers who depended on new bike sales for the bulk of their profits now found service departments understaffed and undersized, but saw a pot of gold under every service stand.

Those old bikes pressed into service needed racks to carry stuff, fenders to keep the elements off, and rubber and lights for commuting, which kept distributor warehouses humming through last summer.

Categories. Last year was a tough one for suppliers.

Lured by the myth that gas prices and a bad economy are great for selling bikes, suppliers ordered too many bikes too late in the year. The bikes arrived in time to hear consumer wallets slam shut leaving suppliers sitting on historic levels of inventory.

BPSA members were sitting on 58 percent more dollar inventory and had 746,578 more units in warehouses, a 53 percent increase, at the end of 2008.

Rising raw materials pushed the average price of an imported bike up 19 percent, to $74 from $62 in 2007, according to U.S. Department of Commerce data. Yet BPSA data shows the average selling price to dealers was up a more modest 8 percent, squeezing supplier margins.

For the most part, adults did not balk as materials costs pushed bike prices up. The same cannot be said for parents. Suppliers like Fuji, Scott, Specialized and Trek have made big investments in redesigning their kids’ bikes over the past few years to appeal to enthusiast parents, and the effort paid off as bike shops increased their kids’ sales.

But specialty kids’ bikes received a double whammy—on top of higher prices because they were technically more advanced, materials hikes pushed prices up further.

Last year erased all the kids’ market share the specialty channel had picked up in prior years. The only kids’ category to pick up business over last year was 24-inch, up 2 percent in shipments. All other categories were way down. Suppliers shipped 16 percent fewer BMX/freestyle bikes, 19 percent fewer 20-inch bikes and 18 percent fewer 10-, 12- and 16-inch bikes.

“We just priced ourselves out of the kids’ market last year. I think a parent is willing to pay a hundred more dollars than a mass bike to buy their kids a quality bike, but they were not willing when our bikes were $200 to $300 more than bikes in the mass market,” said Pat Cunnane, president of Advanced Sports.

Enthusiasts have been good to the industry, buying the latest carbon fiber marvel promised to be 35 grams lighter than last year’s model, or the latest whiz kid’s take on pedal stable suspension.

But increasingly bike buyers were not interested in the latest road or full-suspension bike as they were in a bike to get around on like a hybrid. Hybrids posted the largest category improvement, up 19 percent in units.

Adding BPSA’s unit shipments of cruiser, comfort, road and hybrid bikes together shows the traditional pavement category grew to 63 percent of the specialty market last year. If you add in mountain bikes used for commuting, the percentage is even higher.

The same customers walking into bike shops buying hybrids also drove sales of adult 700c bikes in the mass market. Last year suppliers imported 696,511 more 700c bikes, a 63 percent increase. While it’s impossible to know whether these 700c bikes are road or hybrid bikes, if shipments of hybrid bikes to bike shops is up, it follows that they would also be to mass retailers.

America’s growing preference for hybrid bikes is making the U.S. market closer to the European bike market, whose big sellers, trekking bikes, are essentially hybrid bikes with fenders and racks.

Environment. Environmental issues increasingly became a motivation to buy bikes.

The Obama administration’s push for green initiatives to address global warming raised the population’s awareness of the ecological choices they make. If automotive hybrids were a good answer, bikes were a better answer.

Growing environmental concerns drove increasing numbers of professionals into retailers looking for car replacement bikes for their commute to work.

Families also turned to cargo bikes as minivan replacements to haul kids, groceries and supplies.

For 10 years Xtracycle has been pushing its bicycle pickup concept, a long-tail retrofit called the FreeRadical that can accommodate cargo of all types and sizes, but with little sales success.

Last year things changed. Xtracycle sold out of its entire year of production in the spring. Surley’s Big Dummy, a frameset prebuilt with a FreeRadical long-tail, sold out. Everyone wanted cargo bikes.

“It was partly rising gas prices, and a major part environmental. People realized they had to limit their carbon footprint now, the sea level was coming up, they couldn’t wait any longer,” said Nate Byerley, Xtracycle’s president.

While suppliers to the cargo bike market targeted men, it turned out mothers were the designated riders as they ferried kids around and picked up groceries.

Surley’s success with its Big Dummy was not lost on sister company Civia, who plans its up-market take on long-tails soon.

Unlike customers looking at a bike as cheap transportation, people considering a bike for environmental reasons are willing to spend, something startup Civia is proving.

Civia delivered its first high-end transportation bike, the Hyland, retailing from $1,595 to $3,500 depending on drivetrain, and plans to deliver Loring, retailing between $995 to $1,695, this season. Civia sold out its limited Hyland run and presold two-thirds of its planned production of Loring according to Scott Thayer, Civia general manager.

“We are targeting professionals that want to make a responsible transportation choice but still have the money to pay for something they feel passionate about,” said Thayer.

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