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Summer Storms Dampen Sales in Second Quarter

Published August 31, 2009


PHILADELPHIA, PA—Suppliers had stocked up for what they hoped would be a strong selling season only to have retailers and consumers ask when would the rain stop and summer start.

Bad weather—combined with retail caution and tight-fisted consumers—helped douse second-quarter deliveries. Bicycle shipments fell 5 percent in April, 18 percent in May, and the same amount in June, according to the Bicycle Product Suppliers Association’s mid-year report.

Over the first six months of the year unit shipments were down about 8.3 percent compared with 2008—a drop of 118,757 units to 1,312,935 through June.

“No doubt the economy had an impact, but no one could have predicted how bad the weather would be and its impact on sales. While sales have picked up in July and so far in August, it’s not like we will gain back what we lost,” said Steve Meineke, president and chief executive officer of Raleigh USA.

Earlier this year suppliers thought they would skate past the worst of the recession, buoyed by robust hybrid sales in the first quarter. Consumers were choosing different bikes than they had in the past, and they were buying without a stimulus like the “Cash for Clunkers” program.

But that changed in the second quarter as sales of high-end road and mountain bikes skidded to a crawl. Trek and Specialized began offering consumers incentives of up to a $1,000 with the purchase of select models. Most suppliers also offered dealers extended terms, lower prices and a chance to earn higher retail margins to take additional units. Early season closeouts left dealers with little reason to reorder.

A flagging economy also altered consumer-buying patterns and retailers were reluctant to order more high-end models just to have them collect dust on the sales floor.

As a result, suppliers are sitting on as much inventory now as they were in December, when the BPSA report pointed to one of the worst inventory backlogs in recent years.

Rain Plugs Sales. Back-to-back rainstorms hammered the upper Midwest and Northeast slowing retail sales in those regions.

“In Michigan, Ohio and the upper Midwest, you had bad weather and a bad economy and slow sales generally. July was better,” said Pat Cunnane, president of Advanced Sports Inc., parent company of Breezer, Fuji, Kestrel and SE Bikes.

Suppliers said poor weather also hurt sales in the Rockies. Utah, for example, endured 25 days of rain in June along with record flooding. The economy played a larger role in Arizona, Florida, Southern California and Michigan.

While Cunnane said the addition of two brands (Kestrel and Breezer) have kept sales strong, high inventory levels will cut into his margins this season. That also worries Meineke.

“If all you sell are high-end road bikes, you are sitting on a lot of bikes right now, and the only way to move them is to cut prices,” he said.

Deep discounts feed consumer expectations that everything should be on sale as it is at other retailers. So full-line suppliers are feeling pressure to cut prices even though mid-level bikes appear to be selling well.

Supplier inventory, which grew late last year, has remained high and the BPSA predicts June inventory numbers will remain high. However, BPSA officials were still calculating inventory at press time.

P&A Hits the Mark. While suppliers felt the weather’s sting and a lackluster economy, distributors appear to be better off. They say sales are on par or better than last year, which was a record for many.

“We enjoyed some carry over in parts business from last year. It isn’t as big of a spike as we saw when gas prices got so high, but parts sales are still above last year at this time,” said Chuck Hooper, president of Seattle Bike Supply.

High gas prices last summer caused people to rummage through their garages for old bikes to use so they could keep their cars parked. Retailers and distributors reported record sales of chains, derailleurs, tires and tubes, kickstands, baskets and fenders.

Hooper said sales of 27-inch tires remain strong, which tells him people are still putting old bikes into service probably for economic reasons. Sales of high-end Lapierre road bikes have dipped, but new lifestyle utility bikes SBS has brought in are selling well, Hooper said.

SBS also enjoyed an upswing in cyclocross bike sales. It’s clear, however, that consumers are looking for good value, Hooper added.
Hawley’s Dave Goeppner also said sales of repair and maintenance parts remain strong. The only categories that have dropped noticeably are high-end wheelsets and entry-level Storck bike sales up to $7,000, he said.

While suppliers report softening of sales at the high-end, Storck seems to be bucking that trend. “Sales in the $10,000 to $20,000 range are keeping pace with last year. Go figure,” Goeppner said.

With sales of P&A focused on maintenance and repair, it’s clear that consumers are buying lower price parts. It also indicates that they are no longer buying higher-end parts to upgrade their bikes, said Preston Martin, vice president of BTI.

“P&A sales are trending toward a more just-in-time buying pattern. The average order size is slightly down, but in many cases we are seeing a greater number of orders overall,” Martin said.

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