BY NICOLE FORMOSA
NEWBURY PARK, CA—As Giant’s Patrick VanHorn manned booths at Sea Otter and the Tour of California this past spring, he heard for the first time, consumers asking why they couldn’t find several road and mountain models at local bike shops.
“At Sea Otter I had a guy ask me about the Glory 0. A high-end mountain bike for a niche customer who likes traveling downhill and he can’t seem to find one anywhere. I was just amazed that it had gotten to that point,” VanHorn said.
Indeed, suppliers and retailers are scrambling this season to get bikes on the sales floor in light of conservative supplier forecasting for 2010 on top of unexpectedly high consumer demand.
“Coming out of a year whose economy had our entire industry discounting prices and providing financial incentives to sell-through high-end product, this new demand dynamic has taken us all by surprise,” Specialized U.S. national sales manager John Thompson wrote in a June 2 letter to the brand’s alliance dealers to address the short supply problem.
“As much as we tried to be bold with our purchase plan, flat 2010 pre-book numbers indicated that our 10 percent increased buy plan seemed optimistic compared to what our dealers were feeling,” he said.
But, spring sales spiked, and March 2010 was up 30 percent over the same month in 2009, revealing the discrepancy between forecasted and actual growth, Thompson said.
Many suppliers, like Giant and Specialized, have reacted by moving up production of 2011 bikes, placing emergency orders with their suppliers or using air freight instead of shipping containers to bring in bikes. But some key products were simply unavailable in early spring and early summer.
“I know both Specialized and our dealers left business on the table due to short supply in 2010,” Thompson said.
Women’s bikes, 29ers and high-end road and mountain bikes have been among the toughest models to come by. Dealers have had to make-do by swapping product with nearby competitors or relying on third-tier suppliers to fill the gaps.
Butch Gray, owner of Heart and Sole Cycle and Fitness in Meridian, Mississippi, had sold out of all his 29ers by April 1. Heart and Sole is not a concept store, but Gray devotes 99 percent of his floor space to Trek and Gary Fisher. His other major supplier, Specialized, was also out of 29ers. As a longtime Fuji dealer, he was able to call on that brand for product.
“I don’t like putting all my eggs in one basket. It does pay benefits in many ways like better pricing, but it’s hard when you don’t have anything to buy,” Gray said.
Gray said his Trek rep assured him more supply would come some time in June, but he worried that was too late.
“I’m hesitant to stock too much at that point just because the season is just about over with in some areas of what we sell,” he said.
This summer’s lack of inventory is a case for why model years in the industry do not make sense, particularly for bread-and-butter bikes, said Darrin Duhamel, owner of Revo Cycles in Dana Point, California.
Duhamel, a vocal opponent of the concept store model, said his strategy of aligning with six or seven suppliers has proven effective in getting bikes this year, but he also believes this latest forecasting foible is not unique.
“It just spins from the way this industry is structured where companies do not have an effective means of forecasting. Every year they just throw a dart at the wall. Some years they get it right. Some years they get it wrong, but they’re never going to get it right,” he said.
Even so, the problem seems to have now trickled into component and accessories brands. His biggest shortages have not been in bikes, but rather entry-level $90 to $150 road shoes, a category where he’s lost a “tremendous number of sales” because no company is stocking inventory year-round.
Some retailers say they expect to be insulated from this summer’s inventory challenges due to the decision to place large orders last fall.
“If you make a commitment, the supplier will make you a priority. I don’t foresee us having a problem,” said Scott McAhren, owner of Conte’s Bikes in Arlington, Virginia and Bethesda, Maryland. McAhren pre-books 90 percent of his orders.
Suppliers are using the inventory situation to sway dealers toward pre-seasons, a practice some dealers shied from last year due to fear of getting stuck with excess inventory. In his letter, Specialized’s Thompson urged dealers to make a concerted effort to pre-book 2011 product as early as possible to help Specialized prioritize its builds.
Thompson said Specialized has made several other strategic changes to avoid a future inventory crunch such as creating a two-year life cycle on high velocity products, increasing its core stocking list by 30 percent, buying more product upfront for the new model year and increasing purchasing and forecasting manpower to identify supply issues sooner. Specialized has also committed 75 percent of its annual need in non-cancelable order to four key suppliers: SRAM, Shimano, Fox and Mavic.
As of early June, Giant was receiving containers and catching up on back orders, as well as getting in more 2011 product enabling it to fill those newer orders. Giant expects to be back to optimal inventory levels this month in time for the high summer selling season, and has communicated that to its dealer network through emails from general manager Elysa Walk and director of sales Gregg Frederick.
Giant’s VanHorn pointed out one potential silver lining to a lean inventory season: no closeouts or heavy discounting.
“While that doesn’t necessarily help our retailers’ bottom line, it does help everybody in general. If you’re trying to ditch a lot of product, it can have appearance of devaluing it,” he said.
Bob Fadel, co-owner of Virginia’s Spokes Etc., said his margins were up one-and-a-half points because the shop was not discounting stale product this year.
