By Matt Wiebe
WATERLOO, WI—Material and manufacturing costs are up and the dollar’s down dealing a double whammy to bike suppliers. Unable to absorb the costs any longer, most say they are raising bike prices 3 to 5 percent, on average.
Dealers began receiving e-mails announcing the price hikes in February.
“The dollar’s plunge against all currencies means we are spending more buying the same bike,” said Joe Vadeboncoeur, Trek’s director of product development. “And our vendors are raising prices because rubber has doubled in price this last year, and other raw material prices are going up.”
Advanced Sports Inc., Felt, Giant, Jamis, Raleigh, Specialized and Trek are among the suppliers who have given dealers a few weeks’ notice of the price increases to allow them to strategize their response. The window for old pricing extends to March 1 in most cases.
Increases will affect higher-end models; opening price point, kids bikes or low-volume models produced and in inventory will see no change.
“It’s really too late to put a down-spec’d line together to keep bikes close to the old pricing,” said Chris Speyer, Raleigh’s vice president of product and marketing.
“Is the hike high enough to turn off value customers? I don’t think so. Value is really dependent on what you compare it to, and with most suppliers raising prices, the context for value goes up,” Speyer added.
Only a few suppliers are opting to finish the season with no upward adjustments in pricing. Scott, for example, will roll out new pricing with its 2012 introduction at DealerCamp in July.
“Given this stage in our growth, it was tactical for us to grow share instead of growing profits,” said Adrian Montgomery, Scott’s marketing director. “We are going to take it on the chin as far as margin, but we hope our value means the bikes fly out of the stores for our dealers.”
But Montgomery acknowledges that Scott will be forced to raise some bike prices for 2012.
Currency fluctuations are nothing new. In 2008 the dollar fell 6 percent against the New Taiwanese dollar (NT$) from February to March, but that was after the bulk of the bikes were made and paid for.
For the 2011 model year, the dollar started to fall in September, right as bike builders were turning to suppliers asking for their money. At the start of last September, one U.S. dollar purchased NT$32. Four months later, at the end of January, the same dollar bought NT$28.80, about a 10 percent drop. Over the same period, one U.S. dollar bought 6.8 RMB in September and 6.56 RMB at the end of January, a 4 percent drop.
Suppliers negotiate a price with bike assemblers based on an acceptable range of currency swings between the U.S. dollar, New Taiwanese dollar, the Chinese RMB and Japanese yen. If any currency swings outside of what was negotiated in the contract, the price of the bike needs to be reset. Neither the bike brands nor their suppliers want to have to adjust the pricing during a model year construction run.
But this year, suppliers had no choice as it’s not just exchange rates that are pushing prices up. The cost of rubber and other components that factories need to buy are also rising, forcing factories to charge more for bikes.
Aside from bikes, clothing retailers are adjusting prices upward by 10 percent over the next few months with additional raises to come. Cotton has more than doubled in price over the past year, and pricing of synthetic fabrics has gone up as well. Fuel and food costs are also climbing.
Amid all of the talk about increases, there seems to be a thin silver lining. For now, prices seem stable on entry level and kids bikes coming from China. This could be a result of a smaller 4 percent drop between the U.S. dollar and Chinese RMB.
“Since the labor cost of making a bike is similar across price points, labor cost is the largest component of a Chinese-produced bike whereas raw materials are the largest component of higher-value bikes out of Taiwan,” Trek’s Vadeboncoeur said.
“Not only is the dollar falling faster against the Taiwanese currency, but increasing material costs are pushing Taiwanese bike prices up faster than Chinese bikes,” he added.
Still, suppliers warn that 2011 model-year price hikes are just a taste of what’s to come. Most brands expect the dollar to continue to fall against Asian currencies, while the cost of raw materials will continue to climb due to Asia’s booming economies.