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Retail outlook for the new year? Rosy

Published December 30, 2011

Editor's note: The following article appears in the January issue of Bicycle Retailer & Industry News.

By Toby Hill

NEWBURY PARK, CA—Specialty retailers are entering 2012 with confidence despite an uncertain economy and the weather’s impact on sales last spring and summer. Many are maintaining preseason orders at last year’s levels or deepening their commitments in anticipation of growth.

Benjamin Cox, owner of Newbury Park Bicycle Shop in Southern California, might be among the most bullish: He has increased his preseason commitments by 50 percent.

“We have idle capacity in our warehouse. And we are expecting strong growth in 2012, so we preloaded for it,” said Cox.

Michael Weiss, owner of Big Shark Bicycle Co. in St. Louis, Missouri, has scaled up his preseason orders to stock the two additional stores he opened in May.
Others like Schlegel Bicycles are taking a more conservative approach. At the beginning of 2011, Schlegel Bicycles owner Steve Schlegel had predicted sales on par with the 26 percent growth he saw in 2010 at his Oklahoma City business.

“We were well on our way for that for the first quarter, but we had about 61 days in the summer that had in excess of 100-degree temperatures, and it just killed our summer business. So we’ve had to really put the brakes on and tighten our belt,” he said.

Many shops affected by adverse weather, including Schlegel’s, were able to regain lost ground as favorable conditions lasted late into 2011. Retailers largely reported strong sell-through for last year, and Fred Clements, executive director of the National Bicycle Dealers Association, said inventory was “pretty clean.” Further, retailers appeared to be holding the line on margins by pouncing on attractive closeouts, cutting ties with brands that can’t or won’t control their online sales and demanding better terms from high-pressure suppliers.

Clements predicted that when the final numbers come in, they will show 2011 to be a good year, but a reasonably flat one with no significant growth or decline.

Still, retailers remain hopeful as the economy shows signs of stabilizing, if not improving. And they believe consumers will open their wallets to spend, especially on road and 29er bikes.

PRODUCT MIX

Most retailers interviewed for this story said they planned only minor adjustments to their bike offerings for the new year.

“This is definitely a year where we saw continued growth in road—all types of road product. And this is the first year where we saw every major manufacturer step up in the 29er category. The continued popularity of road in our market and having fresh product in the mountain bike category has been helpful,” said Big Shark Bicycle Co.’s Weiss.

It’s a refrain echoed by many retailers, and supported by sales data from Leisure Trends Group. For the year through October, road sales were up nearly 10 percent in units and more than 14 percent in dollars, with particularly strong growth in the tri and sport performance segments, according to Leisure Trends’ Cycling Specialty Topline Report. For the same period, 29ers accounted for 23 percent of mountain bike sales, up from 10 percent a year earlier, said Greg Shoenfeld, retail relations manager at Leisure Trends.

The average retail price of a 29er is down 6.5 percent, to $1,264, reflecting manufacturers’ extension of their product lines to price points as low as $400. “So that’s going to further that share the 29ers are taking up in the marketplace. It’s not hard to imagine in two years’ time that they could make up 50 percent of the category,” Shoenfeld said.

The continued shift away from 26-inch wheels, especially on moderate- to high-priced hardtails, is evident on shop floors. “We’re not going to stock anything above the $700 to $750 price point for 26-inch-wheeled mountain bikes. Every bike above that is 29er for us at this point,” said Ryan Maszczak, buyer for Goodale’s Bike Shop in Nashua, New Hampshire.

In road sport performance, the $1,000 to $2,000 range remained the sweet spot for the year through October, accounting for 44 percent of units sold—up 19 percent—and 42 percent of dollars brought in, said Shoenfeld.

Just above that range, the trickle-down of road technology appears to be taking market share away from the upper high end in some markets. “The bike you’re getting for $3,000 to $3,500 is considerable compared to what you were getting three to five years ago,” said Maszczak, noting declines in custom and other high-end sales at his location.

That’s not to say there’s no longer an appetite for high-zoot bikes. Cox, of Newbury Park Bicycle Shop, said he did a strong business in $8,000 to $10,000 carbon 29ers last year, and he is stocking more for 2012. Although his business in $4,000 to $5,800 road bikes dropped significantly, he saw plenty of action above that range.
“We make a big commitment to the high end. I have everything in stock and ready to go, so we definitely do draw people,” Cox said.

At the other end of the spectrum, Schlegel Bicycles’ Steve Schlegel plans to deepen his inventory of $699 to $1,200 road bikes. “I saw a resurrection in the lower end of road [in 2011]. There’s been a real spike of interest there,” he said, adding that townies and cruisers also have been strong sellers recently.

MINDING MARGINS

By controlling inventory more closely, dealers mostly have been able to maintain their margins, the NBDA’s Clements believes. “In recent years retailers have gotten much more on-purpose with their inventory management and they have gotten much better at timing their open-to-buy so that when their season winds down they’re not stuck with a lot of stuff that’s going to get old and they’re going to discount to have to move,” he said.

Todd Melton, president and sales manager of Atlanta Cycling, said he was able to improve margins last year by snapping up closeout bikes and keeping just-in-time inventory. “The things we’ve got left over are things that we bought well [on closeout]. We really don’t have the luxury of making that mistake [excess inventory] because we don’t have the space to put it,” he said.

At Schlegel Bicycles, margins suffered in 2011, mostly because the Oklahoma City retailer’s weather-related summer slowdown left it with a surplus of high-end road and tri bikes. Rather than flood his market with cheap product, owner Schlegel is seeking creative alternatives.

“I’m getting an industry deal going where we’re going to submit our bike closeout list to vendors or suppliers that aren’t bike companies. Like Easton-Bell Sports—we’re going to provide their employees with some really good incentives to buy bikes at a great discount,” he said.

As he works to get his inventory levels down, Schlegel is confident his situation will improve in 2012.

“In our case we’ve gotten much more proactive in analyzing the historical data on sell-through, and that way we’re not overstocking ourselves. And we’re going to more just-in-time inventory with the idea of having more turns and less markdown.”
When suppliers came to him in July seeking early and deep preseason commitments, Newbury Park’s Cox insisted on concessions to improve his margins.

“We got a ton of pressure from suppliers. We stepped up to the plate, but we demanded better margins in return—bigger discount, rebates, that kind of thing,” he said.

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