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Survey Says: Flat Market Trend Persists

Published June 13, 2008

BY NICOLE FORMOSA

COSTA MESA, CA—The number of specialty bike retail storefronts dropped to 4,451 in 2007, a decrease of 150 from the year before.

The rate of brick-and-mortar attrition was one statistic that surprised industry consultant Jay Townley, of Gluskin Townley Group, as he researched data for the NBDA's new 2007 U.S. Bicycle Market Overview.

Between January 2001 and January 2008, the number of specialty bike retailers fell from 6,259 to 4,394, which equals an average attrition of 266 storefronts per year. Beginning in 2006, these numbers include specialty ski shops, camping and outdoor shops that sell bikes.

If the trend continues, Townley projects 3,800 U.S. bike shops will remain in 2010, and that estimate doesn’t take into account a potential economic effect.

“The only thing that is certain is weak and under-capitalized retailers across all specialty retail channels will struggle to survive in an economic downturn, and specialty retailers that have a plan that includes delivering extraordinary customer service and growing profitability stand a much better chance of not only surviving a bad economy, but actually prospering,” Townley said in the report.

The study’s other standout was in the number of brands sold in the independent bicycle dealer channel in 2007—383.

That’s compared with 340 the year before.

For the most part, the market overview depicts another flat, but healthy, year in 2007 for the $6 billion bicycle industry.

The report, compiled by Townley and released last month by the National Bicycle Dealers Association, culls statistics from the National Sporting Goods Association, the Outdoor Industry Association and the U.S. Department of Commerce to draw conclusions about cycling participation, imports and exports and other facets of the industry.

The total size of the U.S. bicycle market in terms of direct effect retail dollars was just over $6 billion in 2007. That’s up 3.7 percent from 2006.

If the industry had grown at the rate of inflation, it would have realized an increase of more than $1 billion from 1999 to 2007.

Another statistic of note in 2007 pertains to exports of domestic bikes.

Last year, total exports (including full domestic and re-exports) grew 20.7 percent—from 292,436 units to 353,012 units—and 7 percent in dollar value, purportedly because the weak U.S. dollar prompted more brands to export product over the past year.

The biggest chunk of that—60,272 of the 60,577-unit increase—came from domestic exports rather than foreign exports, Townley said.

U.S. bikes are exported to more than 90 countries worldwide, but the highest percentage was shipped to Taiwan in 2007.
Canada, the Netherlands and Japan rounded out the top four, which together accounts for 70.8 percent of units exported and 61.8 percent of the dollar value in exported bikes.

Townley said he’s not sure how Taiwan crept into the top spot this year, particularly because a few years ago, the small country was a mere blip on the export map.

One idea is that Taiwan is re-exporting the goods, but without anti-dumping duties to skirt in Asia, there would be no reason to do so, Townley said.

Townley predicts that exports will increase over the next decade as rising prices in China motivate manufacturers to move production to North America and as Internet sales gain strength.

At a UK distributor event Townley attended in February “every day one or more dealers would complain about the fact they’re losing high-end business to U.S. specialty retailers due to the Web,” he said.

Another factor that could affect long-term exports is a policy change in Washington, said Fred Clements, executive director of the NBDA.

“We have a very free trade policy right now. Over a 10-year period that could change,” Clements said.

U.S. imports in 2007 were indicative of the flat market—total imports were up less than 1 percent over 2006, coming in at 18.21 million. China and Taiwan accounted for 99.5 percent of imports in 2007, which was about the same as the year before.

Changes in tax incentives in China and price increases in raw material, component parts and labor costs have increased the freight on board costs of bicycles across the board.
Shortages and longer lead times also impacted availability of bicycle products headed to the United States during the last quarter of 2007.

But, suppliers and retailers who purchase bikes in China have limited alternatives.

“Given two to three years, alternative sources in other countries in Asia and Eastern Europe can be developed, but it will take years to replace the huge production capacity that exists in China, if it is even possible to do so,” according to the report.

Another indicator of the flat market can be seen in participation statistics. Last year was the second consecutive year of declining bicycle consumption per thousand people in the United States.

The National Sporting Goods Association tallied 37.4 million bicycling participants age 7 and older in 2007. While that number is 5 percent above what it was in 2006, it’s still well below the 15-year high of 56.3 million the industry achieved in 1995.

The only viable opportunity the independent bike channel has to grow the size of the market is to tap into the baby boomer population and others in the non-cycling public.
Shimano’s new Coasting group could be the missing link if specialty retailers don’t pass up the chance to sell bikes equipped with the automatic shifting, internal hub system, Townley said.

Trek, Giant and Raleigh spec’d the Coasting group on 2007 comfort models, and an estimated 25,000 bicycles sold during the year.

This year, 10 brands are selling comfort models equipped with the Coasting group, bumping the potential sales to at least 100,000 units per year.

The one thing holding back growth is retailers’ hesitance to get onboard with the product and actively sell it, Townley said.

Shimano is currently working on dealer education with a training package that includes a Coasting DVD and a new Web site, www.sellingcoasting.com.

Clements said he thinks Coasting is a good product, but selling a new customer a hybrid or cruiser bike can also serve the same purpose: Attract newcomers to the sport.
Even though the market is healthy, and the industry is making great strides in terms of advocacy, Clements feels a sense of vulnerability that the industry’s customer base is too narrow, particularly as the “usual suspects”—wealthy, white males—age.

“Who’s going to buy those Madones if it’s not for people with a lot of money who are established? Are the 20 and 30 somethings of today going to take that same path?” Clements said.

To purchase the entire 2007 Bicycle Market Overview, visit www.nbda.com.

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