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Staff Analysis: Recent layoffs reveal shifting priorities as well as cost cutting

Published June 20, 2016
Soft market and mergers contribute to industry layoffs, but companies continue to invest in e-commerce.

LONGMONT, Colo. (BRAIN) — Bulging warehouses. Missed bets on hot bike categories. A no-snow winter. Bankrupt sporting goods chains.

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There are many explanations for the recent spate of layoffs across the U.S. bike industry, which can be explained by a perfect storm of short-term effects.

But the layoffs may also indicate a long term re-allocation of resources, as suppliers react to a re-invented bike market that may or may not wind up smaller than it is currently, but undeniably will be different, and require different employee skills.

Climate scientists may quibble, but it often seems major weather events are powered by long-term climatic shifts. In this case, consumer habits are changing, Baby boomers are aging out of the bike market as we know it, and millennials are looking for different kinds of bikes, which they'll buy in different ways. Despite industry efforts to spew out an ever-increasing variety of bike categories, nothing has caught the attention of bike buyers on the scale of the fondly remembered sales booms of 10-speeds, triathlon bikes or mountain bikes (recent sales statistics show e-bikes as one of the few growth areas, although that market is still small).

Last week BRAIN reported on layoffs at Hawley-Lambert and Giant USA, which followed job cuts announced earlier this year at Specialized and SRAM. Several other suppliers have more quietly reduced their staff sizes this year. And last year, Accell North America reduced its workforce by about 30 percent as it consolidated warehouses, ended Lapierre bike sales, and scaled back and then sold off its SBS business.

Here's a look at some of the drivers behind the recent layoffs:

Short term: weather, inventory and sporting goods closures

A winter without snow doesn't normally affect the bike market negatively, but it does when some in the industry were betting on growth of fat bike sales. However, wholesale sales of fat bikes were down nearly 30 percent in the first five months this year, while wholesale inventory doubled. Sales of fat bikes and related equipment were a boost to retailers in some regions, including the Rockies, but the Northeast had a low-snow winter, followed by a cool, wet spring, and many retailers reported dismal sales. Some Northeast retailers who rely on the ski business to pay the bills in winter have struggled, which indirectly affects their ability to buy and pay for bike inventory.

At the end of May, supplier bike inventory was up 20 percent over a year earlier; bike sales to retailers through May were down almost 6 percent.

According to numbers released last week, at the end of May U.S. suppliers still had 20 percent more bike inventory, in dollars, than they had on hand a year earlier. Supplier bike sales to retailers for the year through May were down almost 6 percent.

Early in the season, several major suppliers pointed to Specialized as carrying much of the excess inventory, and the company announced in February that it had laid off nearly 50 people, although the company told BRAIN its inventory was under control. No matter who has the extra bikes, all major brands have had to heavily discount and tighten budgets to react. That has led to layoffs and reduced spending on marketing and advertising.

While bike sales were a relatively small part of their businesses, the closure of major sporting goods chains this year had repercussions in the bike world. Sport Chalet closed 47 locations in the West, and Sports Authority has begun closing more than 460 locations in the U.S. and Puerto Rico. Late last year, Boston-based chain City Sports declared bankruptcy and closed 26 locations.

Several of the bankruptcies left bike industry suppliers hanging. Sport Chalet owed Accell North America $1.4 million and Fuji parent Advanced Sports International $600,000, for example.

The going-out-of-business sales also affect local retail markets. Sports Authority has just begun its sales in earnest, with discounts starting at 30 percent on bikes and accessories, which will increase as the sales continue.

The closures also contributed to a difficult job market for those working in the sports industry. Sports Authority laid off 770 workers just at its corporate headquarters near Denver; the chain employed more than 14,000 people nationally. Sport Chalet had nearly 2,000 employees nationally.

Longer term: Generational changes, resource shifts

We'll resist the temptation to repeat here all that has been written about demographic and shopping shifts that are affecting the long-term viability of the bike industry and brick-and-mortar retailing, and which no doubt contribute to the recent spate of layoffs.

Two companies that have announced layoffs have each recently launched omnichannel programs to sell bikes online.

It's worth noting, however, that while many of the recent layoffs have been in sales and marketing positions, no recent layoff announcement has mentioned a reduction in web development staff, nor has any company announced plans to scale back their e-commerce business. In fact, two of the companies that have had significant layoffs in the past year — Raleigh and Giant USA — have each recently launched omnichannel programs to sell bikes online, with pickup at local bike shops.

Raleigh and Giant join Trek, which announced its omnichannel bike sales program last August (and which hasn't announced any layoffs). When he revealed the plan, Trek president John Burke said building Trek's new website was the single biggest expense in company history (and he made that remark before the program's launch was delayed by several months).

While these three brands and others have shifted some resources toward building an e-commerce infrastructure, none of them have started concerted marketing campaigns designed specifically to drive consumers to their sites to make purchases. That might change when Canyon Bicycles gets its consumer-direct bike sales program up and running in the U.S. early next year. "Brand-building" ads might not be enough when the competition is running "Buy Here Now!" ads.

On a retail level, a similar trend might be developing. SmartEtailing, which supplies many top U.S. retailers with the back-end infrastructure to operate e-commerce, is now turning its attention to marketing to drive customers to those e-commerce sites. That next step contributed to the merger of SmartEtailing and Harvest Retail Marketing. While SmartEtailing recently laid off three workers as a result of the merger, company president Ryan Atkinson said he expects to add more workers, with different skills, in coming months.

At the supplier level and at retail, increased spending on online sales and marketing might squeeze some department budgets, but it also might eventually be good news for those who sell online advertisements and those who know how to sell, build and manage in the omnichannel economy.

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