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Manufacturers Sit on Record High Inventory

Published November 30, 2009


PHILADELPHIA, PA—As bicycle suppliers tallied their inventory at the end of September, they found overall inventory was 39 percent higher than a year ago and shipments to retailers had dropped 9 percent.

Two key categories appear to account for the record inventory—road bikes and hybrids, according to the Bicycle Product Suppliers Association.

Approximately 97,000 road bikes were stacked in warehouses as September ended—an 88 percent increase over last year. Despite the high level, road bike sales grew by 5 percent through the first nine months of the year.

Still, BPSA estimates the value of stock-on-hand at $51.5 million with an average wholesale price of $530 each. By some estimates, that’s enough inventory to fill dealer orders through February of next year.

Hybrid inventory, however, set an unpleasant record. Suppliers, apparently betting on a commuter craze that never truly materialized at retail, are sitting on 202,833 units, a 214 percent increase over last year.

Those units are valued at $40.2 million with an average wholesale price of almost $200 per unit. It’s enough inventory to meet dealer demand through March.

“What I think happened was that people (suppliers) were expecting a bad season, so when it looked like commuter sales would be strong everyone jumped into the category to give themselves a little hope for the season,” said Chris Speyer, chairman of BPSA’s statistics committee and Raleigh’s vice president of product and marketing.

“I know we, as a company (Raleigh), invested heavily in that category; Specialized launched Globe, and I bet most every other company expanded their commuter model offerings, but the customers weren’t there,” Speyer said.

Despite inventory issues, overall dollar sales dipped only 5 percent as suppliers maintained their average selling price. Ironically, if all the units sold through September were added to units in inventory, suppliers will have ordered more than 2.7 million units—an 8,400-unit increase over 2008.

The unit increase, coming in what has been the worst recession since the 1930s, indicates a weakness in forecasting due—in part—to a lack of real-time information on what sells at retail.

It appears that some suppliers, betting that high gas prices like those in 2008 would keep customers flowing into bike shops, discovered that consumers were keeping a tight grip on their wallets. Instead, sales of most pavement bikes have trended down since the start of the recession in December 2007.

Supplier optimism may have hit a limit. Shimano recently revised its fourth-quarter earnings forecast down expecting a 25 percent drop in sales through the end of the year. The company attributed its downward revision to customers canceling orders to control inventory issues.

Giant Bicycle, one of the largest suppliers to the North American specialty channel, reports its October 2009 sales were 31 percent off same-month sales a year ago as customers canceled or postponed orders.

The inventory supply also indicates that retailers have sharply cut back orders, asking for just-in-time deliveries as they pick up closeouts and order more conservatively.

Still, all is not bleak in the world of cycling. “Our business is up over the last four months, but I think it is has more to do with us being a young company—six years old—and we are still on our growth curve,” said John Georger, Felt’s national sales manager.

Georger said Felt is running lean and he has not found retailers to be a hard sell while they wait for closeouts from larger brands. “Retailers floor relatively small numbers of our bikes, and we have had good sell-through this season.

“So we’ve been getting solid fill-in orders. But I can imagine in a few months when we bring in 2010 Ultegra product priced close to other brands closeout-priced 2009 Dura-Ace models, we could have a problem,” he said.

Bianchi national sales manager Jim Stevenson said, “We’ve seen steady road business. Sure it is down from its peak, but bikes are moving—that is, if they are below $3,000.”

Bianchi’s high-end road bikes come out of Italy. Stevenson said they fly in the bikes as they get orders. He admits it’s not the best way to do business, but on the flip side the U.S. company isn’t sitting on high-end road inventory.

Stevenson said smaller brands are facing price pressure as the majors offer closeout pricing and that will impact margins. But Bianchi has several key niches. “We should keep a good margin on these bikes, plus our business with dealers on them is great. The Milano remains a big part of business,” he said.

Other highlights from the BPSA’s report:

• Juvenile sales were down 15 percent while sales of BMX and sidewalk bikes fell more than 20 percent.
• Sales of 26-inch cruiser and comfort bikes dropped 19 percent.
• Sales of 26-inch front-suspension mountain bikes dipped 11 percent with shipments of full-suspension bikes falling 16 percent.
• Twenty-four-inch models posted a percent increase.

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