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Vosper: What you gonna do when the boom goes bust?

Published April 12, 2021

By Rick Vosper

Business is good, retailers tell me. And it’d be even better if we could get some darn product to sell.

It’s no secret that we’re in a supply-driven market for the first time in a decade. The boom — or, depending on who you talk to, the boomlet or blip or sales surge — is on. But how long will it last? And what happens when boom turns to bust?

My mentor and colleague Jay Townley suggests that the current seller’s market is not a true bike boom by historic standards. In his excellent BRAIN editorial last week, Townley suggests that while there’s plenty of demand, the supply of bikes (and by extension, all other categories of cycling product) has not yet risen beyond historic levels. The piece provides a lot of excellent background on the Bike Boom of the early ‘70s and why the current seller’s market doesn’t resemble a boom as much as a temporary blip.

Townley is absolutely correct in terms of product imports. But while he acknowledges an increase in demand, most of his position is based on a shortage of supply which, at current production rates, won’t catch up until sometime in 2022 … just as the current demand wave may have crested and begun falling.

Assessing demand moving forward

Product availability aside, what seems to be sure is there were a lot of people who wanted to buy bikes and equipment in 2020, and a lot of that demand went unfilled. We can’t quantify it, but retailers and suppliers alike confirm it’s there.

But perceived demand can be a tricky thing. When a prospective customer can’t get the bike (or tire or helmet) they need at one shop, they’re likely to call every other shop in town looking for that item. Assuming there are ten shops in town, each dealer gets ten times the number of requests as there are actual buying customers. And every one of those retailers is likely to place an order for an additional unit. Or maybe more, just to be sure. Because there’s so much “demand” out there.

What I do know is that every bike “boom” in the past 50 years — from ten-speeds to rigid mountain bikes to suspension to road bikes to 29 and 27.5-inch wheels — has been followed, sooner or later, by a bike bust. And, in every one of those cases, nobody saw it coming.

Maybe a better way to look at it is through the service side of the business. A customer bringing a bike, any bike, in for service is a customer who intends to ride that bike. Sure, if shop A has a one-month backlog on service, the frustrated customer may call shops B, C, and so forth looking for better service availability. But only one service ticket actually gets written up and fulfilled.

I did an informal poll of retailers on the Cycling Industry Facebook page, which gathered 43 responses in less than 24 hours. Of the dealers who responded, 83.7% said their service business had increased by at least 40% in the last 12 months compared to the previous year. Nearly half (48.8%) reported a service increase of 50% or more.

That’s not a scientific-grade poll by any means, but it does give a pretty strong indicator of a robust increase in consumer interest in riding bikes versus the pre-COVID market.

So what does this surge in demand mean in the long term? There seem to be two schools of thought. Some observers believe the COVID-driven market of 2020 represents a sea change in how Americans view — and will continue to view — cycling. Even better, this increase will continue into the foreseeable future, representing a fundamental shift in the two-wheeled zeitgeist.

Others, including Jay Townley, believe that as the pandemic winds down and Americans get back to their pre-COVID lives, the demand for bicycles will wane. I must confess I’m inclined to this position myself, even if I hope I’m wrong.

Other viewpoints, including those discussed in this BRAIN article by Steve Frothingham, favor a “soft landing” outcome based on thoughtful response to key performance indicators.

The thing is, I don’t know. And neither does anyone else. But what I do know is that every bike boom or mini-boom in the past 50 years — from ten-speeds to rigid mountain bikes to suspension to road bikes to 29 and 27.5-inch wheels — has been followed, sooner or later, by a bike bust with a years-long product glut.

And, in every one of those cases, nobody saw the bust coming, KPIs or no.

When the embro hits the air conditioning

Regardless of when it happens, what makes the coming bike bust different from the others is twofold. First, the supply chain is stretched out farther than it’s ever been in industry history. We’re up to 24 months and more, and in many cases, retailers have been coerced into providing firm, noncancellable orders spanning that length of time.

The near-decade 2010-2019 inventory glut was with historically average import levels. Now imagine what happens when factory orders are placed two years out with volumes two to three times what they have been historically.

Second and more troubling, this means that it’s dealers who will be left holding the bag when the crash comes. As I’ve pointed out repeatedly in this space, the current market situation has transferred almost all inventory risk onto bike shops.

When and if the bubble bursts, dealers’ showrooms will be stuffed full of product, while suppliers’ warehouses will still be relatively empty. This gives suppliers a huge buffer. Retailers, not so much. The inventory — and with it, the inventory risk — has already moved down the pipeline and onto the shop floor.

Welcome back to the era of season-long discounts

The industry seems to have already forgotten what it’s like to have a chronic oversupply of bikes, as we did every year without exception from the end of the Great Recession through 2019. That, as you’ll recall, was the weakest year for imports of adult-sized (20” and up) bikes since 1982. It’s also why the year-over-year import figures for 2020 look so good.

Prior to 2019, brands began discounting their products in March and didn’t let up until after Labor Day. The practice hurt bottom lines for suppliers and retailers alike, but there are not a lot of alternative options when you’re faced with a massive and chronic inventory surplus.

And that near-decade inventory glut was with historically average import levels, too. Now imagine what happens when factory orders are placed two years out and at volumes two to three times what they have been historically, and you begin to get a picture of what might happen when the crash comes.

Potentially, we’re in for the biggest product oversupply nightmare since the original bike boom went bust in 1974.

Topics associated with this article: Supply chain

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