Letter from America – November 2019

SANTA FE, New Mexico

If there’s anything that can be said about the U.S. bicycle industry, it’s that data on its performance as an economic cog in the national marketplace is a mixed bag of numbers. And, frankly, no one can say with any definitive authority whether the overall industry—whether among dealers or suppliers—is growing, declining or in a holding pattern.

But let me go out on a limb and speculate that overall growth and profitability among storefront dealers is essentially static. Some, of course, are doing extremely well; others not so much. But that could be said about any brick-and-mortar business,

Still, as an industry, there’s no consensus on even the most fundamental of questions: How many retail storefronts (IBDs) are selling bikes and accessories to America’s 327.2 million people? Estimates range from 3,200 or so to as high as 7,000 or more. I suspect the number is somewhere in between. But having such a tenuous grasp on such an important number speaks volumes about the overall data vital to any industry.

The Bicycle Products Supplier Association (BPSA) has estimated total sales at $6.2 billion (A$9 billion) annually. The Outdoor Industry Association (OIA) suggested that the total economic impact of cycling in the U.S. market, driven by bicycle tourism, was $88 billion ($A128 billion). Still, questions abound.

Another case in point, there are no reasonable guesstimates as to the dollar volume of internet sales of bicycles, parts and accessories sold by U.S. online retailers nor the volume sold to U.S. consumers from operators overseas. Think Wiggle.

Here’s mine—a lot. That’s not exactly a finding upon which to start a business and leap into the marketplace with your life savings.

Anecdotally, dealers tell me that some items, tires for example, once a high-margin staple, have now become a mainstay on the web. Suppliers have created so many niches for tire shapes and sizes that no dealer can stock a sufficient spread to satisfy their local market. Road, gravel, mountain, touring and commuter tires of all makes and sizes led to web operations like biketiresdirect.com, a go-to site for confused consumers.

As for how dealers are performing financially, the last serious and costly ($30,000 plus (A$43,800) effort to quantify retail profitability, productivity, personnel, inventory turns, financial management, liquidity, margins and the list goes on was commissioned by the National Bicycle Dealers Association (NBDA) and released in 2015.

In today’s retail vortex, the specific findings in the NBDA’s Cost of Doing Business survey, now four years old, can only be viewed with a skeptical eye. Nonetheless, the survey, which can still be purchased from the NBDA for $150 (A$220), offers an excellent road map for any organization willing to put up the cash to replicate it.

Over the years, some trend lines have remained relatively stable. The U.S. continues to import—on average—about 15 million units a year and most had been coming from China to service the mass market. Of that number, approximately 2.5 to 3 million units were sold through traditional IBDs and reflected Taiwan’s role as a premium manufacturer. That figure hasn’t changed much, up or down, for 25 years. But it’s too early to calculate the impact that the Trump Tariff Regime will have on those future numbers—especially e-bikes.

If there is a bright spot at the moment, it is e-bikes. But how bright that spot may be for brick-and-mortar is a question mark. Twenty years ago, estimates were that as few as 2,000 e-bikes were sold annually in the U.S. It remained a tiny part of the market for years. It’s fair to say that by 2017 e-bikes emerged, finally, as a category to be reckoned with.,

But, as you might suspect, sales data, market channel data (IBD, mass, online) is woefully thin or completely missing in action. Nonetheless, the Light Electric Vehicle Association (LEVA) estimated last year that more than 263,000 e-bikes were sold to U.S. consumers. That number, which is hardly definitive, will certainly be eclipsed this year. The BPSA estimated in June that e-bike sales at the time comprised about 4.2 percent of overall wholesale sales to IBDs.

Complicating the e-bike market in terms of quantifiable data are companies like Rad Power and perhaps the most successful franchise business in the industry, Pedego. Rad Power, an internet company, has rocketed in size and reach. Pedego, on the other hand, primarily a brick-and-mortar operation, has more than 100 stores in the U.S.

Both are taking a bite out of traditional brands like Trek, Specialized, Giant and others. And then there are dozens of internet operations selling e-bikes consumer direct. Even Walmart sells a 26-inch e-mountain bike for $620 (A$905) online! At this point it’s anyone’s guess as to how the market will shakeout over the next three to five years.

Answering fundamental questions such as how much to invest in capital improvements, how much and what kind of inventory should an IBD carry, employee hiring, and future profitability make industry expansion and growth difficult at best.

My takeaway from all this is simple: Whether you’re a dealer, an online reseller, a traditional brand or a distributor, it’s difficult if not impossible to make informed decisions on investment without reliable data. It’s akin to wetting your finger, sticking it straight up, and try to gauge which way the wind is blowing.