Sante Fe, US
As the year winds down, looking toward 2023 is a daunting task whether as a manufacturer, supplier or retailer.
So let’s take a stab at some prognostications and sort out the macro-economic headwinds and the downdrafts wafting through retail. Nonetheless, now is the time to rewrite and rethink forecasts for next year.
On the global front, uncertainty is the byword and avoiding or neatly threading the needle of international tensions and continuing economic disruptions is a task for which the faint-hearted need not apply. Here’s my macroeconomic picks for 2023.
- If the Ukraine war continues apace into the new year, and if the Western alliance of Ukraine’s financial and armament suppliers—primarily the US and Europe—maintain their support, then expect continued high inflation and trade disruption. This will impact most consumers at one level or another and that will impact bicycle and accessory sales. A downturn in the price of oil may offer little respite. Consumer worry is never good for commerce.
- China remains a global factory floor for much of the world’s economy, at least for now. But as the US and Europe reassess trade ties with a Xi Jinping-led autocracy, expect further pressure on prices as manufacturers and suppliers move supply chains to lessen their exposure to a more hostile Chinese approach to the global economy. Covid lockdowns in China continue even as the Chinese economy deflates and Xi Jinping’s incessant saber-rattling over Taiwan unnerves world leaders. And lest we forget, Taiwan remains the world’s key supplier of high-quality bikes, e-bikes and accessories.
- Inflation is unlikely to subside to pre-pandemic levels even as supply chains recover and ports-of-entry enjoy a return to near normal operation. Several culprits will keep inflation at high levels: Higher than normal government subsidies that supported assistance programs during the pandemic; attempts to bring down government deficits as a result of generous pandemic spending (US and England are prime examples); and higher costs for food and energy throughout Europe, Africa, the Middle East and the US thanks mostly to Putin’s War. But most important? The cost of money as interest rates rise and stay high.
- Climate. Talk about the Great Uncertainty. For those paying attention to weather trends, Florida’s two late fall hurricanes put a dent in bicycle sales there, as does wildfires, floods, and temperatures that soar to record highs or record lows. The industry – though few seem to plan for a weather event – is as much dependent on stable weather as it is on product prices that don’t send consumers fleeing to less costly pursuits. But the phrase ‘stable weather’ is a hope as opposed to a rock-solid strategy to manage through the unpredictable tirades of an angry Mother Nature.
“Way too many manufacturers went whole hog to increase production in hopes of selling more bicycles into a very hot market.”
On the retail front, I suspect 2023 is going to be tough year all around. We can blame some of the retail turmoil on the pandemic, as stores were emptied of anything with two wheels and crank.
On the other hand, way too many manufacturers – Shimano and a few other excepted – went whole hog to increase production in hopes of selling more bicycles into a very hot market. Supply chain disruption put a damper on that.
Still, there were way too many executives who thought the ‘pandemic boom’ would continue on and on and on. It’s always dangerous to believe your own hype.
At the moment, my email system is clogged with Black Friday sales for bikes and accessories. Pick a brand, any brand, and it’s being pitched at a minimum discount of 25%, with many touting a buy-now and take 60% off MSRP. Rudy Project is a great example. Along with many others.
My favorite, which bodes ill for retail, comes from Bicycle World in Jefferson, Louisiana, with its offer of “take 12 interest-free months to pay”. I also get emails from FrameWork Cycle & Fitness, a prominent Sydney dealer. The latest offered 50% off on Apollo, EVO, Free Agent, Radio and Seven Peaks. Mostly low-end models to be sure. Still, not to be out done, I get a mix of reduced price offers from Canyon, Specialized, Trek and many others. Too much inventory chasing too few sales.
Low-to-mid-priced bikes are generally in plentiful supply. And not selling well. At the high end, here’s the problem. When demand was at its highest, dealers couldn’t get enough bikes – particularly high-end 29er mountain bikes as well as e-MTBs. Frames in Taiwan were either waiting for key components or they were stashed in containers waiting to find a berth at West Coast ports. And then they began to flood into the market in late summer, missing the key spring sales season.
Now they are starting to stack up at retail, suppliers are demanding payment, more are on the water, and it’s November – the traditional start to a slowdown in bicycle sales. Winter does that.
As high-end inventory stacks up, the question for which there is no clear cut answer is: Will consumers find the cash to buy high-end bikes – think e-MTBs, starting price around $3,500 US, with well-spec’d models pushing $7,000 to $8,000 US and higher. Yes, there’s a ton of new technology in those bikes but slapping an $8,000 bill on a credit card now carrying much higher interest rates … ? Think about it! Many suppliers offer financing and some retailers do as well, but as the US faces a recession, as global tensions continue to spark unease, as inflation eats away at the purchase price of normal household goods, and transportation costs remain high, consumers – no matter how much they want that Specialized Levo – will think twice.
All this, of course, bodes concern for retail in general. And all of the above will have a knock-on effect as Trek, Specialized and Pon review their strategy of owning and operating scores of retail outlets. Financing these purchases is now more difficult. ‘Easy money’ days, when private capital flowed like the Mississippi River, are over. And independent IBDs, some of whom hoped to sell out to one of the Big Three, are fast re-thinking that exit plan.
On the other hand, it could be argued that as some IBDs fold, Specialized, Trek and Pon could scoop up some real bargains and further consolidate retail. Sounds good until these companies find how difficult it is to manage staff, pay competitive wages and deal with staff turnover. Good mechanics, given the complexity of today’s bikes, are worth their weight in gold.