Letter from America: November 2020

By Marc Sani

As I write this, America is but 10 days away from what many argue is the most consequential presidential election since Abraham Lincoln’s victory in 1860. Let the historians debate that point. But what offers no debate is the COVID-19 pandemic­­––current U.S. case levels are at record highs­­––with no end in sight; the ongoing economic recession that some economists call a mini-depression in disguise; topped by a bitter race for the presidency ending, more or less, on Nov. 3. Talk about a trifecta!

Yet as all this unfolds America’s bicycle industry finds itself in a spot with few parallels in recent memory. Yes, there was the road bike boom in the 1970s and the mountain bike boom in the late 1980s and 1990s, which then gave way to a certain staleness in growth and participation. At least that’s where the industry found itself pre-pandemic.

Lackluster growth. Great product but a nagging lack of desire as consumers seemed to embrace digital relaxation in all its forms. It should be noted, though, that e-bikes were generating some buzz—they were novel, offered some digital razzle-dazzle, and were a blast to ride. But the number of units sold was small. E-bike sales early on had that ‘hockey stick’ feel once percentages were tallied and hopes arose of a new category boom. And so it appears today.

No one wants to be stuck with inventory just in case ‘bikemania’ goes the way of ‘tulipmania‘

But here we are, eight months into the pandemic and bicycles of all types, sizes and price points have flown out the doors of established IBDs, sporting goods stores and mass merchants. Floors are bare. Sales of used bikes has never been better. Repairs have skyrocketed. Bikes not seen by dealers since the 1970s are as common as houseflies. Spare parts remain scarce and Frankenstein engineering is the new fad among skilled mechanics.

Some dealers are even hoarding rubber as they take tires and tubes off their shelves, saving them for more lucrative repair work.

And in a mind-churning sign of the changing times, the New York Times reports that bike shorts—that oft ridiculed thigh-length piece of black Spandex (lycra)—is now a fashion statement. ‘Depending upon whom you ask, bike shorts are an enlightened choice for the times or a tumble into a life of permanent sartorial laziness. Either way they work,’ so sayeth the Times in a lengthy article on the fashion implications of cycling shorts. Amusing.

And then there’s this from a recent article in the Wall Street Journal on the fortunes of Peloton. “If there is a winner in Corporate America’s grueling Tour de Pandemic, Peloton would be it,” wrote John D. Stoll. High-tone stationary bikes live-streaming lessons in pain are part of the pandemic fashion buzz.

Peloton saw a 172 percent increase in revenue in the second quarter and has a US$230 million (A$322 million) backlog for more than 100,000 units. It’s current stock market valuation is $38 billion (A$53.2 billion), a sum that outpaces Ford Motor. Co., Stoll reports. Now that’s just plain nuts.

Sure, Peloton has a bright future, but for those of you who recall that class in Economics 101, Peloton’s valuation should remind us of the Dutch Tulip Bulb Bubble—one of the most studied market bubbles of all time. When so-called ‘tulipmania’ crashed in the mid 1600s investors found suicide a suitable remedy.

Meanwhile, a U.S. venture capital firm stuffed US$450 million (A$630 million) into Zwift, an online cycling app with hopes to finance stationary bike sales in a semi-matchup with Peloton. Zwift has an estimated market cap of US$1 billion (A$1.4billion) or so. Mull that over Trek and Specialized. And Canyon, a pioneering online seller, could fetch as much as $592 million (A$828 million) as it looks for money to expand.

Still, despite the ongoing froth in all things cycling, thoughtful dealers are turning to second and third tier suppliers, worried about whether tier-one suppliers can meet demand—mostly for models below US$1,500 (A$2,100) where the meat of the market seems to lie. That’s good news.

Next questions…

• How many units should IBDs order?
• Will they be delivered when they need them?
• Where should IBDs position themselves in regards to the upper end of the market?
• What will be the demand longer term for US$4,000+ (A$5,600+) mountain bikes and $5,000+ (A$7,000+) e-bikes?
• And, more importantly, how long will a surging market last?

No one wants to be stuck with inventory just in case ‘bikemania’ goes the way of ‘tulipmania.’

Manufacturers, now working overtime, are hesitant to expand their factories, rightfully concerned that this cycling boom could fall off an economic cliff as the pandemic eats away like acid at consumer spending power. Supply chain disruption is ongoing and ocean freight costs are rising.

E-bikes, meanwhile, demand more factory time, a reliable battery supply chain, and beefier components including rubber. All of which dents that price-point market for standard bikes as factories and suppliers look to where the money is—at the moment.

And on another front, new e-bike brands are popping up like tulips in the spring. Rad Power Bikes, Aventon and others are nipping away at traditional big-name suppliers with online strategies and highly competitive pricing.

All this is happening at a speed that the industry has never witnessed. And I’ve only touched the surface. It’s a unique moment in cycling history, which makes this a fascinating yet fraught time as the industry attempts to wend its way through a future as uncertain as that mania over tulips.