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HomeFeaturesOpinionIf You Read Nothing Else Read This! Bike Supply… The Sequel

If You Read Nothing Else Read This! Bike Supply… The Sequel

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From conversations with various industry members over recent weeks it seems that, after a brief respite, bicycle stock supplies are tightening again – just as we lead into our busy summer season, potentially leading to a bike shortage in Australia.

Right now, some of the biggest questions on most Australian bicycle retailers’ minds include, ‘When is my next bike shipment actually going to arrive at my door? ‘Am I going to have enough stock for the summer?’ and ‘When are things going to get back to normal?’

In this article, I’m going to take a fairly deep dive into the current and likely future situation, both locally and globally.

I’m going to make predictions about when and how the current boom will end, what will happen to bicycle retailers over the next few seasons and conclude with recommendations about what retailers should be considering now.

I’m in part basing these predictions upon phone interviews I’ve just completed with the CEOs of most of the major Australian / New Zealand bicycle wholesalers. I’d like to thank all of them for their valuable time and preparedness to share commercially sensitive information – none of which you’ll see in this article. Instead, I’ll talk in broad aggregate terms and won’t name any brands or sources, apart from three who have agreed to put some specific comments on the record.

You may be tempted to skim through and just read my predictions. Of course, you’re able to do that. But I respectfully suggest that you’d be far better off reading the entire article. And I make no apology for this being a lengthy article! Not only that, but I also suggest you read at least three other articles in conjunction with this one.

Why? Please wait a moment while I climb onto my soapbox…

Since I expanded from bicycle consumer media into bicycle trade media 26 years ago, I’ve consistently noticed that the more successful the bike shop, the more likely they are to read our articles. The same applies within each business. Most of our readers are the owners/managers, with readership levels trailing progressively downwards through each more junior staffing level.

One of my favourite sayings in business is, ‘The more you learn, the more you earn!’ In an industry as complex as ours, with all of the challenges that we currently face, I suggest that this has never been more true.

Now that I’ve got that off my chest, getting back down to business, the first article I suggest you read is one that many of you already read back in December 2020. It was entitled, ‘If You Read Nothing Else, Read This! My Predictions for 2021 Bike Supply’.

I’m not suggesting you read this just so that I can boast about how accurate it has proved to be, but because I’m planning not to re-visit that material in this sequel. Most of it is still relevant and will give you a good background refresher.

I also recommend these two articles about the current global shipping challenges and ongoing production challenges in Vietnam and more broadly, as they’re directly relevant to what follows.


Prediction:

The current boom will bust. Booms always do.


Capitalism is a delicate balance between fear and greed. Wholesalers have had to make huge bets, all the way out to 2024 because short supply has put the manufacturers in the unprecedented position of being able to demand forward orders not just one year ahead, but three.

Faced with the risks of both losing their place in the queue and losing market share, wholesalers have had little option but to bet big. At some stage, demand will subside. Supply will catch up, then overtake demand.

The key questions are, ‘When will the boom, bust?’ and ‘Will it be a hard or soft landing?’.

My specific predictions in relation to these two questions are: ‘Starting from the fourth quarter of the 2022/23 financial year, that is, April-June 2023’ and ‘Soft – but not uniformly so’.

Below are eight reasons, more accurately sets of reasons, why I’ve made these predictions. I don’t pretend to be smart enough to put them in order of importance. You can make your own judgement about that. I’m still feeling a little faint from sticking my neck out and making such specific predictions.

1) We have a big shortfall to make up

Taking all the Australian wholesalers’ comments about their stock levels into account, I estimate that in total right now (late September 2021), Australia’s wholesalers have about 40% of the bicycle stock that they’d usually have or would currently like to have at this time of the year.

When combined with retailer bike shortages, which are smaller in percentage terms, I think there’s still at least a 250,000 unit shortfall in the Australian system. Based upon last financial year’s 1.69 million import numbers, which I predict will bottom out at about 1.3 million when the boom busts, that’s about 10 or 11 weeks’ turnover.

Wholesalers and retailers will know when stocks are replenishing, so we all have an ‘early warning system’ to start turning down the tap. That’s easier said than done with all those long range pre-orders placed with factories, not to mention competitive pressures for market share, but there will be at least some flexibility in the supply chain.

2) Some brands are pre-sold until the end of 2023

In my conversations with wholesalers, I learnt of several significant bike brands that have pre-sold all of their Australian allocations through to the end of 2022 and in some cases, the end of 2023.

Other wholesalers haven’t pushed dealer pre-sales quite so hard but spoke about bike supply being their constraining factor right through 2022 and in some cases into 2023.

Many have stock ‘on the water’ right now or are ready to leave the factories soon. But when asked how much of this stock was pre-sold, the most common answer was 100% with others saying 80%, 90%, but some less. When asked which categories are tighter and which have better supply, it appears low-end adult bikes, BMX and kids bikes seem to be more plentiful than high-end bikes.

Some brands have good warehouse stock and are selling to dealers in whatever large or small quantity they require, ex-warehouse, just like the good old days! Once the price is over $2,000, there seem to be shortages across the board, including road, gravel, full suspension MTB and all categories of e-bike. Because of this, just about every brand is still working on an allocation system for their higher-end bikes with no end date in sight as yet.

Although most brands have had recent price increases of 5% to 10% and some are considering further increases, particularly depending upon the freight situation, overall, considering the shortages of raw materials, supply constraints and huge demand, price rises have been surprisingly modest so far and have not dampened demand.

3) Production capacity will remain constrained

If you read my Vietnam shutdown article, you’ll notice that, at the time of writing, Vietnam was only 6% fully vaccinated. Although China and Taiwan are our main sources of complete bikes, other countries are also important suppliers, if not of complete bikes, then of components. Many of these are poorer nations where vaccination rates are low. For example, the Philippines is currently at 16%, as is Indonesia. And some of these poorer countries are mainly using the Chinese vaccines, which may or may not be as effective… depending upon which news source you chose to believe.

As well as making bicycle components within each country, these countries are also traditional sources of ‘guest workers’ that Taiwanese and Chinese bicycle factories usually rely upon to work in their factories for a year or so at a time. This practice has been severely disrupted by covid.

Both of these factors will mean that until all countries in the region are fully vaccinated, it could negatively impact bicycle supply for another year or more.

Bicycle component factories are complex
These days bicycle manufacture is a complex with many processes done in clean rooms such as this one that makes RockShox suspension components in Taiwan. It takes time to build new factories of this complexity.

4) Shipping will take time to return to normal

It will take time for shipping prices to drop to their previous levels. I go into greater detail in this article covering the current global shipping crisis. There is still direct disruption at various ports when workers catch covid and ports have to be shut down or at least restricted.

There are also vast numbers of empty containers that need to be transported back to the manufacturing sources in Asia and that won’t fully happen until prices drop and sailings increase.

5) The ‘new normal’ bicycle demand will be higher than the ‘old normal’

Here are some reasons why:

Not every new rider will banish their bike to the shed

Over the past 18 months of covid in Australia, many people have experienced cycling either for the first time ever or the first time in many years, perhaps since they were a child.

A lot of them loved it. Even when we return to the ‘new normal’, a significant proportion of these people will want to keep riding. This will mean more bike servicing, more bike shop visits and, when some decide to upgrade, more sales.

E-bikes are still on a growth trajectory

E-bike technology is improving quickly, so there will be more incentive for customers, especially enthusiasts, to upgrade every few years as motors get smaller and lighter, batteries get bigger capacities and so on.

Recreational cycling will continue to grow

Take a look at the sixth chart in this article I recently wrote for our sister newsletter, Micromobility Report. It’s entitled Cycling Participation By Purpose. You’ll see that 82.4% of Australian cyclists say they do so for recreation and only 34.5% for transport. (The chart’s appearance is slightly deceptive because the baseline is not at 0%).

Recreation drives Australia’s bicycle market and there are multiple tailwinds that will continue to blow recreational cycling along. Some of these include: an unprecedented level of investment in new MTB trails and parks, the same for rail-trails, gravel bikes are still in their initial growth phase, the road niche remains strong.

Utility cycling will also grow

Partly because it’s starting from such a low base in Australia, I suspect transport (or ‘utility’) cycling will grow even faster than recreational cycling.

Tailwinds blowing this sector along include: greater investment in cycle paths (still with huge scope for more), the gradual lowering of vehicle speed limits in cities, new technology and new bike categories, spin-offs from the growth of bicycle and scooter share schemes, where many new users end up buying their own bike or scooter.

Finally, another tailwind for utility cycling is the small detail of global warming. Gradually, incrementally, even Australian politicians are realising that this is an issue that will require action. Eventually, especially if our industry is proactive, they might discover that investing in cycling and active transport gives great benefits at relatively low cost. Ebike sales may already be booming in Australia but in 2020 e-bike sales per head of population, measured in units, were 800% higher than ours in Germany and 1,600% higher in the Netherlands. In other words, there’s plenty of potential upside if we ever get our act together.

Election time!

Finally, if the current opinion polls are to be believed – and we all know how wrong they were last time, then we’ll be in for a change of government at the next federal election. It’s due no later than May 2022, but some insiders tip it will be held in March 2022.

Before the previous election, then Shadow Minister for Transport and now Leader of the Opposition, Anthony Albanese, held a press conference where he promised $250 million for cycling infrastructure to be matched dollar for dollar by local governments. The current and traditional federal funding figure is closer to zero.

Politicians’ promises are often about as reliable as opinion polls, so there are multiple ‘ifs’ in this equation, but if we end up with half a billion or more of additional infrastructure spending, admittedly spread over an extended period, that will ultimately drive bike industry sales.

Most bike retailers have stock, but not the mix of bikes that they want
Right now, many bike shops are full of stock, but often they don’t have the mix of bikes that they’d like to best meet customer demand.

6) Competing markets will rebound – eventually

When you think of all the things Australians have not been able to do during the pandemic and how much they normally spend on these activities, it’s little wonder cycling has boomed.

The biggest single example is travel. Pre-covid Australians were spending just over $40 billion per year on outbound international travel. There’s certainly pent up demand, but it will take a while for governments around the world to remove restrictions, especially the Australian government that has been talking mid-2022, but of course, the situation is ‘fluid’.

Once the floodgates are open, there will be less money for bikes and more distractions including other sports, concerts, eating out and many others.  

7) There’s pent-up demand for cycling events

Most major cycling events, from the Tour Down Under through to the biggest mass participation rides, have been cancelled for at least one year and in some cases, two in a row.

These events are drivers of bike industry activity. Just ask any Melbourne bike shop how busy their workshop is in the week or two prior to Around the Bay in a Day.

When all of these events finally get back underway by the second half of 2022, it will help re-build the buzz around cycling. Having the UCI Road Cycling World Championships in Australia in September 2022 won’t hurt either.

8) Returning international students will help with low-end bicycle demand

Pre-covid, international students were our third largest foreign income earner after mining and agriculture. According to Austrade, a staggering 628,548 students came here in 2019. According to the previous Federal Minister for Education Dan Tehan, in the 2018/19 financial year alone they spent $37.6 billion. Most of that would have been on food, accommodation and tuition fees, but even a fraction of one percent for bikes is significant. Budget brands like Reid have built their business on selling low-cost bikes to students.

International students might not be back in force in time for the start of the 2022 academic year but hopefully, numbers will quickly build. Most of the major universities are near city centres or in busy precincts that are relatively expensive to park cars but relatively bicycle friendly. Many international students don’t own a car or even have a licence, so they’re more reliant on cycling and public transport, making them a strong market for the bike industry.


Prediction:

Only some bike shops will win big,
but most will at least survive.


Being bike industry members, most of us have at least some knowledge of road racing and in many cases, first-hand experience.

Most road races are won in one of two ways, a breakaway or a bunch sprint. Both methods get the same result, a win. Which strategy you chose depends upon a myriad of factors, such as the course, the competition and your own strengths and weaknesses.

It’s the same for bike shops. Since early 2020 when covid suddenly induced a demand surge followed by supply shortages I see two ways for shops to win.

First, you could be extremely closely aligned to a strong wholesaler. The advantage of this is that you don’t need to stock up quite as much or spend hours hunting among suppliers for stock. The disadvantage is that all your eggs are in that supplier’s basket. You’re totally reliant on that supplier delivering the goods, just like a bunch sprinter who is totally reliant on his team catching the break before the finish line.

Alternatively, you need to break away and have a wide range of bike suppliers, at least half a dozen… and deep pockets. The advantage of this tactic is that you’re not totally reliant on any one wholesaler. The disadvantage is that you’ll need to stock up, because when stock is short, it’s understandable that the wholesalers are going to look after their totally dependent ‘core customers’ before you.

Either of these positions is better than the rider in ‘no-man’s land’. They’ve tried and failed to catch the break, so they’re not got going to win that way, but unless they swallow their pride, sit up and wait for the bunch, they’ll be so depleted that they probably won’t win a bunch sprint either. These are the shops with only two or three suppliers. They’re not getting the loyalty benefits of jumping onto one of the major wholesalers’ teams, but they don’t have enough diversification to fully mitigate supply shortage risk.

Shimano is a dominant bicycle component manufacturer
Shimano’s global head office in Japan – being the dominant market leader in mid to high level components, Shimano’s level of production will be a key determinant of future bicycle supply. Photo credit: Shimano

If you’re one of this third group of retailers, don’t despair! Unlike the predictions of some who I’ve spoken to, I don’t think that the current challenges are going to result in a large number of retailers going out of business.

Here are seven reasons why even shops with severe shortages of bikes will probably at least still survive through the current challenges.

  1. Demand for repairs will remain strong. Provided you’ve got a reasonable workshop and your rent and other overheads are not too high, this will help.
  2. Supply of P&A, although challenging, is not quite as tight as bikes, due to the wider range of alternative suppliers.
  3. We’re seeing less discounting of bikes right now than has been the case for decades. And so it should be, given that demand exceeds supply in most categories. This means that even if you’re under supplied, you should at least make full margin on the bikes you can get.
  4. With low stock levels in your shop come faster stock turns. You’re getting a better rate of return on your invested capital, albeit at lower volumes than you’d like.
  5. Despite all of the challenges over the past year, we did just see a record number of bikes imported, 1.69 million for 2020/21 compared to 1.17 million the previous year, an all-time record and a 520,000 increase. Even though we could have sold way more if we’d had more of the right bikes, most shops, even those limping from one delivery to the next, have still seen good bike sales by historical standards.
  6. Not all bikes will be scarce. Based upon wholesaler feedback, kids bikes and lower end adult bikes are likely to be quite widely available this summer.
  7. We might even take some market share back from K-Mart – for now. This single retailer possibly sells more bikes than all IBDs combined. Certainly, if you add all the other mass merchants and the big box sector (Anaconda, Decathlon etc), it’s more than 50% of the market. Unconfirmed reports suggest that just like IBDs, K-mart is also struggling to get full bike supply. Plus, freight prices are going through the roof. You can only fit about the same number of bikes in a container. Whether they’re the cheapest or the dearest – the cartons are roughly the same volume. So expensive shipping is going to hurt the cheapest bikes most. K-Mart is either going to have raise prices by the biggest percentage or wear losses on every sale. It will be of no benefit to the IBDs if K-Mart just wears the losses. Unfortunately, I have no idea what they’ll actually do this summer season.

“Focus upon what you can control.
Work on cashflow planning.
Know your inventory.
Do careful forecasting.
These things will set you up for another season of what looks like to be really good demand.”

Jason Pye, Trek Australia

What Should You Do Now?

Here’s wise advice from three of our bicycle industry leaders.

Jamie Walsh from Global Fitness & Leisure suggested, “This is the time for the industry to grow its profitability. I don’t understand the mentality of dealers who aren’t taking a step back right now and looking at their business.

“A more profitable business is more sought after. If you want to sell your business, there’s something to sell. People will want to buy it because you’re making money. It’s a business, not a bloody job that’s just giving you a wage to pay your rent!”

Graeme Moffett from Pon.Bike Australia recommended, “I think the number one thing retailers can do is manage cash. Cash is king. It’s wonderful to go to your accountant at the end of the year and be told that you’ve made a profit, but if you haven’t got cash in the bank and you can’t pay your bills – that’s a problem.

“The second thing they need to do is invest in their business and at the moment, that means investing in stock.

“The third part is understanding the value of that stock they’ve invested in. There is so little available stock in the market, so hold onto the bike and the value of that bike. If someone this week offers you something below what it’s worth, hold on. You will sell it next week or the week after at its full value. Seeing the full value of it will drive your cashflow position.

“For some retailers who need it, look at some sort of short term cash facility whether it be an overdraft etc, but money is cheap at the moment. If you are able to get a short term facility to see you through this period where you have to invest in stock, the return on investment is going to be enormous at the moment.”

Jason Pye from Trek Bicycles Australia said, “Focus upon what you can control. Spend the time to slow down a little bit now, to ultimately speed up. Work on cashflow planning. Know your inventory. Do careful forecasting. These things will set you up for another season of what looks like to be really good demand.”

What Will Happen Next?

Here’s a summary of my predictions, with a little more detail added.

The current bike boom will bust, it’s only a question of when. I’m predicting the final quarter of the 2022/23 financial year, that is April-June 2023. But it will be a soft landing, with variations between categories. Evidence of the bust will include reduced demand, overstocks at both the wholesale and retail levels and the return of widespread discounting.

After the bust, I think the new floor for annual bike imports will be about 1.3 million, or about 150,000 higher than the most recent floor of 2018/19.

Despite the predictions of some, I don’t think we’ll see a reduction in the number of bike shops. A few will close but others will take their place. But we will see a widening of the gap. Some shops will emerge from this boom larger and stronger after over two years of record profits by the time the boom has busted. Others will barely limp through.

If you’re a retailer, which of these camps you fall into is ultimately up to you. Despite the unprecedented changes and ongoing challenges, your fate remains in your own hands.

Join the Conversation:

Fair predictions or total rubbish! What do you think? Let us know below.

JOIN THE CONVERSATION:

  1. Excellent articles Phil. A must read for us all. I run a small shop in a Regional Centre with minimal suppliers. Trade is up and down like a yoyo- as per usual… I’m trying to stock up on everyday items in order to maximise profits on the ever decreasing lines which do sell thru quickly. Quality repairs are keeping the door open, with the occasional bike sale. I see e-bikes as a huge benefit sales and repair wise. Always enjoyed your seminars and your articles are food for thought! Thanks Very Much! Davo

  2. Well written Phil, i have gone wide on brand holding and agree i have gone heavy on stock to ride out the lows of stock supply… still figuring that method out… however our customer catch is far far wider 200kms is not uncommon… people are travelling further and we are pepnetrating markets that are not serviced by traditional bike shops… we have been recently disappointed to see 4 stores be bought by a major supplier and what this has done to supply, essentially added a 12 month jump in stock availability… if you are not in the que you are out… i wish all stores the best and hope we all have a good season.

  3. A very insightful article. As always I think you are on the money. I can say that personally, I have been edging toward a single supplier. I recently signed on with Sheppards Myride store, having been with them for over 20yrs the timing is right to have a good supply and carry large backup stocks.
    P&A will be a little easier to obtain and perhaps we may become similar to surf shops that sell mostly clothing over surfboards.

  4. Excellent work and great insights Phil. I invested in more storage and loaded up after some of your previous articles. Rather than ramping up purchasing through September to December I did it from March till now. Stock is drying up now but so are my future outstanding invoices so cash flow through summer looks promising.
    Keep up the great work.

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