How Accurate Were Our Covid Bike Industry Predictions?

During the Covid pandemic I wrote two articles predicting what would happen in the future of the bike industry as a result of Covid’s ‘big disruption’.

The first one was posted on 17th December 2020 and the follow-up was posted on 23rd September 2021.

There’s a strong chance you might have read either or both of these articles, because they were two of our best ever read articles in The Latz Report.

In the second of these two articles, I made two headline predictions plus eight others.
It’s easy to make predictions, but how accurate have they turned out to be?
Time to get out the blowtorch and see if those predictions can stand the heat!

Big Prediction #1

“The current boom will bust. Booms always do.”

Accurate?

Yes, painfully so!

This sounds like a very easy prediction to make. But when I wrote it in September 2021, we were in the middle of an unprecedented bike boom that had no end in sight.
Many bike industry members and bike media commentators were speculating that Covid level bike demand was the ‘new normal’. Australian wholesalers were making bold forward orders for 2023, 2024 and even 2025 production to secure their places in, what were at that time, very long queues at virtually every manufacturer’s front door.

I don’t think most bike industry members, including myself, fully anticipated how quickly the boom would turn into a bust. If we had better anticipated this, we would have turned off the pre-order and import taps sooner and harder than we did.

Big prediction #2

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

Accurate?

Yes… so far at least.

Everyone’s own experience is different but, broadly speaking, at the time of writing this in March 2023 we’re still only about six to nine months past the end of the boom.

We had about two years, from March 2020 to winter 2022, of record high sales, minimal discounting, booked-out workshops and, in many cases, lower stock holding costs.

“…much of their covid profit is tied up in the excess stock holdings that are now jamming their stores and warehouses.”

But many Australian bike businesses, both retail and wholesale, are already experiencing serious cashflow and profitability challenges.

The obvious question is: “Where did all that extra profit from the two boom years go?”

For those wholesalers and retailers who were able to cut their supplies early enough, hopefully they’ve put some extra coins into their piggy banks.

But in many cases, much of their Covid profit is tied up in the excess stock holdings that are now jamming their stores and warehouses.

The problem with that is, of course, now we’re in a discounting spiral; lower consumer demand at the same time as most retailers and wholesalers are trying to clear their excess stock. For the icing on the cake, add in the threat of looming new model year obsolescence that increases the need to clear current models before the new ones arrive during the second half of 2023.

The alternative is to hang on and hope consumer demand picks up soon – but that’s unlikely. And it costs a lot to fund all that excess stock … did anyone say ‘interest rate rises’?

With all these factors combined, it’s no surprise we’re currently in a discounting war. While they say ‘truth is the first casualty of war’, profit margins are the first victim of a discounting war.

At best, wholesalers and retailers are seeing their gross profit margins fall. At worst, they’re selling some stock at a loss, just to clear their space and recoup their cash.

So clearly the first part of the prediction is correct, but what about the second? Will most survive?

It’s too early to say, but so far not many stores have closed. In 33 years of bike media publishing, I’ve almost always heard dire predictions of ‘way too many wholesalers’, ‘a big cleanout of retailers this winter’ and so on. But it’s never happened.

As long as they can reduce their overheads to meet the market, bike shops have an ace up their sleeve that most specialty retailers lack – workshop cashflow. Workshops remain busy. It’s in part a legacy gift from Covid. Quite a lot of those half million plus extra bikes that were sold during Covid are still being ridden. They’re now needing servicing and repairs.

How Accurate Were the Other Eight Predictions?

Prediction 1

“We have a big shortfall to make up.”

Accurate?

Yes, but …

We did have a big shortfall to make up in September 2021. But it’s remarkable how quickly we went from undersupply to oversupply in most categories. The only few models and sectors currently still in slight short supply are generally related to component shortages, particularly of chips for e-bike battery control units and other electronic components.

Prediction 2

“Some brands are pre-sold until the end of 2023”

Accurate?

No

Sure, a few brands were pre-sold on paper until the end of 2023 and others until the end of 2022. But most of those presales evaporated like a mirage in the desert. That applied to both global manufacturers and Australian wholesalers. Many of their respective customers had pre-ordered from multiple suppliers as a form of insurance. Once the cancellations started coming, we saw a domino effect.

Prediction 3

“Production capacity will remain constrained.”

Accurate?

Partly

To give a more complete context, I was saying that because of low Covid vaccination rates in the main Asian manufacturing companies, production capacity would remain constrained until the citizens of those countries were fully vaccinated.

I predicted the negative impact for ‘another year or more’ which meant up to about September 2022. Depending upon the product category and brand, some were still playing catch-up but most factories were transitioning into oversupply by then or soon after.

Prediction 4

“Shipping will take time to return to normal.”

Accurate?

Partly

Shipping is still not back to ‘normal’ but it’s a lot closer than it was. Shipping prices have dropped a long way from their stratospheric Covid peaks. But now with lower volumes of global trade across many industries, there’s a new challenge. Some global sea freight companies are reducing the frequency of vessels coming to Australia.

Prediction 5

“The ‘new normal’ bicycle demand will be higher than the ‘old normal’.”

Accurate?

Yes, but still too early to say conclusively.

Not withstanding the current discounting, most Australian bicycle retailers are reporting that their sales volumes are up on 2018 and 2019 figures. Let’s give it another year to see if they’re still up after prices stabilise.

Prediction 6

“Competing markets will rebound – eventually.”

Accurate?

Yes

It has taken a while for airlines to get back on their feet (or should that be ‘wings’?) and rebuild capacity. But now they’re booming again.

So is sport, theatre, concerts and all of the other entertainment options that were not competing with bikes during those lost lockup years.

They’re all strongly competing now, and taking in billions of dollars in revenue.

Prediction 7

“There’s pent-up demand for cycling events.”

Accurate?

Yes

Cycling events of all types – from the first Crankworx in Cairns, through to the UCI Road Cycling World Championships in Wollongong and the first full international Tour Down Under in three years – have attracted strong attendance and participation.

Prediction 8

“Returning international students will help with low-end bicycle demand.”

Accurate?

Partly

Recently I have heard stories from shops close to major universities that they’re noticing student demand for low-end bikes. But it’s nowhere near enough to make up for the drop-off in demand for this worst-hit sector of the adult bike market.

International student numbers have still not returned to pre-Covid levels. One more year should put that right.

The Final Scorecard?

This is like golf, where the player writes their own scorecard.

From 10 predictions, I’ve scored ‘Yes’ six times, some with qualifications, ‘No’ once and ‘Partly’ three times.

If you disagree with any of my assessments, please feel free to write a comment below.

Meanwhile, this will be the first of a series of opinion articles in which I look at the short, medium and long-term predictions for the Australian bicycle market in this post-Covid era. Stay tuned for the next exciting episode coming to a theatre near you!