“If you’re a bike shop without bikes you’re like a pub with no beer.”
If you own or work in a bike shop I would urge you to read this article. It might not make for happy reading, but hopefully it will help you get through 2021… at least a little better than those dealers who don’t read it!
As the sole specialist bicycle trade media person in Australia, I find myself in a unique and privileged position. Firstly, because I’m neutral like Switzerland, I have the opportunity to speak with every wholesaler and retailer, not just the importers or dealers of certain brands.
Secondly, I’m grateful that bicycle trade members are consistently generous with their time and candid with their comments, on the understanding that any information given ‘off the record’ remains that way.
That is why, in the following, fairly long article, you will not see any Australian bike trade member being directly quoted, nor any Australian company named. However, there’s a very strong chance that the information I’ve collated to write this article includes comments from at least some of your major suppliers.
Thanks to covid travel restrictions finally lifting, I’ve been able to take a few road trips lately and meet most of the major bike and P&A wholesalers face to face.
To summarise their hours of comments into a single paragraph: ‘If you thought supply was tight in the second half of 2020 then you ain’t seen nothin’ yet! 2021 will be tighter still, possibly for the entire year.’
I’ll start by going into more details as to how key industry members have reached this conclusion. Then I’ll finish by suggesting some things you can do about it to help steer your store through another challenging year.
Part One: What’s Happening Next?
As we all know, our collective bike industry covid story to date has been that after some initial uncertainty, demand for our products took off in March and stayed at full throttle, at least until about June or July for most dealers. Then a combination of winter and supply constraints starting to bite, saw things level off a little, but still at a much higher altitude than where we normally fly for each respective month.
There’s No Buffer Left
This leads to the first problem for 2021. Virtually all of the reserve stock that wholesalers usually hold so that retailers can order on demand, has been sold. During my road trips I’ve walked down empty aisles of warehouses that might normally hold 10,000 bikes with barely a few hundred. One company reported 107 bikes in stock compared to a usual holding of 18,000 bikes. Other smaller warehouses were completely empty with the next two or three shipments already fully pre-sold.
They’re using different allocation systems, but one way or another, every wholesaler is rationing bikes and those bikes that land are coming in and going straight out again without even leaving the loading dock.
Freight Rates and Delays Are Both Rapidly Increasing
Most bikes come into Australia in 40 foot ‘high cube’ shipping containers. The shipping cost per container has gone ballistic. Depending upon which wholesaler I spoke to and their particular contract situation, typical increases were in the 300% to 400% range, from say US$1,200 (A$1,621) normally to say US$4,800 (A$6,486) now.
This should drop off a little after the peak summer season, but there are also major disruptions being caused by waterfront disputes, covid related fumigation issues, the escalating trade war with China aggravating a backlog of empty containers waiting to be returned to China and other issues.
So next time you hear one of your suppliers talking about freight issues and delays, they’re not making it up!
Factories Can’t Keep Up With Demand
Shimano has been talked about the most, being by far the largest component manufacturer in the world and multiple bike brands have told me that they’re having to place orders for Shimano components up to 400 days in advance. That’s over 13 months!
But it’s not just Shimano. Apparently Velo saddles, who are the market leader for saddles and mainly manufacture for many other brands, are quoting 480 day lead times. That’s over 15 months. In other words, order now, get delivery in March or April 2022.
Given that Shimano are so far behind, some bike brands are choosing to spec components from second or third tier manufacturers, so that they can minimise delays. But because these companies are so much smaller, just a few percentage points of ‘Shimano overflow’ on top of the smaller component manufacturers’ already increased orders is seeing their lead times blowing out too.
Most of the bike wholesalers I’ve spoken to have already had to finalise their 2022 model year orders (mainly for production in the second half of 2021) and some are already having to commit to early 2022 production.
They’re being told that there will be no opportunity to increase orders later, so they’re having to make and live by very long range forward estimates.
It’s not just increased demand that’s causing problems for the factories. Bikes have complex supply chains with as many as 50 different component lines on each spec sheet, defining components that might come from several different countries before the final bike is assembled, say in China or Taiwan.
If any one of these components is not available on time, then the bike won’t be built. So production is only as strong as the weakest link in the chain.
When you visit bike factories in China or Taiwan you notice large quite basic looking multi-storey apartment buildings, often on the factory site itself or nearby. These are home to ‘guest workers’ who in the case of Taiwan mainly come from lower wage countries such as Indonesia, the Philippines, Thailand and Vietnam. In China they often come from poorer, inland provinces.
Reports estimate that there are usually between 700,000 and 800,000 guest workers living in Taiwan alone. Covid 19 related travel restrictions have caused multiple logistical problems with guest workers that are leading to labour shortages and disruptions.
Another consequence of short supply, is that you can expect bike prices to rise. In fact price increases have already been announced by some suppliers.
Northern Hemisphere’s 2021 Summer Season Will Add to Demand
The boom in bicycle demand is not just an Australian phenomenon. Based upon a wide range of data which I won’t detail here, if anything, demand has grown by an even greater percentage in the UK, Europe and America.
Given that those markets are so much larger and more important to the global bike industry than Australia and New Zealand, the competition for production, particularly through April to June when northern hemisphere bound production is always at its peak, is likely to be intense.
Although it’s very hard to predict with any certainty, there will most likely be a drought of supply to our market until after the northern hemisphere summer season is over.
‘New Normal’ Demand Will Be Higher Than the ‘Old Normal’
Of course one of the legitimate concerns that both Australian wholesalers and retailers may have is being caught with an oversupply of stock if consumer demand for bikes drops and the boom suddenly turns to a bust.
Inevitably, just like toilet paper and hand sanitiser, no matter how high the demand, bicycle supply will eventually catch up and the famine will turn into a glut.
But because worldwide wholesale and retail inventories are so depleted, I don’t think that this will happen prior to 2022.
Firstly, it’s going to take a long time to re-fill all of those empty or understocked wholesale warehouses and retail stores around the world.
Then, even when things do return to ‘normal’ I’m confident that, at least for Australia and New Zealand, it will be a ‘new normal’ that is at a higher baseline level of demand. There are many reasons for this, but here are what I consider are the most important three:
Sales inducing technological improvements in the products that we sell are relentlessly advancing across many categories, from helmets through to indoor trainers.
But the elephant in the room is ebikes, be they high performance e-mountain bikes, e-road, commuters, recreational or other sub-categories.
Australian ebike sales, which are measured through wholesalers sharing their sales data, have just recorded their fourth consecutive year of rapid growth.
Initially this was off a tiny base, but now the numbers are getting significant.
For the 2019/20 financial year sales were 48,000 units, up almost 50% from 32,500 units sold in 2018/19.
Another 50% growth this financial year, which is quite possible or even a conservative estimate, will see sales for 2020/21 at 72,000 units. Taking a $3,000 average retail sale price (this is my conservative guestimate as there’s no data collected on sales prices) that would mean $216 million in annual retail sales this current financial year for a product category that virtually didn’t exist in Australia five years ago and is only set for further development and growth.
Ultimately the shortage of bikes we’re currently seeing is due to a surge in demand. This increased demand can be traced to two main groups: Firstly, existing cyclists upgrading their equipment. Secondly, newcomers to our market.
A large proportion of those newcomers may well throw their new bikes into the back of their shed or storage unit once life returns to normal. But many of them will have enjoyed their unexpected cycling experience and want to keep going.
As every dealer knows, regular active cyclists at the very least wear things out and need parts and servicing. But many of them also decide to upgrade after a year or so, causing ongoing demand for new bikes.
In the case of these thousands of covid-induced new cyclists, those subsequent bike upgrade sales will be ‘new demand’ that would not otherwise have happened, but that will continue the ripple effect of 2020 well into 2021 and even beyond.
Government Policy and Funding
Our Australian federal government may be lagging, but most state and local governments have been accelerating their funding of bike infrastructure since covid hit.
This does not just have to be pop up bike lanes and other commuter infrastructure. Every million dollars allocated for new mountain bike parks or rail trails will also induce more demand for bikes and equipment. These projects are often funded out of tourism budgets, a sector that has been badly effected by covid that all levels of government are keen to stimulate back into life.
Once these projects are funded and built, the bike industry sales benefits continue year after year, so one-off recovery package funding will give our market ongoing benefits.
Part Two: What Can You Do About All This?
If you’re a bike shop with no bikes, you’re like a pub with no beer!
It’s all well and good to talk about alternative income streams, which I’m about to do, but the bottom line is that bike sales will always be the biggest income category for the vast majority of bike shops.
This is not a time for polite, ‘After you Sir!’ behaviour.
I’ve recently visited shops that are full of stock with more ‘out the back’. But I’ve visited others that should be taking the opportunity to paint their walls and upgrade their carpet, because there’s certainly no bikes in the way to stop them!
Why is there such a contrast between shops?
The shops that are full of stock have been scrambling for every bike they can lay their hands on. They’ve been calling in favours, leveraging past relationships they’ve built up with suppliers, paying up front, even accepting sizes, models and brands that they would not normally buy, just so that they’ve got something to sell, both today and most importantly for tomorrow.
They’ve also tended to be shops that carry a wide range of brands.
If supply gets even tighter next year, I think that even these well stocked shops could run low, particularly if the five or 10 closest shops surrounding them start running out of stock first. Word will inevitably get out that, ‘There’s still some bikes at Joe’s Bike Shop!’ It’s almost like a scene from Mad Max where people went to extraordinary lengths to sniff out stockpiles of oil because the supply was so tight.
I could be wrong. If so, it would certainly would not be for the first time and I really hope that I am wrong this time. But I’m fearing that some shops will go bust during 2021 simply because they did not have enough stock to sell.
If you’re a retailer in short supply of bikes already, what will make the difference between your survival and closure in 2021?
I suggest three main factors:
Firstly, if supply does tighten further as predicted, how quickly and effectively you can reduce overheads to match supply constricted reduced sales.
Secondly, how well you manage your cashflow, particularly the cash windfall that you’ve probably received during the stage of covid when sales were up and supply was still available.
Thirdly, what alternative income streams you can either grow from their present levels or create from scratch.
None of these income streams are likely to match the scale of your usual complete bike sales, but every little bit will help.
Some possibilities for building alternatives include the most obvious such as increasing your workshop repairs and P&A sales… acknowledging that some P&A lines are also in short supply.
But now is a good time to think outside of the box. Perhaps you could sell second hand bikes, do bike hire, run guided tours or other riding events, spin classes, start a cycle fit service.
Perhaps you could add a secondary product line. In country towns in particular there are plenty of bike shops that also sell everything from mowers to toys or sporting goods.
In summary, I hope that my predictions are wrong and that stock supply quickly improves in 2021. But everything I’ve seen and heard over recent months and weeks suggests otherwise.
I suggest that you should be thinking hard and planning your strategy now for what you’ll do if stock becomes even tighter during early 2021… then stays that way for months, possibly even all year.