What Does Our Bike Industry Future Look Like?

As we all know, Australia’s bike industry went through an unprecedented two-year boom from about March 2020 until it started to taper during 2022.

During that boom, I wrote two opinion pieces here and here predicting what would happen next and then, early this year, this article in which I summarised which of those predictions proved to be accurate, and which did not.

That raises the next question – what comes next?

To help answer this question, over a 10-week span from late January until early April, I’ve spoken with 13 leading industry members, mainly owners or CEOs of wholesale companies, including some that also do retail. In all cases, these interviews were ‘off the record’, so I won’t identify them in this article, but I will repeat some of their comments either verbatim or summarised.

I’m running this article in our Opinion section because at the end of each section, I’m going to add my own summary comments and opinion.

I asked all participants the same four questions:

1. What’s your summary of the situation right now?
2. What are your predictions for the short term? (Until the end of 2023)
3. What are your predictions for the medium term? (Until the end of 2025)
4. What are your predictions for the long term? (Until the end of 2030)

I’d like to thank all participants for their time and being so candid with their answers. If I were to run all answers in full, it would both make this article way too long and potentially identify specific participants, so this article will be very much a summary. But even if participants don’t see their comments published, they’ve been helpful in shaping the overall article, so thanks again for your time.

Part 1 – The Current Situation

“The bottom has been worse overseas than it is in Australia.”

“The New Zealand market is tougher than here.”

“I think the stock supply situation is improving but it’s not selling through.”

“It’s super tough. Stores are overstocked with overpriced bikes, but sales are still up on 2019.”

“During Covid, retailers got lazy and walked away from kids’ bikes, but that’s the foundation of the industry.”

“Cashflow’s a debacle. We’re offering unprecedented deals and dealers are still saying no because they just want to order one replacement bike after they make a sale.”

“We’ve seen continued growth of the average bike price due to demand for e-bikes and high-end road.”

“Shipping prices are down but there are now less ships sailing to Australia, so less flexibility.”

“Sales are okay if one has realistic expectations – ie pre-Covid levels.”

“All the reports we hear about how much stock brands are carrying indicate that there are serious challenges in the low end. There are serious challenges in the sub-$4,000 dual suspension market for example. But there are still other challenges in areas where there is still an undersupply – gravel, mid to high-end road.”

“It’s a tale of two cities but the oversupply in certain sectors from certain suppliers is disappointing, because they haven’t managed their stock position as well as they could have. It will drive us back to a severe discounting culture within our industry.”

My Summary and Opinion

Looking at the broader economy and global political landscape, there are a lot of headwinds right now including rising interest rates, ongoing high oil prices due to the Ukraine war, general consumer price inflation and slow wages growth.

During Covid there were far fewer alternatives for consumers to spend their money on – no overseas travel, concerts etc. These are all back now, so competition against bikes for consumer dollars is back to its ‘normal’ tough pre-Covid conditions.

Taking into account all these factors, I think it shows the resilience of the bike industry that consumer demand for bikes, P&A and repairs is still there, albeit patchy across the bike sectors.

There’s no doubt many retailers are currently sacrificing margin to keep sales rolling and keep cashflow coming in. Their interest cost of servicing overstocks has gone up and they’re in danger of being stuck with outdated models if they don’t clear certain lines before the new models arrive.

In a nutshell, bike shops that either have strong balance sheets (ie plenty of capital) or low, clean inventories are suffering from lower margins, especially if they’re in competitive city markets, but otherwise are going okay. But shops that have either a lack of capital or high inventories – or worse still, both – are doing it much tougher at the moment.

In both cases, their workshops are still busy, generating much needed cashflow and P&A sales are generally not as badly impacted as complete bike sales.

Part 2 – Short-Term Future – to the End of This Year

“There’s got to be some upside still there. Even if the consumer is saying, ‘I was in the market but now I’m not’, there was some interest there and at some point, we hope to get them back. Maybe things have changed for them, they’re back in the office three or four days a week. How do we get them to stay motivated – to want to try something new, add something to their bike – back into the market?”

“The short term is awareness – being tight on debtors and inventory.”

“The P&A market will bounce back to better than pre-Covid, in part due to the number of bikes bought during Covid.”

“The next 12 months will be very tough. It will not be a pleasant winter, but after that, some light.”

“Disciplined retailers will win. Those that do the basics brilliantly will continue to outgrow the market, including managing inventory tightly, quick service turnaround, growing your database and not expecting your customers to just come to you. You need to be great at digital marketing.”

“Retailers made money for two years. Where is that money now?”

“Discounting will continue to the end of this calendar year and beyond. Some categories will return to equilibrium sooner – other categories at least until mid-2024. In certain categories, we still can’t stop supply from coming because it’s been produced.”

“This product that’s now filling shops and warehouses will sell, over time. The industry has brought forward so much stock into the country. It will be fixed by time.”

“Stock levels are starting to drop. Wholesale margins will start to improve towards end of 2023. For retailers – cost of living, interest rates will impact – consumers may buy cheaper bikes, but fundamental demand will stay relatively solid.”

“E-MTB dual suspension is taking share from regular MTB.”

My Summary and Opinion

Most people agree there are better times ahead. The key questions are when will the overstocks be sold through and the discounting dragon retreat into its cave?

“Overall, I’m more optimistic than those wholesalers who are predicting pain right through to at least mid-2024.”

I think the answers depend on where your shop is located and what are your main categories of bikes. If you’re a major capital city retailer who mainly sells family and lower-end bikes, you’re probably in for the hardest winter and the longest recovery.

Regional stores appear to be doing better, along with city stores that have strong niches, either in terms of the brands and product types they stock, the strength of their location, or some other points of difference.

Overall, I’m more optimistic than those wholesalers who are predicting pain right through to at least mid-2024. I think that if we have a good spring/summer season (not just in sales, but weather-wise) at the end of this year and if imports continue to be restrained, then we can start 2024 in much better shape. One critical metric we don’t yet know at the time of writing this is the level of imports for the March 2023 quarter. There was a dramatic drop in imports for the December 2022 quarter. If this trend has continued, then the overstocks will end sooner, hopefully by the end of 2023.

Part 3 – Medium Term Future – to the End of 2025

“We’re looking at new innovations: updated products, technology improvements. There have been challenges with computer chip shortages. New innovations will be emerging from those challenges.”

“There will be more external investment in brands. You have to be innovative! You have to invest because consumers will expect more.”

“It’s all going to be about consolidation post-Covid. I don’t think we’re going to get as many new customers as we did during Covid. We’ve probably already lost a lot of those customers that we picked up during Covid, whether they’re going to the gym or playing golf or whatever. Look at the price points – sub $2,000 is falling.”

“We’re still bullish. There will be more bigger stores: Trek, 99 Bikes and, to a lesser degree, Specialized and Sheppards. There will be more smaller repair and accessory businesses, mobile vans and workshops.”

“The bike industry will be in a better position than ever before. We’re looking to expand.”

“The key players will gain more market share, but a motivated, hard-working retailer will always have a place. There will be generational change. Some people are exhausted, stores are closing, but new stores appearing.”

“I see continued growth in e-mountain and hopefully e-active. That’s a category in which Australia lags behind, but I think there’s a lot of innovation coming. I’m hoping that leads to continued growth. But it’s only going to come if the governments around the country invest in infrastructure. I also see a resurgence in road and definitely in gravel.”

“The trends such as cost of living, the movement towards electric cars globally – a little bit slow in Australia but it will happen – will also continue to drive e-bike sales. I think overall our industry will come out of this oversupply and be in a stronger position than we were before Covid. But we have some medium-term pain over the next 18 months to two years to get through first.”

“The direction in which the industry has gone in terms of mobility services, broadening the scope of the customer base because of e-bikes, will remain. There will be a period of time where we may not see the conversion of people who came into the market during Covid just yet, but at a certain point they will buy another e-MTB or e-commuter or gravel bike, so we will see a flow-on effect.”

“Looking at the road market, there is still a plethora of old product being ridden, in terms of rim brakes, so I think there is still a disc revolution to come, once the weekend warrior starts to wear their bike out and parts are not available due to obsolescence. There’s growth in gravel events and with the need to get off busy roads, I think gravel will continue to grow strongly.”

“Overall, I think we’re in for a bit of short to medium pain, but the metrics by which you can judge the market are strong. The growth of people into the market is strong.”

“Overreactions to future ordering … could lead to shortages. Which opens opportunities.”

“There will be further consolidation. It’s a tough market for owner-operators. Business who had the Covid sugar hit but who don’t now adjust their cost base or their proactivity with offers for customers will start to struggle. That opens the door for the brands that have a retail arm or retail partnerships.”

My Summary and Opinion

Excuse me for a moment while I climb onto my soap box and clear my throat for a rant!

In the US on 17th August 2022, President Joe Biden signed into the law the US$375 billion (A$560 billion) Inflation Reduction Act. Like many pieces of US legislation, the name bears little relevance to the content and is more related to marketing towards reluctant legislators.

Climate change mitigation is at the core of this Act and large subsidies for electric vehicles sit at the heart of its transport initiatives – up to US$4,000 (A$5,975) for standard cars and up to US$7,500 (A$11,151) for cyclist and pedestrian-killing, city-damaging, large pickup trucks. The latter just happen to be the most profitable vehicles for the US manufacturers. Who said lobbying government can’t work?

E-bike subsidies were also originally in the legislation but were completely removed by certain wise congressmen.

The reason this is relevant is that right now, the Australian federal government is considering its own electric vehicle policy, having called for public submissions during late 2022. Could Australia’s elected government be as blinkered and car-centric as America’s and only give subsidies for electric cars, whilst overlooking all types of e-bikes?

Absolutely!

If you look at the 122-year history of our federal government, there has been minimal support or even acknowledgement of cycling from all governments.

From 1990 to 1992, Bob Hawke strong-armed the States into making bike helmets mandatory and the arguments have continued ever since as to whether that’s a positive or negative for our industry.

There have been a few rare instances of federal funding for bicycle infrastructure, but the total amounts are barely a rounding error compared to our current $628 billion annual federal government budget expenditure.

Before the 2019 federal election, I attended a media launch at which I video recorded Anthony Albanese promising $250 million for cycling infrastructure if Labor was elected. They lost. Before the 2022 election there were no further promises from Mr Albanese and virtually nothing has been delivered since.

It gets worse. In 2018, with no prior industry consultation, the federal government imposed a 5% tariff on e-bikes imported into Australia, impacting exporting countries with no free trade agreement with Australia. This includes Taiwan and Europe but does not include China.

While the tariff was already in place, the industry had been exempted because there was no recognised local manufacture. Then an Australian manufacturer, Stealth Electric Bikes, applied for the exemption to be removed and Australian consumers have been paying millions in extra taxes through higher e-bike prices ever since. There is nothing to stop the government removing this tariff entirely, but no action has been taken.

In summary, if it had the political will, the Federal Government could take easy measures that cost peanuts in terms of its overall budget. They would not only provide a large and immediate boost to the bicycle industry, the measures would also give Australia and its citizens all the environmental, health and social benefits that flow from increased cycling. Three areas would be removing e-bike tariffs, providing a subsidy for e-bike purchases and funding cycling infrastructure of all types.

The upcoming electric vehicle policy announcement would be a perfect opportunity for them to make a good start. We shall see…

Stop Press: Since writing this section, the Federal Government’s EV policy was released on Wednesday 19th April. Not only does in not include any incentives, or supportive policy for e-bikes, but in the entire 63-page report, the word ‘e-bike’ or any related term is not mentioned once. It looks like our Federal Government, for now at least, is still as car-centric and blinkered as America’s when it comes to e-bikes.

Our industry will still achieve growth despite this. But at least in the short to medium term, that growth will come from consumer demand, improving technology and, to varying degrees, our local and State government support, while our Federal Government continues to live in an alternate reality of 100% automobility.

End of rant – for now.

Part 4 – Long-Term Future – to the End of 2030

“There will be more onus on brands and brand partners (distributors) to bring customers to retailers. We’re looking into it from our internal IT perspectives.”

“E-bikes should be the future but it’s hard to predict – will Australia have the infrastructure to support them?”

“We talk a lot about health and wellbeing. It’s not just cycling or fitness, but understanding your fitness – ‘Connected Health’. And we will continue to have an ageing population – how do we manage that?”

“It’s all about taking action on where the opportunities are.”

“99 Bikes will get to maybe 100 stores, Trek maybe 85 stores. This will impact mid-sized independents. There will be more click and collect. More distributors will sell direct to consumers but with a cut going to retailers. Distributors will also be trying to get consumers into stores.”

“E-bikes should be the future but it’s hard to predict – will Australia have the infrastructure to support them?”

“We’re in a great space. Hopefully there will be more infrastructure. Micromobility is the logical next big thing. Bigger players will be more dominant in sales. There will be more local service centres- ie retailers allocating a larger portion of their shop to servicing.”

“The IBDs that are innovative and respond to trends in the market, both in terms of what bikes to sell and how to sell through different channels, will continue to do well. But I fear for those stores that are not able to adjust, especially in the digital sense and the systems sense and might (mainly) continue to sell what they’re personally passionate about (rather than keeping up with consumer trends); I think it will get tough for those stores to operate well and survive.”

“I think bikes will become more affordable, not in the sense of the price coming down, but different models – subscription, leasing, rental, financing, all these different options. It’s something consumers are already used to in other industries, such as the car industry.”

“The industry will experience continued growth in e-bikes. One challenge is that cities are not being flooded with people coming back to work. And for e-bikes to really take off, we need legislative change to increase the maximum power assisted speed to 32kph. 25kph is great on an e-MTB, but it’s too slow on an e-commuter.”

“Everything points to a positive future once we get past the overstock situation we currently have.”

“We’re expecting e-bikes to be well over 50% of our sales by dollars. E-scooters will start to grow with changes to legislation. This will be a growth category for bike stores and other stores.”

“There will be wholesaler consolidation. Smaller P&A wholesalers will merge or be taken over by wholesalers who also do complete bikes. The online market is still relatively immature in Australia – it’s still up for grabs.”

My Summary and Opinion

Of course, the further you look into the future, the harder it is to predict with any certainty.

None of the people I interviewed made a single mention of one elephant in the room. If China were to invade Taiwan, the disruption to our bike industry would make Covid disruptions we’ve just all been through look like a walk in the park!

Taiwan is our key supplier of high-end bikes and e-bikes, and China is our biggest volume supplier. Sure, we import bikes from other countries as well, but the bicycle supply chain, when you consider parts, logistics and ownership, is intertwined. China is also by far our biggest overall trading partner, so the general economic disruption to Australia would be huge if sanctions started to be imposed in both directions, which would be quite likely assuming Australia sides with the US in such a war and helped to defend or at least support Taiwan.

While I’m on a doom and gloom roll, there’s nothing to say there won’t be another economically disruptive pandemic of some form. The fact is viruses have become more prevalent in recent years: AIDS, MERS, SARS, Covid, not to mention increasing resistance to antibiotics due to overuse in humans and farm animals. I’m not a medical scientist, but things I read are not reassuring.

Moving onto happier predictions, there are huge opportunities for further growth in our market. These include, but are not limited to, more MTB trails, rail trails, gravel riding and urban cycling infrastructure. All of these can be rapidly accelerated through government investment, as could e-bike sales if there are government subsidies. Based upon the track records of our local, State and federal governments, I’m not entirely optimistic that a majority of our elected officials will have a BFO (Blinding Flash of the Obvious) and suddenly realise what a fantastic investment cycling is for so many reasons! (As bike industry members, we all know the benefits of cycling, so I’m not going to list them again).

However, despite many setbacks and missed opportunities, looking at the longer term, the trend over recent decades has been a gradual increase of government support, particularly at the State and local levels. Hopefully this trend will accelerate. As an industry, we will directly benefit if it does.

The final key accelerant I’d like to mention is the e-revolution. Less than a decade ago, many mainstream brands ignored e-bikes and most Australian bike shops did not have a single e-bike on their floor. Many industry members openly ridiculed them. Several of our respondents predicted further growth by 2030, with one saying they will represent well over 50% of their turnover.

I think that’s a very conservative prediction, even for a ‘laggard’ like Australia. There are many countries in Europe where e-bikes already comprise more than 50% of sales by value, in some cases for several years.

As one respondent touches on briefly, this revolution could be easily accelerated with sensible changes to government restrictions on power and speed for certain e-bike categories. Once again, as with government funding of vital infrastructure, don’t hold your breath.

But even without helpful government policy, the global investment in e-technology is already huge and we’ll be reaping the rewards of that investment throughout the rest of this decade.

One area that offers growth potential for the bike industry is new ‘form factors’, including e-scooters and e-mopeds, not to mention e-cargo and other light electric vehicles. There will be growing consumer demand for these products, especially if they are legalised in every State and territory. Someone is going to win this new sales revenue. Why shouldn’t the traditional bike industry claim a good slice of this pie, especially for higher-priced, higher-quality models?

Overall, despite the very real and severe challenges many wholesalers and retailers are currently facing with overstocks and discounting, I remain optimistic the long-term future of our industry is bright. Governments at all levels could certainly play a key role in making it even brighter but we must remember that the most important thing to most elected officials is their re-election. (If I was cynical, I would have said ‘all elected officials’ instead of ‘most’).

It’s up to the bike industry to not only lobby directly, but to forge productive alliances with the many other stakeholders who would also like an increase in cycling, such as health insurance companies and other sectors.

But even if we’re less successful than I’d like us to be on the lobbying front, a host of other tailwinds – ranging from improving technology to global trends – will still help push our industry forward over the longer term.