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How’s Business? March 2020

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What Impact Will the Corona Virus Have?

Welcome to our monthly survey of a wide variety of bike shops spread throughout Australia and New Zealand. We’re always mindful to call a mixture of city and country shops with a wide range of bike dealerships and never more than one shop in any state or territory.

As always, this month we asked a follow up question. With the corona virus death toll now in the thousands and many Chinese factories closed or disrupted, we asked, “Do you think the corona virus is going to impact your supply of stock?”

Because these interviews were conducted in mid-February, the anticipated impact of the corona virus from our six bike shops surveyed, was relatively small.

But with relentless escalation during the two weeks since then and the prospect of much longer term disruption than originally thought, it’s quite possible that the corona virus epidemic could become the dominant disruptor of 2020, not just of the bicycle industry but the entire global economy. Not to downplay of course, the human suffering as the infection numbers and fatalities continue to rise.

In the days leading up to posting of our newsletter on Friday 28th February, a growing flow of reports started reaching us from Australian wholesalers who have been warned by their manufacturers about eight week delays or more. Of course, the problem is that no-one, including the manufacturers issuing their production warnings, knows exactly what will happen next and how bad the situation will get.

The very latest reports (Thursday 27th February) confirm that the rate of new cases in China peaked in early February and has now significantly slowed from a peak of over 2,000 new cases per day to around 400. However on 26th February for the first time there were more new cases reported outside of China than inside. And one of the major new outbreak hot spots outside of China, northern Italy, is still a significant manufacturing centre for high end bicycles, clothing and components that are sold in Australia.

So it appears that the question now is not if the supply chain of bicycles and P&A to Australia will be effected, but how badly and for how long?

The even bigger question for the Australian bicycle industry is, will the virus begin to affect cycling activity in Australia and demand for our products and services? At the time of writing, there have only been 22 Australian cases and no fatalities. To the best of our knowledge all of these cases have been quarantined and are away from our major population centres.

But despite this negligible real impact in Australia, we’re already hearing stories of capital city based Chinese restaurants going out of business through massive drops in patronage. There’s no law saying that the Australian public have to react rationally or in proportion to the actual threat. So what will happen if multiple virus cases are suddenly confirmed, say in inner city Sydney or Melbourne?

Will bicycles actually see a surge in demand as commuters look to avoid contact with others on trains, trams and buses? Or will we see a repeat of the scenes of deserted streets that we’ve seen in China and more recently South Korea, Italy and Iran?

Please feel free to share your opinion about these questions in the comments section below.

We’ll closely monitor the situation as it impacts our industry and needless to say, it will be a key topic in our next newsletter due out Friday 27th March. If there are dramatic developments that affect our industry in the meantime, we may post a special additional newsletter.

Gavin Nugent of My Ride Salisbury in the outer northern suburbs of Adelaide SA said:

Business is actually quite good. We’re in the back end of the holidays, mid summer season so it’s floating along quite nicely.

As most good stores do, we’ve got a wide spread with all groups covered from mountain bikes to recreation to enthusiast.

Kids bikes have slowed down after Christmas, naturally. Road bikes are still holding up. In fact I think they’ve made a little comeback. Gravel has stalled just a fraction, but we’re still selling those.

Of course the big improver for us has been electric bikes. The mix is there. We’re selling everything from your basic commuter/ride around the neighbourhood bike right through to the full dual suspension off roader. We’re selling right across the range. It’s pretty exciting really.

We’re trying to hold our own on price, but that’s one of my concerns with ebikes. They’re telling us we’re going to sell more and more ebikes as time goes on, but our margin is less and less on ebikes. So we don’t have as much room to move on the discount side of it.

But if your margin is low, and we’re going to sell more, we’ve got to work out how we’re going to make up that lost margin.

There’s also the increased cost of floor stock. If we sell more ebikes, then we’ve got to carry more ebikes, which means the average bike price is going to go up. Which is going to require more investment in stock.

So there’s some pluses and minuses and we’re going to have to work our way through that.

We’re a My Ride store so we’re pretty much exclusively Scott and Avanti.

Corona virus impact?

I can’t see how it’s not going to impact our supply. We have a neighbour who is a motorcycle retailer and he is already getting impacted it. I just got a letter from Tower Systems (shop point of sale supplier) which I read today which says they’re going to have delays with hardware.

So I can’t see how our industry, which is so heavily involved in Asia, is not going to be affected by it.

What do you do? That’s the question. What’s going to be the impact? There’s a whole bunch of crystal ball stuff there.

Bill Hickman Front of House Manager of Burkes Cycles located close to the airport in Wellington New Zealand said:

I would say that we’re pretty steady. Here in Wellington we’re setting up a lot of our customers for the Tour Aotearoa. (This is a 3,000 km bikepacking ride that starts in waves of 100 riders per day, with the start window running from 17th February to 8th March).

It’s a really popular long distance tour. The plot a route from the northern to southern tip of New Zealand staying primarily off the roads. Some of it’s on the beaches. It’s a really creative self supported bike tour. I think this year there are over 1,000 entries. Most of them take a month to a month and a half to finish. A lot of them just ride the course, not necessarily racing.

So we’re loving the bikepacking game and setting up our touring customers.

Obviously ebikes are a big part of what we talk about here (given Wellington’s hilly suburbs and surrounding mountains).

We’re enjoying selling the new Specialized Turbo Levo SL (price range in Australia $13,200 to $19,000 depending upon model).

The workshop at this time of year is always beginning to really tick over.

The Burke family business has been operating in Wellington for exactly 100 years this March. It evolved out of garages and airplane maintenance, rubbish skips, horse drawn deliveries, to the bike store and garage that we are today. We’re still just one store in Wellington plus our web store.

We’ve got about 13 to 14 staff, which includes four mechanics.

Corona virus impact?

At this point I would so no, however we shall see. Obviously we’ll be watching it closely.

Michael Kamahl of Woolys Wheels on Oxford St Paddington in the inner eastern suburbs of Sydney NSW said:

Business is good. January was quieter, but we had a better December than last year. They sometimes swap. But I was glad to see a better December anyway.

From the top of my head, I think they probably balance out this year to last year.

We’re making it easier for customers. We’re embracing the way customers see online shopping in terms of click and collect from suppliers.

It’s interesting seeing some customers do that, with some of our Specialized bikes. Giant has done a very small amount of P&A but they haven’t come through with bikes yet.

You could be very guarded and say that they (wholesalers) shouldn’t try to do without retailers, but I’m trying to be positive. If they want to do it, just embrace it.

Some of the bikes, I wouldn’t even have had in stock. We just get money for putting the bike together.

Our first sale with Specialized was a $6,000 bike for which we got paid $1,200 commission. It’s a lesser margin, but if I’d had three of them in stock, one of each size, to offer our customers, it would probably have cost me that much money to keep them here.

So that’s a sale that I wouldn’t have got at all.

Corona virus impact?

I rang my Giant rep the other day because there’s a 2020 flat bar road bike that’s basically sold out of every size. And the customer is thinking, “It’s the first week of February 2020.”

But the rep said the factory had shut down, but that Giant were in a really good position. Maybe they can’t cover every model.

I would have thought a bike that I wanted now would have been in production a couple of months ago before the virus. But that was the first time a supplier has mentioned the virus to me.

Nathan Jackson of Cycle 2 in Launceston, in the centre of Tasmania said:

In general we’ve got no reason to be grumbling down here. It’s been pretty strong.

I think it’s pretty well known that we’ve got all this MTB trail infrastructure happening in our neck of the woods and around the state. It’s just a massive mountain bike market now.

Across the spectrum, it’s involving everything. Repair work has increased with more activity on the trails. Our workshop is constantly having bikes coming through it. And sales from all age brackets from kids through to the new market emerging with e-mountain bikes which has brought in a whole new type of person.

It would be hard to say the exact percentage of our business that the trails are responsible for, because they’ve been happening for a while, but if I was to split the percentage between city, road and MTB, I’d say 80% of our business is now trail bikes.

We’ve still stuck solely with Trek at this stage. We have contemplated another brand, but at this stage we’re sticking with Trek. We haven’t had too many logistical issues apart from this year with their Fuel EX as far as stock issues go. When they released the new one they’ve had technical issue, from what we’re told, which has delayed shipments.

Most of our market is that middle range. There’s probably a nice niche market for a (high end) mountain bike brand, but we’re focused on that $3,000 to $7,500 dually bike.

Corona virus impact?

From what we’ve been told, yes it may do. We’ve had a briefing last week from Trek to say that it will have an impact. They don’t know the full impact at this stage. But they reckon it will have an impact because a lot of factories are shut down, until this week, from what I can gather.

We’re just sitting on the fence, waiting to see what will happen. We haven’t been told to stock up. I take that as hint that we may be ok.

Tony Sunderland of Cycles de Vie in the far north Queensland city of Townsville said:

We’ve had a pretty solid calendar year. It has been good. We’re a big enough store to have to cover everything. You still see some road cyclists out there, but it’s becoming more and more mountain bike every year.

We only carry Trek.

The tourists mainly skip Townsville on their way to Cairns. We’re more of an industrial city. We have a very big army base and university.

Our business from the uni is steady. It’s probably the medical that’s the best of them. We have a pretty big hospital as well. I think it’s medical then army… those doctors love their bikes. They don’t like to hurt themselves so they’re still road bike customers. They’re good Madone customers. They tend to steer away from the mountain bikes for fear of hurting those very important hands!

Corona virus impact?

We’ve been given a heads up by Trek Australia that it may. Of course it’s going to depend upon how long it stretches out for. I believe that most of the Chinese manufacturers are still closed up. So it’s going to effect everybody at the end of the day if it continues.

It will depend upon how each wholesaler has dealt with the stock they have in Australia. At this stage I think we’ll be fine, but we’ll wait and see.

Steve Beames from Swan Hill Bikes and Trikes on the banks of the Murray River in northern Victoria said:

It’s been quite steady since Christmas. We had a reasonable Christmas. So things are going well. Our workshop is busy. This weekend we have a local triathlon. So we’re supporting that but also busy in the workshop getting bikes ready for that.

We’ve had some ebbs and flows. Some of our cropping around here was a little bit light, so that certainly impacts business.

The store started in 1993 and we’ve been the owners since 2005, so we’re into our 15th year. We’re your family type bike shop that caters from mums and dads through to their children. We also have a healthy bicycle user group that supports us well.

It’s certainly not getting any easier… margins and that. Even the changes to the bikes themselves. They’ve lost their simplicity in once sense… but we do need to move with the times.

Corona virus impact?

That’s an interesting question and only time will tell. Depending upon how quickly they can get on top of it.

Being a small country town, we’re not totally immune, but you’d think we’d be reasonably immune from that sort of thing.

We certainly haven’t had any notification from any of our suppliers that it could create an issue.

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