What’s Happening To The Bike Biz?

 Four years ago, North America, Europe and other parts of the world were experiencing the biggest “Bike Boom” in decades.  It was a result of the COVID-19 pandemic, which engendered lockdowns and shutdowns. In the wake of social distancing and the closure of gyms, other recreational facilities and transit systems, bicycling became one of the few available options for transportation, exercise and simply getting out of one’s home.

Among the facilities that shut down were ones that produced bicycles and related equipment. Most of those factories are in Asian countries that were subjected to some of the strictest lockdowns and closures.

The inevitable result of surging demand and dwindling—or no—supply meant that people waited weeks or months not only for bikes and helmets, but for replacement parts, let alone accessories. Some shops—most notably Harris Cyclery (Sheldon Brown’s home base) closed.

Those closures were unfortunate, but remaining shops, online retailers and bicycle manufacturers themselves (who, remember, were dealing with supply chain disruptions) figured that all would be well once factories resumed production and transportation was back on track.  

It seems that the supply situation started to get back to “normal” around late 2021 or early 2022. Retailers bought up what they couldn’t get for the previous two years.By then, however, people who couldn’t get a bike gave up. And, those of us who are dedicated cyclists know at least one cyclist who simply has to have the newest and latest of everything, most people don’t trade in their bikes every few years the way other people do with their cars.

Now we are seeing a “bust.” Retailers are sitting on inventory they bought two years ago.  And they aren’t buying what manufacturers are making, and suppliers are providing, to “catch up” with previously-unmet demand.

The result is that businesses throughout the bike industry—from local shops to manufacturers and the mega-online retailers—are going bust. One notable recent casualty is Chain Reaction/Wiggle. Planet Cyclery is on its way to following them.Other “big wheels” are rumored to be in trouble. I won’t name them, simply because I don’t want to run the risk of setting off a panic over a business that might actually be doing OK.

One problem with the “fire sales” at retailers like Planet Cyclery—at least from the consumer’s point of view—is that the big discounts are on prices that were inflate by the pandemic because retailers and suppliers, when they finally could get inventory, were paying , in some cases, double or triple pre-pandemic prices.

So what will be the new “normal?” If I could predict such things…

Secondary Victims Of The COVID-19 Bike Boom?

The COVID-19 pandemic led, at least in places that weren't under hard lockdowns, to a kind of bike boom.  As public transportation systems shut down or imposed severe restrictions, people who hadn't been on bikes in years were pedaling to their jobs (if they had to work in person) or to shop or run errands.  And folks who were working from home were going hopping onto the saddle for exercise and to de-stress from being cooped up in front of a screen.

Like the Bike Boom of the 1970s, the COVID epidemic was great bike-related businesses--at least some of them, for some time.  During the first few months of the pandemic, bikes and anything related them were flying out shop doors and keeping Amazon delivery workers busy.  In time, though, some shops and web businesses became victims of cycling's newfound popularity.  Shops ran out of inventory as supply streams dried up.  Some kept themselves open by repairing bikes that people were resurrecting from basements and garages.  But as cables, tires and tubes became difficult to find, they took to cannibalizing other bikes--until there were no more bikes to "harvest."  With nothing left to sell or even use for repairs, a number of shops--including longstanding and prominent ones like Harris Cyclery--to close permanently.

Now there might be some secondary victims, if you will.  Among them is Moore Lange, a UK distributor that went into receivership last week after more than 70 years in business.  Their offerings included bikes and parts from a wide array of brands like Forme, Lake, Barracuda, Microshift and Vitesse. 

 

According to Moore Lange director Adam Briggs, the company's troubles can be traced, ironically, to supply streams flowing again.  Actually, the trickle or dry bed turned into a torrent:  "[L]ots of stock arrived in the first quarter of 2022," he explained.  "There was a year's worth of bikes arriving in the UK at that time"--just as the Boom was turning into murmur--"which meant there was a massive oversupply."

Apparently, in the UK as in other places, the demand for bikes and anything related to them is falling from its 2020-21 heights.  Distributors and some shops now are overstocked, at least in some items, which led to "significant discounts," according to Briggs.  Given that profit margins are significantly smaller for bikes than for other items, a decrease in sales has led to a "perfect storm" for some shops and distributors like Moore Lange. 

The company's inventory will be auctioned off.  If there is a silver lining in the clouds of this storm, it is for British cyclists who are looking for good buys on bikes and parts.

  

Trexit: Another Consequence of COVID-19

 Just before Christmas, I wrote about an irony of the COVID-19 pandemic:  The dramatic increase in bike-related sales has actually forced some small shops, like Larsen's Bicycles of Powell, Wyoming, out of business.  The same surge in demand that has filled the coffers of bike companies and larger shops has left smaller shops like Larsen's--usually the last to be supplied--without inventory.  

It seems, though, that some other shops are closing, or their owners are shifting their focus to related businesses, by choice. 

People often look at the price tags on bikes and assume that the bike industry is lucrative.  The reality is that margins on bikes are new bikes are smaller--and, the more expensive the bike, the smaller the margin.  Prior to the pandemic, the bike could stand on the showroom floor for months, or even years.  In the meantime, the shop's owner or manager had to pay all the overhead of running the business, not to mention the mechanic who assembled the bike.

In addition, most bike shop owners, like their counterparts in other industries, carry long-term debt, whether for the business itself or in mortgages for their business buildings or homes.  That is often a deterrent to any would-be buyer of a bike shop, or any other small business, and a reason why shop proprietors are running their enterprises long after their peers have retired from salaried jobs.

I have just described some of the reasons why I have no regrets over not opening a bike shop or a book store, even though I was offered opportunities to do both in my youth.  One retailer described the situation well:  "It just did start to feel like we were in the store-running business instead of the bicycle business."  Having worked in both bike shops and book stores, I realized that I love books and bikes, but had absolutely no love for "the store-running business."  That, in essence, is why Chris Kulczyki sold the business he started--Velo Orange--almost four years ago.

Unfortunately, according to that retailer, "the store-running business is where this industry is going."  That is one reason, I think, why some are leaving the industry. The retailer in question admits that he, and other shop owners, have benefitted from the current "boom." Their "store running" has allowed them to pay off old debts and put some money in the bank.  It's also allowed them to get out from under a pile of old inventory.  For the first time, many who opened bike shops during the 1970s and 1980s, can leave with a "clean slate."  

As sad as it will be to see some of those shops go, I really can't blame their owners for selling out or closing down.  You really can't blame anybody for quitting while he or she is ahead, especially if it's taken decades to get to that point.  Also, as more than bicycle entrepreneur has said, "I'm tired; it's time to retire."

Some of those shops were Trek dealers. In recent years, the Wisconsin-based company called in some of its debts by taking over stores, essentially leaving the proprietor with nothing.  Some shop owners were on the verge of such a fate early in 2020.  But the COVID-induced surge in demand allowed them to pay down their debts and allowed negotiate more more favorable terms to their Trexits.

From the Financial Times