cycling industry

The Bike Industry, The Economy and You

Image from SapaGroup.com

Over the past couple of years, we have seen drastic changes in the industries and economies that have a substantial impact on the bike industry as a whole. With increasing raw material costs, the high price of fuel and uncertain economies, pleasure industries are seeing unpredictable times.

During my tenure at The University of Georgia studying economics, I have seen trends like these before, but after all of the theory and predicting…two questions remain…

How does it affect me and what do I need to do about it?

How Does It Affect Me?

Raw Material and Fuel Prices

Across the world, raw material costs have skyrocketed over the past 18 months. Manufacturers of all products are seeing increases at rates that are much faster than any in recent memory. Most of the retail market has not see the impact of these forces as of right now. The cost of steel alone has doubled over this time period and relief is still sometime away.

To add to this…the cost of fuel as also doubled…most specifically diesel fuel. All shipments, truck and boat, have to go through at least one shipping process that uses diesel fuel. Every shipping company as enacted a price increase or fuel surcharge. In many cases, they have done both! All of these costs get factored into your final price at the retail market.

Metal and fuel costs are regulated on a world market. This means that the issue is not segregated to just one area of the world over another. You can expect to see the affects of these increases across the globe because the prices are figured in the world economy.

What does this do to the cost of frames and parts?

The bike industry lives off of aluminum and steel. When prices (cost to the manufacturer) double, you can expect to see increases across the industry increase by about 25%. To try to offset some of this cost to the retail market, manufacturers are pushing to become more efficient by doing any combination of the following:

• Decrease Overtime
• Searching For Lower Cost Materials and Production Methods
• Automation
• Slimming Down Product Lines
• Selling Off Old Inventory

Doing any of these methods allow companies like frame and part manufacturers to operate on lower margins to keep the doors open during these rough times.

What Do I Need To Do About It?

BUY! BUY! BUY!

Yes, I am telling you to pick up anything you want now instead of later. For the most part, the increase in retail prices has not hit the market because of it is the end of the model year. As I am writing this, frame and part manufacturers are at Interbike setting their next years prices and lines.

Better Yet! Look for gigantic closeout deals on old inventory. Companies like Turner Bikes and retail outlets like JensonUSA are blowing out old inventory at low prices, so there are some real steals out there.

How are they able to sell them this low?

Simply, the raw materials used to manufacture these goods were bought at old prices. Also, the frames and parts cost money sitting in inventory. There is opportunity cost lost in the lack of a sale and in many cases, companies are paying interest against their outstanding inventory balances. Selling off last years models at low margins (or even cost) is much more beneficial than the slight percentage loss on the sale. At this time, you might find even better deals on inventory that is older than 2 model years. These frames and parts are not used…just new products that need to be moved.

Yes…you will not have the “latest and greatest”, but you will be spending 1/2 as much as you would be for the new model.

The Flip Side

After I just told you to buy everything that you can get your hands on right now, there is another side to the story.

SAVE! SAVE! SAVE!

There is a true balancing act at play here. Increasing costs and uncertain economies also equal job loss and increasing costs of other items that are necessities…not pleasures. Now is the time to save all you can in case something happens. The recommendation is 3 months worth of expenses.

So…What Does All Of This Mean?

• It Will Not Be Like This For Forever – Economies go through swings and rotations. Much of this is out of necessity to clean up the market. It will turn around. It is not if…it is when.
• Buy Old Inventory – If you have the disposable income, pick up great deals on old inventory blowouts. Last years frames and parts are going for LOW PRICES!
• Look For Deals On Used Parts – As the job market worsens, bike parts may be the first to go for some families. This opens up great deals on the used bike part and frame market. Keep an eye out for some great deals that will increase cash flow for the seller and get you a slightly used product at a low price. Just be sure you are confident in what you are buying before you take the deal.
• Be Careful Who You Are Buying From – There are manufacturers out there who may be too far extended already. They may not make it through the storm so warranties and replacement parts may be hard to come by in the future.
• Upgrade Your Current Ride – Now is a great time to make that old ride feel new again. A new fork, shock or wheels that you picked up on a blowout can make your bike feel completely different and sometimes even new again. Look for more on this in a future article.
• Enjoy The Ride – riding can be a great stress relief. It is not important what you are riding…just that you are riding it!