There have been a lot of articles and discussions about the bike industry and the current state of sales and inventory lately. You might have seen several articles or tweets like this floating around. The truth…the bike industry could be in trouble…and here is why.
Unpresented Demand Thanks To COVID
If anything good came out of COVID, it is that it got people back outside. With lockdowns and all of your favorite establishments closed, there was only really one thing to do and that was to go outside. I remember my wife and I having our daily “happy hour” on the front porch and watching the neighborhood get out and walk. Since there was nothing else to do, the demand for bikes, camping equipment, boats and other outdoor products went through the roof. If you couldn’t go inside…you might as well go outside!
What did this do to the supply chain?
As a result, the companies that produce these products had a really hard time keeping up. At the beginning of COVID everything was expected to go into a major downturn so suppliers drastically cut production. The reality is that the opposite happened for several industries (including the outdoor products industry). Not only was there record demand for these products but now there was also record low supply. Supply chains really struggled to keep up and backlogs grew to record numbers.
What does this mean for the biking industry?
During the height of COVID it was almost impossible to find a bike in stock. Even the used market was having problems keeping up and prices were at an all time high. No one really knew how long this was going to last so they kept on trying to ramp up production to meet the increased demand.
What these companies should have seen coming…did. As the world started to open back up, the demand started to fall. Normal life was rolling back and these new purchases in the market started to decrease. There is just one big problem. The orders for overseas production of bikes was already in at COVID demand levels. Adding to this…we are seeing inflation rise, interest rates rise and a recession starting. Not only are we going to have record inventory of new bikes, we are also going to have less buying power with the decreased demand.
The inventory of new bikes is about to be LARGE with a decreased purchasing base during a time the industry usually slows down anyway due to weather.
How will the effect the industry?
You are already starting to see it. Big box companies are starting to decrease marketing budgets to control costs due to anticipated inventory costs. There will be other cuts to racing budgets and anything deemed non-necessary to keep the doors open. I would also expect to see delays in any new model releases as it wouldn’t make sense to further discount current lines.
Will you see sales to try to bleed off this inventory? Yes…but remember…this is expensive inventory because of the raw material and logistics costs increases we also have seen during this time. Your dollar is also worth less. Bikes were already getting really high in price so there is a large segment of the market that would finance them when interest rates were low. Now they are not. What we basically have is expensive inventory with a decreased valuation of the dollar. The “sales” are not going to be nearly as good as you would hope because the math doesn’t work out.
I believe what we are going to see is that the smaller the company. The bigger the impact. This means your favorite boutique brands, local bike shops, your favorite racer…those are going to be the ones that feel this the most as they do not have the capital to weather the storm. Your bigger retailers and big box brands have the ability to last longer. How long this goes on will be the deciding factor in who makes it and who doesn’t.
This situation isn’t unique to the bike industry. If you look at companies like Peleton, the writing was on the wall. The extreme growth during this period of time was not only not sustainable…it was a bubble. It was great to see so many more people out riding bikes and hopefully a high percentage of them stick with the sport. It will be a dark 2023 for much of the industry so try to remember your local bike shops and support small business where you can.