I have hesitated to write anything about the economic state of the bike business lately, for two reasons. First, most of our readers aren’t that interested. They wanna ride bikes, be inspired to ride bikes, etc. Fair enough. Second, though it’s almost the only conversation I’m having with my industry colleagues lately, I don’t know anyone who really knows what’s going to happen.
And in the end, that’s the real story.
This morning, I woke up to two Guardian headlines that perfectly encapsulate the state of play: Trump claims ‘total reset’ of US-China ties as 90-day pause to trade war agreed and Americans putting life on hold amid economic anxiety under Trump, poll shows.
Last week, our own Conner Burns asked me if I thought a recent 10% increase in retail pricing (ostensibly to account for tariffs on imported goods) by one of the big bike brands could be attributed to the trade war or whether it was just profiteering. I’m paraphrasing his question, which was more nuanced, but that was the crux of it.
Here’s what I told him:
I think most people don’t know what the truth is, but that’s because the size and implementation of the tariffs has been so haphazard, both in raw percentages and in timing. Complicating it further is that most bikes are assembled from parts that come from multiple locations. There was a de minimis loophole that would allow you to bring in small shipments (sub $800) with no tariff, but now that’s gone. So…it’s a lot of math, but they all employ people who can do math. I think the fuzziness comes from looking at current, in-country inventory (no tariff adjustment) and in transit inventory (high tariff) and finding a way to cover their costs without too much price inflation.
Remember we have a massive tariff on Chinese goods right now. If ALL the current inventory was coming across the ocean right now, there is no way a 10% retail increase would cover them. A 10% retail increase might cover a 20% wholesale increase, but the current Chinese tariff is blowing that number out of the water. Companies are trying to get ahead of the situation, not because they’re profiteers, but because, if the current numbers hold, they’ll have to go to 30-40% above today’s retails just to maintain their basic margins. The hope, of course, is that Trump stands down, and that massive price rise doesn’t become necessary, but it’s unpredictable, and THAT is what makes the whole thing so fuzzy.
Here’s the truth.
The big bike companies don’t want prices to go up. Demand, post-pandemic, has already been suppressed, because so many people bought new bikes in the first bloom of home work, and we are yet to see it revert to the mean. As a result, inventory has been discounted for multiple years, which is bad for the manufacturers and for the retailers.
Low demand and high prices are the sort of combination that puts companies out of business, and I think you’ll start to see more of that this year, because most bike companies have been floating shop inventory on long credit terms. Nobody has cash right now. If revenues at retail and wholesale both decline further, we could see a bloodbath.
Those are micro-issues though, confined to the bike industry. Many of the problems are of the industry’s own making, a massive over-forecasting of saleable inventory for 2022 that has yet to work its way out of the system for example.
Those problems are compounded by the macro-issue (see the first headline I quoted above), which is that consumers have no idea what’s going on. The story changes day-to-day. Is a recession looming? Are putative tariffs (a de facto tax on consumers) going to be the new normal, or will Trump retreat before widescale inflation sets in?
As I’ve said here many times, I’m not an economist, but I think what we’re experiencing is something very much like the ‘fog of war.’ In battle, a soldier’s experience can become so chaotic that they become disoriented, losing track of their location and even the direction they’re facing. Panic, as it turns out, is a perfectly normal response in a situation like this, and the ability to make good decisions (or any decision at all) becomes fundamentally compromised.
