As a lot of people are aware, things are not well in the velo-verse. The fundamentals (e.g. inventory to cash ratios) have been bad for nearly two full seasons, and while I think most inside the industry expected it all to shake out by the end of last season, things actually appear to be looking even worse than they did last year.
Trek is massively cutting its product offering and laying people off. Cannondale laid people off recently. Rapha basically closed its US office. Stages Cycling, maker of power meters, defaulted on their debts and got subsumed by Giant, to whom they owed millions. Giant is alleged to have more than 100,000 unsold bikes in the US. ENVE was broken off by its parent company and sold to private equity. Kona Bikes basically tanked, and their parent company is actively trying to sell them off. Popular online retailers Colorado Cyclist and Planet Cyclery are shutting down. And the hits keep coming.
What’s causing it?
To outline the basic problem, during the pandemic, while the world was closed down, humanity rediscovered bikes. Demand shot through the roof, and because many of the Asian factories were closed or running at diminished capacity, supply ran very short. At that stage shops were selling everything they could get their hands on at full retail price. It was a genuine boom driven by a singular and unexpected event.
Then the world reopened, and that was a good thing, except that the demand for bikes cratered. I believe this is what’s referred to as ‘reversion to the mean.’ As it turns out, the demand for bikes isn’t that variable, year-to-year. In 2023, industry revenue plummeted because everyone who wanted a bike had already bought one. The pandemic had simply caused several years of sales to be pulled forward into 2021 and 2022.
Bike companies failed to foresee this precipitous drop off in demand, so they forecast and ordered WAY more bikes than they needed, creating an inventory glut and driving prices down. It would be easy to blame product managers and forecasters for this problem, but the factories allegedly forced their hands, basically saying “if you don’t order these bikes, you won’t get any.” It’s the macro-level equivalent of what bike companies have been doing to bike shops for decades, forcing them to inventory more product than they would choose themselves, and from there the results were predictable.
So that’s the state of play, but as 2024 unwinds before us, the situation has gotten worse, even as inventory levels have started to drop. These are the reasons: First, inventory has dropped but it’s still way too high for most big brands. Second, the big players are all cash poor, because they’re paying to float this inventory. Third, interest rates are high. Fourth, when you’re running negative cash flow, even the biggest players in the industry, run low or default on debts. Fifth, because all the big players are holding prices down or extending spring sales, they’re basically stealing sales from the smaller players whose problems weren’t as big until now. So the situation has snowballed, even affecting the small domestic manufacturers who haven’t participated in creating the problem at all, but also can’t afford to discount their products to compete at the current, ludicrously lower price points. And of course, bike shops are suffering, because there is less margin for them in sales that are more deeply discounted.
In a situation like this, weaker, debt-laden companies get snapped up by larger players OR purchased by private equity groups on the hunt for distressed assets. None of that serves consumers, in my opinion. The massive discounting going on, is going to entice a lot of people to buy bikes that either aren’t really right for them or that they don’t really need, and that’s going to cascade into the used bike market, driving prices down there.
So what does it mean in real terms?
Well, I expect the acquisition and bankruptcy news to pick up steam through 2024, and it’ll be interesting to see what the landscape looks like at the end. There will be shocks. I’m sure of that. People are losing their jobs, and it’s reaching every corner of the industry. You know, it’s worth saying that even TCI is affected, because most companies we would normally approach for sponsorship have slashed their marketing budgets. Everyone I talk to seems convinced this will all work itself out by the end of 2024, and I definitely thought that two months ago, but now it’s May, so my great hope now is that we don’t lose good people and good companies to this thing largely beyond any of our own making.
I saw a few too many of those pie in the sky “the Covid pandemic will be the rebirth of bicycling” comments to worry me. I was pretty sure once the pandemic ended that bicycling would be back to its normal pre-pandemic level. Just as after the gas price spikes of the late oughts created a boom and bust. Yep, time for the weeping and gnashing of teeth to begin. Sadly.
Too bad, as there is some really good stuff out there.
I opened a shop in 1973 as a part-time thing and then the Arab oil embargo came along and EVERYBODY wanted a bike. Wife and I quit our jobs to run the shop full-time. It was steak dinner every night [not the best choice, looking back] and buying bikes wherever I could when my main brand-name suppliers couldn’t meet my demand. A year later I was swimming in bikes and debt, as were my competitors and suppliers. Dinner went from steak to peanut butter. My shop survived but many didn’t. There’s nothing new under the sun, except new people learning the same old lessons.
Now, I’m no businessperson, if I was, I would not be in the word business, but it is wild to me that people who are paid to be experts in market forecasting didn’t see this coming. I remember selling a couple used bikes at the peak of the demand because it seemed obvious inventory would catch up and cause a glut since everybody had already bought the bike they’d ride for the next 5 years or so. A huge, huge bummer for people in the industry. My heart goes out to Kona and everyone affected by layoffs.
Road cycling is dying in the USA which happens to be the world’s largest cycling marketplace. The younger folks are not adopting it, perhaps because of the high cost barrier of entry, but more likely due to the horrific distracted driver problem in the States. Looking at the reasons stated for the cancellation of the traditional Ride The Rockies event you’ll see that dwindling demographics are listed as a contributor. Pretty much the smart phone has contributed mightily to the abandonment of road cycling in large numbers. Yes, gravel riding is on the upswing but it’s a niche marketplace at best and it won’t be able to keep all of the big players today in business. The USA is woefully behind in dedicated cycling infrastructure a la The Netherlands and “Share The Road” is a myth that ends tragically far too often and just doesn’t work when a car driver is texting while passing a cyclist. From a personal perspective, my lunch time ride at work used to get 20-25 riders 20 years ago, and water-cooler talk revolved around gear-inches and Campy vs. Shimano. That’s all gone now, the younger employees don’t ride roads and it’s only a few in their mid 50s that hang on. Road cycling is in a transition from a popular mass-market sport to a bygone niche, much like golf.
They keep making ultra expensive bikes without having any real innovation. At this rate it’s cheaper and better to buy on the used market. I’m still holding out for a mtb gearbox drive that doesn’t use belt tensioners or tries to mimic the traditional drivetrain. We don’t need everything to be made from expensive carbon fiber we just want these new technologies to be implemented faster and be made available at lower price point bikes.
This article reads like we should feel sorry for these companies…nope!
They are now reaping the rewards of selling out to venture capital, brutal mismanagement, lack of vision and zero respect for long standing customers and bike shops.
Kona and Kent Outdoor can die on the f-ing vine for that BOGO sale at the end of ’23 comoletely f-ing me and whoever else bought a kona at full price in ’23…me just weeks before the BOGO.
I’m going back to supporting independent builders (wherever i can).
I’m done with big bike capitalism, letting the rich rape and pillage from the seats of their Mercedes AMG’s…no bikes to be seen anywhere!
@TheNewfieBullet – My sympathies are with the companies and shops who had nothing to do with creating the problem.