I’ve been in the bike biz long enough to have weathered multiple recessions. I watched the bottom fall out of the entire industry 10 years ago during the housing crash that caused the entire world economy to stumble. A number of bike companies limped into the fall of 2008 with too much inventory. Most expected the sale of kids’ bikes and accessories to prop them up at Christmas and make a dismal year passable. The Christmas sales didn’t materialize; parents opted to drop $80 on Legos and the like rather than drop $200 or more on a bike-shop-quality bike.
Anyone who follows the current financial news knows that the economists who are willing to be honest will admit that they are mystified. Most leading economic indicators look good. Theoretically, our economy is chugging along nicely. But wages are flat and the average Joe’s sense of financial security seems ever-present.
So when people in the bike industry talk of gloom, worry about doom, there are real reasons why. In the last 30 days (less, actually) I’ve seen three pieces of news that are each disturbing enough, but put together suggest things are even worse than we know.
In mid-November ASE, the parent company formed to hold both ASI (the parent of Fuji Bicycles, Kestrel, Breezer and Oval) and Performance Bike Shops filed Chapter 11. Performance has 102 locations, 40 of which are said to be unprofitable. A judge recently approved “store closing” signage appearing in all Performance locations, regardless of whether they are closing or not. All inventory is being liquidated and it looks like ASI will be broken up and sold off, bit by bit. This may well be the end of the Kestrel, Breezer and Oval brands.
Meanwhile, Fuji’s primary manufacturer, Ideal, is trying to sell off Fuji inventory it has on hand and Fuji, naturally, is attempting to block that move, arguing that any sale of Fuji bikes by Ideal will hurt ASI’s efforts to sell existing assets to meet obligations to creditors. ASI also failed to respond to a motion by Ideal that looks to have canceled all existing purchase orders, making it all the more likely that anyone who buys the Fuji trademark will be starting from scratch.
I expect Specialized will have someone at the auction to buy the Roubaix mark. If they don’t make that purchase … nah, I don’t want to contemplate that.
Last week Emerald Expositions announced they were shutting down the Interbike trade show after a three-decade run. They are laying off the skeleton crew on Dec. 31. To many, the news is unsurprising after what was roundly condemned as a disastrous move from Las Vegas to Reno.
Criticizing Interbike was easier (and less satisfying) than firing upon seafood in a tank. That the trade show’s business model was broken couldn’t be pinned on any one villain; this wasn’t a lousy management issue. With preseason orders needing to be in progressively earlier to help manufacturers manage lead times, the show stopped being the place where orders were written. And the big three can’t be blamed for seeing the utility in having their top dealers attend a multi-day event where the manufacturer was able to command the entirety of their attention.
Meanwhile, Rapha recently reported a £20M loss for the first six months Bentonville, Ark.-based RZC Investments owned the apparel brand. In the year prior to the purchase, Rapha had earned £1.4 million in profit on £67.1 million in sales, representing a 37.5 percent rise in sales from fiscal 2015. One can’t help but wonder how the company could see its sales drop to only £42.2 million; calculating a £20 million loss with a £24.9 drop in revenue. I have to imagine that all the RKP readers who commented that they’d stop buying Rapha because it was “owned by Walmart” made good on those threats; obviously, a great many other people must have felt similarly. Some 80 employees have been laid off in the wake of the earnings report.
I hate seeing the bike industry struggle. I hate seeing people I like fear for their future because sales are off because everyone has no dosh to drop on a new bike. That said, I think I see an opportunity.
Trying times like these encourage entrepreneurs to be creative about how to build entities that can weather bad economic weather.
The instant answer during times like these is always a matter of doing more with less. Leaner payroll and better systems.
Here’s why some of this is good for riders: Manufacturers can’t afford to make a bike that no one wants. Having a warehouse full of blue bikes when orange was the hot bike this year won’t work. Nor will offering a bike in just two colors. Shipping a gravel bike with an 11-26 to Southern California is as pointless as shipping a 2x with an 11-34 to Mississippi is. Ditto for shipping a bike with a 150mm-wide saddle if all you need is a 130mm-wide sitter. Don’t get me started on stems and steerers.
The smart move will be to out-Canyon Canyon. To build a company that will weather this financial typhoon means shipping the exact bike someone wants, down to the color of bar tape, either to someone’s shop or someone’s home. We’re seeing hints of this with the Myo program from Orbea as well as Allied’s ability to customize each bike they sell. Based on what I saw in Taiwan with production cell assembly, there is room to create an even more sophisticated program, and one that can result in having a bike on your doorstep in two weeks or less. It’s just the sort of program a sophisticated fit studio will thrive on.
The more someone turns custom into a commodity, the more successful they will be. The idea of turning a sophisticated process into a transaction bugs me, but when I think about what it is people want, their priorities are on the bike they’ll spend hundreds of hours on and the way they bought it won’t be their lasting memory of the bike.
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