Typhoon in Paradise

Typhoon in Paradise

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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41 comments

  1. Richard Sachs

    It’s all so fucking corporate. The landscape was once simple and elegant. Run by families who spent generations honing their trade, and market, and people skills. The industry now mirrors Rollerball, the movie.


    1. Author
      Padraig

      Well the good news is there are still people doing business the way you describe. I’m not sure I’d be able to stick around if it was 100% like Rollerball. Man, I recall watching that as a teenager and just being devastated by how dystopic and depraved it got. Going back 30 years later, when I understood better, it was even more disturbing.

    2. Rick Vosper

      Those family-run businesses you refer to in the good old days were like the Schwinns, who walked away from the global exclusive license to distribute RockShox because the product was “unsellable” (Schwinn’s 35 sales reps couldn’t sell 50 RockShox units in 30 days). The same jolly Schwinn family who turned Captain Kangaroo into a half-hour long commercial for its products and had to be restrained by an FCC ocder. Or maybe were you thinking of the Schwinn family that lost a decade-long antitrust lawsuit for market-rigging by preventing other bikes from being sold in its stores.

      Or maybe you’re thinking of the simple and elegant folks at Raleigh USA who were so clueless about materials technology they built an aluminum frame that was heavier AND more expensive than 3-tube CrMo.

      The industry you refer to had ashtrays in its trade show booths, imported trash 10-speeds from Europe (until the Japanese bikes came out better and cheaper, just like Japanese cars) and had retailers who regularly did stuff that would get them sent to jail nowadays. It was an era when bike shops had dead flies in the windows, your shoes had to be polished before every race and it was illegal to raise your hands in the air if you won the Sunday crit.

      For sure, there were craftsmen (including yourself, Richard) making breathtaking works of art in tiny shops on both sides of the Atlantic, but that was never the reality of the industry landscape.

    3. Richard Sachs

      Whoa.

      Well anyway, I was thinking about people like Fred Kuhn, and the Corsos, and Vic (and Mike) Fraysee, and Tommy Avenia. Lee Katz and all of the Turin Coop days. Gus Betat. Mel Pinto. The list is too long to type in a sound bite.

      Perhaps my yardstick for these things is 180 degrees from yours. But I miss those people and that era. And not simply for nostalgia’s sake.

    4. Steve Courtright

      I agree with Mr. Sachs – some of this new landscape parallels what has happened to “craft beer” outfits, many of which have sold out to mega-beers companies. What sells craft beer is a good story, brewers that clearly care about the product, and a connection to the customer. I kinda think I like my bikes the same way I like my beer.

    5. Kevin Sande

      Right on Rich. Strong regional businesses that knew their customers and met their customers needs.

    1. Jeff

      I was going to suggest the same. Would be riding one had they not had Dura-Ace supply issues earlier in the year.

  2. Contender

    There are smart IBDs that allow for major customization, credit for items deleted, etc. on stock bikes from major brands. These are the kinds of bike shops that will be able to retain and gain customers.


    1. Author
      Padraig

      This is true, but sooner or later an IBD ends up with stock it can’t move, and good inventory management at the point of building the bike eliminates this problem. And I’m sure if you ask retailers, they’d love not to have to worry about inventorying extra parts to satisfy their customers; I mean, if you can offer the same level of service with fewer dollars committed, wouldn’t you?

  3. Alex V

    This won’t work on all people, since Americans are so addicted to cars, but bikes are a great middle finger to automobile dependence and debt enslavement. Dollar General is booming for all the wrong reasons – it’s not that people don’t want to shop at Whole Foods, it’s that they can’t afford to. There are many economic arguments being missed by an industry pushing far too many $10K superbikes. Stop trying to “innovate” more materialistic want and start addressing actual need in communities using existing concepts. People will always need transportation – that should be the base demand.

    P.S. e-Richie was out-Canyoning Canyon before it was even a twinkle in Roman’s eye. Manufacturing and marketing genius.

    P.P.S. It’s a good thing Schwinn didn’t take that license, because then RockShox would have also been driven into the ground through mediocrity.

  4. Andrew

    Bike companies taking a minute to think about exactly what riders might want in a given bike helps too.

    A personal example: I wasn’t really looking for a new gravel bike, although there was a lot that could be updated on my 7 year old Salsa. But then Giant came out with the Revolt Advanced 0, which ticked all of the “upgrade boxes”- Ultegra hydro, clutch RD, stock 48/32, compliant frame/seat post/bar, tubeless carbon wheels. I don’t want to say its the “perfect gravel bike”, but it sure as heck was put together by someone who understood gravel riding.

    More of this kind of thinking would move more bikes.

    1. Rick Vosper

      Not sure what the problem is, bike-wise. You had some very specific things you wanted in a gravel bike and the market—or at least one company in it—delivered. Nice bike, BTW.

      If everyone else wanted the same things you did, you better believe the market would be flooded with lookalikes.

    2. Andrew

      Rick: Hi. I wrote that comment at like 315am, before riding…. I might have gotten the tone wrong. No, I have no complaint at all. I just thought I’d use myself as an example of someone who DID buy a new bike, because the industry took some time to think about what really works for gravel (or at least SE MN gravel, not to overgeneralize).

      A

    3. Shawn

      I think the problem is that the industry transformed bikes into disposable commodities. To do that, they had to come up with rapid “innovations” and then convince the consumer that s/he can’t live without them. In my local scene, it is uncommon to see anyone on a bike older than 2 years. There just isn’t enough evolution in bikes (which have existed more or less in the same form since 1885) to sustain that model, without massive marketing. Do you really need a 12th gear? Really? Does your shifting really work better than 2013 Dura-Ace? And even if so, are you good enough at pedaling to tell the difference? Didn’t think so.

      So the industry marketed the appearance of obsolescence, which was a Darwinian event. Only the giants (no pun intended) could keep up with the “innovation” process in numbers and at the pace needed to fuel and sustain the obsolescence/disposible commodity model.

    4. Jeff vdD

      @Shawn, point taken, but let’s be careful not to exaggerate. 11 to 12 cogs? Sure. But I’ll argue that fat bikes are markedly more capable than the MTBs not just of 1885, but also 1985. Ditto for FS MTBs compared with 1985. And ditto for gravel over road bikes of less than a decade okay. 11 to 12 cogs?

    5. Shawn

      Yeah @Jeff VdB, but I’m talking about the marketing-driven “need” for the Venge-STwerks-Domain 16.2, because last year’s 16.1 is so outmoded. After all, it only has 2018’s Booterseat rather than 2019’s Booster seat Plus.

    6. Jeff vdD

      @shawn, sure, I get it. And, I don’t want to forget the best part of your post: “are you good enough at pedaling to tell the difference?”

      I rarely am.

  5. Pat O'Brien

    I buy, from my local bike shop, the frame set and all the components needed for them to build a bike exactly like I want it. It isn’t that expensive. In the last 4 builds, the price has been equal to or close to a similar factory bike. Perhaps that is where the market for a LBS is heading. I can’t understand an experienced rider settling for a bike specced by a corporate bean counter.

    1. Jeff vdD

      It doesn’t even have to be a corporate bean counter. A bike could be spec’ed out by the most knowledgeable rider there is. But that doesn’t mean it’s the bike that’s right for me. Mechanical Di2? Awesome. But I want eTap. Rainbow-hued black on carbon fiber? Excellent choice. But I want unpainted titanium. And so on …

  6. David Stanley

    I think it’s useful to remember that this is going on across a wide variety of industries. The snow sports business has wrestled with this exact situation. Ditto for boating and hunting. And those are just the ones with which I’m familiar. We all remember the old days with joy, and a little frustration, but the reality is that companies need long lead times, and customers want fast home delivery and near-infinite consumer choice. That has changed the landscape for good.
    Here in Flint, all of our indie music gear stores have closed. We have Guitar Center. That makes me sad, too.
    I have no answers. No one does. Most diehards in cycling say we want the ‘human touch.” But for the majority of the tangential people in cycling, the people whose purchases drive holiday sales and entry level bikes, it’s clear that the human touch is not as important as we would like. They vote with their wallets and sadly, we know how they vote.

  7. Rick Vosper

    @Richard. Good points. There are still nice people and good companies out there (think Chris King and Santa Cruz and Ibis), but wave after wave of industry consolidation is forcing them into the fringes. I don’t know if the industry as a whole is less nice, but it’s certainly become more corporate…which may amount to the same thing.

    Personally, I think a healthy cycling ecosystem (certainly for riders) consists of a lot of smaller companies, a lot of different products and ways of doing business, a lot of interesting developments. But we created the present bland homogenous ecosystem ourselves with our buying choices—none of the big companies would be big if a whole lot of people didn’t buy their stuff—and now we get to reap what we’ve sowed.

    And then there’s dinosaurs like us standing around wondering what the heck happened.

  8. Kayce

    There is both sides of the mouth talking here. One side says custom everything has to be the way, but the other bemoans dead stock. It’s not possible to give the customer choice of 50 different bar tape colors and not have 49 of those tapes not be sold. Every complaint about local bike shops is the same. They don’t have the exact niche thing I want, and its too expensive. It is impossible to stock everything, and the more you stock the more money is outlaid so the more money has to be recouped. Consumers always want the business to take up all the expenses, because most consumers have not worked the other side of the counter or the other side of the balance sheet on a small business. There is a very large cost in doing all these things, that most customers do not understand. Its just as silly for me to ask Cannondale to send me 8 different stems for each Caad12 my shop orders, as it is for a customer to assume a free $40 wholesale stem from their bike fit.


    1. Author
      Padraig

      That’s the whole point to working with assembly factories that are more nimble. It takes the burden of stocking 50 different colors of bar tape off the shoulders of a bike shop and places it with a factory that is assembling thousands of bikes each month. For them, managing that stock is much easier. It’s a way to allow a shop to work with their clients so that they get exactly what they want without weighing down a small business with stock no one wants.

    2. Jason Rico

      Ah Padraig, but that idea, while perhaps great for the consumer, just moves the inventory risk further up the food chain.
      In your model the assembly factory gets stuck with a pile of red bar tape.
      Factory places the tape order when the customer places the bike order? That means the tape maker is stuck with a pile of red bar tape. And What do you think the MOQ for red bar tape is?
      Yes, they make a lot of bikes but anticipating the tape colour on 700 bikes a day, even with rolling inventory is a crap shoot.
      I’ve worked for an assembly factory and you should see the crazy stock of onesies/twosies/tensies left over at the end of the year. Exponentially increasing that to accommodate end users choices will make the Great Pacific Garbage Patch of plastic look manageable!


    3. Author
      Padraig

      Jason, thanks for chiming in. I agree that in an increased customization business model someone gets stuck with the inventory risk and increasing anyone’s capital outlay is a big ask. But if we think about who has the ability to do more to go deep on inventory, it’s an assembly factory. If we want retailers to survive, brands need to do more to serve them and their needs.

  9. scott g.

    The industry and brands maybe doing poorly, bikes on the other hand are having
    a golden age. I can buy new trailing edge tech and build up a bike built by people
    I know. Long live the dis-integrated bike. There are so many small companies
    producing interesting bikes, components and accessories, that the mainstream
    is of little to no interest to me. Yearly bike model changes???, just seems
    wasteful, get off the merry go round.

  10. Aar

    The Interbike and Rapha pieces trouble me. I can only hope that ASI folding up takes the low quality junk they make and sell permanently off the market and that the price point void is filled with honest quality products.

    Yes, I know they have some decent stuff mixed in but there are just too many products that should never have been made.


    1. Author
      Padraig

      Characterizing the entire Fuji line as somewhere between “low quality junk” and “decent” is wildly unfair to them. The Supreme is one of the most interesting women’s bikes out there and my experience on the SL a few years ago when it was released was most impressive. All of the bigger bike companies, from Specialized and Trek to Fuji and Felt make high quality bikes as well as some more affordable models. The market demands they do.

    2. Aar

      As stated, ASI made some decent stuff.

      Frames that were obviously made in an out of alignment jig with different brands stenciled on, wheels that have no hope of staying true for 100 miles and otherwise low end components with badly out of date 105 levers on bike models that are “on sale for 60% off” for $999 trouble me. Trying to roadside true that wheel to the point that it doesn’t rub brakes and frame that it could barely clear before a first ride is challenging enough. Biting one’s tongue when the poor consumer figures out their misfortune is infuriating the first time it happens. Noticing that they also have brand new pedals, helmet and cycling clothes purchased on the same “sale” at the same “LBS” makes it worse. Repeating it multiple times when sweeping every beginner ride and recognizing a single source for these messes is disheartening. Noticing that we “never” see most of those people again is a huge sinkhole of opportunity for cycling.

      Later, having one of those folks come up to you in a reputable LBS to thank you for the roadside assistance on “that day” and noticing that all of their equipment is worn in and of reputable brand is the reason to continue to sweep beginner rides.

      I know that these stories are the exception and they come from all corners of the industry. However, in my experience, they are too commonly related to a specific source across multiple markets.

      Padraig, please do not moderate this. It’s honest. Believe it or not, this is as succinct and PC as my poor language skills can make it, while still conveying the point through the emotions it brings forth. Though posted on your site where you sell space to the cycling industry, the words are mine. BTW, only a few Fujis were involved and those cases were more likely mechanic error than product quality.


    3. Author
      Padraig

      The only time I put a comment into moderation is when it violates our commenting guidelines, which can be found here. (And I’ve done it fewer than a dozen times over the years.)

      I’ve seen poorly manufactured bikes all but dissolve on rides, so I know well the concern you express. However, I think we need to separate those concerns from talk of Fuji. There’s not a single brand out there selling new stuff with out-of-date Shimano components. That’s just not a thing. I don’t say that to defend Fuji; I say it as much to defend Shimano and the integrity of the biz.

      On a pricepoint comparison, I’d put Fuji right alongside Trek, Specialized, Scott or Bianchi, or anyone else producing truly competitive bikes. The people there work hard and deserve to be treated as such. The bankruptcy the company now faces has much more to do with our economy and the Performance chain than anything Fuji might have done wrong (outside of doing business with Performance).

    4. Aar

      9 speed shifters on in catalog bikes 3+ years after that shifter line migrated to 10 speed? I get that suppliers often find old inventory in a warehouse somewhere. At what point should product be marketed as New Old Stock? Again, not Fuji.

  11. Ron

    The overall context is one where most people are getting poorer and poorer, and more wealth is concentrated in the hands of just a few. You don’t have to be Thomas Piketty to understand the bike industry as another typical part of that situation. You don’t have to be Bernie Sanders to have the obvious remedy to recreate a more equitable and sustainable culture where ordinary people have enough resources to buy a modest luxury item such as a nice bicycle.

    1. Geoffrey Knobl

      Ah, ditto! I started to write a response like that but then saw yours. We all know the obvious remedy which will work since it has worked multiple times before. The biggest problem is convincing others that’s true despite the “media” to which they listen.

  12. Jorge

    What seems like a simple baby-step in the right direction — which is somewhere between full color/component customization ability with online ordering and shipped to your home, and the current LBS model of take what we have and configuration is only one way — would be a model where, at the LBS, you choose the frame/groupset model, and then a cockpit package. Can be different quality levels, different bar widths, stem lengths, saddle choices, seatpost setbacks, etc.. Things a fitter likes to tweak.

    All this stuff comes from a distributor anyway — why not ask them to do something that makes them earn their middle-men cut by fulfilling package orders in this manner? The manufacturer perhaps can sell this customization as an eg. $150 add-on (plus whatever cockpit choices impact cost) to stock. The LBS wins, because they get say $100 of that $150 to do the cockpit assembly (bar install, cables, etc).. and perhaps more folks interested in a fit at the time of bike purchase (more money).

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  14. MCH

    Seems to me this is simple capitalist evolution. Companies make decisions on the size and demand of a particular market and win or lose based on the accuracy of those decisions. I’d argue that ASE / ASI having been making bad decisions for many years. The bill has come due for bad management. Perhaps the same is true for Rapha. They grew very rapidly, and perhaps thought that that growth curve would continue forever. Cycling is a small sport / hobby with many companies trying to get their share. Not all are going to be successful, nor should they be.

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