“NORMAL” IS NO MORE. START PLANNING FOR AN ERA OF CONSTANT CHANGE

I have been told by some good folks in the establishment mainstream that I am too negative, and do not recognize the positive data or the results of lobbying, advocacy, and promotion. I will admit that I work at pointing out the truth told by the facts, that in turn are the results of actions, reactions, lobbying and advocacy.

However, I am not at all interested in negatives, other than as they are representative of the facts that the American micromobility business can use to guide positive planning and actions for survival, growth and future prosperity. My focus is on the most probable, fact-based positives for the future.

With this said, it should be clear by now that there is no “normal” to return to. What was normal pre-COVID does not exist anymore. We are now doing business in an era of evolving, indefinite, and continuing crisis. It is up to us to adapt and change our businesses, to align with consumer wants and needs, as they in turn adapt to the near-term future.

Changes in consumer demand and the market that took years and decades to emerge and evolve pre-COVID now happen in months, quarters and half-years.

We have already experienced the COVID-driven, nonsynchronous shifts in consumer demand during the past 28 months of the pandemic, and been the beneficiaries of the surge in spending on both regular bicycles, the emerging variants of e-bikes, as well as parts, accessories and repair business during the first 20 months, as well as being at the receiving end of ebbing consumer demand and growing inventory the last eight months.

The pandemic isn’t over yet. As much as governments want the pandemic to end, and people want to stop social distancing and wearing masks, the BA.4 and BA.5 sub-variants now dominate worldwide. The CDC, states, cities and schools are struggling with decisions to return to masking as the virus surges this summer, people are traveling and going to restaurants, bars and concerts, and we head into the last half of the year.

For the micromobility business, and specialty bicycle retailers, the pandemic is not over yet. Managers and owners will have to make the best decisions possible for their employees, customers, shoppers and businesses.

The supply chain nightmare continues. Because the pandemic is not over yet, the COVID-induced supply chain chaos is not over, and is just a dress rehearsal for what is next. According to a July 21 Bloomberg article, “shipping systems developed before the virus struck weren’t battle-tested for pandemics, wars and extreme weather.”

The supply chain nightmare of 2020-2021 was COVID-induced. The continuation of that same nightmare is the result of a combination of the BA.4 and BA.5 sub-variants surge in China and Taiwan, and the ripple effect of the Russian invasion of Ukraine on the global supply chain and economies.

Lead times to the import dependent U.S. micromobility business for finished goods are still over 100 days from Asia. The Chinese zero-tolerance policy related to COVID will continue to cause rolling lockdowns of major manufacturing centers and ports through the rest of 2022 and possibly into 2023.

Near-shoring, reshoring and, additive manufacturing. The combination of the long lead times and manufacturing and delivery uncertainty has served to enhance interest in and investigation of both near-shoring and re-shoring regular bicycle and e-bike assembly and manufacturing to shorten primarily finished goods in-transit time, and improve the certainty and integrity of lead times.

Bringing component parts, including frames, forks, tires, and electric systems, closer to the U.S. is more complex and will take longer than end-product assembly. Mexico and South America are being investigated as possible near-shoring possibilities.

Political unrest. The high capital investments required for both near-shoring and reshoring have been, and continue to be, a significant factor. However, the rising risk associated with continuing to rely on China as a source country along with the associated risk of relying on Taiwan, underscores political unrest as a factor to be added to evaluating future supply chain disruptions.

Closer to home, 3D printing, or additive manufacturing, while still a relatively small part of manufacturing (just 2-3%, according to a McKinsey estimate), is expected to grow rapidly over the next decade. This has already been mentioned as a possible short-term “pop-up” solution to some micromobility supply chain shortages.

Climate crisis certainty. In September 2021 Bloomberg Green said “In the years and decades to come, we can be certain about two things. Climate impacts are likely to get worse. Some amount of warming is baked into the system. At the same time, solutions will become cheaper, get deployed more widely and scale faster. Together, it means the whiplash is about to get stronger too.”

Climate has been a growing factor in supply chain disruption because of an increase in the number of storms causing an increasing number of containers being lost overboard. This will continue to increase as a disruption to the logistics portion of the supply chain, but the climate crisis has become a more immediate and growing problem for consumer riding participation, now and in the future.

On July 23 the Washington Post ran an article titled “As Europe’s heat wave melts roads, Tour de France races into an uncertain future.”

The Tour ended on a Sunday that saw the temperature reach 93 degrees Fahrenheit, 20 degrees higher than the average July high for Paris. As the Washington Post article reported “… there are questions about whether the world’s most prestigious cycling race is pushing up against its own limits, whether increasingly intense European summers are making the competition dangerously extreme.”

During the Tour de France, continental Europe experienced record-setting temperatures, as did the UK, and at times the Tour organizers sprayed water to keep the roads from “melting.” Many team managers wanted to see the stages shortened and the start times moved to early in the morning when temperatures were lower, but the organizers said no because of tradition and the television coverage, which has the highest audience, and ad revenue mid-day.

Temperatures will continue to go up during the French summer, and the most important bicycle race in the world will have to change within a year or two, hopefully before a rider dies from the excessive heat, because climate change is making parts of France, and the rest of the world, too hot and humid for humans to survive outside at high noon.

In the United States, portions of the country experienced “dangerous” temperatures, which were too hot and humid for any form or type of outdoor bicycle riding. This then is one of the climate challenges that the micromobility business faces and needs to develop multiple strategies for.

Retention of micromobility participants. The U.S. also has a more unique challenge to retaining the roughly 25 percent of adult purchasers of regular bicycles and e-bikes who were identified by the NBDA Bicycle Buying 2021 Consumer Research Study (www.nbda.com) as being new to bicycle riding participation during the pandemic.

Part of this retention challenge is a perceived fear of cycling in traffic. During the pandemic, vehicular traffic was reduced and many cities established expanded bikeway and bike route networks that were safer than micromobility riding conditions pre COVID.

However, vehicular traffic has increased in the U.S. during the last quarter of 2021 and into 2022. A recent study shows that walking and biking vehicular injuries and fatalities have increased, making these activities more dangerous for some Americans.

While the recently resuscitated Inflation Reduction Act of 2022 does contain provisions for bike infrastructure projects, it will still take a concerted effort on the part of the micromobility business to work with states, municipalities and road planners in taking action to improve the safety of micromobility riding facilities, and to make roadways safer for human powered transportation going forward.

Fastest inflation in 40 years and the threat of recession. I started working in a bike shop in 1957, the year of the fourth recession in the U.S. since the end of World War II. I went to work for Arnold, Schwinn & Company in 1966 and worked through seven recessions up to the present, including 1970, the beginning of the last true Bicycle Boom, and in 1973-75, the last two years of the Bicycle Boom, and the first year (1975) of the downturn that lasted for the bicycle business until 1980. All together I have lived through a total of 10 official recessions in my working life. What I can tell you is that each recession was different, and none of them experienced the fastest inflation in 40 years.

With that said, the U.S. has experienced the fastest inflation in 40 years and is not “officially” in a recession, although some businesses, like micromobility, may already be in one.

We have followed the shoe business as an indicator of what to expect in the micromobility business. On July 11 Retail Dive reported “Shoe companies pause hiring and investing as they brace for weaker sales.”

A recent survey of shoe company executives reported that 87 percent expect weaker sales in the second half of this year. With weaker revenue, the majority have stopped hiring and have paused capital expenditures.

Fourteen days later, July 25, a series of articles appeared that set the economic tone for perhaps the remainder of 2022.

We are entering a new phase of the economic cycle. It started with National Public Radio broadcasting a story by Alina Selyukh titled “What happens when people want all the air fryers and then, suddenly, they don’t.” I know, air fryers are not regular bicycles or e-bikes. But they were a much sought-after consumer item during the pandemic, and the story Selyukh told could have just as well been about bicycles because after two years of stocking up on stuff, American consumers shifted to being all about travel and saving what they could. In other words, the consumer demand shifted, in substantial part, to services and savings.

As Selyukh reported “… on a nationwide scale, became the recipe for a whole new problem for some U.S. stores: a glut of inventory.”

She went on to report that “Big box stores like Target and Walmart are particularly working through an excess of certain items.” She closed by reporting “The shopping frenzy has slowed but hasn’t ended.”

In the next few weeks, new data will show how long this inventory glut might last, said Jason Miller, who tracks retail inventories and sale at Michigan State University. Initial evidence suggests the retailers with bloated inventories are already starting to get things under control. That was in the morning of July 25.

During the afternoon, Walmart issued a special profit outlook slashing its profit projection for the rest of 2022. Sourcing Journal issued a special report titled “Walmart’s Warning Says Retail’s Back Is Against the Wall.”

The Walton family, who collectively owns just under half the stock in the company, lost $11.9 billion in stock value the day after the company issued the special profit outlook.

The Sourcing Journal also reported that Olympic Sports’ 35 stores had shut down and that the “new data suggests a troubling picture for retail debt.” It went on to state that “Merchants lacking Walmart’s and Target’s deep pockets might find themselves up a creek without a paddle.”

I know there are some in the micromobility business who rejoiced at hearing Walmart was having problems. I want to caution that the largest retailer of regular bicycles, and a significant retailer of e-bikes, is going to have an impact on the bike shop channel, good or bad so, be very careful about what you wish for.

Robert Armstrong, writing in his Unhedged column in the Financial Times July 26, hit it on the head when he opined about Walmart, “The company expects operating profit to be down 10 to 12 per cent for the full year.” This is not surprising, but it is important all the same. It is the first unambiguous indication from a major U.S. consumer business that all is not well among Americans in the middle and lower part of the income spectrum (barring perhaps AT&T saying last week that customers were taking longer to pay their bills). We are entering a new phase of the economic cycle.

Bloomberg reported the morning of July 26 that “Walmart rings more alarm bells for the U.S. economy. Shoppers are growing nervous. If the world’s largest retailer is struggling, the rest of the consumer sector is going to hurt even worse.”

Keep in mind that Walmart isn’t losing retail customers. On the contrary, they are gaining shoppers and buyers. The problem they face is the buyers they are getting are buying the less profitable grocery products, and not buying the more profitable clothing, electronics, fitness (including bicycles), and home improvement merchandise.

Bloomberg reminds us that: “Walmart said in February that its customer base looked a lot like the U.S. population. If that is the case, then its profit warning is a red flag not only for retail and hospitality companies, but for the engine of the U.S. economy.”

Sourcing Journal closed our reading for July 26 with an article titled “Massive Markdowns Might Add up to Earnings-Season Bloodbath.”

As I get ready to file this story for the Micromobility Reporter, I want to emphasize that I recognize this is a lot to take in, but this narrative contains opportunities for those who recognize that it boils down to the basics of inventory management, merchandising and customer service.

Human Powered Solutions will peel back and present in future issues the opportunities that we uncover in the fact-based positive probabilities for survival, growth and prosperity going forward into the future.

If you have questions or comments about anything in this article, please contact me at:

jay@humanpoweredsolutions.com

59 PERCENT OF SMALL RETAILERS ARE AT RISK OF CLOSING

As shocking as the headline is, I have taken it from a Chain Store Age article that ran July 25 by Marianne Wilson, editor-in-chief reporting on Alignable’s Small Business Revenue Report based on a poll of 4,392 small business owners conducted from June 10, 2022, to July 13, 2022.

The article reports that “Nearly half (47 percent) of small business owners said their businesses are in jeopardy of closing by the fall.” The figure is up 12 percent from the summer of 2021 when a similar poll reported 35 percent of businesses said they were in jeopardy.

According to Chain Store Age, the “… risk of shutting down is particularly intense in retail, where 59 percent of small businesses said they are in danger of shutting down.”

By region, according to Chain Store Age, the Alignable report shows small business owners in Colorado, Michigan, Ohio, Pennsylvania and Texas are at the top of the list in jeopardy of closing this year.

The problem is inventory. 50 percent of small business owners responded that they were cutting back on their orders for the fourth quarter of this year, which is in line with the latest findings from the Wall Street Journal Logistics Report that “business-inventory woes are dragging down the U.S. economy.”   

As we reported last month, brands and retailers were too slow in reacting and adjusting to consumers pivoting away from goods to services, leaving brands and retailers with growing inventory and an over-stuffed supply chain as the result of the bullwhip effect.

Comments? Contact Jay Townley, jay@humanpoweredsolutions.com

INFORMATION TECHNOLOGY PART 6: PREPARING FOR DISASTER

The last article on information technology (part 5 in this series) addressed the issues of hacking and ransomware. The article discussed some, but not all, of the causes. This time we will look at some of the other causes, and the main issue a business may face regardless of the cause: disaster recovery.

As with all of these articles in The Micromobility Reporter, be aware that there is no guarantee your company won’t suffer an attack or data loss. Hopefully, some of the processes and tips in these articles will help stave off an attack or minimize the disruption.  

Hacks and ransomware as discussed are primarily initiated by individuals or groups seeking recognition and/or monetary gain. Just this week The Wall Street Journal reported that a ransomware attack believed to have been instigated by North Korea targeting healthcare providers and hospitals, was disrupted by law enforcement. Recall in the last article on this subject, I wrote whenever you have evidence of a hack or a ransomware demand, or you think you or your business have been targeted, you should alert the authorities. In this instance, because law enforcement was looking, not only was the attack stopped from impacting others, but a significant amount (about half a million dollars) of paid ransom in cryptocurrency was recovered.

State actors are the top end of hackers, and represent the most sophisticated of external threats to your systems and data. There are also internal threats that may not be as malicious, but can cause as much damage. I’ve already written about employee sabotage. This may come about in a number of ways such as being passed over for a promotion, getting mad at a supervisor or the owner, attempting to prove a point, or an employee taking action to gain access because they believe it will make them more efficient. An employee can lose or compromise data or provide system information to people outside the business, allowing them access to hack or encrypt data. All the more reason. This is why it is important to compartmentalize systems access and use tight password control.

On the other hand, people make innocent mistakes which an employee could do at any time. A mistake is just that, but whether data is lost or compromised, whether it happens maliciously or by mistake, it’s still a problem.

Another thing that can cause data or system issues is hardware and/or software failures. An earlier article mentioned the importance of making sure software updates are installed in a timely manner. It is also important to make sure your system hardware is appropriate to the software requirements. A correct correlation between software and hardware is essential to insure the software can function correctly, and that the suite of systems your business uses can interface and communicate necessary data effectively. When your business upgrades one, make sure upgrades to the other are considered and implemented as needed.

One set of potential problems that tends to be overlooked are natural disasters. Depending on where your business is located (or perhaps with multiple locations), you may be exposed to tornados, wildfires or facility fires, floods, hurricanes, earthquakes, or any combination. You may have some control concerning most of the threats I’ve written about in this and the previous article. However, natural disasters are completely out of your control, and may occur when you least expect them. Nonetheless they are real, and can cause just as much damage as a malicious attack.

Finally, a power surge or outage can do significant damage to hardware. Either could have a detrimental effect on your data and systems as well. Depending on the severity of the surge or the length of an outage, hard drives or other internal hardware devices may suffer failures, making data retrieval difficult to impossible. This scenario brings into focus the previous article in this series talking about backups. Hardware failures often do not allow for data recovery, so a backup could be the only way to restore your data.

For each of these possibilities the best defense is a good offense. Understand the systems used to run and manage your business. Take the time to find out how much data your business has generated. Initiate system user and password protocols to compartmentalize systems access for your employees, and manage how passwords are created. Make sure your data is backed up regularly and with multiple copies. And when disaster strikes, make sure you have a recovery plan.

Recovery failures happen most often because there is no plan in place. Talk with your system administrator to develop a plan to address these multiple threats. In fact, you may need to develop multiple plans, one for reach type of threat. The plans should be documented and updated as your systems, hardware and personnel change. The plans are important, but the planning process is even more so. An out of date plan that won’t work is of no help.

The plans should be simple and straightforward. They should be threat specific, and the steps should have a logical progression. They should be flexible to allow adjustments as a threat that may morph during an attack.

With proper planning, you and system administrator should hopefully be able to minimize any disruption in your systems and protect/restore your data with minimal downtime.

Feedback? Contact Steve Bina: steve@humanpoweredsolutions.com.