Day: October 1, 2022

I had planned a different subject for this month’s newsletter article, but after several phone and Zoom conversations over the last two days, I find myself compelled to write about a topic I haven’t visited in at least two decades — a full blown shakeout in the specialty bicycle retail channel of trade.

Shakeout is a term used in business and economics to describe the consolidation of an industry or sector, in which businesses are eliminated or acquired through competitive pressure. It may also refer to a situation in which many investors exit their positions, often at a loss, due to uncertainty in the market or recent bad news.

Shakeouts can often occur after an industry has experienced a period of rapid growth in demand followed by overexpansion by brands and retailers. Large, diversified companies are often most able to endure a weak business climate and can benefit from shakeouts.

In short, a shakeout is a business situation in which people lose their jobs, and companies go out of business, because of economic difficulties.

On June 29 a BRAIN article informed the bicycle business that “Saris Cycling Group, a victim of the ‘COVID whiplash,’ restructures for sale.” That was three months ago, almost to the day. In between we have been informed of companies laying off employees, reducing staff and cutting overhead, but nothing that could be considered extreme.

However, I believe that is about to change, and not for the better. In the last 48 hours we have heard of brands and suppliers that can’t collect past-due invoices from bike shops, and bike shops that are laying off staff and cutting expenses because they have excess inventory and are not able to pay their bills.

You probably already know this, but the specialty bicycle retail channel of trade in the U.S. is the only channel selling bicycles through two-step distribution. The brands buy bicycles from original equipment manufactures’ (OEMs) mostly located in Asia, and pay them by letter of credit or wire transfer. They then receive and warehouse the bicycles, sell them to retailers, and are paid or extend credit, and are paid according to the terms of that credit agreement.

While there are variations of the other bicycle distribution systems, they are typically some form of one-step distribution whereby the retailer purchases from the brand owner, who in turn may have the bicycles produced by a contract OEM, but the payment is generally some form of LC or wire transfer with the bicycles shipped to the retailer’s warehouse or store.

I don’t mean to bore you with these one and two-step distribution details. I only reference them because they represent the greatest financial difference between the bicycle retail channels of trade in this country. They are the economic reason a shakeout is so devastating to the bike shop channel of trade.

The mass merchant channel of trade (Walmart, Target et al), have already gone through their pain of excess inventory, and made their order adjustment upstream in the form of order delays and cancellations because they deal, for the most part, directly with the companies that own the brands, who in turn manage the OEMs.

The specialty bicycle retail channel of trade, on the other hand, has not dealt well with its excess inventory issue because the brands that deal with the OEMs have maintained their distance from the thousands of small, and for the most part, independent bike shops that sell their bicycles to consumers.

The financial wrecking ball, known as a shakeout, is between the specialty bicycle retail brands and their dealers, with the pain of laying off staff, downsizing, having to sell, liquidate or go into bankruptcy, spreading upstream to brands and downstream to bike shops.

Unfortunately, the financial winter that is coming could not be avoided once the bullwhip effect had led to hoarding up and down the specialty bicycle retail channel of trade. Some of the pain could have been ameliorated if the brands had communicated and been honest with their retailers and established plans for paying down debt and merchandising bicycles with the best possible profit margins for everyone in the supply chain.

As for the American industry association, it has in our opinion already pivoted to the mass merchant channel for financial support. This doesn’t mean walking away from the specialty bicycle retail channel and brands, but it does mean recognizing the reality of the shakeout that has just begun. If you want confirmation, check out the complete list of current sponsors of the upcoming SHIFT 22 BLC in Bentonville, Arkansas, this coming month.

Contact Jay Townley: jay@humanpoweredsolutions.com

Back on September 12 I finalized my airline reservation to and from Bentonville, Arkansas, a midsize community that I had only read about and learned a little about from my daughter, a long-time Walmart employee, who a decade ago was selected by her store to attend an employee event for associates, all expenses paid.

My interest is the upcoming PeopleForBikes SHIFT 22 Conference October 18-20 that I will be attending with my partner, Mike Fritz, representing Human Powered Solutions, a member of PeopleForBikes.

Imagine my surprise September 19 when I did my daily reading of publications and articles (online, I might add). I found Alan Murray, CEO of Fortune, started his column with, “I was in Bentonville, Arkansas last week for the first time in 15 years, and was surprised to find what a lively little town it has become.”

He points out that “Much of the credit for Bentonville’s renaissance, of course, goes to the Walton family, which has invested heavily in the town, including building a world-class museum – Crystal Bridges…”

In that museum, Murray found Walmart founder Sam Walton’s 10 rules of business posted on the wall. Because he felt they “…still seem to strike all the right chords,” he listed them in his column, and I am providing them here:

• Commit to your business.
• Share your profits with your associates.
• Motivate your partners.
• Communicate everything you possibly can to your partners.
• Appreciate everything your associates do for the business.
• Celebrate your successes.
• Listen to everyone in your company.
• Exceed your customers’ expectations.
• Control your expenses better than your competition.
• Swim upstream.

I respectfully suggest there is a lot to be learned from these 10 rules of business, and the Crystal Bridges museum is on my list of places to visit while I am in Bentonville this month.

Contact Jay Townley: jay@humanpoweredsolutions.com

Be aware:  lithium-ion battery packs used to power electric bicycles and scooters suffer damage that will compromise their safety and stability if partially or totally submerged in water.  This damage can be even more severe if the battery packs are submerged in salt water, as you would expect from storm surge associated with Hurricane Ian.

Please check your inventory.  If you have battery packs that have been partially or totally submerged in flood water during the storm, we advise that you carefully remove all affected battery packs to a safe location outdoors, such as a parking lot, away from your store and any other flammable materials.

We urge that you notify your local fire department that you have a quantity of potentially dangerous lithium-ion battery packs giving the fire department the exact location of the battery packs.

Solicit advice from the fire department as to what to do next.

The e-bike industry’s recycling partner, Call2Recycle, is available should you need help with safely handling damaged E-Bike batteries. Please reach out to ebikeprogram@call2recycle.org if you need assistance. 

Please stay tuned for further advice.

COVID-19 and the pandemic accelerated the changes in our world over the last 31 months. Getting back to “normal” is no longer possible. Going forward there are some things that COVID broke that can possibly be fixed, but others are either changed, or gone forever.

President Biden has declared the pandemic over for America, but as those of us in the bicycle business know, we are still caught up in a COVID economy and supply chain that begins in a China periodically strangled by an ongoing zero tolerance policy that locks down millions of workers, and disrupting thousands of factories and supply chains for weeks at a time.

In this new global economy, the bicycle business has quickly adapted to increasing costs and inflation, but now must cope with decreasing and shifting consumer demand and preferences and a glut of inventory.

Yogi Berra’s quote (whether he actually said it or not) is very relevant in that the bicycle business is giving off every indication right now that it really doesn’t know where it is going, other than headed for an apparent shakeout.

Starting with the supply chain that is still messed up, the business is doing nothing to sort out the misleading lead times that are currently being quoted and communicated to both retailers and consumers.

At this writing, we are at the end of September and about to begin the fourth and final quarter of 2022. The “official” lead times are still out into late 2023 and early 2024, with some new componentry pushed to early 2025. We submit that this, at best, is simply not correct, and is detrimental to fixing that which can be fixed in the supply chain.

Recent visitors from America to the recent Taichung Bike Week tell us that they have observed what appears to be “hoarding” of componentry on the part of Taiwanese OEMs.

We also have first-hand reports indicating that while “official” lead times are still out months, if you come to an OEM with a legitimate LC-backed firm order, they can shorten and improve delivery lead times substantially.

We know of a brand that needed several hundred of a component to service a recall, and the supplier was able to guarantee shipment from Asia in about two weeks.

The point is the bicycle business is doing nothing to communicate the truth about lead times to the trade or consumers. Doing so would assist most brands, suppliers and retailers in fact-based business planning, replenishment and merchandising.

Contact Jay Townley: jay@jayhumanpoweredsolutions.com