Day: December 6, 2022

Half of adult e-bike riders (50.7 percent) started (39 percent) or returned (17.1 percent) to riding a bicycle during the pandemic, from 2020 to 2021. This data is from NBDA consumer research published in late 2021 and available at www.nbda.com.

This is reminiscent of the home-grown beginnings of BMX on the American West Coast in the late 1970’s. BMX emulated motorcycle motocross racing, employing modified 20-inch bicycles.

The research also says that most adult cyclists who plan to buy an e-bike will purchase a BMX bike!

Before you toss this response away, stop and consider that the majority of consumers aren’t really that accurate about bicycle styles and types. When adult cyclists say they plan to buy a BMX type e-bike, we suggest many are thinking of the fat-tire 20-inch or 24-inch e-bike they have seen on the Internet, like this one:

American e-bike brands like Rad Power Bikes (founded in 2015), Juiced (founded in 2010) and Super 73 (founded in 2016) were direct to consumer (DTC), and are now including bike shops in their distribution and marketing.

These brands, and others like them, are based on motorcycle, moped and scooter design. They have in many cases excited consumers who have never ridden a bicycle before about riding an e-bike, or “bicycle” as defined.

Our analysis indicates that the sales surge during the pandemic changed the bicycle market and business. The NBDA consumer research found the traditional mainstream bicycle business views e-bikes as primarily an electric assist feature add-on to regular bicycles, and appeals to older bicycle riders. New e-bike brands that are primarily DTC are designed and marketed to new and younger consumers who are interested in environmentally-friendly recreation and transportation.

The traditional bicycle business and customers are more interested in values like component groups and proper fit. The new brands, and their younger, more female customers, are more interested in eco-friendly outdoor recreation and transportation. They are also interested in what a brand’s values are, as well as what they support and believe in.

Reaching out to and effectively communicating with both the traditional and new customer is the challenge for the future of the American bicycle business in uncertain times for consumer engagement and participation.

Understanding the traditional and new consumer demographics, along with changing buying and use habits, will require a change in thinking, marketing tactics and strategies going forward. It is no longer just about banning “them” from local trails and bike paths, or restricting “out-of-category” products. It is about understanding differences of perception, and finding common ground to actually be inclusive, to grow the American bicycle business and market.

Contact Jay Townley: jay@humanpoweredsolutions.com

A November 24 article from The Economist reported that “Multinational firms are finding it hard to let go of China.” The subhead asked “Should companies divest, decouple – or double-down?”

It is no surprise that companies and brands that have sourced their global supply chains in China for decades, and more recently selling their products to the emerging Chinese consumers, are having difficulty moving away from China as the geopolitical situation makes it harder to continue to stay there. But what does this have to do with the American bicycle supply chain?

Forty-years ago Sears was the largest retailer of bicycles in the U.S. I ran into their bicycle buyer at a restaurant in Shanghai in 1984. Over the next 10 years every retailer and brand associated with the American bicycle supply chain established sourcing in China.

Giant manufactured for Trek. Giant established bike shops in China. Giant, we understand, helped Trek establish bike shops in China as well. Merida manufactured for Specialized and, we understand, also helped Specialized establish bike shops in China.

Over the next the next three decades all three, Giant, Trek and Specialized, became billion-dollar companies with world-wide distribution including China. This also means all three are multinational.

We can only speculate about the dollar volume of the business the two American brand companies are doing annually in China. Assuming it is appreciable, we are also assuming they, along with publicly-traded Giant, find themselves in the same situation as The Economist describes, finding it hard to let go of China for several reasons, including sourcing from a well-established supply chain, in addition to the revenue from doing business with Chinese consumers.

The bicycle business isn’t high-tech, but from the U.S. bicycle business standpoint, it has been dependent on the combination of Taiwanese and Chinese manufacturing, engineering and supply chain expertise for three decades. American bicycle and e-bike brands can design and engineer products, but they rely on Original Equipment Manufacturers (OEMs) for manufacturing, engineering and expertise. Leaving China means figuring out how to maintain the level of quality manufacturing that is available from Chinese OEM sourcing.

Part of the equation is that the majority of Chinese exporters to the U.S. market, including Giant and Merida, are owned or controlled by Taiwanese companies.

The American bicycle business, including the supply chain, grew-up with this conundrum and learned to live with it pre-Covid and pre-pandemic, and before the geopolitical situation grew into the current situation where multinationals, including the leading brands in the American bicycle business, have to decide to “divest, decouple – or double-down” relative to business in and with China.

Contact Jay Townley: jay@jayhumanpoweredsolutions.com

There has been a lot of chatter in the bicycle business of late about reshoring bicycle and e-bike manufacturing to the U.S. Anyone who follows my articles and op-eds knows I am a long-time proponent of reshoring (bringing bicycle and e-bike manufacturing back to America), or nearshoring (bringing manufacturing inside North America to Mexico, Canada or both).

To be clear, manufacturing is not assembly. The two terms of art have different meanings when applied to the bicycle business. They also require different levels of capital investment. However both require the same level of component support.

Manufacturing means rolling the tubing, or processing tubing, that is formed, welded, or otherwise joined into a frame, front fork or other frame configuration. This makes up the primary sub-assembly of a bicycle that may be coated in some form, and joined with other sub-assemblies like wheels, or electric propulsion systems, and then assembled and packaged with the required components to create a complete bicycle or e-bike for use by consumers.

In short, a bicycle manufacturer fabricates the frame and front fork, and combines them with all the required sub-assemblies and components into a packaged product for final assembly by a consumer or commercial assembler.

Assembly means purchasing the frame, front fork or other frame configuration pre-built. This becomes the bicycle’s primary sub-assembly that may be coated in some form, and joined with other sub-assemblies like wheels, or electric propulsion systems, and then assembled and packaged with the required components to create a complete bicycle or e-bike for use by consumers.

The short version is a bicycle assembler buys everything, and then assembles and packages the various pieces into a complete bicycle or e-bike for use by consumers.

Detroit Bicycle Company, owned by Cardinal Cycling Group, is currently the largest bicycle manufacturing plant in the U.S. with annual production estimated at 10,000 to 15,000 complete bicycles per year.

Bicycle Corporation of America (BCA), owned by Kent International, is the largest bicycle assembly plant in the U.S. with annual production estimated at 300,000 complete bicycles per year.

BCA has the capacity to assemble far more complete bicycles and e-bikes, and will eventually add all the machinery and other equipment required to become a manufacturer. The primary limitation to growth to a realistic annual production of around 1 million complete units per year, is the availability of component parts in-country that do not have to be imported from off-shore.

All the business entities currently involved in bicycle and e-bike manufacturing and assembly in the U.S. know and understand the nature and meaning of this limitation. It is significant.

Let us start by following the money from retailers in the U.S. up-stream, and following the revenue to the original equipment manufacturers (OEMs) and their sub-contractors and component suppliers.

When consumer demand was high, as it was from the second quarter 2020 to about the third quarter 2022, everybody paid full price and more. The discounting and price cutting that plagued the bicycle business and drove down gross margins for decades disappeared. It was replaced with fluid cash flow and high gross margins of profit for retailers, bicycle and e-bike brands, OEMs and component brands and manufacturers.

For the first time in decades, suppliers had the upper hand. Retailers, including Walmart, had to pay the price to get relatively hard-to-get finished bicycles and e-bikes, including ocean, air and trucking costs.

Giant and Shimano both made it clear that they were not going to expand production capacity by building new manufacturing facilities. They were looking at the probability that the so-called “boom” wasn’t going to last long enough for them to finish plant expansion before the added capacity would no longer be needed because consumer demand would recede. They did add shifts and worked what weekend and holidays they could, but all within existing manufacturing facilities.

During the pandemic a lot of money was wasted, but a lot of money was also made up and down the U.S. bicycle supply chain that begins in Asia.

Consumer demand has indeed receded, and the U.S. bicycle business is headed for an inventory-induced shakeout that will probably last from three to five years. Price cutting and discounting have already returned, along with the brands trying their best to manipulate retail pricing.

Pricing power has shifted back from suppliers to retailers, although mostly in the mass, full-line sporting goods and specialty outdoor channels. Bike shops are currently in a battle with brands over retail price control.

With all of this said, why would publicly-traded component brands want to invest in U.S. manufacturing, and explain the investment to shareholders, when they can continue to bank profits earned during the pandemic and pay dividends to investors?

Keep in mind some of the OEMs are publicly-traded companies, and they are in much the same situation relative to the U.S. market. The same question can be asked about privately-owned component companies and OEMs as well.

There is also the possibility of the component companies and OEMs, the majority of whom have invested in and built manufacturing facilities in Europe, shifting a portion of the U.S. supply chain to their European production facilities, particularly if the U.S. re-imposes the 301 tariffs on Chinese imports that are currently suspended, and if the war in the Ukraine further suppresses the European market.  

While I am an advocate for reshoring and nearshoring, I am also a realist who worked in a large U.S. bicycle manufacturing company for 14 years before it had to take advantage of globalization and shut down domestic operations and become a large importer.

I spent the next 10 years supervising the company’s purchasing and logistics operations that involved buying complete bicycles, fitness equipment and accessories primarily in Taiwan, China, Singapore and Japan.

What I have observed since 1990 is bicycle manufacturing and assembly, as well as component manufacturing, leaving the U.S. and North America, relocating in Asia to be closer to manufacturing OEMs primarily in China (with the high end in Taiwan). The American bicycle business and market has become import dependent, and this takes us full circle, back to why reshoring is difficult and still a long way off.

There is a limit to the level of reshoring that can be realized because there is a limit to the revenue and profit that can be made as long as components have to be imported from outside North America.

This becomes a double-edged sword in that tariffs on imported componentry have to be kept within a reasonable range. If too high, as with the 25 percent punitive Section 301 tariffs on imports from China, this will discourage domestic assembly and manufacturing. If too low, this will discourage component manufacturers from investing in U.S. production because the domestic industry isn’t protected.

Since bicycles and e-bikes are not high tech, they are not going to attract much if any support from the government or private investors. The financial support is going to have to come, or at least start, from within the bicycle and e-bike business.

The support of state and local government in providing tax incentives and relief, as well as employment incentives, will be important. However, the most important incentives will have to be structured to make it attractive for component manufactures to build plants in the U.S. and/or North America if there is going to be any appreciable reshoring of bicycle and e-bike manufacturing.

Despite the geopolitical tensions between America and China, and Taiwan and China, the U.S. bicycle business is finding it difficult to extract itself from China. Even moving to Vietnam or Cambodia is difficult because of the dependency on raw materials and components from sources in China.

There is no easy answer, and the U.S. bicycle business is going to have to do careful planning and line up local and state political and financial support well in advance of turning the first shovel of dirt.

Perhaps even more important is going to be the effort that local and state governments are going to have to make to attract and convince a sufficient number of component manufacturers to commit to the U.S. to support domestic assemblers and manufacturers who can than grow their business with brands and retailers.

Crafting a plan, and then being patient and flexible, is going to be required if reshoring is going to actually happen at any scale in the U.S.

Questions or comments? Contact me at: jay@humanpoweredsolutions.com.