June 5: “Retailers are starting to shed warehouse space as they pare back their logistics networks and reset their inventory strategies.” The Wall Street Journal Logistics Report: “Discount merchant Big Lots recently closed four of its smaller distribution centers, and hiring in the warehousing sector is in retreat.” The WSJ Logistics Report’s Liz Young writes, “The latest moves follow efforts by market leaders Amazon.com and Walmart to scale back logistics operations, part of a broad realignment underway now that pandemic-driven supply-chain disruptions have largely receded, and consumer spending patterns are shifting toward services. The impact is rolling across an industrial real-estate market that had been booming in recent years. Vacancy rates are ticking up from historic lows, and payrolls in the warehousing sector have fallen by more than 41,000 jobs in the past year. Several big retailers say they’re winding down their destocking efforts, but it looks like they’re still resetting their logistics networks.” HPS Analysis: There are two issues here. First is the commercial real estate market, which is now moving into a bad patch that includes the availability of warehouse space and vacant office space, including whole buildings. Retailers, wholesalers and suppliers that over-expanded are now divesting if they can. The second is the big retailers like Amazon and Walmart shifting their focus from so-called “destocking” to “resetting their logistics.” The same things are happening in the bicycle business, except no one is talking about it. The lack of transparency is not at all helpful downstream for specialty bicycle retailers and their business planning going forward.

June 5: “FDNY: New York Fire Department links more deaths to lithium-ion battery fires.” Bicycle Retailer and Industry News: “More people in New York City have died so far this year because of lithium-ion battery fires than all of last-year, according to recently released Fire Department of New York statistics. Entering June, according to FDNY data, there were nine deaths and 64 injuries attributed to fires sparked by lithium-ion batteries. So far, 65 structural and 32 non-structural fires, and 97 investigations into lithium-ion battery fires, have occurred.” HPS Analysis: While it is true that only some electric bicycles and lithium-ion batteries for electric bicycles were directly involved, the fact remains that no matter how small the number, electric bicycles were involved in some of these tragic fires and fatalities. It is time the bicycle business stops saying “it wasn’t us,” and pointing its finger at other mircromobility devices, and takes full responsibility for the role electric bicycle products have played, and goes all-in to inform, educate and protect consumers and retailers. This includes finding out what the FDNY needs, and go all out to provide it.

June 8: “Nearshoring gains momentum in Mexico, and it’s China’s loss.Sourcing Journal: “As shippers reevaluate their sourcing options, Mexico is gaining ground as a nearshoring hub, and stealing import share from China. Shipment volume from Mexico to the U.S. increased 20 percent year-over-year, when measuring the 14-day average number of tracked shipments, according to FourKites data.” HPS Analysis: Mexico, as this article points out, is gaining as a nearshoring alternative to China for many products, but not bicycles. The manufacturing base and infrastructure for bicycles are in place in Mexico, with the important exception of bicycle parts and component manufacturing. The same is true of South Carolina and Georgia in the United States. Both states are sites of either established or new bicycle assembly and distribution facilities, but both also lack the essential support of bicycle parts and component manufacturing. Since the American bicycle product supplier association was absorbed into the larger of the two advocacy nonprofits, and seems to have lost any fire in its belly for nearshoring or reshoring bicycle manufacturing.   

June 8: “Canada wildfires: U.S. East Coast sees worst air quality in years.” BBC News: “Washington D.C. and Philadelphia experienced their worst air quality in years as intense wildfires in Canada continued to impact millions. The poor conditions have forced event cancellations and grounded flights across the U.S. Nearly 100 million people are experiencing very poor air quality in North America.” HPS Analysis: Global warming and the ramifications, including wildfires, are creating air quality problems that make it difficult if not impossible to ride bicycles outside. Bike shops are fortunate to have indoor smart-cycles, trainers and exercisers that they can offer as alternatives to outdoor bicycling. The Schwinn Bicycle Company needed cold weather winter business to keep the plant in Chicago operating 70 years ago, and also turned to indoor products. The indoor exerciser was created from the front “harp” of a women’s bicycle, and was introduced to consumers through Schwinn franchised dealers to address this. A lot has changed since then, but the increase in air quality problems makes all forms of indoor cycling a viable option, and an alternative for American bike shops to offer consumers.

June 9: “Why do businesses keep raising their prices?CNN Business: “After two years of surging prices, economists still can’t agree on what has caused the world’s worst inflation crisis in decades. While the usual culprits cited by economists include pandemic-era supply chain bottlenecks, the war in Ukraine, and various U.S. economic policies, others say it’s due to ‘greedflation,’ the idea that companies use higher inflation rates as an excuse to jack up prices and grow their margins. However, according to preliminary findings in a New York Federal Reserve survey, there might be something else at play. The survey of 700 businesses across New York, Atlanta, and Cleveland found that the strength of customer demand outranked all other factors that companies weigh when setting prices, including steady profit margins and overall inflation. That means a business can essentially set prices as high as it wants, as long as they aren’t so high that they drive away the customer base. In other words, it’s Econ 101: Good, old-fashioned supply and demand.” HPS Analysis: Our editor believes in Econ 101, and the law of supply and demand, and doesn’t think much of the theory of greedflation. While I am neutral about the question, I do note that more than 82 percent of the businesses surveyed by the New York Fed said demand factored into their pricing decisions, while 52 percent of businesses surveyed said they take the overall rate of inflation into account when setting prices. Retail prices appeared to increase with elevated consumer demand during the pandemic. Bicycle purchasers were willing to pay higher prices, until they weren’t. While inflationary prices may have eventually driven consumers away, that still doesn’t explain why they continued to stay away after the discounting and prolonged sales kicked in, and prices tumbled.

June 11: “Is doing business in China becoming impossible for foreigners?Economist Business: “Selective enforcement of draconian data and spying laws is scaring Western companies. Judging purely by the steady stream of Western executives crossing the Pacific, China is picking up where it left off before the onset of COVID-19. In the past couple of weeks, Elon Musk of Tesla met with officials in Beijing on his first trip to the country in more than three years. At the same time, Jamie Dimon of JPMorgan Chase, America’s biggest bank, was hosting a conference in Shanghai that brought together more than 2,500 clients from around the world. Hundreds of business bigwigs have made similar trips in the past three months. President Xi Jinping’s top officials have been greeting them with a mantra that after a pandemic hiatus, ‘China is back in business.’ Once the executives settle in though, many are finding the place a lot less welcoming. In April, the government strengthened an already strict anti-espionage law, and according to the Wall Street Journal, put China’s spymaster in charge of cracking down on security threats posed by American firms.” HPS Analysis: Over the last 40 years, Western companies and investment firms have conducted due diligence utilizing the Chinese offices of American and European companies. In March, five local employees of Mintz Group, an American due-diligence firm, were arrested over what many suspect was a potential breach of local laws related to data security. A month later, Chinese authorities launched an investigation into Bain, a consultancy with headquarters in Boston, over apparently similar transgressions. These cases have sent “chills down the spines of foreign executives.” American companies are separating their Chinese branches, making them independent, or simply divesting and leaving China. The American bicycle business is currently doing everything it can to resource elsewhere in Asia, but is finding itself continuing to need components and parts from China. “Decoupling” is proving difficult at best, and since many American bicycle brands are dependent on OEMs with manufacturing facilities in China and Taiwan, the process of re-sourcing is proving difficult and disruptive.  

June 12: “Ocean freighter ordered to pay furniture retailer $9.8M.” Sourcing Journal: “The Federal Maritime Commission (FMC) slapped Maersk-owned ocean liner Hamburg Sud with a $9.8 million fine after it found the German container shipping company refused to fulfill shipping contract obligations with a furniture retailer. Hamburg Sud must pay Florida-based online furniture and home goods retailer OJ Commerce (OJC) on the grounds that it violated the Shipping Act of 1984 by preventing the importer from accessing contracted cargo space for its containers.” HPS Analysis: While not bicycles or bicycle accessories, this judgment by the FMC is, in the opinion of HPS, just the beginning of more legal and administrative findings and judgments against ocean container shipping companies that got greedy, and in some cases were simply overwhelmed by the sheer volume of demand for container shipments from Asia to North America.   

June 12: “Breaking up is hard to do, particularly when there’s so much inventory at stake.” The Wall Street Journal Logistics Report: “Sports apparel heavyweight Nike is going back to some of the retail partners it has stepped back from, as it looks for help in clearing out its stacked-up inventories. The WSJ’s Inti Pacheco reports Nike’s moves toward merchants such as DSW parent Designer Brands and Macy’s, follow years of efforts to sell more of its products directly to consumers, aiming to keep a larger slice of sales than what could be earned from bulk sales to retailers. Now supplier-buyer relationships are changing in a shifting market dynamic that left companies swamped with inventory. Nike last year started cutting orders with factories, and put discounts on a wider assortment of merchandise, squeezing profit margins. Nike’s renewed embrace of the wholesale channel marks a gain for merchants like Foot Locker that depend on big-brand suppliers.” HPS Analysis: Sound familiar? A large multinational sporting goods brand increases direct-to-consumer (DTC) distribution prior to the pandemic, comes out of the pandemic with a huge, $8.5 billion inventory overhang, and needs to get back into some of its former brick-and-mortar retail distribution to increase sell through. And if you are scratching your head, yes, the Nike inventory value is larger than the total retail sales of the whole American bicycle business in 2022, estimated at $8.2 billion. The Nike ecosystem contains, in the opinion of HPS, all of the key elements that explain, at least in substantial part, why American consumer demand for bicycles appears to be declining.

June 12: “Adobe: online prices show encouraging trend in May.” Chain Store Age: “Digital shoppers had something to smile about in May 2023. According to the latest data from the Adobe Digital Price Index (DPI), based on Adobe Analytics, U.S. online prices in May 2023 fell 2.3 percent year-over-year (YOY), marking the ninth consecutive month of YOY price decreases. This decline was also the biggest decrease in online prices tracked by Adobe since the COVID-19 pandemic started.” HPS Analysis: Many bike shops still feel that online retail is their largest competitor. Online is every brick-and-mortar retailer’s competitor, and the most effective response is deploying an effective commerce-enabled website with social media connections as a marketing and sales component of your bike shop’s customer service. Consumers expect your retail business to be accessible to them 24-7, not only for shopping and acquiring knowledge, but also to make purchases, schedule service work, home delivery, and curb-side pick-up. Contact the NBDA (nbda.com) for referral to suppliers who can assist in shaping a bike shop’s online strategy and tools.

June 13: “The food delivery business is struggling to adjust to a changing consumer landscape.” The Wall Street Journal Logistics Report: “Chicago-based takeout pioneer Grubhub is laying off around 15 percent of its workforce, the WSJ’s Heather Haddon reports, as the company seeks to reduce costs to stay competitive in a market featuring well-funded rivals and foundering demand. Food-delivery companies’ sales surged early in the COVID-19 pandemic, but have since plateaued as customers resume eating out at restaurants. Grubhub was the market leader in its category, but has since fallen to No. 3 behind DoorDash and Uber Eats. Food businesses have had a tough time making the logistics that underpin their businesses pay, as consumer spending has shifted. DoorDash said last year that it would cut around 1,250 people, or six percent of its workforce. Meal-kit delivery company Blue Apron in December laid off 10 percent of its workforce, and last month sold its logistics assets.” HPS Analysis:  The most important take-away is “… consumer spending has shifted,” in this case from pandemic-created home delivery to in-person visits to restaurants for meals. This shift could work to bike shops’ advantage by shifting from home service and delivery and curbside, to consumers coming into bike shops to drop off and pick up service work.

June 13: “Retail alert – Is U.S. consumer spending shifting again?Sourcing Journal: “Just as retailers have readjusted their buying needs, consumers might be pulling back even further on their discretionary purchases in favor of needs-based purchasing. The possible shift in consumer behavior isn’t a new one for retailers. They already learned their lesson the hard way last year after overbuying on stock, only to find out that consumers had shifted their mindsets. The later-than-expected arrival of goods at stores resulted in a mad race to exit their excess inventory levels through promotions that lasted for several quarters, which hurt retail margins.” HPS Analysis: This shift in American consumer spending is important for brands, suppliers and bike shops to wrap their heads around. Consumers are essentially moving down-market to house brands and low-priced and discount retailers. Our analysis indicates the growing importance of the Circular Economy, and used bicycles and accessories that provide a lower-cost alternative to brand name and “luxury” brands. We are of the opinion that this has been a key contributor to the recent decline in visits to bicycle retailers, and to the bursting of the bike boom bubble.

June 16: “Retailers are trying to fix their supply-chain forecasts.Wall Street Journal: “New technology, analytical tools, and shared data with suppliers are aimed at making merchants more agile in how they handle inventories. Retailers are turning to new technology and greater use of data across their supply chains in an effort to fix forecasting tools that were effectively splintered during the COVID-19 pandemic. The efforts are aimed at closing gaps that emerged over the past three years as merchants veered between product shortages and overstuffed inventories in rapidly changing consumer markets. Now, even with those strains largely receding, companies are looking for better ways to manage the flow of goods on the fly, and make sure they have merchandise where it needs to be to boost sales and maintain margins.” HPS Analysis: while there might have been, HPS is not aware that any new technology or analytical tools were installed or employed by OEMs, brands, or specialty retailers during the pandemic. There have been some recent additions to the data analyzed by the principal trade association in the U.S., but there haven’t been, to our knowledge, any announcements of the supply side or specialty bicycle retailers taking significant steps to “…Fix Their Supply-Chain Forecasts.” HPS respectfully submits that this is a major oversight on the part of the American bicycle business. During the pandemic, Just-In-Time supply chain management, or JIT, including forecasting, was jettisoned in favor of Just-In-Case, or JIC supply chain management. Returning to JIT is an interim step that has to lead to researching, evaluating, and deploying new supply-chain and forecasting technology and analytical tools for the whole industry, from retail downstream to the component suppliers to the OEMs, or we run the risk of repeating the mistakes of the immediate past.

June 15: “New ports contract would raise pay 32 percent, bring dockworkers $70 million in bonuses.” Wall Street Journal Logistics Report: “West Coast dockworkers won a 32 percent pay increase through 2028, and will get a one-time ‘hero bonus’ for working through the pandemic under a tentative contract agreement reached with port employers, according to people familiar with the negotiations. The agreement announced June 14 must be ratified by employers and dockworkers, and includes improvements in benefits and other provisions reached after more than a year of contentious negotiations that led some importers to divert shipments away from West Coast ports, and led to fears of greater impact on U.S.-Asia trade flows. HPS Analysis: Finally! The West Coast dockworkers bargained in good faith when it counted most during the pandemic, with the surge in container ships overloaded with containers, driven by consumer demand from March 2020 until the last half of 2022. While 2023 saw some work delays as the final negotiations were wrestled with, the contract is a done deal through 2028, and the costs will get amortized into fees and charges and spread over the inbound container volume. Barring any future surges in demand, this contract should result in stability along the West Coast ports of entry for the next five years.

June 16: “CPSC will discuss lithium-ion battery issues and seeks panel experts.” Bicycle Retailer and Industry News: “The Consumer Product Safety Commission will meet publicly July 27 at its headquarters here to discuss lithium-ion battery safety. The 10 a.m. meeting also can be accessed remotely. The commission wants to hear from battery safety and fire prevention experts and learn about potential standards and designs for batteries, battery management systems, and other aspects of consumer product safety that might limit the risk of thermal runaway and fire. HPS Analysis: The NBDA will be represented by its president, Heather Mason, and will be supported by Mike Fritz, HPS partner and chief technology officer. Mike is an expert with over 30 years of engineering and product development experience with e-bikes and lithium-ion battery power systems for e-bikes. This public meeting, along with the submissions requested by CPSC in response to a petition to eliminate the footbrake requirement for certain sidewalk bicycles, as well as comments on the adequacy of 16 CFR part 1512 for bicycles, including electric bicycles, are the beginning of what will be a long and difficult period for the bicycle industry, including specialty bicycle retailers, who are going to have to continually fight for a seat at the CPSC table.

June 21: “Eurobike Starts: Inventory issues overshadow high sales forecast.” Bike Europe: “The sales momentum experienced by the industry has pushed up the expectations for the upcoming years. At the same time, the market is struggling with the long-term impact of the pandemic and unrestrained components sourcing and product in 2022. Reliable market data and careful planning will prove their value for many in the industry in the next one to two years. Sales might have gone through the roof during the pandemic, but its revenue might soon be lost for a substantial number of parts manufacturers, bicycle makers, and traders. How to find a stable market for all these components and bikes?” … “Extremely unbalanced situation: Market demand in volume might be less in Europe compared with 2023 and 2022, but it is still higher than pre-corona. Still, the supply chain is packed to such a level that parts makers decommissioned new product lines which became operational just after the high wave of the pandemic. Insiders stated during Eurobike that they expect that the extremely unbalanced inventory situation is going to last until the second half of 2024.” HPS Analysis:  If it wasn’t clear that the inventory “problem” is global, and not just an American thing the first five months of this year, it should be crystal clear now. Eurobike set attendance records, but as this Bike Europe report points out, industry insiders “… expect the extremely unbalanced inventory situation is going to last until the second half of 2024.” That, as it turns out, is in line with the predictions from industry suppliers at the NBDA Retailer Summit this past May. Given the size of the inventory problem that extends throughout Asia, Europe and North America, HPS now expects the other shoe to drop toward the end of this year.

June 27: “Sinking global trade is pummeling Asian exports and helping rewrite the math of consumer inflation in Western countries.” The Wall Street Journal Logistics Report: “Lower producer prices in Asia are cascading across supply chains, bringing relief in prices for home furnishings, electronics, and other manufactured goods. The WSJ’s Jason Douglas reports the impact of cheaper Asian exports may be more muted than in the past, however, now that the high-water mark of globalization has passed. Asian exports that soared during the pandemic started sliding late last year, as rising interest rates took some heat out of economic growth. The trade weakness is showing up in the prices charged for goods when they leave Asia’s factories. Chinese producer prices fell 4.6 percent in May compared with a year earlier. Similar gauges in other  Asian exporter economies are weakening, too, as lower commodity prices reduce costs,  and collapsing demand for goods saps companies’ pricing power.”  HPS Analysis:  What this means is that the replacement cost of goods is lower at the factory door and with lower-cost freight, the landed cost of goods is lower. This undercuts the value of the excess inventory in warehouses, creating a wind-fall profit opportunity for the importer, or will result in orders being cut and shipments delayed until current inventory can be sold through. If brands don’t communicate with specialty bicycle retailers, there will be no transparency or visibility for merchandise availability.

June 30: “ ’We will shut you down.’ FDNY issues vacate orders to two e-bike businesses.” Bicycle Retailer and Industry News: “The New York Fire Department issued vacate orders for two e-bike businesses in the city this week as the department stepped up inspections following a rash of fatal fires triggered by lithium-ion batteries. As of Thursday (June 29) afternoon, FDNY had made 38 inspections since last week of shops and other locations thought to be storing or charging batteries in unsafe ways. The department is encouraging citizens to report unsafe operations, and in many cases is re-visiting locations that were previously inspected and cited for violations.” HPS Analysis: New York Fire Commissioner Kavanagh confirmed in a video that was embedded in this BRAIN article that she will testify at the CPSC Public Meeting July 27. Commissioner Kavanagh made it clear that FDNY is stepping up its enforcement activity at the same time it is working to expand public education about safe charging and storage of lithium-ion batteries. The NBDA and HPS are lending full support to FDNY, and are encouraging the whole bicycle industry to do so as well.

Contact Jay Townley: jay@humanpoweredsolutions.com