INDUSTRY FIGHTS THROUGH CHALLENGES, SEA OTTER CLASSIC SOARS

4-03-24: “The electric-vehicle supply chain that’s proven so difficult to ramp up now appears to be contracting.” The Wall Street Journal Logistics Report: “Market leader Tesla just reported its first year-over-year decline in quarterly deliveries since 2020, the WSJ’s Rebecca Elliott reports, with 386,810 vehicles globally in the first three months of 2024, down 8.5 percent from a year earlier. Potentially more troubling is that Tesla’s production also declined, to 433,371 vehicles, down from 440,808 in the first quarter of 2023. The gap between production and deliveries suggests there may be demand concerns for a company that was racing to scale up its supply chain just a few years ago. Wavering momentum in the market could ease the urgency to expand in the sprawling market for raw materials and batteries. Rivian Automotive says it delivered 13,588 vehicles in the first quarter, a decline from the previous quarter, as the upstart EV producer resets its supply chain.” HPS Analysis: Electric cars are substantially different in the use of raw materials and the majority of aspects of component requirements, manufacturing, sub-assembly, and assembly, not to mention energy. While the ramp-up in this substantially different global supply chain is still in its early stages, consumer demand has declined as the global economy has shifted in response to two armed conflicts and the pinching of global supply chains. The most direct impact on the global bicycle business is the raw material and manufacturing process for lithium-ion battery cells, which if anything will potentially benefit from a contraction in the electric-vehicle supply chain.

4-04-24: “Bird successfully emerges from bankruptcy as a stronger company and will operate as the global anchor brand of newly established Third Lane Mobility Inc.” bw business wire:Bird today announced that the company has successfully emerged from Chapter 11 proceedings under a newly-organized private parent company called Third Lane Mobility Inc. With a strengthened balance sheet, reduced operating expenses, and right-sized capital structure, the transaction included the sale of Bird’s assets to Third Lane Mobility, which encompasses both the Bird and Spin Brands. Bird and Spin will continue to operate in and serve cities across the globe, and are well-positioned for long-term, sustainable growth as they maintain and expand operations across North America, Europe, the Middle East, and Asia. Over the last three months, both Bird and Spin have won multiple new competitive bids and announced the launch of service in several new cities, including Corpus Christi, Texas; Greensboro, North Carolina; the University of Illinois; Surrey and Mississauga, Canada; Naples and Torino, Italy; as well as competitive renewals of service in Gap, France and Zaragoza, Spain.” HPS Analysis: Bankruptcy isn’t always the end of either a company or a brand. HPS reported that Bird went into Chapter 11 protection in order to emerge as a financially stronger global entity. The new company will continue to operate and has grown some of its global operations while in bankruptcy protection. Whether the new Third Lane Mobility will grow, financially thrive, and survive is still an open question, but bicycle ride share has, if anything, grown in usage as the global bicycle market has been struggling with ebbing consumer demand.

4-05-24: “Walmart leads annual ranking of top 50 global retailers.” Chain Store Age CSA: “The annual ranking is based on retailers’ operational performance as of the start of 2023. Two U.S.-based retail giants took the top spots in an annual ranking of the top 50 global retailers based on their operational performance as of the start of 2023. HPS Analysis: Walmart and Amazon were number one and two on the global retailer list based on operational performance in 2023. Walmart is the largest retailer of bicycles in the U.S. and, also represents a change in interest and commitment to bicycling, including all aspects of the family activity. This includes off-road riding and competition. Walmart, through the influence of the third-generation owners, has set out to make the Northwest region of Arkansas, in the foothills of the Ozarks, the mountain bike capital of the United States. Amazon, while the number two retailer in the world, is still fighting to not have any of the responsibilities of a distributor or retailer, like a bike shop when it comes to product safety. While HPS doesn’t know exactly how many bicycles and e-bikes Amazon sells or facilitates the sale of, we do feel this very large DTC retailer has to have the same responsibilities as a distributor and a retailer, like bike shops and Walmart.

4-08-24: “Consumer confidence continues to increase.” Chain Store Age CSA:The March Consumer Confidence Score was 57.3, an increase of 1.6 from February. Consumer confidence continues to be on the upswing, rising two points in March since January of this year. That’s according to Numerator’s latest Consumer Sentiment Tracker, which surveyed over 6,000 Americans. Consumer confidence was up again in March, driven by increased comfort across the board, including with the job market, with non-essential spending, and with consumers’ ability to make ends meet. Despite higher spending comfort, consumers are increasingly looking for ways to save and are being conscious of their spending.” “The March Financial Outlook Score was 50.9 (-1.0), signaling that consumers feel neutral about their household finances. Looking ahead one year from now, 24 percent of those surveyed think their finances will be better than they are now, 53 percent think they’ll be the same, and 23 percent think they’ll be worse.” HPS Analysis: The March Consumer Confidence Score of 57.3, was the highest monthly figure since October of last year. The American bicycle business, led by the top-tier brands, still will not invest all or a part of $30,000 in conducting quality primary consumer research to determine why consumers backed away from purchasing new bicycles, including e-bikes, and more importantly when and what will bring them back to purchase. The research initiative is led by the National Bicycle Dealers Association (NBDA), and HPS does not understand why the rest of the bicycle business doesn’t want answers in these confusing and turbulent market conditions. Denial is not a plan, and ignorance is not, in this case, bliss.     

4-08-24: “Vosper: From relations to transactions.” Bicycle Retailer and Industry News: “I was talking to one of my longtime cycling industry friends a couple of weeks ago. They’re a 50-year industry veteran who’s still involved with the day-to-day business of their company. As always, we chatted about the state of the industry, and toward the end of the conversation, they said something that brought me to a full stop. ‘Rick,’ they said, ‘the entire cycling industry is evolving from a relational business model to a transactional one. And I don’t think there’s any way back from that.’ In case you’re not familiar with those terms, they’re pretty simple. A relational model is one driven by relationships. A transactional model is driven by, you guessed it, individual transactions. So a transactional approach is all about the immediate sale. If you don’t get the sale, nothing else matters, and what happens to the relationship as a result is a secondary consideration. A relational approach is one where the long-term relationship is the big picture, and whatever sales (transactions) come out of it are the result of the relationship and, more importantly, the quality of the relationship. Mutual interest, where both parties benefit, trumps the immediate self-interest of either party. To put it another way, transactional interactions are about ends — what you get — and relational interactions focus more on means — how you get it.” HPS Analysis: This is an excellent article, and HPS encourages our newsletter recipients to read it, and if they already have, read it again. All the feedback we have collected and received through the end of April, and in the absence of primary consumer research, indicates that bike shops need to pivot near-term to strong relationship-based business plans with suppliers and their customers. The ongoing major advantage bike shops have over all other retailers, including brick-and-mortar and DTC, is personal relationships that can last a lifetime, and can also be multi-generational. This includes the unique omnichannel relationships bike shops can develop with their online customers. There is a new relationship playbook for bike shops that the NBDA is going to begin to roll out at the Summit in Bentonville, Arkansas May 22-23, and if you haven’t sign-up to attend make sure you visit www.nbda.com and register for the follow-up webinars.    

4-08-24: “Yellen junks 200 years of economics to block China clean tech.” Bloomberg Opinion: “ ‘Government support is currently leading to production capacity that significantly exceeds China’s domestic demand, as well as what the global market can bear,’ Yellen said in a speech to the American Chamber of Commerce in Guangzhou. That excess is building in ‘solar, EVs, and lithium-ion batteries,’ she said last month at a U.S. solar plant. Step back for a moment, and the suggested policy change is remarkable. One of the most distinguished living economists is rejecting what’s been one of the most fundamental principles of economics for more than 200 years: comparative advantage. If a country can manufacture goods at lower costs than you can, you shouldn’t raise tariff barriers. Instead, you should import the goods, and send back something in return where your industry is more efficient. Yellen herself appears to recognize the disconnect. ‘People like me grew up with the view that if people send you cheap goods, you should send a thank-you note. That’s what standard economics basically says,’ she was quoted as saying in an interview with the Wall Street Journal last week. ‘I would never ever again say, ‘Send a thank-you note.’” HPS Analysis: We are talking about the 78th Secretary of the U.S. Treasury and 15th chairperson of the Federal Reserve, the first woman to hold either position, and one of the most respected living economists, Janet Yellen. HPS wants to clarify that this is an opinion editorial from Bloomberg. With this all said, Yellen is making it clear that she has shifted her thinking on comparative advantage relative to the PRC providing financial support for certain industries that allows their companies to export and practice predatory overcapacity. The EU is alarmed and reacting to the surge of electric vehicles that the PRC is producing and exporting to Europe, but that are being priced under the domestic brand competition to capture more consumer purchases, which is the definition of predatory overcapacity. Of immediate concern to the EV and micromobility sectors in the U.S. is the PRC overcapacity in the manufacture of lithium-ion batteries as shown in the chart that accompanies this article. This is just one example of all those shown that are of concern to the U.S. government and its efforts to put a stop to the PRC practice of predatory overcapacity by shifting its position on the 200-year principle of comparative advantage. Like Secretary Yellen, the bicycle business should no longer send thank-you notes to Chinese sources practicing predatory overcapacity.

4-09-24: “Pon declares ‘robust’ 2023 performance despite bike market correction.” BIKE europe: “Besides strong brands such as Gazelle in the Netherlands performing well, Pon continued to explore new opportunities in 2023, such as the partnership with Volkswagen Financial Services to expand opportunities in the bike leasing segment. Following a historic year in 2022, the bike division of Pon Holdings has reported a 5 percent drop in 2023. Referring to the ‘sharp correction’ in the bicycle market during 2023, turnover in the Pon Bike division decreased by 100 million euros. However despite the pressure on prices and margins, ‘most of our quality brands managed to hold their own thanks to their strong market positions,’ explains Janus Smalbraak, CEO of Pon Holdings. 2022 was a historic year for Pon Holdings with sales exceeding 10 billion euros for the first time in the company’s history. The bicycle cluster, Pon.Bike, contributed significantly to this following the acquisition of Dorel Sports and the increasing demand for e-bikes at that time. However, despite the challenging economic environment during 2023, the company generated turnover of more than 10 billion euros for the second consecutive year. The Pon.Bike cluster, which includes over 20 brands including Cannondale, Cervélo, FOCUS, Gazelle, GT, and Kalkhoff, recorded a slight decline in turnover of almost 2.3 billion euros in 2023, having achieved over 2.4 billion euros in 2022.” HPS Analysis: Pon.Bike purchased Dorel Sports in October 2021 for $810 million cash, and created a global group of 20 brands with revenue projected at $2.9 billion. If everything in this BIKE europe article, which is probably based on a press release, is factual and correct, Pon.Bike is the most successful global company in the bicycle business. As HPS has reported, a 5 percent decline in revenue 2023 over 2022 is significantly better than global players like Shimano and Giant, both of which have reported double-digit percentage drops in profit 2023 over 2022. There is no question Pon.Bike is well-funded and financially sound compared to all its competitors, a point it makes in this article. Based on what HPS has gathered, it is also a well-managed company with a deep interest and understanding of the need for and value of good, accurate data about the market and individual brands. Pon.Bike states that it has opened a Cannondale Sports Group assembly and distribution facility in Savanna, Georgia. HPS will watch the role this facility will play in Pon.Bike operations as the year progresses.

4-09-24: “Why a leading electric bike company just slashed nearly all its prices.” electrek: “Ride1Up, a San Diego-based electric bicycle maker known for an increasingly broad range of affordably-priced electric bikes, is trying to make its e-bikes even more accessible. The company just announced that effective immediately, it is cutting prices on nearly its entire lineup. Massive sales are nothing new in the e-bike industry. Several e-bike companies have been running incredible deals for much of the past six months. Remember those Black Friday deals that turned into holiday sales, only to then morph into Valentine’s Day bundles and Easter discounts? Yeah, the entire e-bike industry has been offering incredible rollercoaster sales as warehouses remain largely packed with overstocked bikes, fueled by pandemic-era buying sprees. But unlike most companies, Ride1Up is taking the major step of making those sale prices permanent. Instead of offering a misleadingly high MSRP and a much more attractive sale price, Ride1Up is moving more of its models towards a simplified, lower-cost model that is more sincere and transparent.” “Ride1Up proudly announces permanent price reductions for many of our highly-rated e-bikes, making them more affordable without sacrificing build quality and components,” the company explained.” HPS Analysis: This electrek article is PR-centric, but does peel back a fundamental difference in the pricing and distribution structure and methodology of the new DTC (direct to consumer) brands and the established mainstream brands in the American bicycle market. What the author describes is the current situation of discounting and reducing prices to flush inventory and stay competitive. Ride1Up is a DTC brand. The DTC e-bike brands are competing primarily with specialty retail that has employed a three-step pricing structure, whereby the brand purchases from an OEM at a FOB price, imports the product, and either sells it or transfers it to a distribution center or wholesale distributor for a price that includes landing costs and a profit. The products are then sold at wholesale to a retailer who marks the product up to a retail price, which may be controlled by an MSRP agreement with the brand. This is three-step distribution and pricing. Recent discounting has lowered retail price points, in some cases dramatically, compared to 2022. Ride1Up is trying to establish DTC pricing where it can still make revenue and profit projections while being competitive at retail with both DTC and specialty retail competition.  

4-12-24: “FDNY makes first-ever criminal arrest of e-bike shop owner for unsafe storage of batteries.” The City: “For the first time in their campaign to stamp out e-bike battery fires, the Fire Department Friday filed criminal charges against an e-bike shop owner who has repeatedly faced civil summons for allegedly selling illegal uncertified batteries, and charging the potentially explosive batteries in an unsafe manner. Just after noon Friday, fire marshals arrived at the Electric Bicycle Shop at 1239 Flatbush Ave. in Flatbush, Brooklyn, arresting and handcuffing the store owner, Tian Liang Liu. The charges, including reckless endangerment, relate to fire code violations due to the unsafe storage and charging of batteries. This is the first time the department has used criminal charges against those violating laws related to e-bike batteries. Until now the FDNY and the Department of Consumer and Worker Protection have strictly relied on hitting store owners with civil penalties. In most cases, those only carry minimal financial penalties. The arrest indicates the FDNY’s increasing frustration in its efforts to end a disturbing trend that has skyrocketed since the number of micromobility devices mushroomed during the pandemic. More than 660 e-bike battery fires have erupted across the city since 2019, killing 28 New Yorkers and injuring 400 more.” HPS Analysis:  One of many things that impressed me when attending a seminar at the New York Fire Department (FDNY) headquarters was the fact that the fire marshalls who made presentations carried side arms, because under New York City laws and regulations they are deputized to make arrests, unlike most fire marshalls in most cities. The New York City Fire commissioner has made it very clear on numerous occasions that FDNY is going to be aggressive in enforce city ordinances, and this is proof positive. As long as there are violations there will be arrests.    

4-13-24: “China woos multinational firms.” The Economist – The World in Brief: “China’s economic planners have high hopes for the China International Consumer Products Expo, which opens in the southern city of Haikou on Saturday. They expect global brands to flock to the event. They would also like to see swarms of local consumers buying up the wares on offer. State media say that more than 3,000 brands from 59 countries will be in attendance to witness the ‘consumption power’ of a country with 1.4 billion people. The Communist Party has dangled the Chinese consumer in front of global retail brands for decades, telling multinationals to set aside their concerns about the country’s governance if they want a cut of China’s market. That proposition has recently become less appealing. China’s consumer confidence index has been depressed since 2022. The support of China for Russia’s war in Ukraine troubles Western firms. As big as it is, China’s market looks less enticing than before.” HPS Analysis: As both the Giant Group and Shimano financial reports indicate, China’s consumer market for bicycles is important to global sales, revenue and profit going forward. The PRC is doing everything it can to attract Western consumer product brands to the Chinese consumer market. The Chinese economy needs the involvement of Western consumer brands right now, but its growing restrictions and unfriendly treatment of foreign companies, plus its support for the opposite sides in the current armed conflicts is making it very difficult, and Western consumer product brands are either staying away or reducing their presence in China. This is a concern HPS has for the global players who have indicated they are looking to China and growth in sales of lightweight performance bicycles for a major portion of profitability in 2024 and 2025.

4-16-24: “Powell dials back expectations on rate cuts.” The Wall Street Journal: “Federal Reserve Chair Jerome Powell signaled that first-quarter inflation data has raised uncertainty over when and if lower interest rates would come later this year. Firm inflation during the first quarter has called into question whether the Federal Reserve will be able to lower interest rates this year without signs of an unexpected economic slowdown, Chair Jerome Powell said Tuesday. His remarks indicated a clear shift in the Fed’s outlook following a third consecutive month of stronger-than-anticipated inflation readings, which derailed hopes that the central bank might be able to deliver pre-emptive rate cuts this summer. Officials had previously said they were looking for greater confidence that inflation was returning to their target, and were optimistic another month or two of data might meet that standard.” HPS Analysis: As I read the daily newsletters over each month, I have become aware of the financial community’s fascination with what the Federal Reserve Chairman is going to say in the monthly announcement of the Fed governor’s decision about the interest rate. Every speech or panel or interview a Federal Reserve governor or the chairman gives or participates in, is examined for clues and sometimes debated at length. The market wants cheap money, which means lower interest rates, and the speculation in early April was all about the outside possibility of the Fed cutting the rate. It didn’t happen and the market quickly swung to a tighter for longer posture, at least until we get further into May. The bottom line for the bicycle business is tighter loan requirements and lower asset value of inventory and receivables. Brands and wholesalers are not going to offer extended or even attractive terms, so they limit the receivables they carry and they are not going to purchase and bring in quantities of inventory because of the increased cost of financing it.

4-16-24: “Cambodia’s bicycle export nosedive not over yet.” BIKE europe: “The plunge in demand for bicycles made in Cambodia which started last year has not yet come to an end. Cambodia’s bicycle export value fell 43 percent year-on-year in the first quarter of 2024, a General Department of Customs and Excise’s report confirms today. The Southeast Asian country exported bicycles worth US$96.9 million (€91.1 million) during the January-March period this year, a decrease of 43 percent from US$170 million (€159.9 million) over the same period in 2023. While the market had anticipated a stabilization of the production decline in the low- to mid-end market, these export figures clearly show the struggle is not over yet. The bicycle industry in Cambodia was hit hard when customers in the U.S. and Europe slowed down orders due to excess inventories last year. In 2023 the total export value decreased by 23 percent from US$ 899.7 million (€827.6 million) in 2022 to US$ 416.7 million (€383.3 million) last year.” “Bicycles are regarded as an important product for Cambodia as they are one of the country’s major manufacturing products for exports after garments, footwear, and travel goods. “The drop in export is the result of the global economic slowdown and market uncertainties that had resulted in a plunge in purchase orders,” said the Ministry of Commerce’s Secretary of State spokesperson in Cambodia.” HPS Analysis: There is a definite and pronounced ripple effect back upstream from the reduction in consumer demand for all things bicycle in the North American and European markets. Cambodia was the number two Asian source country in units for bicycles imported into the U.S. in 2023 and 2022, after China and ahead of Taiwan and Vietnam. When there is a drop of over 40 percent in orders, the bicycle plants in source countries either start manufacturing other products, or pull back completely and shut down. In either case, skilled workers are lost and ramping up becomes difficult in the future. There is also re-shoring and near-shoring whereby imports from Asia are replaced by either domestic production in the case of Europe, or production closer to the consuming country, like Mexico in the case of the U.S. The bottom line is a potential reset of supply lines and sourcing for import-dependent markets like the U.S.

4-16-24: “Dick’s Sporting Goods expands partnership with resale platform.” Chain Store Age CSA: “Dick’s Sporting Goods partners with resale platform SidelineSwap. Dick’s Sporting Goods continues developing its in-store trade-in event offerings. The sporting goods giant is building on its collaboration with SidelineSwap, an online marketplace for new and used sporting goods it initially partnered with in August 2022, and followed up with a strategic investment in November 2022. Other notable SidelineSwap investors include eBay. Throughout 2024, Dick’s customers will be able to drop-off their used sports gear at SidelineSwap trade-in events at select Dick’s store locations throughout the U.S. The used gear will be evaluated by SidelineSwap buying experts, and customers will be paid with Dick’s e-gift cards to use toward their next purchase. Items that do not qualify for trade-in can be donated or recycled. According to Dick’s Sporting Goods, customers who attended its trade-in events in 2023 received an average payout of $120 for their used gear, and nearly all customers surveyed said they would be interested in reselling their used sports gear at least once per year.” HPS Analysis: The used market is growing rapidly in the U.S., and Dick’s Sporting Goods expanding its resale platform is an example of this growth that started and continues in clothing and fashion, and has spread to all segments of consumer goods. The reset and pivot that bike shops are being advised to plan for in the near term includes an aggressive expansion into the used market to bring in and establish relationships with consumers, and support revenue and profit planning for the business. NBDA already has several excellent recordings of helpful webinars available to members and will be producing more used market webinars.

4-18-24: “DHS crackdown on illicit trade includes greater de minimis scrutiny.” Sourcing Journal: “U.S. customs enforcement is kicking up a notch. The Department of Homeland Security announced Friday that it’s rolling out an ‘enhanced strategy’ to counter illegal trade and ‘level the playing field’ for the American textile industry, whose 500,000 jobs it says are critical for our national security. ’We are dedicated to ensuring a fair and level playing field for American businesses,’ said Homeland Security Secretary Alejandro N. Mayorkas. ‘The textile industry, like other industries, suffers when competitors use forced labor, violate customs laws, and engage in other illegal practices to undercut U.S. businesses and drive prices unfairly low. Through strengthened enforcement measures, enhanced inspection and testing, and increased information sharing, this administration is protecting thousands of American workers and the U.S. textile industry.’ Efforts include sharpening the screening of small, sub-$800 package shipments that fall under the hotly contested Section 321 de minimis exception.” HPS Analysis: The loophole that the de minimis exception has created is getting the attention of Congress, and while the emphasis is currently on the textile industry and low-cost fashion, the bicycle industry will benefit from sharpening the screening of small, sub-$800 package shipments, some of which will contain low cost, dangerous lithium-ion batteries intended for e-bikes and other micromobility devices. What has intensified the attention of Congress is fentanyl and the component chemicals to manufacture fentanyl and other illegal and hazardous drugs. This is now a bipartisan issue with growing support in both the House of Representatives and the Senate. The bicycle business has become a small player in this issue, but will benefit from the quicker action that is moving forward toward improving the screening process and reducing the value amount of small shipments. HPS expects positive action this year.

4-18-24: “Trek closes Italian subsidiary and reorganizes Southern European organization.” BIKE Europe: Trek has closed its Italian subsidiary and incorporated this market within the newly formed Trek South Europe. In a short press release, the American company announced the creation of its fifth major European subsidiary, following GAS (Germany, Austria and Switzerland), BLX (the Netherlands, Belgium, Luxemburg), Nordics and UK+. The news of Trek Italia closure caused quite a stir in Italy, also considering that its Bergamo headquarters, located inside a beautiful two-story building, very American in style and space, only opened in 2019. The branch employed 27 people but with its merging into Trek South Europe eight positions were lost.” “The 19 remaining employees have been integrated into the new structure, along with their French, Spanish and Portuguese colleagues.” “The headquarters of Trek’s new Southern European office has been established in Madrid.” “The new subsidiary was created in order to foster synergies and improve the competitiveness of the Wisconsin-based brand in Europe.” “Trek Italy will close definitively in the coming weeks and the five Italian Trek stores which were directly depending on the Italian office, will continue operating and will be supported by the local staff.” HPS Analysis: HPS has emphasized that the top-tier American bicycle brands have become billion-dollar multinationals. This BIKE europe article provides details of a part of the Trek right-sizing reorganization in Europe. Note that the new Southern European Trek subsidiary has, according to the article, “created in order to foster synergies and improve the competitiveness of the Wisconsin-based brand in Europe.”

4-18-24: “Sea Otter Classic back with a bang with best-ever industry day.” Bicycle Retailer and Industry News: “The world of cycling and outdoor sports descended on Monterey, California, for day one of the Life Time Sea Otter Classic presented by Continental. “Taking place from April 18-21, 2024, the first day of the world-renowned event, Industry Day, brought brands and industry leaders together alongside fans and racers of all abilities in a celebration of two-wheeled culture and competition.” “Out of the record 1,100 brands in attendance, more than 50 brands gave cycling fans and the international media the opportunity to see their latest releases on U.S. soil for the first time on day one; including new products from Parlee Cycles, POC, Peaty’s Products, ION, and Abbey Bike Tools.” “We’re expecting to welcome almost 80,000 cycling and outdoors enthusiasts over the four days, and there really is something for everyone.” HPS Analysis: I attended the Sea Otter Classic before the pandemic, and with 80,000 to 100,000 consumers, this is the premier bicycle event in the U.S. The 1,000-plus brands are part of the attractions, and an opportunity to get hands-on consumer feedback about new and existing products. Given the current U.S. market conditions, a successful Sea Otter Classic is welcome news. Bike Fest in Bentonville, Arkansas, May 23-26, is also becoming a major consumer event with bicycle brand participation. Founded in 2020 and supported by the Walton Foundation, this is an example of what the U.S. needs — a dozen such consumer events to reach out and actively promote all aspects of bicycling, from transportation and mobility to exercise and family recreation and competition. There will always be multiple event producers, but bicycle industry and business associations like NBDA, LAB, and, IMBA need to pitch in and co-sponsor and participate in bringing brands to these events. Part of the pivot is bike shops reaching out and sponsoring consumer events in their communities, and getting other retail channels selling bicycles involved to spread the word about the fun, enjoyment and many benefits of bicycling.

4-19-24: “Kent Outdoors looking for buyer for Kona Bikes.” Bicycle Retailer and Industry News: “Kent Outdoors, which acquired Kona Bikes from its founders in 2022, said Friday that after a strategic review it has decided to sell the bike brand. The move comes after Kona became the talk of the industry by setting up an expo tent prior to the Sea Otter Classic, and then breaking it down and leaving the event before it opened. The news also comes as Kent announced a new CFO and a new $100 million credit facility from Eclipse Business Capital, an asset-based lender.” “Kent said the new credit facility follows recent investments from Goldman Sachs and Comvest Partners. ‘These investments are critical to the company’s efforts to implement a strategy for future growth and success as it continues to market innovative new products for outdoor enthusiasts and adventure seekers,’ the company said. A year and a half after announcing the acquisition by Kent, Kona announced a new consumer-direct sales program that many U.S. dealers found objectionable.’ ‘In recent months Kona has advertised deep discounts in its consumer-direct program, including a buy-one-get-one free promotion. Kent Outdoors is no relation to Kent International, the New Jersey-based mass market bike maker. Besides Kona, Kent Outdoors owns outdoor brands including Arbor Snowboards, O’Brien, Freedom Foil, Aqua glide and BOTE.” HPS Analysis: Kent Outdoors is not affiliated with Kent International, bicycle supplier to Walmart and owner of Bicycle Corporation of America, the largest bicycle assembly facility operating in the U.S. With this said, Kent Outdoors acquired Kona during the pandemic and the surge in bicycle demand. Kent Outdoors also took Kona DTC, alienating many of Kona’s long-time dealers in the bike shop community. Kent Outdoors has decided that it wants to stick with its ownership of primarily watersports brands, and does not want to wait for the bicycle market and business to recover. HPS views this as fallout from the shakeout.

4-21-24: “How Chinese firms are using Mexico as a backdoor to the U.S..” BBC: “The reclining armchairs and plush leather sofas coming off the production line at Man Wah Furniture’s factory in Monterrey are 100 percent made in Mexico. They’re destined for large retailers in the U.S., like Costco and Walmart. But the company is from China, its Mexican manufacturing plant built with Chinese capital. The triangular relationship between the U.S., China and Mexico is behind the buzzword in Mexican business: nearshoring. Man Wah is one of scores of Chinese companies to relocate to industrial parks in northern Mexico in recent years, to bring production closer to the U.S. market. As well as saving on shipping, their final product is considered completely Mexican, meaning Chinese firms can avoid the U.S. tariffs and sanctions imposed on Chinese goods amid the continuing trade war between the two countries.” “The Man Wah sofa factory is located inside Hofusan, a Chinese-Mexican industrial park. Demand for its plots is sky high. Every available space has been sold. In fact, the Industrial Parks Association of Mexico says every site due to be built in the country by 2027 has already been bought up. Little wonder many Mexican economists say China’s interest in the country is no passing fad.” HPS Analysis: This article casts light on how Chinese companies are using near-shoring in Mexico as a backdoor into the U.S. market. Consumer products manufactured in Mexico by Chinese-owned companies are “Made in Mexico” and subject to treatment under the new version of the North American Free Trade Agreement. This is also classic near-shoring and will, as the article points out, be employed more aggressively by Chinese companies as trade relations between the PRC and U.S. become more intense and fractious. Whether the bicycle OEMs in the China and Taiwan will actively pursue the nearshoring option remains an open question, since none of the OEMs have, to our knowledge yet moved to take advantage of this option. HPS will keep you advised.  

4-23-24: “Shimano reports weak sales while outlook remains slow.” BIKE europe: “Bicycle component manufacturer Shimano reports that demand for bicycles continued to be weak at the start of the year. In the first quarter of 2024, net sales decreased by double digits compared to last year. Also for the rest of the year, the outlook will remain uncertain for Shimano. Between January and March this year, Shimano’s net sales decreased 22.6 percent from the previous year to JPY 76,090 million (460 million euros). The operating income decreased by 52.7 percent to JPY 10,471 million (63 million euros). The market situation in Shimano’s markets vary a lot, although overall interest in bicycles remained high as a long-term trend. “On the other hand, supply and demand adjustments continued, and market inventories remained high globally,” the component supplier reports. In Europe, the market for bicycles continued to be strong in Germany and the Benelux, while in other European countries, market inventories remained high due to cooling consumer confidence on account of inflation and economic slowdowns. In North America, retail sales of completed bicycles softened, and market inventories remained at a high level. In the Asian, Oceanian and Central and South American markets, retail sales of completed bicycles were weak due to sluggish personal consumption on account of rising inflation and economic uncertainty, and market inventories were at a high level. The Chinese market is a big exception as popularity of road bikes continued, helped by an outdoor recreation boom. As a result, retail sales of completed bicycles were favorable, and market inventories remained at an appropriate level. In the Japanese market, retail sales were sluggish as affected by the soaring price of completed bicycles due to yen depreciation and pullbacks in consumer spending and market inventories remained high.” HPS Analysis: Shimano is, in HPS’s opinion, being candid and forthright about how the first quarter has played out and how the rest of the year is shaping up. Shimano is being realistic about the full extent and scope of the so-called “inventory problem.” This gets passed off as a whole bunch of finished goods in boxes clogging up warehouses until they can be sold. This is only true in part. The rest of the story is work-in-process in the form of frames, forks and processed components like racks, carriers, baskets, etc. backed up at OEMs, along with lots of components, including Shimano components packed for OEM production that have to be repackaged for any hope of aftermarket sales. Added to this are the subcontractors who manufacture the lower quantity finished goods for their bigger OEM customers. An example is a subcontractor that produces the kids bikes under a brand name for an OEM. The brand customer may know about the subcontractor or may not care. When the order delays and cancellations worked their way down the supply chain, some of the large OEMs told their subcontractors to bite the bullet and warehouse the excess inventory, including components, and many OEMs also refused to pay for this excess and stuck the subcontractors with financial burden. Shimano knows it will take time to work this excess through the supply chain, and that it isn’t as simple as when orders start being placed again.  

4-23-24: “Boxes piling into Mexican ports – but then piling up.” The Load Star: “Mexico’s box ports continue to boost throughput, fueled by nearshoring and roaring trade with the U.S.. Manzanillo, the nation’s largest gateway, clocked up 7.3 percent growth for the first three months of the year, with 8,324,581 tons. Imports surged 15.7 percent, while exports advanced at a more stately 6.4 percent. Box traffic at the port’s four container terminals climbed 17.7 percent, driven by a 19.2 percent rise in imports. Manzanillo handles about one-third of Mexico’s exports and 40 percent of containerized imports. Lazaro Cardenas, Mexico’s second-largest cargo port, has not yet released traffic numbers for March, but February saw a 35 percent surge in container volumes, while the port’s auto business rose 5 percent, to 100,843 units. Containerized imports climbed 33 percent, while exports jumped 53 percent. Mexico’s waterborne international trade has been on a tear this year, kicking off with 20 percent growth in box traffic in January. The two largest ports on the Gulf coast, Veracruz and Altamira, registered increases of 13.1 percent and 29.5 percent respectively. On the Pacific coast, which accounted for 73 percent of traffic, Manzanillo and Lazaro Cardenas saw box volumes grow 13.8 percent and 40 percent respectively. Trade with China has been a major driver. According to Xeneta, China’s containerized exports to Mexico soared 60 percent in January. Last year, China-Mexico trade grew 34.8 percent, up from a modest 3.5 percent in 2022. Chinese manufacturers, as well as their counterparts elsewhere, have been rushing into Mexico to retain access to the U.S. market, which helped it regain the crown as the largest trade partner for its northern neighbor last year. That same momentum made Laredo overtake the port of Los Angeles as the largest gateway for U.S. imports.” HPS Analysis: Here is one of the problems with the increase in near-shoring Chinese and U.S. consumer goods manufacturing in Mexico. Mexican ports are being pushed to capacity or overwhelmed with both inbound ocean shipments of raw material and components and outbound ocean shipments of finished consumer goods. Note that Laredo has overtaken the port of Los Angeles as the largest gateway for U.S. imports. This means Mexican ocean ports will have to be monitored for import and export volume and activity going forward.

4-25 24: “U.S. industry discuss challenges at Bicycle Leadership Conference.” BIKE europe: Scott Montgomery attended the PeopleForBikes Bicycle Leadership Conference March 27-29 and wrote an article for BIKE europe. “Approximately 260 industry executives attended the Bicycle Leadership Conference (BLC) this year which given the tough past year demonstrates the vitality and commitment to this annual meeting of the minds of the U.S. cycling industry.” “The annual stats review was very light this year, a disappointment to some as this has been a very popular segment in the past, so very few figures and no charts or comparisons were shared. Most wondered if this was because they did not want to bring down the mood with drops in performance, or used to suggest that more attendees join the market information providers Circana and People for Bikes levels to gain better access to the data. Either way, we all know 2023 was a very down and very challenging year for the U.S. cycling community.” “After a positive but still sober Taipei Cycle Show last March that was mostly optimistic about the market recovery starting around the world, I was struck by the positive feedback that just about every attendee I spoke with shared about the pending results for the first quarter of 2024. I heard of year-on-year results in the range of 12-28 percent improvement over the same period last year. This left me with a positive impression that the worst was behind us and that 2024 would be positive, especially for e-bikes and most other product categories.” HPS Analysis: Scott Montgomery is an excellent writer, but HPS was a little surprised that his article about attending the PeopleForBike Bicycle Leadership event appeared in a European trade publication. There has been little U.S. trade publication coverage, and this article appeared almost a month after the event. The complete article is extensive, and we highly recommend obtaining and reading it in its entirety. While there were presentations and panels from the investment and private equity outside financial experts looking into the U.S. bicycle business, and representatives from the European business, we found the coverage of the annual stats review most interesting. Scott reports the stats review was “very light this year” and “a disappointment to some as this has been a very popular segment in the past, so very few figures and no charts or comparisons were shared. Most wondered if this was because they did not want to bring down the mood with drops in performance, or used to suggest that more attendees join the market information providers Circana and People for Bikes to gain better access to the data.” If true, HPS views this as shortsighted on the part of the organizer and a disservice to the paying attendees. Scott also opined that participants talked: “… of year-on-year results in the range of 12-28 percent improvement over the same period last year. This left me with a positive impression that the worst was behind us and that 2024 would be positive, especially for e-bikes and most other product categories.”  While interesting, HPS thinks that based on the Shimano article, this is aggressively optimistic.

4-29-24: “Over 45K retail stores may close in next five years.” RETAILDIVE: “E-commerce penetration is expected to rise, helped in part by third-party players like Temu and Shein, according to a new report. About 45,000 retail stores may close in the coming years as retail’s physical footprint increasingly shifts to serve as fulfillment and distribution centers, UBS analysts led by Michael Lasser said in an April 22 report. That forecast is based on the premise that online retail penetration rises to 26 percent from 21 percent with retail sales growth of 4 percent by 2028. Banks’ reluctance to lend, higher operational costs, and consumers’ sustained inclination to spend on services instead of goods also drive store closing forecasts.The U.S. still has too much retail square footage, the UBS analysts said, as third-party players like Temu and Shein are positioned to drive further e-commerce penetration without the overhead of managing and maintaining a physical footprint. The analysts said apparel and accessories, consumer electronics and home furnishing retailers need to shrink their footprints the most.” “’However, retail is unlikely to reach a post-store era anytime soon,’ the analysts said in their 100-page report. ‘Our analysis assumes that stores remain an important part of the overall retail ecosystem for retailers and consumers. In the simplest terms, stores serve as hubs of fulfillment and support distribution logistics,’ UBS said. ‘This is increasingly more important as consumers are becoming more demanding for convenience or immediate deliveries. The retailers best positioned to gain are those that are adopting and investing in omnichannel experiences.’” HPS Analysis: The facts seem to indicate that the U.S. is over-stored at retail. and even with the loss of up to 45,000 storefronts over the next five years, the country will still have enough brick-and-mortar stores to service consumers and meet their needs in a digital, connected world where consumers can shop 24-7 and expect access to every retailer’s products and inventory. The big advantage for bike shops is the finding that stores remain an important part of the overall retail ecosystem. Selling services, including pick-up, delivery, assembly, repair, and access to the circular economy of previously-owned bicycles and selected accessories, and extensive expert product and activity knowledge, are huge points of advantage and differentiation in the omnichannel bike shop channel of the future.

4-30-24: “Cannondale reduces workforce as part of reorganization.” Bicycle Retailer and Industry News: “Cannondale has reduced its workforce by less than one percent during a company reorganization from a multi-regional to unified global structure, a company spokesperson told BRAIN. The Pon-owned brand is moving away from regional teams with global design and engineering experts working more closely together, said the spokesperson, who would give no further details. In 2022, Cannondale announced a new global organizational structure that eliminated regional general managers and leveraged Pon.Bike to enhance operations and growth. A year earlier, Pon.Bike announced it purchased Dorel Sports, the parent company of Cannondale and other brands.” HPS Analysis: Cannondale is the lead brand in the specialty channel segment of Pon.Bike’s U.S. portfolio. A less than 1 percent reduction in workforce is in line with the Pon.Bike declaring a “robust” 2023 despite the overall industry downturn. Where this fits in the plans for the distribution and assembly facility in Georgia remains to be determined, but it is entirely possible that the workforce for this facility was hired and in place before this workforce reduction took place. We are getting bits and pieces, and most of the Pon.Bike U.S. activity in both its specialty retailer and mass merchant bicycle businesses is shrouded behind a curtain. We are going to have to wait to see, if we ever do see, what Pon.Bike’s plan for the U.S. market is.

4-30-24: “New Utah bill defining multiple-mode and out-of-class electric bicycles goes into effect May 1.” Bicycle Retailer and Industry News: “Starting May 1, 2024, Utah State Bill HB 85 will go into effect after being signed into law on March 21, making Utah the first state to proactively address issues posed by certain electric vehicles. The bill includes a definition of multiple-mode electric bicycles, and also more clearly defines out-of-class electric vehicles (OCEVs). Multiple-mode electric bicycles are bicycles capable of switching between the three class modes. During PeopleForBikes’ 2024 Bicycle Leadership Conference, Utah Representative Jeff Stenquist, one of the sponsors of the bill, discussed this landmark legislation with PeopleForBikes Policy Counsel Matt Moore. ‘The impact of this bill is positive for both the bicycle industry and consumers. The bill is the first in the nation to define multiple-mode products and their labeling requirements while establishing truthful advertising requirements for OCEVs sold as e-bikes. This clarification will help legitimize actual electric bicycles that fit into the three-class system while clarifying gray areas around some switchable products. The bill breaks new ground by requiring sellers of vehicles that are not electric bicycles to inform consumers of that fact if they promote their products as ‘electric bikes’ or ‘e-bikes.’”  HPS Analysis: While this legislation and the new state law were supported and lobbied for by the American bicycle industry trade association, HPS feels it is unnecessarily confusing and convoluted, and has created a situation that, depending on how events of this year turn out, sets up a legal battle over the Utah and similar state legislation that the industry association is supporting, and the absolute preemption of the mandatory bicycle safety regulation as it will be amended and promulgated over the next two to three years, as well as the safest products for bike shops and American consumers.

Contact Jay Townley: jay@humanpoweredsolutions.com.