DISCOUNTING, PRICE HIKES, AND A ROGUE TRAFFIC ENGINEER

06-01-24: “Discounting is back in fashion, as Americans get tired of paying more.” National Public Radio npr: “Dollar General is attracting new customers, as inflation-weary shoppers hunt for bargains. Many of the discount chain’s core customers are checking out with fewer items in their baskets. After two years of paying more for things, Americans are growing more cautious about how they spend their money, and are forcing retailers to offer more discounts. Target and Walmart are rolling back prices on grocery items, and McDonald’s is introducing a $5 meal. And stores like Dollar General, which specialize in discounted items, are attracting more cost-conscious customers. ‘It’s a cautious consumer,’ said CEO Todd Vasos, describing Dollar General’s typical shopper. ‘She is definitely making tradeoffs in the store and at the shelf.’ Dollar General reported better-than-expected profits when it released its most recent quarterly results on Thursday. The discount chain says it’s attracting more middle- and upper-income shoppers looking for bargains. But Dollar General’s lower-income shoppers are often checking out with fewer items in their baskets … The financial strain is real. Broader data are showing that people are feeling the strain. Retailers say customers are pushing back against additional price increases, according to the Federal Reserve’s latest ‘Beige Book,’ which collects anecdotal information from businesses around the country.” HPS Analysis: The American bicycle business and bike shops enjoyed “normal” and in some cases excessively high gross and net margins of profit during the pandemic, from 2020 through about mid-2022, when the bullwhip effect clogged up distribution channels, and supply chain and logistics disruptions created an inventory overhang that led to price cutting and discounting to sell pedal bicycles and e-bikes in all channels of trade, including bike shops and direct-to-consumer. This discounting eroded profitability but helped reduce the inventory glut, with fewer shoppers walking into brick-and-mortar bike shops, and backing off Internet shopping and purchasing in late 2022, all of 2023, and into 2024. The discounting continued, and educated consumers to ask for a deal. Discounting is back in fashion. The bicycle business has gotten shoppers and purchasers hooked on a deal and a discount, and we are facing pricing pressures in the form of increasing costs throughout the supply chain that will further reduce gross and net margins of profit from OEM to retail. Time for new strategies.

06-03-24: ”A traffic engineer hits back at his profession.” Bloomberg: “A new book argues that road design, not driver error, is largely responsible for the surge in U.S. traffic deaths among pedestrians and bicyclists. With U.S. pedestrian and cyclist deaths recently hitting 40-year highs, safety advocates increasingly point to a hidden villain: the transportation engineering field itself. Despite a parade of cities declaring their commitment to Vision Zero (a total elimination of crash fatalities), such goals can seem unattainable in neighborhoods crisscrossed with high-speed arterials and lacking safe spaces for people walking and biking. Those suspecting that dangerous street design is a root cause of the U.S. road safety crisis will find ample supporting material in Killed by a Traffic Engineer: Shattering the Delusion that Science Underlies Our Transportation System (Island Press, June 4), a new book from University of Colorado-Denver civil engineering professor Wesley Marshall. Before he entered academia, Marshall worked as a transportation engineer at two firms, Sasaki and Clough, Harbour & Associates. He now has harsh words about how the profession consistently prioritizes speed over safety, especially for those who aren’t inside motor vehicles. Marshall lifts the curtain on what can seem like a dauntingly complex field. Frequently addressing the reader directly, he argues that engineering approaches are driven more by ideology and inertia than logic or assessments of what works. “I felt the need to write this book when I realized that we aren’t going to come close to fixing our road safety problems based on what I was taught in engineering school,” he writes. ‘I began digging into all the systemic things that traffic engineers do wrong. The more I considered the problems we face, the more I realized I needed to figure out why traffic engineers do what they do.’ Bloomberg CityLab contributor David Zipper spoke with Marshall about how to design streets that are safe for everyone who uses them, regardless of how they travel. HPS Analysis: Finally! A respected traffic engineer speaks truthfully about the dogma espoused by city planners and traffic engineers for decades. It is this antiquated thinking that has stood in the way of any real progress in roadway safety and the meaningful reduction of roadway injuries and deaths of pedestrians and bicyclists. The League of American Bicyclists (LAB) has been vocal and aggressive in its fight with DOT and the National Highway Traffic Safety Administration (NHTSA) to reform and rewrite the guidelines and manual that traffic engineers use as their bible when planning new roadways and highway systems. While the American bicycle business trade association has focused on protected bike paths, the LAB has argued long and hard with NHTSA, without the full support of the industry trade association and the rest of the multinational bicycle business. HPS urges you to read Killed by a Traffic Engineer: Shattering the Delusion that Science Underlies Our Transportation System (Island Press, June 4) and join the LAB as both a member and in their lobbying and advocacy efforts directed toward DOT and the NHTSA to totally rethink and reform the guiding principles of roadway design, municipal planning and safety both inside and outside vehicles.

06-04-24: “Container shortage is shipping’s Achilles’ heel.” Bloomberg: “Surging freight rates have myriad complex causes but one is shockingly simple: Ships in China are running low on empty containers to carry goods. Unfortunately, it’s impossible to immediately fill the shortfall and, once again, the container lines are cashing in. The shortage is raising eyebrows because until recently, ocean liners had far too many boxes compared with prevailing demand. This was after shipping companies and lessors spent heavily on new equipment during the pandemic to ease congestion. But in what is beginning to feel like this industry’s Groundhog Day, liners are again scrambling to find containers, this time due to vessels rerouting following Houthi attacks in the Red Sea. Geopolitics is inherently unpredictable, but an industry trusted with carrying around 90 percent of the world’s goods, and which earned hundreds of billions of dollars during the pandemic, still lacks sufficient resilience. HPS Analysis: As the great Gilda Radner was fond of saying, “It’s always something!” As our readers and clients know, HPS has never trusted the veracity of the ocean freight companies in their eagerness to turn a bad situation for shippers into a highly profitable situation for them. Back in 2023, single-use shipping containers were available from warehouses at rock-bottom prices for storage units and conversion to low-cost housing. I know. My neighbor purchased a one-time-use 20-foot container from a warehouse in the Milwaukee area and had it delivered to him for use as a water-tight storage unit. Now it’s June 2024 and a worldwide shortage of both 20-foot and 40-foot shipping containers, because, as a companion article will explain. the geopolitical situation has resulted in a glut of empty shipping containers sitting in primarily European ports waiting for transport back to China, while there is a growing shortage of shipping containers in Asia. The major manufacturing source for shipping containers is China, and that manufacturing capacity has been downsized and shut down, and will take time to get back up to speed. In the meantime, the ocean freight carriers are rapidly increasing the cost and access to a shipping container to ship merchandise from ports in China and Asia to Europe and North America. Several ocean freight companies have increased their profit projections several times in recent months. The resulting increased cost of shipping bicycles from Asia to North America will be added to increased customs duty on imports from China, the primary source country, resulting in more inflationary pressure on pricing through the channels of trade to the already price-sensitive U.S. consumer.

06-04-24: “After months of high inflation, seeking deals is ingrained in consumer behavior.” Sourcing Journal: “Even as inflation settles, consumers continue to lock into behavioral adjustments that will help them save. According to the 14th edition of EY Future Consumer Index (FCI), which includes a global survey of 23,000 consumers across 30 countries (1,500 consumers in the U.S.), American consumers are optimistic about the months ahead. In fact, 77 percent of U.S. consumers told the company that they believe their lives are the same or better now than three to four months ago. However, even with this mindset, respondents admitted they would not be easing up on searching for deals. The act of saving, said the authors of EY’s report, ‘has become an ingrained consumer behavior across demographics, with shoppers turning to loyalty programs, private labels and discounts to cut costs on items they want and need. Sales have gone from specific moments in time, like Black Friday and back-to-school, to consistent opportunities for deals, and strong loyalty programs elevate that culture of consistent savings even further,’ said Kathy Gramling, industry leader at EY Americas. At the same time, loyalty programs provide brands and retailers with invaluable consumer data to better inform products, programs, and personalized experiences. Winning brands are those that use the data found in loyalty programs to not only attract new customers but also retail and reward existing ones. At the same time, U.S. consumers are showing increased interest in in-store shopping. When prompted, consumers cited the main drivers of this shifting behavior as the desire to see, touch, and try items before making a purchase (59 percent) and wanting to avoid shopping (57 percent).” HPS Analysis: I know, this is redundant, and we have already said all this. Well, not exactly. HPS wants to make sure that we warn about the change in American consumers shopping and buying behavior and in particular the important decline in online purchases and more consumers visiting brick-and-mortar stores to touch, feel and experience the products they have researched on the Internet. The behavioral change here is significant for bike shops. More consumers are shifting back to visiting physical stores to actually see, touch, and experience products, with the understanding that they have done their research, and they are not shopping in the classic sense. They know what they want, and they want to validate their research and selection. Bike shops, and their sales associates. need to understand this and change their approach and sales presentations accordingly. Today’s consumer is on a journey that started with their computer and online research, and now includes visiting a bike shop and talking to another human being that knows about the product they are focused on. The consumer is coming into the bike shop better prepared and more in control of their purchasing journey. Bike shops and their sales associates need to adjust accordingly to become a part of the journey, culminating in closing the sales and creating a customer for life.

06-04-24: “The other kind of bike infrastructure cities need.” Bloomberg: “Bicycle skills training and education programs aimed at women and minority groups can help close cycling’s stubborn access gaps and get more riders in the saddle.” “While bike trips rose across most demographics in London over the past decade, women and minorities remain underrepresented compared to White, male riders.” “A 2015 paper found that increased cycling in different parts of the UK didn’t translate to women or older adults, leading the authors to conclude that “creating a mass cycling culture may require deliberately targeting infrastructure and policies towards currently under-represented groups.” “Similar gaps in ridership exist around the world. A 2021 survey of cycling behavior in 17 countries and 35 major cities found women biked as much as men when cycling’s overall mode share exceeded 7 percent. That might sound like a low bar, but only the bike-friendliest cities like Amsterdam, Osaka, and Munich clear it. In London, cycling totaled 4.5 percent of trips in 2022, according to data from Transport for London.” “A host of factors can discourage women from venturing into the streets on bikes. Female cyclists are twice as likely as men to be targeted with hostility from drivers, a 2015 study found. Verbal and sexual harassment are also frequently part of the commuting routine. Women are also underrepresented in the transportation space in general, from the policy world to the engineering, regulating and administration of city roadways. For many decades, the streets of cities around the world have largely been built around the mobility preferences of men. To help close this gap and transform the culture of biking, education can play a big role, advocates say, by teaching people to be confident on a bike regardless of their background. Nonprofit Bike New York runs the largest free bike education program in the U.S. and also organizes the flagship TD Five Boro Bike Tour, a 40-mile ride around New York City each May that this year registered more than 32,000 participants. The advocacy group offers bike skills courses at 12 community education centers throughout the city. Adult learn-to-ride classes are attended largely by women and people of color, according to CEO Ken Podziba, who previously served as New York City sports commissioner. ‘We teach people not to be afraid,’ Podziba says. ‘I always say fear is your worst enemy as a cyclist, and we alleviate the fear.’ In Washington, DC, learn-to-ride classes are offered across the greater metro area by the nonprofit Washington Area Bicyclist Association. Like Bike New York’s classes, WABA’s are attended mostly by women and African Americans. WABA outreach director Renée Moore learned to ride a bike as an adult, during a date on the DC waterfront in her 20s. Moore says, ‘I think if cities are going to invest in something, it’s something to think about in addition to infrastructure,’ she says. ‘Not that they shouldn’t do infrastructure. But I think the idea that just building a bike lane and people will ride it is great for people who are already riding, but for people who would like to ride and don’t know how to, it’s never going to get them on a bike.’ What limited data we have suggests these sorts of social and educational programs are more popular among groups historically underrepresented in cycling. HPS Analysis: It should be obvious that the American bicycle business needs to change its strategy and refocus objectives, or maybe it isn’t to everyone. The current industry strategy began in 2000 with the focus on competitive racing and the international UCI circuit dominated by Lance Armstrong and included for the American market, from about 2004 forward, “Build it and they will come!” right from The Field of Dreams, and based on a simple strategy predicated on the suppliers writing one check to, at the time, Bikes Belong, for bicycling facilities. The advocate in the Congress was James Oberstar from Minnesota and he was blunt, forceful, articulate, and supported by his seniority, and newcomers to the bicycling caucus like Earl Blumenauer from Oregon. Bike shops prospered and sponsored riders and clubs, and where appropriate embraced off-road riding and the various forms of mountain biking. The major brands in the U.S. become multinational and expanded distribution and in some cases manufacturing in Europe, Asia, and South America as well as their home base in North America. The slowly-growing problem was bicycle riding participation. Actual participation as defined by the National Sporting Goods Association (NSGA) as a person seven years of age or older who rode a bicycle six days or more during the year, remained flat from 2000 to 2023. The NSGA also collected data on people seven years of age or older who rode a bicycle one to five days during the year. From 2000 to 2023 this group, that rode one to five days and dropped out, increased steadily over this same 23-year period. In addition to no growth in bicycle riding participation while the U.S. population was growing, this resulted in negative per-thousand penetration, or fewer Americans seven years of age and older riding a bicycle every year, for the last 23 years. This is also called the incidence rate, and is the percentage of Americans riding a bicycle (including e-bikes) each year, and it has been steadily declining. The industry response was to switch from emphasizing the number of bicycle units sold to the dollar value of the units sold, which went up the last 23 years, and very dramatically over the last four years when e-bikes increased to just over 9 percent of units but were just over 50 percent of value. Dollars is a valid measure of market, but it isn’t a measure of incidence rate for bicycles, including e-bikes, per thousand U.S. population. So, it is obvious to this observer that the American bicycle industry needs a new strategy that embraces everything this article talks about and touches on.

06-05-24: “After Tesla, the surprising next best-selling electric vehicle in is this electric bike.” electrek: “In a world where electric vehicles are becoming increasingly popular, it’s no surprise that the Tesla Model Y and Model 3 are the best-selling EVs in the United States. But what if I told you that the third best-selling electric vehicle in America isn’t a car at all? It’s actually an electric bike! Yes, you read that right. The Lectric XP 3.0 e-bike is the surprising champion that’s secured its place as the third best-selling EV in the nation. And to be honest, it’s not even close. As the company explained, ‘In 2023, Lectric helped electrify more Americans than Ford, Volkswagen, Hyundai, Rivian, Lucid, BMW, and Porsche combined.’ That might sound surprising, but those in the e-bike industry will likely already know that the Lectric XP 3.0 has been a runaway success. While the company doesn’t list exact sales figures, we know that its best-selling model, the XP 3.0, handily secured the spot of third best-selling EV in the U.S.. And of course, it’s significantly more affordable price of just $999 didn’t hurt its placement on the list, either.” “The Tesla Model Y and Model 3 took the two top spots for 2023 at 394,497 and 220,910 units sold, respectively. And while we don’t know exactly how many XP 3.0 electric bikes were sold last year due to Lectric being a private company, it was likely in the high five figures. Lectric’s total of over 400,000 sales from 2019 to 2023 includes its first year with minimal numbers while it was still ramping up production. Those sales figures also include several other models from Lectric, though the XP 3.0 is by far the company’s biggest mover. For comparison, the fourth spot on the list of best-selling EVs in the US, the Chevy Bolt EV/EUV, sold just over 62,045 units in 2023.” HPS Analysis: In the interest of full disclosure, this electrek article reads like it is based on a Lectric press release, but with that said, it still has the ring of truth about it relative to the numbers of e-bikes being sold in the U.S. when compared to electric cars. At last count, there were over 400 electric bike brands being sold through all channels of trade in the U.S. market. Not all will survive the current shakeout, but those that are tested and certified, supported by their channels of trade, and the U.S. consumer, will. If the current, growing wave of off-base, confusing, and ineffective state and municipal regulations do not suppress market demand before good, mandatory standards are promulgated by the U.S. Consumer Product Safety Commission, e-bike sales and safe usage will continue to grow and help create a sustainable future for electric vehicles of all types.

06-06-24: “Blumenauer’s new bill seeks to invigorate U.S. bike manufacturing.” Bicycle Retailer and Industry News: “Congressional bike advocate Earl Blumenauer’s newest bill is aimed at rejuvenating U.S. bike manufacturing. Blumenauer, Oregon’s Democratic representative, who is founder and co-chair of the Congressional Bike Caucus, introduced The Domestic Bicycle Production Act this week. The legislation has three parts:

  • Institute a 10-year tariff suspension on component imports, like electric motors, frames, rims, hubs, brakes, saddles, pedals, gears, etc., to incentivize U.S. assembly.
  • Create a transferrable e-bike production tax credit for U.S.-manufactured bikes to encourage companies to utilize domestic manufacturing.
  • Establish a U.S. Bicycle and E-Bicycle Manufacturing Initiative to make low-interest, 12-year loans to purchase capital equipment toward establishing or increasing capacity of domestic manufacturing facilities.

‘Domestic manufacturing is the missing piece of the bike revolution,’ Blumenauer said in a statement announcing the legislation. ‘My legislation would give bike manufacturers the foothold they need to establish a thriving industry here in the United States.’

He noted how Europe has expanded bike manufacturing, with the European Union encouraging it through a combination of trade policies and investing in manufacturing facilities. Blumenauer’s bill comes after the U.S. Trade Representative’s office recently announced that exclusions from the Section 301 tariffs imposed by the Trump administration — after being extended several times — will be allowed to expire. Importers of Chinese-made e-bikes, juvenile bikes and some other bike products will be responsible for an additional 25 percent tariff on those products starting June 14. Domestic bike assemblers currently pay import tariffs of roughly 6-11% on parts and frames from most countries. Some parts from China are subject to the additional 25% on top of those. Eliminating the tariff on parts bound for bike assembly (as opposed to aftermarket sale), would make U.S. bike assembly more viable financially. After serving Oregon’s 3rd Congressional District for 27 years, Blumenauer, 75, announced In October that he will not seek re-election this year.” HPS Analysis: I remember a young Earl Blumenauer, new to the Congress and to the Bicycle Caucus, being helped up on a conference table in a room in the bowels of one of the Congressional office buildings, at the end of an LAB lobbying day in March, giving a stump speech to an admiring gaggle of bicycling advocates from all over the country who had just spent the day going from House offices to Senate offices, all over the Capitol complex in Washington DC, wearing little plastic bicycle pins identifying them as members of the League of American Bicyclists. There of course was beer. Earl said all the right things and we were all tired and giddy from the Capitol Hill experience. In that moment in time, we had just brought the American bicycling movement to the members, on both sides of the aisle, of the Congress of the United States, and were proud of it. And, like all good things, it was over by the next day and we found ourselves back in the reality of being small fish in a very big ocean. Earl stuck with it, and after spending 27 years in Congress and rising to the senior minority member of the House Ways and Means Committee, he is retiring. His parting gift to the bicycling movement is this bill. He knows that he is what is referred to as a “lame-duck,” and he also knows it is now up to the American bicycling movement as to whether the bill he sponsored fades away in six months when this Congress ends and he goes back to Portland, this time to stay. It is truly up to us. There is nothing easy about reshoring bicycle manufacturing in the U.S. and Earl knows it. But if the concept is going to go beyond what Kent International has achieved with its assembly plant, Bicycle Corporation of America, Earl also knows the opportunity he has provided is going to take real dedication and effort on the part of the American bicycle business to make it a reality. Thank you Earl for this opportunity.

06-06-24: “Hermosa deploys geofencing to slow e-bike rental speeders.” Easy Reader and Peninsula: “E-bike rentals in Hermosa Beach (California) must be equipped with geofencing devices that disable pedal-assist motors when ridden on The Strand, Pier Plaza, and the Greenbelt under an emergency ordinance unanimously approved by the Hermosa Beach City Council at its June 4 meeting. The ordinance leaves e-bikes legal on The Strand and Pier Plaza if their motors are off, but prohibits e-bikes entirely from the Greenbelt and city parks. The ordinance also prohibits e-bike passengers unless the e-bike has a passenger seat, and requires e-bike riders under 18 to wear a helmet. Fines for e-bike violations were set at $500 for the first offense, $750 for the second offense, and $1,000 for subsequent offenses. The geofencing requirement for e-bike rentals goes into effect August 4. Though the council was unanimous in its approval of the ordinance, residents weren’t. Will Weston, who rides his e-bike from his home in Hermosa Beach to his dental practice in Riviera Village, told the council, ‘E-bikes aren’t the problem. Speed is the problem. You’re creating new laws when all you need to do is enforce The Strand’s eight miles per hour speed limit.’ Weston contended the ordinance is effectively a ban on e-bikes on The Strand and Pier Plaza because e-bikes are designed to be ridden with pedal assist and ‘are miserable to pedal without a motor.’ (The elderly and the disabled are exempt from the pedal assist ban on Pier Plaza and The Strand.) Cliff Hough, owner of Trick E-bikes on Hermosa Avenue, said geofencing The Strand puts his customers in danger because it forces them to ride on the street. ‘Couples from Canada who want to ride to Santa Monica on the bike path would have to ride on the street when they are in Hermosa,’ he said. (Hermosa Beach is the only city between Redondo Beach and Santa Monica that does not have a bike path separate from its pedestrian walkway). Hermosa Cyclery owner Steve Collins told the council he has tested geofencing on his rentals and said it is easy to use, and relatively inexpensive. He estimated the costs at $100/bike for the geofencing devices and $20/month/bike for the software. He described the costs as a “rounding error” because e-bikes cost approximately $1,000, and rent for approximately $100 per day, versus $36 dollars per day for a pedal bike.” HPS Analysis: What a fantastic way of regulating the “out-of-class” speeders who are giving e-bikes a bad name! It is high-tech and evidently works at a reasonable cost, even though it will force some e-bike riders to use the poorly-designed and dangerous streets referenced in an earlier article. The American bicycle business can learn from Hermosa Beach, and utilizing technology like geofencing to reduce and prevent e-bikes that can achieve ground speeds, when powered by the electrical propulsion system only, of over 20 miles per hour, from speeding and causing accidents. On the other hand, the employment of technology like geofencing would not be necessary if the bicycle business would embrace a voluntary industry e-bike product standard that supported and adopted the current mandatory 16 CFR 1512 and its defining a low-speed e-bike as a “two or three-wheeled vehicle with fully operable pedals and an electric motor of less than 750 watts (1 h.p.) whose maximum speed on a paved level surface, when powered solely by such a motor while ridden by an operator who weighs 170 pounds, is less than 20 mph.” The bicycle industry association evidently wants it all relative to members supplying e-bikes that can achieve speeds at and well over 20 m.p.h., and e-bikes that can have their technology easily user-modified so as to achieve ground speeds in excess of 20 m.p.h. HPS advises it is time to be realistic about a membership that provides products in compliance with 16 CFR 1512 and the voluntary third party UL2849 and UL 2271, and let the rest join another trade association whose consumer products are regulated under NHTSA and DOT.

06-09-24: “Two companies will guide global supply chains.” Bloomberg: “A splintering of global supply chains, driven by both political and business considerations, has hundreds of manufacturers and logistics providers debating where to go next. They’d be well advised to take their cues from two Taiwanese companies who’ve led the charge. Taiwan Semiconductor Manufacturing Co. is the world’s largest maker of chips, with clients including Apple Inc., Nvidia Corp. and Advanced Micro Devices Inc. Foxconn Technology Group, whose flagship is Taipei-based Hon Hai Precision Industry Co., assembles those components into end devices. Apple’s iPhones and Nvidia’s artificial intelligence servers are among the most famous of Foxconn’s products, but its reach extends into industrial sectors including Tesla Inc. cars, factory-automation systems provider Siemens AG, and even an Israeli satellite maker. Their size, technical dominance, and global influence make these two Taiwanese companies irreplaceable. No other single business could jump in to fill the gap should either disappear overnight. That’s the concern policymakers from Washington to Canberra have in the event tensions between Taipei and Beijing escalate to the point of military conflict. But both firms are thinking less about war and more about how globalization can extend their lead. ‘Instability in the Taiwan Strait is definitely one supply chain-resilience consideration,’ TSMC Chairman and Chief Executive Officer C.C. Wei said after its annual shareholder meeting this month. Yet the chipmaker also seen benefits from globalization ‘because we can get the best from around the world.’ Foxconn has also been touting the upside of its expanded reach. ‘Our diversified global footprint is an important part of Hon Hai’s competitive advantage,’ CEO Young Liu told shareholders recently, noting that it has 205 sites in 24 countries. ‘In the current geopolitical situation, that advantage is even more important and obvious.’ Two decades after joining the World Trade Organization, China’s position as factory to the world has shifted from being a win-win for clients and suppliers to a massive risk. Labor shortages, rising costs and stiff local competition have many looking elsewhere. Japanese and South Korean carmakers are withdrawing, US power-tool maker Stanley Black & Decker shut its factory, and Nike Inc. has moved away. TSMC and Foxconn don’t supply directly to all of these companies, but they’re only one step away. Almost every device on the planet is made with, or by, the goods that come out of their factories. TSMC, for example, not only controls most production of leading-edge chips, it’s the single-largest supplier of older (also called legacy) 28-nanometer semiconductors that go into toys, and industrial and agricultural equipment. Foxconn, though best known for churning out consumer devices, is a major player in industrial manufacturing and factory automation. That means the site of new facilities from either company acts as a guidepost for where the rest of the supply chain is already going, or ought to move next. HPS Analysis: Hard-core cyclists of the old-school still reach for downtube shifters, but they will spend thousands of dollars of their wealth on a vacation trip to Europe and the Tour de France to follow their favorite UCI team or team leader over the month of July. Whichever team or rider they are chasing is riding the latest racing bicycle design utilizing technology in frame materials and electronics in shifting, and physiological monitoring of the rider’s performance. E-bikes are packed with technology, and so are today’s mountain bikes, road bikes, and gravel bikes, as well as accessories like cycle computers, lighting systems, and rear-facing radar and V2X systems. Legacy 28-nanometer semiconductors are integrated into smart bikes and e-bikes, and once you understand this the quicker you understand the logic of Taiwan Semiconductor Manufacturing Co. and Foxconn Technology Group being the pathfinders for future global supply chains, including the bicycle-e-bike supply chain. The fact that these two are Taiwanese is also significant as concerns the bicycle manufacturing supply chain, including Giant and Merida going forward and the future of bicycle and e-bike manufacturing in North America. 

06-10-24:Vosper: In an industry still struggling with record levels of inventory, there’s plenty of pain to go around.” Bicycle Retailer and Industry News: “There is a widespread belief among retailers I’ve talked to that while their post-pandemic profits have been stripped to the bone with discounts, suppliers are still enjoying comfortable margins from the pre-pandemic era. And since suppliers don’t discuss their internal margins to retail partners, there has been nothing to refute this notion. To get the real story, I spoke with five senior executives at five different bike suppliers, two of them from top-ten brands, three from lower-volume or boutique names. All agreed to talk with me only under condition of anonymity, so I’ll be referring to them as Suppliers A through E for continuity purposes. In the course of these discussions, one thing quickly became apparent: The inventory burden has almost exclusively affected costs of bread-and-butter models at entry-level or midline price points. Although sales of premium models have been slow post-pandemic, inventory in those categories is much lower and margins for suppliers have held steady at traditional (2019-level) industry norms. So when we talk about supplier margin reductions, we’ll be talking about discount pricing on excess and aging inventory. Suppliers speak out: ‘A lot of the excess inventory that’s currently on hand is old stuff … ‘20, ‘21,’22 inventory,’ says Supplier A. ‘What’s that inventory worth? We’re selling it at 20, 30, or even 40 percent off and the inventory is still just not moving. Half of the sales happening at wholesale are new bikes and half are old. The older ones are selling at deep discount, and the new ones are selling at good margins.’ Supplier B agrees. ‘Supplier prices actually have mostly been going up while retail has been under downward pressure.’ There is still some hangover inventory in stock at dealers being sold at or below cost or at a small positive margin, they say. Suppliers are just trying to get it out of the way and turn it into cash. Unfortunately,’ they continue, ‘there is a crushing imperative from Specialized, Trek, Santa Cruz to load (dealers) up beyond reason. We’re talking terms in the over 200 days zone (I’ve heard 250!) plus discounts in the 30-40 percent realm. This is going to crowd the dealers’ warehouses and showrooms and put them in debt for the next year.’ (Note: according to the latest Circana data, overall dealer inventories are being held at or close to historically normal levels). It is not clear how well all that product is going to move. Everything is a good deal, so it’s hard to differentiate that way. The saturation of the market is here for a while. What about ongoing dealer margins? For all the foregoing, at some eventual point, the excess inventory will move through the pipeline and sales will return to normal. But what about dealer margins? Again, the news is not encouraging. Here’s Supplier A again: ‘I’m guessing that retail margins are not going to be returning to 2019 levels. There are simply too many pressures on the marketplace from D2C, tariffs, and other places. The real problem here is that fewer people are coming into bike shops to buy bikes, and increased margin dollars per unit (due to higher per-unit prices) are not going to change that fact. It’s really a question of survival, and the retailers have to get smart about it.’ I’ll leave the last word to Supplier E, who brings a unique viewpoint to the topic. ‘I have the experience of having owned suppliers and retailers,’ they say. ‘I doubt many industry execs have really felt the burden of making a bike shop profitable, and thus are not really considering how bicycle margins really impact dealers, and vice-versa. Therefore, there will be the discomfort of an evolution as the laws of economics play out.’ Discomfort indeed, but it’s all a part of the new post-pandemic normal. Margins are down for retailer and supplier alike, and it looks like those low margins are here to stay for everyone, even after we finally manage to clear the current inventory backlog.” HPS Analysis: We cannot add much to this picture that Rick Vosper has painted, and we urge all of our readers to revisit and read this article again. As Rick says: “It’s really a question of survival, and the retailers have to get smart about it.” The American bicycle industry association strategy has been outdated by the dynamics of global economics and shifts in consumer shopping and buying habits and concerns. The past is prolog, nothing is going back to the way it was, and the American industry and bike shops need to quickly adjust and find their footing in order to survive the current disruptions that are prolonging the shakeout.

06-10-24: “Trucking capacity appears to be contracting as a persistent downturn in freight demand depresses rates and carrier earnings.” The Wall Street Journal Logistics Report: “The sector lost a seasonally adjusted 5,400 jobs in May from a month earlier, the WSJ Logistics Report’s Paul Berger writes, a contraction that suggests smaller operators and independent drivers are withdrawing from the market because of the economic strain. Last month’s pullback was the largest monthly decline in the sector since August 2023 and left trucking payrolls down 29,600 jobs over the past year. Various measures show freight shipments have been weak this year while rates have been sputtering well below the levels of two years ago. Industry executives say slimming capacity could pump up prices, and there are signs more volume is on the way. U.S. container imports are growing, suggesting more consumer goods are heading into domestic networks and raising the prospects of an early peak shipping season.” HPS Analysis: This is all about domestic shipping and LTL shipments from distribution centers and warehouses to bike shops. It’s also about another potential cost increase during the second half of this year. Bike shops need to contact their key suppliers and confirm domestic shipping pick-up, transit times, and rates. Ask suppliers to keep you informed of changes in domestic freight rates and service, and check in frequently to stay current, and be prepared to adjust buying as necessary..

06-11-24: “A strong dollar is great news for most of us — but not everybody is a winner.” National Public Radio npr: “A strong dollar reinforces America’s economic might and helps bring down inflation, but it also hurts exporters. The American dollar has been soaring this year relative to most currencies in the world. That’s providing a lot of benefits to Americans, but it’s also creating a lot of pain. The strong dollar brings a number of advantages. It reinforces America’s economic dominance, and it helps reduce inflation by making imports cheaper. But a rising dollar doesn’t lift all boats. Some exporters have been hit as the stronger domestic currency makes them less competitive in overseas markets, while also creating economic headaches around the world. Here are three things to know about the dollar and its rally this year. What’s behind the strong dollar — and will it last? A solid dollar signifies a strong economy. And the U.S. economy has proven relatively strong and stable, certainly compared to other countries that are growing more slowly. The U.S. dollar index, which measures the greenback against a basket of currencies of major trading partners, is up nearly 4 percent this year despite falling in May and experiencing some volatility along the way. For the dollar, the gains mark quite a comeback. The greenback had soared in 2022 to its highest in around two decades, but slipped a little last year. Interest rates are playing a part too. The Federal Reserve continues to maintain relatively high interest rates compared to U.S trading partners like Japan and Europe. Higher interest rates traditionally push up a currency’s value. One big reason is that they tend to attract more foreign investors into the country’s debt markets. For instance, a Japanese investor looking to buy U.S. government bonds would have to buy dollars to invest in this country. So who benefits? Simply put, almost everybody in the country. A key benefit of a stronger dollar is that it lowers the cost of importing stuff. That’s a big deal for the U.S., a country that imports more than it exports. And it’s not just the millions of shoppers buying cheap Chinese-made items from Walmart and Amazon. American companies benefit because they need to import things too, like raw materials or components, for manufacturing and production. Lower import costs help to counter inflation. And that’s especially helpful now when inflation remains one of the biggest challenges for the U.S. economy. And who gets hurt? The soaring U.S. dollar may provide big benefits to many Americans, but not everybody comes out a winner. It can hurt domestic manufacturers. Quantifying the exact impact of a strong dollar on American exporters is tough. Economists agree that manufacturers are suffering because of the strong dollar, but also note the sector is more resilient to currency pressures and high interest rates than in previous devastating periods like in the early 1980s. American companies who manufacture abroad can also feel the sting. For multinational corporations, like Apple which have many overseas operations, the strong dollar can prove costly when converting local foreign currencies back into U.S. dollars. Beyond hurting U.S. companies, the strong dollar can wreak havoc around the world. While foreign countries can benefit from exporting goods more cheaply to the U.S., they pay a price because imports into their own countries become more expensive too. HPS Analysis: The American bicycle industry, including the dynamic and growing e-bike segment, is import dependent, and everyone in the business should know this fact that has been reality for 25 years, since 1999. A strong U.S. dollar is a benefit to importers because a strong dollar means more buying power in overseas source countries, like China. However, as this article points out, domestic manufacturing and reshoring are not beneficiaries, and this will be a constant drag as long as the dollar stays strong, or relatively so. The other downside to being import dependent, primarily on China as a source country, is the geopolitical conflict with the U.S. that has resulted in the Section 301 punitive tariffs. While a strong dollar should help imports reduce inflation, being subject to the Section 301 punitive tariffs that have added 25 percent to the FOB cost of bicycles, components and e-bikes originating in China, is clearly inflationary while offering no protection whatsoever to any American worker or manufacturing entity/.

06-12-24: “The world needs more batteries — but not this many.” Bloomberg: “The wave of battery factories under construction around the world will be able to produce far more cells than the global economy needs, Bloomberg NEF warns in a new report. Demand for lithium-ion cells is growing fast, as automakers electrify their fleets and utilities install big batteries to stabilize the power grid. But manufacturers have announced so many new factories that capacity will outstrip demand for the rest of the decade, according to BNEF. By the end of 2025, the global battery industry will be able to produce more than five times as many cells as the world will need that year, BNEF forecasts in its latest Electric Vehicle Outlook. ‘This is good news for automakers and EV buyers but marks a challenging time ahead for new entrants to the battery industry,’ the report said. Oversupply is most acute in China, where manufacturing capacity will exceed annual battery demand by at least 400 percent for the rest of the decade. It’s also an issue in the U.S., where President Joe Biden has made building a domestic battery supply chain one of his top climate and industrial priorities. Among efforts to woo battery makers, the administration offered a conditional $9.2 billion loan to Ford Motor Co. last year to construct three battery factories. Europe also faces a glut of battery capacity, yet governments are pushing for more. Swedish battery maker Nortvolt AB has a plant under construction in Germany, but the country’s Economy Minister Robert Habeck is already lobbying the company to build another. Some planned factories around the world may be delayed or canceled due to the industry’s overcapacity, according to Yayoi Sekine, head of energy storage research at BNEF. Ford, for example, has ratcheted back its plans for ramping up electric vehicle production citing a price war for battery-powered cars and trucks. ‘This will be a problem everywhere, including the U.S.,’ she said in an email. At the same time, the chemistries used to make batteries are changing. The report found that lithium iron phosphate batteries are gaining popularity for powering electric cars, particularly among Chinese automakers. Their component materials are cheaper than the standard lithium-ion cells that use nickel, manganese and cobalt, and the shift could substantially lower future demand for those metals. BNEF cut its forecast for the amount of nickel used in batteries next year by 25 percent.” HPS Analysis: Yikes! Manufacturing oversupply is the primary EU and U.S. argument for import tariffs on importation into Europe and the U.S. of Chinese manufactured electric vehicles. Lithium-Ion batteries sourced in China for other than EV’s, but for micromobility devices like e-bikes and e-scooters will be subject to 25 percent punitive tariffs that will go into effect January 2026, but this still gives exporter and importers plenty of time to flood the U.S. market with lithium-Ion batteries, some of which will be hazardous because they don’t meet either UL 2271 or what will be the new Chinese lithium-ion battery standards. As this article points out: “Oversupply is most acute in China, where manufacturing capacity will exceed annual battery demand by at least 400 percent for the rest of the decade.” And that is just lithium-ion batteries. Think about the Chinese DTC e-bike brands being sold in the U.S. market and the real, distinct probability that they will flood the U.S. market with low-priced, oversupply e-bikes as the price pressure mounts in the U.S. where importers of e-bikes are paying a 25 percent punitive tariff and higher ocean freight costs that have to be passed along channels of trade to increased consumer retail pricing.

06-12-24: “The Fed holds rates steady, sees only one rate cut in 2024 as inflation cools slowly.” National Public Radio npr: “The Federal Reserve held interest rates steady Wednesday, while signaling it expects to be able to cut rates only once this year. The decision and the rate cut projections came hours after the Labor Department reported a modest — but welcome — easing in the inflation rate last month. The Fed has kept its benchmark interest rate at the highest level in over two decades since last July. That’s making it more expensive to get a car loan, finance a business or carry a balance on your credit card. Fed policymakers still expect to cut rates later this year. But forecasts released at the end of their two-day meeting show on average, policymakers anticipate just one quarter-point rate cut by year’s end — down from the three rate cuts they were forecasting in March. The Fed has been prevented from cutting rates more aggressively because inflation has proven to be more stubborn than expected. Policymakers want more evidence that inflation is falling back towards their target of two percent before they start lowering rates. The latest cost-of-living report, also released Wednesday, offers some encouraging signs that inflation is moving in that direction. Consumer prices in May were 3.3 percent higher than a year ago — a smaller annual increase than the previous month. The consumer price index was flat between April and May, as falling gasoline prices helped to offset rising rents and restaurant prices. The economy is still doing well. While high borrowing costs have weighed on parts of the economy — especially the housing market — they haven’t depressed hiring so far. Employers added a robust 272,000 jobs in May and average wages were 4.1 percent higher than a year earlier. Wages have been climbing faster than prices for over a year now, giving workers a real boost in their buying power. But rapid wage gains can also put upward pressure on prices, making it more difficult for the Fed to control inflation. HPS Analysis: The U.S. economy is like the legendary fullback, pounding his way upfield, taking hit after hit, but maintaining his balance and pumping his legs and moving forward toward the goal line. The Fed policymakers are getting what they want – a reduction of inflation, aiming for their 2 percent goal and hitting the U.S. economy and the U.S. consumer again and again to slow it to a soft landing without forcing a recession. The impact and reaction of the stock market is different than the impact and reaction of the retail channels of trade and the American consumer. During the pandemic getting a business loan was relatively easy, and the interest cost of such a loan was low. Post-pandemic business loans became much harder to get and the interest costs went up. During the second half of 2024, many of the loans from the pandemic era mature and will need to be refinanced at higher rates of interest, if the lenders will refinance them. Loans on inventory will be problematic. The Fed holding steady means interest rates are not going to come down when the pandemic loans come due for refinancing. The U.S. economy is “still doing well,” but like our legendary fullback, it has taken hits, it is hurt, and it is tiring. The consumer is moving down-market to lower and discount pricing and has become cautious, and the Fed doesn’t care if they are not shopping at bike shops or buying fewer bicycles as long as progress is made toward the 2 percent inflation goal. The bicycle business and bike shops are going to have to make their own strategy and business plans for surviving and eventually thriving.

06-13-24: “Will new tariffs increase the cost of your next e-bike? It’s complicated.” VELO: “Your next e-bike purchase could get a whole lot more expensive. Will your next e-bike cost more, however? It depends. A set of exclusions from the Section 301 tariffs expires on June 14, 2024 in the United States. That means imported kids’ bikes, some carbon fiber bikes, and e-bikes produced in China will be subject to an extra 25 percent duty. That might not seem like the end of the world, at least until one considers that some report as much as 95 percent of bicycles sold in the U.S. over the last ten years were made in China. While there might be siren calls out there saying the cost of your next e-bike is going to skyrocket, that’s not entirely the case. Will we see prices increase? Probably, but not in the ways you’d think. Here’s why. Rad Power Bikes is among the many brands whose production is based predominantly in China. Before we dig into price increases, let’s talk about what is happening. Bicycle Retailer recently reported that import of Chinese-made e-bikes, kids bikes, and some other bike products would receive an additional 25 percent tariff starting June 14. This tariff comes from Section 301 tariffs first implemented by President Trump’s administration. The U.S. Trade Representative (USTR) has exempted some bike products from the tariff, but let some — including the exclusion for e-bikes — lapse. So, will the cost of your next e-bike really increase by 25 percent? Not quite, but they’re still likely going to go up, at least in the short term. Some of the larger bike companies I’ve spoken to, who have declined to be quoted in this story, mention that they’re not as concerned by these tariffs. Those bigger brands have already moved their large production numbers to Taiwan, Vietnam, or elsewhere to diversify production and sourcing. More likely than not, they won’t have any issue with these tariffs on Chinese products, at least not in the medium to long term. Further, a percentage of e-bike drivetrain manufacturers produce their systems outside of China. Bosch says its batteries and drive units are produced in Hungary. Fazua produces its motors in Germany. Mahle produces its motors in Slovenia. But where are the batteries and bikes assembled? They can come from all over the place. Most come from China. All of this is to say some e-bikes will have no issue avoiding the Section 301 tariff, meaning the cost of your e-bike won’t go up. But many e-bike manufacturers, particularly the small ones, will need to get creative to ensure everyone who wants an e-bike can get one. One of the most prevalent worries across the internet with these new tariffs will result in e-bikes that are less accessible, at least with regard to price. Competing on price is a race to the bottom that can be avoided. But it’ll require government groups as well as e-bike companies to get creative in how they collaborate, says Laura Belmar, CEO of nascent cargo e-bike brand Integral Electrics. ‘Most e-bike brands are in China,’ says Belmar. ‘We manufacture our bikes in China because it allows us to meet our accessibility goals in terms of feature set and price. However, if another location were to offer better pricing and flexibility for our smaller order quantities, we’d likely consider shifting production there.’ The answer to getting more people on e-bikes is multi-faceted, and some think it doesn’t start with purely exempting e-bikes from tariffs. ‘These tariffs aim to promote U.S. manufacturing,’ continues Belmar. ‘It feels entirely viable to do so, but the supply chains take time to develop. Many brands want on-shore production, but having to divert capital to cover tariffs makes it a whole lot harder. We have the experts here [in North America] to make it happen, but as companies, we need incentives to make it work.’ There is some work being done from the federal side of things. Congressman Earl Blumenauer recently proposed the Domestic Bicycle Production Act, suggesting a 10-year tariff suspension on bicycle component imports when the parts are destined to be assembled into a complete bike, a domestic e-bike production tax credit, and low-interest loans for domestic bicycle manufacturing. Like many of Congressman Blumenauer’s proposals, however, there is a low likelihood of this one gaining traction in Congress. The answer doesn’t become much easier for consumers, who will need to search for state, county, or even city-specific rebates to purchase a new e-bike. Many of those rebates only apply to local bike shops, eliminating incentives for small e-bike brands that sell outside of bike shops. That leaves potential cyclists scraping to find how they can save money on an e-bike, with confused consumers going to bike brands who may or may not be well-versed in local incentive or rebate structures. What can an accessible e-bike mean then? It isn’t purely price. Rather, it’s by making them usable for as many people as possible. Creative financing and leasing schemes in conjunction with consistent, predictable rebates will help. Battery regulation and UL certifications can add cost but will allow e-bikes to be more reliable as a viable car replacement. Lower e-bike costs can make passing thoughts a reality, but a race to the bottom isn’t how to make e-bikes more accessible. Belmar’s recommendation? ‘If you’ve been considering an e-bike, you should probably get it now.’ HPS Analysis: This is a long article that we have edited but didn’t want to lose the direction, which boils down to a lot of wishful thinking about an e-bike price war and the reality of supply chains serving retailers (two or three-step distribution) and DTC supply chains and the later not cheating on standards, testing, certification and safety. Yes, its complicated, but 25 percent punitive tariffs on the import value of an e-bike are going to have to be paid by someone along the channel of distribution to the consumer. Brands and retailers that play by the rules and provide the safest possible e-bike to consumers will have to raise prices to consumers. The low-price discounted e-bikes will probably not provide as safe a product and may even be hazardous, and the consumer is going to have to be aware that the lowest price isn’t always an equal or safe e-bike.

06-13-24: “Accell Group takes another step down in Fitch credit rating.” BIKE Europe: “The uncertain pace of the reorganization to restore its profit (EBITDA), the excess inventories in the market and weak consumer demand, and a deep-discount environment, made Fitch Ratings decide to downgrade Accell Group from CCC to CCC-. According to the credit rating agency, ‘the weak operating performance, tight liquidity and negative free cash flow results in unsustainable credit metrics.’ The published downgrade by Fitch Ratings is already the fourth in one year for Accell Group. ‘The downgrade reflects our expectation that Accell Group’s EBITDA margin or the operating profit as a percentage of the revenue, will drop to low single digits in 2023-2024.’ wrote Fitch Rating already last December. This financial situation got only more challenging for Accell Group since then, but it also reflects the financial position of the bicycle industry in general. Probably the most valuable asset of Accell Group are the IP rights. Fitch Ratings views the execution of Accell Group’s turnaround strategy as uncertain after a lack of clear progress and recent senior management changes. ‘We see substantial operational challenges as the company is overhauling its product portfolio and business processes around manufacturing, logistics and procurement. These efforts are further exacerbated by sell-in challenges in addition to the costs of its Babboe recall. Business seasonality and the sector’s challenges mean the second and third quarters are critical for Accell Group’s recovery.’ As part of its recovery plan, Accell Group announced plans in January to merge its two facilities in Heerenveen, the Netherlands, and relocate some of the current production to Accell’s other European manufacturing facilities in Hungary and Turkey. Up to 150 job losses in the Netherlands were expected. For Fitch Rating this and other plans announced earlier, are not enough to restore the company’s financial position. It could mean more restructuring plans including job losses will be announced this year. In its most recent report, Fitch Rating wrote that Accell Group has used its liquidity positions amounting to more than €700 million in full. Accell Group now relies on its shareholder KKR, who already provided a shareholder loan of €298 million last year. According to Fitch Ratings, this “confirms the shareholder’s strong commitment to the business. However, the lack of visibility on the pace of recovery means we cannot accurately assess how long the available shareholder commitment and whether additional capital injections would be needed.” Fitch Ratings estimates that Accell Group needs an EBITDA of at least €100 million in order to restore minimum liquidity headroom. That will not be the case in 2024. ‘We project the EBITDA to remain weak and barely above break-even, as manufacturers, including Accell Group, will be forced to continue their discount policy. Moderate market normalisation is anticipated only from 2025.’ A positive note in the Fitch report is Accell Group’s high ESG relevance score of ‘4+’ for the company’s greenhouse gas emissions and air quality. This is due to the company’s products contributing to reducing greenhouse gas emissions and benefiting from a supportive regulatory environment, which has a positive impact on the credit profile, and is relevant for Fitch to rate in conjunction with other factors. HPS Analysis: As we have noted previously, Accell Group withdrew from the U.S. market a few years ago, but still represents an example of the financial condition of one of the top bicycle and e-bike manufacturers and importers and multiple brand managers in the important European market. The bottom line is Fitch Ratings projects “… weak and barely above break-even” profitability with moderate “market normalisation” anticipated only from 2025. Accell Group continues to have the financial support of its major inventor, KKR.

06-17-24: The first severe heat of the year.The New York Times: “An early heat wave is sweeping the country. The official start of summer is still days away, but the Midwest today was already enveloped in extreme levels of heat and humidity that could last throughout much of the week. The heat index — a measure of how the temperature feels — hit 102 degrees in Cincinnati. Similarly, sweltering conditions are expected to push into the Northeast beginning tomorrow and continuing into the weekend. The area sometimes reaches such high temperatures in late July or August, but it will be a drastic change for millions of Americans who have grown accustomed to several months of mostly comfortable temperatures. ‘What makes this concerning to forecasters is that it is an early season heat wave,’ The Times’s meteorologist, Judson Jones, told me. ‘Some places are 10-20 degrees above where it should be this time of the year.’ Judson said it was also concerning that the heat was expected in many areas to stick around. ‘It’s the first one of the season and it’s going to be sweltering for four or five days,’ he warned. ‘The body hasn’t really adapted for summer heat yet.’ Environmental, labor and health care groups filed a petition today to push the federal government to declare extreme heat and wildfire smoke as major disasters, unlocking funding for cooling centers, health screenings, and other preparations. From tomorrow to Thursday as many as 75 record highs, both daily and for the month, are expected. The June heat wave in the U.S. follows what was the hottest May worldwide on record — and the 12th consecutive month in which the average global temperature was the highest on record for that month.” HPS Analysis: A friend of mine in data collection, market research and analysis in the bicycle business in Europe recently asked me what was the first-forecast he looked at every day. I paused, and finally said I didn’t have a clue, and he said it was the weather forecast. Brilliant! Climate change is the biggest single event affecting everyone in the world, every day. You can not ride a bicycle outside when the weather won’t allow – or the temperature and humidity won’t allow. HPS recommends to its clients that they institute a weathering monitoring service, like the New York Times Climate Alert that gives an early morning report on the forecast weather and potential hazards for my home town, Lyndon Station, Wisconsin and nearby towns and cities. What is important to build into bike shop strategy and business planning is letting your customers and shoppers know when they can enjoy riding a bicycle or e-bike with you and your staff, or the local LAB club, or come by and try out the new or previously owned bike you think they might be interested in. Indoor cycling is also something to consider as a profit center, and space allowing, provide indoor space with trainers and/or indoor cycles and access to the Internet and subscription service for your customer base. Bike shops can also extend their weather-related services to local businesses and company fitness and exercise programs. The old saying that there is nothing we can do about the weather is true, but now that extremes are omnipresent we can work with it and help our customer base co-exist with the weather conditions, day to day, in your community!

06-17-24: “Proposed California bill seeks to rein in fast electric bicycle speeds.” electrek: “If a proposed new bill eventually becomes law, higher-speed electric bicycles may soon have a tougher row to hoe in California. Electric bicycle speeds in the state, which uses a similar three-class system as most of the U.S., are limited to either 20 mph (32 km/h) for Class 1 and 2 electric bicycles or 28 mph (45 km/h) for Class 3 electric bicycles. However, because electric bicycles are relatively simple to work on, it’s fairly easy for many owners to modify some of them to go even faster. In some cases, devices are available for purchase that can help e-bike owners do just that. California Assembly Bill 1774 seeks to limit the sale of such devices that could help e-bike riders remove speed limits on their bikes. The proposed legislation, which recently moved out of committee and is now headed to the larger assembly, ‘would prohibit a person from selling a product or device that can modify the speed capability of an electric bicycle such that it no longer meets the definition of an electric bicycle.’ The goal is to prevent the proliferation of illegally fast electric bicycles, which would technically fall entirely outside the legal realm of bicycles. Instead, such out-of-class e-bikes would need to be reclassed as mopeds or motorcycles, which come with heavier regulatory burdens. Higher speeds also mean longer stopping distances and more severe injuries in the event of a crash. Proponents of the bill argue that cities and municipalities may not be equipped to handle the increased speeds on their existing bike infrastructure, potentially leading to more accidents. Moreover, insurance and liability issues become more complicated when e-bikes exceed their intended speed limits and enter into moped or motorcycle-level classes. The bill’s goal is clear, though it might not be as effective as its authors hope. While devices that can be used to de-restrict electric bicycles do exist, they are actually quite rare in the field of e-bike hot-rodding. It is much more common for e-bike owners to use built-in methods to remove speed limits built into the e-bikes, such as through software means, including changing user-accessible settings. There are also physical methods that don’t require any purchases, such as cutting a hidden “speed-limiting wire” or manipulating wheel magnets designed to interpret the bike’s current speed. While the bill doesn’t directly address these types of modifications, the law that it is amending technically already makes such modifications illegal if they ultimately push the performance of the e-bike outside of the legally defined limits of electric bicycles, i.e., above either 20 or 28 mph speeds, depending on the class. HPS Analysis: It is a sad note that a member of the state Assembly in California has to introduce a bill that will restrict the ability of consumers to limit the sale of “devices that could help e-bike riders remove speed limits on their bikes.” As this electrek article points out, the proposed legislation leaves a lot of loopholes – but HPS’s question is – why didn’t the bicycle industry association take action on this issue and problem before a member of the California Assembly was compelled to do so? Our guess, based on what we have seen in the past, is because the companies and brands that assist consumers in changing or removing speed limits on their e-bikes are members of the association. The NBDA has already recommended to the CPSC that it incorporate regulation of software and hardware that facilitates changing or otherwise altering the tested and certified speed of an e-bike as a part of its mandatory rulemaking. Making the means available to modify or change the tested and certified ground speed of an e-bike after it is sold at retail is patently wrong and needs to be stopped and regulated going forward. In the meantime, actions like this by individual state legislatures aren’t going to be helpful when a mandatory federal regulation is promulgated by CPSC, and a voluntary industry standard will be far more effective.

06-20-24: “McKinsey forecasts e-bike market value to five-fold by 2035.” BIKE europe: “E-bikes are the leading micromobility category in Europe. It accounts for almost 37 percent of the European micromobility market today. This share is expected to increase to 50 percent at a total value of more than €100 billion in the next decade. The current market difficulties might have put the industry’s attention on solving short-term issues only. However, the long-term outlook for the micromobility industry, and the e-bike business in particular, looks more than promising. For six years, the McKinsey Center for Future Mobility has been mapping the industry, and based its research on a population of almost 28,000 people. The market expansion in the next decade will be less than McKinsey earlier anticipated but it is still considerable. The global micromobility value pool was worth €149 billion in 2022 will grow to €485 billion in 2035. At that moment, Europe will represent the biggest share of the micromobility market valued at €205 billion. From hypergrowth to consolidation: The micromobility market has gone through a very hectic period. ‘We come from hypergrowth where everybody was busy with market making, grabbing a market share as big as possible and establishing new business models such as form factors and ownership types,’ said Darius Scurtu, expert at the McKinsey Center for Future Mobility (MCFM). ‘This period is over now, and the market is in transition to consolidation. We currently see more focus on profitability, like operational efficiency. While the industry is still occupied with restructuring the supply side, there is still an increase in the number of trips made with micromobility products.’ The micromobility market is still in a dip, which is not over yet. Still the outlook is promising, particularly in Europe. According to McKinsey, the European market is leading the adoption of micromobility followed by China. The North American market is still lagging behind. Europe sees a quick transition as this topic is on top of the agenda in many cities. Also, regulators take a proactive role in regulating micromobility. Many of them did or soon will implement all kinds of conducive regulations to accelerate the mobility transition which is in the benefit of micromobility. These regulations will also contribute to the increase in e-bike sales. ‘We are still excited about the future market developments despite the headwinds of the past months,’ said Darius Scurtu. Safety design features: One of the leading topics in the future will be safety. Two safety issues, better bike lanes and safer roads or intersections, will be the main drivers to increase the number of bicycle and e-bike trips made. Based on this information, Darius Scurtu concluded that you can only win or survive in this market when you adapt your design to safety in combination with the options infrastructure offers you.’“The same happened in the automotive industry in the past decades,’ said Darius Scurtu during his presentation at the micromobility event in Amsterdam, the Netherlands last week.” HPS Analysis: McKinsey is a big consultancy with huge resources dedicated to understanding, following and predicting the micromobility market. The growth McKinsey is projecting is a global market, led by Europe and Asia at €485 billion, with Europe representing €205 billion, or 42 percent of the global total, with North America trailing behind Europe and China. Micromobility is right at the top of the things European countries are supporting and will support going forward, whereas Micromobility is far down the list of priorities in the U.S.. However, this has to change if the American bicycle business wants to survive and thrive. Bike shops can lead the charge by taking advocacy to the people and getting inclusive support for municipalities to change their roadway designs and focus on transporting their populations, including school children from point A to point B. We need to change the strategy or accept that the American bicycle market has been relegated to third-world status.  

06-20-24: “New York State finally moving— slowly— to regulate lithium-ion batteries for e-bikes.” OUR TOWN: “Unlicensed lithium-ion batteries are an extreme fire danger and reckless. Two recent e-bike-related safety bills sponsored by Assemblyman Chris Eachus seek to bring new safety regulations to bear. Chris Eachus, a Democratic Assemblyman from Orange County, recently had two battery safety bills passed onto the Senate. One bill introduced by Chris Eachus, a Democratic Assemblyman, would require the placement of a red tag instructing users to unplug the chargers when not in use, to get rid of overcharging batteries. Another bill passed by the Assembly on June 3, would bar e-bikes, electric-assist and other micromobility devices from both driving on sidewalks and on streets with a speed limit of over 30 MPH. Eachus said his hope here is to limit dangerous accidents involving pedestrians— and keep them off highways with speed limits over 30 MPH. ‘I am proud that these safety measures have been duly recognized by the legislature, and that my bill, alongside many of my colleagues, have passed through this session’ Eachus told Straus News. ‘As we continue towards clean-energy transportation alternatives, it is of the utmost importance that we inform consumers on how to properly use these devices and react in emergencies. Lithium-ion batteries present new and exciting technological advancements, but they in turn require new education and emergency awareness as they are more widely adopted.’ Eachus believes that another one of his bills has a ‘very real chance’ of moving to the legislature this year. That bill would make it so retail sites and storage facilities use proper safety measures, such as battery cases, fireproof containers, and Class B extinguishers, when storing their EV devices to ensure minimum damage if a fire occurs. ‘The hope is that this session is just the beginning of us addressing the very real need for safety measures for electric vehicles,’ Eachus told Straus News. “Further adoption and infrastructure expansion will only exacerbate the need for protections and proper safety protocols. The top priority here is not to limit access to these next-generation vehicles and modes of transportation or make it tougher to do business in this space, but rather to ensure that they are of the highest standards of safety, and that we, as a state, are prepared for the changes ahead,’ Eachus said in response to brick-and-mortar companies’ best interest of keeping their batteries. ‘Everyone deserves a safe, clean and accessible way to travel. The measures taken by these bills only seek to ensure that our citizens are kept safe, and that this new generation of technology can thrive.’ The bills would require the approval of Gov. Hochul, which is expected to come over the summer. HPS Analysis: New York City has been the epicenter of micromobility-related lithium-ion battery thermal run-away fires, property damage, injuries, and fatalities. While the Fire Department of New York City has become a leader in fighting these fires, and developing ordinances and enforcement, and working with the Consumer Product Safety Commission, New York City Council and the Mayor’s Office to inform and educate the public about lithium-ion battery safety, the “problem” has spread to the whole state of New York and has been taken up by the New York State legislature, and is now on the governor’s desk, in the form a package of bills now waiting for her signature. The problem is the entities that lobbied for the micromobility industry watered down the legislation to allow the European EN15194 standard as equal to the UL2849 standard, even though the European standard is for 250 watt e-bike systems and ground speeds of 15.5 miles-per-hour and testing and certification by an Accredited Lab, as opposed to a Nationally Recognized Testing Laboratory, or N.R.T.L chartered by OSHA and requiring four unannounced inspections of the component manufacturers of the five part electrical propulsion system tested and certified during the 12 months the testing and certification is good for. These substandard state laws, while a short-term panacea for the manufacturers and brands, will prove to be a long-term problem for insurance companies and state regulatory agencies and, HPS predicts, the cause of preemption litigation after a federal mandatory standard is promulgated.

06-24-24: “The U.S. state that just accidentally banned kids from riding electric bikes off-road.” electrek: “In what appears to be a first of its kind, a new law was just enacted in Arizona that seems to have swept up some electric bicycles in an effort to outlaw kids operating off-road vehicles. Arizona Governor Katie Hobbs has just signed into law Arizona Senate Bill 1567, which focuses on two key issues regarding off-highway vehicles (OHVs). The new law makes it a criminal offense for anyone to operate an OHV while consuming or possessing an open container of alcohol, and it also aims to prevent children from operating them by requiring a valid driver’s license and driver training. The former seems like a good idea, but it’s the latter that could pose a problem for kids riding recreational e-bikes. The issue is the way Arizona defines OHVs. As stated in the new law, ‘An OHV is a motorized vehicle that is operated primarily off of highways and that is designed, modified or purpose-built primarily for recreational nonhighway all-terrain travel. An OHV includes a tracked or wheeled vehicle, utility vehicle, all-terrain vehicle, motorcycle, four-wheel drive vehicle, dune buggy, sand rail, amphibious vehicle, ground effects or air cushion vehicle and any other means of land transportation deriving motive power from a source other than muscle or wind.’ The legal definition of a “highway” is just a public road or street, not the colloquial highway we think of as high-speed roads. And while many e-bikes are designed for use on public roads, there are plenty of others, such as electric mountain bikes and trail bikes like Sur Ron-style light electric dirt bikes, that are obviously designed for non-road use. In Arizona’s broadly defined OHV category, technically these electric mountain bikes and other similar e-bikes could be swept up in the category of ‘transportation deriving motive power from a source other than muscle or wind,’ i.e., a 250W to 750W e-bike motor. In the U.S., electric bicycles are not regulated as motor vehicles at the federal level, but instead as consumer products just like all bicycles. However, Arizona’s state laws go further, painting with a broad enough brush to include some electric bicycles in the category of OHVs. While e-bikes designed for road use such as commuter, cargo, utility, and other road-going styles are likely safe as they are not considered ‘designed, modified, or purpose-built primarily for recreational nonhighway all-terrain travel,’ there are several types of e-bikes, light electric trail bikes, electric mini-bikes and others that are certainly designed primarily for off-road all-terrain travel. Electrek’s Take: I’m not a lawyer here, but it seems like the law should have been crafted with a bit finer legalese to prevent this kind of bycatch from such a wide net. Unless Arizona’s goal was really to require a driver’s license to ride an electric mountain bike through a park, then someone screwed the pooch here. Sure, there have been sporadic e-bike bans before, but I don’t think the bill’s authors intended for this to apply to electric bicycles. I’ve already heard from Arizona parents of kids who ride and who are working to get the law overturned or updated. With any luck, the state issues a clarification on the law to exclude off-road e-bikes or minibikes, many of which are popular with children as a common outdoor activity in the state. Without it, riding electric mountain bikes before getting a driver’s license is effectively illegal in the state of Arizona, at least unless you keep your fancy new eMTB on the pavement and tell the cop that it’s just a commuter with really good suspension.” HPS Analysis: This is yet another example of state legislatures rushing to deal with a problem brought to them by constituents that is currently going through the federal regulatory development process by the Consumer Product Safety Commission that will take the rest of this year and most of next year to complete, get public comment, modify and promulgate. The states, like Arizona, will move quicker, but glitches and unintended collateral damage, like the situation described herein, will occur. Whether kids should ride e-bikes off-road is a totally different question.

06-26-24: “U.S. industries fearing a port strike urge Biden to revive talks.” American Journal Of Transportation AJOT: “Dozens of US industry associations urged the White House to help restart stalled talks between East and Gulf coast dockworkers and port operators, saying a strike is the last thing the economy needs amid already strained global supply chains. Earlier this month, contract negotiations broke down between the International Longshoremen’s Association and the US Maritime Alliance. The current agreement, which covers about 45,000 dockworkers at facilities including six of the 10 busiest US ports, expires Sept. 30. ‘We call upon the administration to immediately work with both parties to resume contract negotiations and ensure there is no disruption to port operations and cargo fluidity,’ according to a letter to President Biden on Tuesday from more than 150 groups including the US Chamber of Commerce, the National Association of Manufacturers and the National Retail Federation. Global maritime trade is already under strain linked to Houthi attacks on ships through the Red Sea. Container carriers are forced to take the longer route around southern Africa, stretching capacity, lengthening lead times for new orders and pushing up freight rates. ‘With all these existing challenges, the last thing the supply chain, companies and employees — all of which rely on the movement of goods, both imports and exports, through our East Coast and Gulf Coast ports — need is a strike or other disruptions because of an ongoing labor negotiation,’ the letter stated. Even the threat of a port walkout can be disruptive as shippers seek alternative routes for their imports and exports, the letter stated. That’s a reference to cargo diverted away from West Coast ports during an extended round of contract negotiations through 2023 that ended with a six-year deal announced in September.” HPS Analysis: Remembering the fear a dock strike on the West Coast created in 2022 and 2023, the very real possibility of a Gulf and East Coast dock strike in the second half of this year, with a slowing economy and geopolitical problems, has brought this issue right to the top, like a balloon in water. A strike of this magnitude, affecting Gulf and East Coast ports is the last thing the U.S. economy and the bicycle business needs in the last half of an already turbulent, disruptive, and certainly disappointing year. 

06-26-24: “Bike brands sign joint statement on physical inactivity.” Bicycle Retailer and Industry News: “Following a report by the World Health Organization about rising levels of physical inactivity globally, several industry brands have signed onto a statement calling for ‘urgent and coordinated action’ to combat the trend. Shimano, Specialized, SRAM and other brands signed the statement produced and promoted by the World Federation of Sporting Goods Manufacturers. ‘Tackling such a crisis requires every corporation to take responsibility to positively impact current and future generations,’ said Shimano’s president, Taizo Shimano in a statement released by the WFSGI. ‘It requires the global sporting goods industry to work together and show our common desire for health and happiness,’ Shimano said. The WHO report showed that 31 percent of adults are inactive and are not meeting the recommended levels of physical activity of 150 minutes of moderate exercise per week. It also said the levels of global inactivity are projected to rise from the current 31 percent to 35 percent by 2030. It found the economic cost of treating health conditions that are preventable by engaging in a more active lifestyle will exceed $300 billion by 2030.

Companies that signed the WFSGI statement:

  • adidas  
  • Amer Sports
  • ANTA
  • arena
  • ASICS
  • Cycleurope
  • Decathlon
  • Li-Ning
  • New Balance
  • Nike
  • On
  • Orbea
  • Pentland Brands
  • PUMA
  • Restube
  • Shimano
  • SHRED
  • Specialized
  • SRAM
  • Tecnica Group
  • Under Armour
  • Wearable Technologies
  • Yonex

Cycling Industries Europe also signed the statement. HPS Analysis: I heard the news from a board member of the World Federation of Sporting Goods Manufacturers (WFSGI) about rising levels of physical inactivity globally that has so alarmed WHO. This global issue is linked to the growing problem of weather and heat domes in particular. When there is vertical rain and hail, or heat and humidity so high that human beings shouldn’t be outside exerting themselves, it isn’t possible or advisable to ride a bicycle. This calls for a whole new strategy and totally new tactics. I was impressed with the statement by Shimano’s president released by the WFSGI, but was not impressed by the list of companies, not by who was on it, but by who was not on it from the global bicycle industry and business. Our compliments to everyone on the list, in addition to Shimano and Specialized and SRAM from the American industry. We think this is an additional indication that the bicycle (as defined by 16 CFR 1512) industry needs another strategy and new tactics that are consistent with the climate crisis, shifting economics and supply chains, as well as consumer shopping and purchasing habits and needs.

Contact Jay Townley: jay@humanpoweredsolutions.com

DOES SELLING E-BIKES MAKE YOU A BETTER BICYCLE RETAILER?

In my last article for The Micromobility Reporter, I opined that just maybe e-bikes weren’t as good for the bicycle industry as commonly thought. While most didn’t agree with me, there were a number of responses that were supportive of my reasoning, and said the editorial was thought-provoking. The previous article was at the industry level. Now let’s look a little closer to home. From a retailer’s perspective, are e-bikes helping your shop and making you a better dealer?   

I’ll stipulate that e-bikes are here to stay, and if you don’t sell them, a nearby competitor will. With that said, you no doubt have the sale of e-bikes in your current operating plan. How big a slice of your sales are e-bikes versus regular bikes is based on the demographic mix of your clientele. So here’s the question: if your e-bike sales come up short, what is your plan to recoup the revenue?

Certainly, there are more margin dollars on e-bikes than most analog bikes. It’s understandable that you would want to sell as many e-bikes as you can. The amount of margin dollars to be made selling e-bikes can be intoxicating. Most bike brands are holding dealer margins on e-bikes, though how long that will last is a concern.

Bike brands are still working through their inventory by promoting sales. E-bikes have seen some dramatic price reductions over the past months, which has also had an impact on dealer margin dollars. Still, e-bikes remain a source of significant revenue, though some of the manufacturers/distributors are looking to retain more of those dollars for themselves. One industry executive has floated the idea that the maximum dealer margin should be capped at $500 regardless of the sale price. What would that do to your operating budget?

My last article asked if customers walk into your store looking for an e-bike but don’t find what they want, what happens? Do they leave hoping to find the bike at a different store? Are they willing to accept a substitute e-bike? Are they willing to wait until you can get the bike they want from your distributor? Are they willing to accept a non-electric bike?

One of the basic tenets of retail is you don’t want the customer to leave empty-handed if at all possible. The customer has more than one avenue to make a purchase. The customer can call around to local bike dealers to see if the bike they want is in stock. They can go to the manufacturer’s website to order for delivery at a preferred bike shop. They can go to the manufacturer’s website and order for direct delivery to their home or business. They can price shop online for less expensive direct-to-consumer off-brand products. What’s your plan if you don’t have what they want in stock?

The price of most e-bikes means it isn’t usually an impulse buy, so it’s not out of the question a customer would do some checking and comparison shopping when contemplating a purchase. Does your store have the particular make, particular model, particular frame size, and the particular color the customer wants? Do you have demo units for the customer to test ride?

Considering this, how many brands of e-bikes does your store carry? How many units do you keep in inventory? How much working capital does that consume? Has the cost of your e-bike inventory caused you to cut back on other types of inventories? Given that interest rates remain elevated and likely to remain so till the end of the year (or longer), this most likely has put a financial strain on your entire business. Is this having an impact on your ability to provide products or services as a “regular” bicycle dealer?

How do e-bikes affect your service department? Typically, e-bikes are heavier than analog bikes, so you may need additional/different bike stands to assemble and service them. E-bikes are more complex, so additional training for your techs will likely be required. Additional tools and diagnostic equipment will be needed to properly maintain e-bikes. Knowing these things, does it make sense to have the same hourly labor rate for e-bikes that you have for analog bikes?

These may seem like rhetorical questions, but each is a real issue for your business. Selling e-bikes is transforming your business in ways you may not fully realize or understand.

If you haven’t seen the guest editorial by Bob Mittelstaedt in the June edition of Bicycle Retailer, find a copy and read it. The editorial rightly points out that Class 2 e-bikes have motors 750 watts or less and are not capable of providing assistance above 20 m.p.h. Bikes with motors in excess of 750 watts or that provide assistance in any gear or mode at speeds above 20 m.p.h. are not e-bikes. They are a type of motor vehicle.

Are you aware of this distinction? The editorial points out the potential liabilities a dealer might face should a customer purchase what they believe is a Class 2 product and find out it really isn’t. The June edition of The Micromobility Reporter did a fine job addressing this issue in greater detail, so you might want to go to the Human Powered Solutions website (https://humanpoweredsolutions.com/) and read about it. Better yet, subscribe to the Reporter and never miss an edition.

There are a couple of other issues you need to be aware of and understand if you’re selling e-bikes. The first is insurance. You need to talk to your insurance broker when you start selling e-bikes. The potential consequences of having them in your store and an accident occurs can be catastrophic. If something happens, you need to know your insurance is in force. The National Bicycle Dealers Association (NBDA) has a protocol that will help you set up handling e-bikes and their lithium batteries in as safe a manner as possible. If you have not already done so, reach out to the NBDA and ask them about that protocol.

Another issue has to do with the ever-increasing limitations certain jurisdictions have imposed on the handling and storage of lithium batteries in commercial buildings. The penalties for violating the statutes can be severe and expensive. If you’re going to sell e-bikes, make sure you know the statutes in your town and county.

Certification of the electrical systems/components on e-bikes is a much-debated topic. Underwriters Laboratories has two standards that should be the minimum you will accept for e-bikes you sell. UL2271 applies to batteries used in light electric vehicle applications. A more stringent standard, UL2849, applies to the entire electrical system. You should require proof of certification from the manufacturer or distributor to these standards for any e-bikes you sell. Your insurance company may insist on it.

Does selling e-bikes make you a better IBD? The answer to that depends on how well you have managed their integration into your business plan, how well you’ve trained your staff, and how well you manage the financials of your business. E-bikes can absolutely make you a better IBD if done right. E-bikes can also destroy your business if their integration is mismanaged.

Which path are you on?

Contact Steve Bina, steve@humanpoweredsolutions.com