GENERATIONAL CHANGE CALLS FOR INCLUSIVE LEADERSHIP

Alan Murray, chief executive officer of Fortune, wrote this past week about a new book by Bill George, former Medtronic CEO, written with millennial entrepreneur Zach Clayton. It’s called: True North: Emerging Leader Edition.

Murray interviewed Bill George and asked him why this new millennial edition of True North was needed. George’s response was “We are witnessing a massive change in leadership from the Baby Boomers who have dominated for the past 30 years, to emerging leaders, which include Gen X, Millennials and Gen Z. The Baby Boomers’ style of command-and-control leadership is dead. Younger employees simply will not accept it or they will quit, which has contributed to the Great Resignation.

“Emerging leaders are moral leaders who are guided by a strong sense of purpose and values. They seek alignment with organizations whose purpose and values are congruent with their own. They focus on empowering their teammates and coaching them to reach their full potential.

“They practice a fully inclusive style of leadership, appreciating others for who they are regardless of external differences such as gender, race, religion, national origin or sexual identity. They have led through the crises of the past two decades and are better prepared to lead through today’s multiple, intersecting crises. They are committed to meeting the needs of all their stakeholders, and willing to take stands on moral issues, based on their purpose and values.”

I don’t know about you, but this long response sent chills up my spine. I was born in 1943, so I am slightly older than the Baby Boom generation. I know Bill George wants to sell his book, but his observation that we are “…witnessing a massive change in leadership from the Baby Boomers who have dominated for the past 30 years, to emerging leaders, which include Gen X, Millennials and Gen Z ” is exactly where the U.S. bicycle business is as it emerges from the pandemic-driven surge that has changed the business forever.

Recent announcements of company and brand leadership changes give proof to this change in leadership including the recent announcement by Outside Interactive that 37-year-old Alan Crisp has been appointed vice president and general manager of its Cycling Group, including Bicycle Retailer and Industry News.

As the Resident Futurist at Human Powered Solutions my job is to sort through emerging trends and see where they fit, like a puzzle piece, in the future. Bill George has identified an emerging leadership trend that has embraced the U.S. bicycle business as it struggles to absorb and understand unprecedented changes and shifts in consumer purchasing, design and use demographics and preferences.

Comments? Contact Jay Townley: jay@humanpoweredsolutions.com

INFLATION REDUCTION ACT FAILS TO SUPPORT BICYCLES

“The new climate bill abandoned the type of electric vehicle that can make the biggest difference” is the headline of an August 7 article in Electrek by Micah Toll. If you have been following the passing of the Inflation Reduction Act by Congress, and its being signed into law by President Biden, you are also aware that to get the compromise required to get the bill through the Senate the majority leader had to, as Toll put it, “abandoned on the side of the road a critically important class of electric vehicle: electric bicycles.”

We submit that all types and forms of bicycles were “abandoned” and the August 7 article quotes Noa Banayan from PeopleForBikes explaining, “The climate- and energy-focused Inflation Reduction Act of 2022 misses a massive opportunity by neglecting to invest in an electric bicycle tax credit and other critical initiatives to promote biking for transportation. This omission leaves us sorely disappointed in the future of climate policy given the significant transportation investments in the bill are squarely focused on electric vehicles. While PeopleForBikes remains supportive of urgently needed climate action and broader policy solutions, we’re sorely disappointed that Democratic leadership axed most consideration of bicycles and active transportation in the Inflation Reduction Act of 2022.”

While the administration and the Department of Transportation are trying to figure out how they are going to get incentives in some form past the legislative branch to support sales and use of electric bicycle cities and states are stepping up with tax incentives and purchase rebates applicable to all types of bicycles, including electric bicycles.

The bicycle business has a significant opportunity in mobilizing a nationwide grass roots campaign to support all forms of tax incentives and rebates for all forms of human powered transportation as affordable, environmentally friendly transportation that will reduce traffic congestion and improve health and fitness!

Human Powered Solutions urges you to join the bicycle business and your local communities in advocating for any-and-all incentives for the purchase and use of all forms of bicycles.

Contact Jay Townley: jay@humanpoweredsolutions.com.

A LOOK AT THE FUTURE: CLIMATE, COVID, GEOPOLITICS AND MORE

I have been reading a new book by Ari Wallach, a futurist and the founder and executive director of Longpath Labs titled Longpath that is all about “Becoming the Great Ancestors Our Future Needs.”

While I really want to become the ancestor my daughter, grandchildren and great grandchildren need, I have come to the conclusion they can’t wait hundreds of years as Wallach talks about because they need whatever guidance and advice I can offer today. I have reached the same conclusion concerning our clients and readers of this of newsletter.

The reason is both simple and complex. The growing climate crisis has hit hard this summer at a time the world is still struggling with COVID. Supply chain and economic ramifications have been exacerbated by the Russian invasion of the Ukraine, as well as increasing tension between the U.S. and China over Taiwan. The latter just happen to be the largest source countries to the North American bicycle business.

In addition, the U.S. bicycle business has experienced unprecedented changes and shifts in consumer purchasing, design and use demographics and preferences. It is also experiencing a slowdown in consumer demand that has created an inventory overhang and a wave of order cancellations upstream in the supply chain, as well as discounting downstream, as the country heads into the Labor Day weekend and back to school.

Lastly, the bicycle business is experiencing more product safety and liability allegations, coupled with standards and regulatory issues, than it has faced in over three decades.

Let’s explore these in more detail.

Climate change is real. Climate is a supply chain and marketing impediment here and now. The recent factory closings in China due to power grid problems caused by the recent heat wave are an immediate example.

After weeks of scorching heat in France, it is possible to take a stroll on the parched bed of the Loire River. Low water levels in the Danube have forced countries in Eastern Europe to start dredging to keep barges moving along the critical waterway. The Rhine has fallen so low that is has become uneconomical for many vessels to operate.

Companies’ first concern might be which of their plants, or their suppliers’, are exposed to the rising risks. Governments are focused on the threats to food supply. But this year’s drought highlights the danger that the waterborne infrastructure of global trade itself will dry out or shut down as climate change intensifies.

About 80 percent of global trade is carried at some point by ships, with seaborne trade up nearly threefold in the 30 years to 2020. Global changes, including consolidation and larger ships have made the system more susceptible to disruption. Climate change, including storms, has added to this vulnerability.

Think it’s hot now? The map below is from the First Street Foundation, and was published by Bloomberg August 15. It shows a projection of 30 years from now, when more than 100 million Americans will live in an “extreme heat belt” stretching from Texas to Wisconsin. Temperatures in this belt will tip 125 degrees F at least one day a year.

At 125 degrees F humans, representing just under one third of the population, won’t be able to be outside to work, much less go cycling. The bicycle business, including bike shops, are going to develop the systems, products and outreach to advise the public when and where they can cycle for transportation and recreation.

On August 27 Bloomberg Green published an article titled Keep Cool that provides good advice from Japan about what to do when temperatures climb. “It’s natural to turn on a fan and enjoy its cooling breeze. But what if you could wear one? Dozens of companies are starting to embrace that idea, putting fans in clothing to help laborers, athletes and everyone else stay comfortable as climate change sends the mercury soaring.”

In Japan, jackets and vests with cooling technology have been used for years by construction workers. This isn’t air conditioned clothing. There’s only a fan, with nothing to actually cool the air, but the country’s infrastructure ministry recommends it for operating in extreme heat.

With heat wave intensity growing, so too is the need for a solution. In Japan the market for clothing that addresses hot days has grown to US $120 million over the past five years. That potential is pushing clothiers to retool utilitarian garments for casual and athletic outdoor wear.

Hundreds of fan-powered garments are already available online. Osaka-based Teijin Ltd. is working with an electric power tools maker and a textile firm to develop double-layer cooling jackets. Japanese clothier Aoki Holdings Inc. is offering fan-cooled vests tailored for outdoor activities and sporting events. Tokyo-based Kuchofuku Co. has partnerships with dozens of apparel brands such as Asics, Mackintosh Philosophy and Manatash


COVID continues to be a factor. In addition to the heat, COVID and its variants are a continuing threat to the down-stream supply chain. Like it or not, the U.S. bicycle business is going to have to get its arms around the fact that the pandemic has not yet transitioned to an endemic, and that rolling lockdowns of millions of Chinese workers, factories and supply chains are going to continue into 2023.

In addition, the variants of COVID-19 are still the source of work force shortages and delays in business and commerce in the U.S., and will continue to do so through the winter into 2023. Bike shops are on the front line and will have to adjust as needed to provide the best possible customer service over the next six to 12 months.

We can also expect ongoing supply chain disruptions. Ocean and domestic freight rates are coming down, and brokers in Hong Kong report receiving notifications of reductions in rates from Asia to North America multiple times per day (none that will affect the cost of the goods already in inventory).

The number of container ships waiting to enter the twin ports of Los Angeles / Long Beach is down to eight as of this writing, and freight is moving more expeditiously.

With this said, inventory within the bicycle business has been building since the second quarter of this year. Many importers are holding on to full containers and are even using them for storage, a practice employed throughout U.S. channels of trade. This has created a shortage of containers going back to Asia.

All this will continue to create disruptions, at a declining pace, to the supply chain from Asia going into next year.

We’re continuing to see price increases and rising costs. Price increases and rising costs of doing business have also been cascading through the bicycle business since late 2020, throughout 2021, and into this year.

Without going into the detail, suffice it to say the bicycle business has been buffeted by supply chain and logistics price increases, including punitive tariffs, inflicted on many other consumer goods categories during the pandemic-induced surge in demand.

On August 19 Bloomberg published an opinion piece by Jared Dillian titled “This Economy Is Proving Too Hard for Economists.”

The premise is that the data isn’t fitting Wall Street’s longstanding models very well, but that’s no reason to dismiss the data as outliers.

This article points out that “The latest buzzword among many economists and investors is ‘noise.’ It’s being used to refer to any piece of economic data that doesn’t fit the prevailing narrative, which is happening a lot these days.”

Dillian goes on to say, “Don’t get me wrong — this economy is proving hard to understand. It is very strong in some respects and very weak in others.” The official government data shows gross domestic product just shrank for two consecutive quarters, meeting the technical definition of a recession, but it doesn’t feel like a true recession.

Our takeaway is that everything happening in the economy right now is happening for a reason, but that it’s a reason many economists and investors are struggling to understand.

We agree that it will take quite a few years before all of this is sorted out and we return to something resembling a normal business cycle, if in fact we ever do. However, what we are going though may not fit the previously accepted “model” of a conventional business cycle. Once you accept that this is not a normal business cycle and view the data for what it is, then the unexpected begins to make sense, and not something to be dismissed as “noise.”

This also means those in the bicycle business will need to change the way they approach business planning, and account for the unexpected.

Geopolitical events have also risen to the level of black-swan events. The invasion of Ukraine has had an economic ripple effect on the European bicycle business and the global supply chain.

We reference it here primarily as it has impacted the U.S./China/Taiwan situation. It is also having a growing impact on European bicycle markets, as well as creating potential shifts in investment in North America and the U.S. supply chain going forward.

Before the Russian invasion of Ukraine, there was a high risk factor associated with maintaining China and Taiwan as major supply sources in the U.S. bicycle business.

After the invasion this high risk went through the roof. It may ease in coming months, but at the present time there appears to be more enthusiasm for the U.S. supporting and defending Taiwan against China in the U.S. Congress than there is in Taiwan itself.

This does help explain the executive branch initial response to Speaker Nancy Pelosi visiting Taiwan, and the subsequent difficulty the State Department has had with the follow-up visits by members of the House and Senate, and various state governors.

This is a disconnect that will hopefully abate in the short term (12 to 18 months). Until it does there is very high risk associated with continuing to rely on China and Taiwan as the primary source of complete bicycles for the U.S. market. It also subjects the U.S. supply chain to the added disruptions that are caused by such things as China “practicing” the blockading of Taiwanese ocean trade routes.

There also has been only limited progress made in shifting U.S. bicycle sourcing to elsewhere in Southeast Asia, and virtually none in near-shoring or reshoring to the U.S. This may change in the mid-term (12 to 18 months).

We are also seeing unprecedented changes in consumer purchasing, design and use demographics. The NBDA Bicycle Buying Consumer Research, conducted during the last quarter of 2021 and published in early 2022, has uncovered the shift in demographics of bicycle and their preferences in use, product configuration and future buying.

Well over a quarter of adult bicycle riders during the pandemic were new to cycling and had never ridden a bicycle before. This and other changes are also shown by the consumer research. This can serve as the foundation for bicycle business planning and merchandising going forward.

The pandemic sales and service surge abated during the fourth quarter of 2021, and this has continued into 2022.

As consumer demand as ebbed, the Bullwhip Effect has resulted in an unprecedented inventory overhang throughout the U.S. bicycle business. All channels of trade are holding more inventory than they have in the history of most of their businesses.

The cost of holding that inventory has also gone up in the form of interest rates, as the Federal Reserve has increased the prime rate. So, not only did the channels of trade pay more than they ever have for the inventory they now have, they are paying and will pay more than they ever have to continue to own that inventory.

Brands have been delaying and cancelling orders upstream to their OEMs. They have also been offering what incentives they can for their dealers to keep accepting orders placed during the surge when consumers were demanding all the product bike shops could get from their suppliers.

Consumer-direct retailers offered discounts and cut prices during most of the month of August. The lead story in the September issue of Bicycle Retailer and Industry News is “Time to discount? After years of inventory shortages, many shops are having to run promotions to get their stock back under control.”

And the August lead times from the leading component brands is into 2023! QBP just announced the laying off of about 6% of its global work force. The trade is beginning to see sales reductions and declines reported.

The situation is not good, but it also requires new thinking and actions instead of expecting that it will be jerking back to the way it was pre-pandemic.


In addition, the American bicycle business has gone over 30 years comfortably cruising along with its common line of defense and the relative disinterest of the regulatory agencies that have been drained of manpower and enforcement resources by successive administrations. The bicycle business in turn has relied heavily on the good quality and consistency of manufacturing practices of their Asian sources.

For those U.S. brands doing business in Europe, they have relied on their manufacturing sources and network of independent testing laboratories to provide the certification for Europe and the U.S. compliance and importation.

Insurance coverage also settled into a decades-long cycle of testing certification, paying premiums, and for the most part settling claims before they became litigations.

The bicycle business had also developed a common line of defense for bicycles through copyrighted owner’s manual content that was and continues to be available at very reasonable license fees to both industry association members and non-members.  

E-bikes were a small, almost insignificant product category prior to 2019 and the pandemic of 2020. Since that time, e-bikes have changed everything. The 30-plus year period of complacency ended as the sales surge picked up and drove e-bikes to become one of the most important product categories in the U.S. market, which the U.S. bicycle business was totally unprepared to deal with.

E-bikes are a “system” that includes a sophisticated electrical propulsion system that requires a whole different testing protocol and system certification process that is in addition to the mechanical bicycle safety standards of the federal government and the chemical content regulations of the state of California.

There is currently no common line of defense in the form of a uniform owner’s manual for e-bikes, nor a set of business practices that apply to bicycles as defined by the U.S. Consumer Product Safety Commission.

The National Bicycle Dealers Association (NBDA) has taken a leadership position relative to this situation and has issued protocols for the safe handling and storage of lithium-ion batteries for bike shops and consumers. It also has published the first set of uniform business practices relative to certification of testing to all applicable standards and regulations for bicycles (including e-bikes), and certificates of product liability insurance from suppliers.

With all these factors impacting the market, business planning is more important than ever. Human Powered Solutions (HPS) has developed a new form of business planning that is inclusive of the unprecedented changes, challenges and opportunities facing the bicycle business.

We are recommending and assisting in the writing and creation of a three-part planning process:

1. Shortplan – next 2 quarters (6 months). This focuses on realistic assessment for survival of the business and its profitability, productivity and financial management.

2. Midplan – next 4 to 6 quarters (12 to 18 months). This would examine realistic sourcing and merchandising, profitability, productivity and financial management.

3. Longplan – next 8 to 10 quarters (24 to 30 months). This would include realistic sourcing/merchandising, profitability, productivity and financial management.

Contact me if you have any comments, suggestions or questions about any of this: jay@humanpoweredsolutions.com

“NORMAL” IS NO MORE. START PLANNING FOR AN ERA OF CONSTANT CHANGE

I have been told by some good folks in the establishment mainstream that I am too negative, and do not recognize the positive data or the results of lobbying, advocacy, and promotion. I will admit that I work at pointing out the truth told by the facts, that in turn are the results of actions, reactions, lobbying and advocacy.

However, I am not at all interested in negatives, other than as they are representative of the facts that the American micromobility business can use to guide positive planning and actions for survival, growth and future prosperity. My focus is on the most probable, fact-based positives for the future.

With this said, it should be clear by now that there is no “normal” to return to. What was normal pre-COVID does not exist anymore. We are now doing business in an era of evolving, indefinite, and continuing crisis. It is up to us to adapt and change our businesses, to align with consumer wants and needs, as they in turn adapt to the near-term future.

Changes in consumer demand and the market that took years and decades to emerge and evolve pre-COVID now happen in months, quarters and half-years.

We have already experienced the COVID-driven, nonsynchronous shifts in consumer demand during the past 28 months of the pandemic, and been the beneficiaries of the surge in spending on both regular bicycles, the emerging variants of e-bikes, as well as parts, accessories and repair business during the first 20 months, as well as being at the receiving end of ebbing consumer demand and growing inventory the last eight months.

The pandemic isn’t over yet. As much as governments want the pandemic to end, and people want to stop social distancing and wearing masks, the BA.4 and BA.5 sub-variants now dominate worldwide. The CDC, states, cities and schools are struggling with decisions to return to masking as the virus surges this summer, people are traveling and going to restaurants, bars and concerts, and we head into the last half of the year.

For the micromobility business, and specialty bicycle retailers, the pandemic is not over yet. Managers and owners will have to make the best decisions possible for their employees, customers, shoppers and businesses.

The supply chain nightmare continues. Because the pandemic is not over yet, the COVID-induced supply chain chaos is not over, and is just a dress rehearsal for what is next. According to a July 21 Bloomberg article, “shipping systems developed before the virus struck weren’t battle-tested for pandemics, wars and extreme weather.”

The supply chain nightmare of 2020-2021 was COVID-induced. The continuation of that same nightmare is the result of a combination of the BA.4 and BA.5 sub-variants surge in China and Taiwan, and the ripple effect of the Russian invasion of Ukraine on the global supply chain and economies.

Lead times to the import dependent U.S. micromobility business for finished goods are still over 100 days from Asia. The Chinese zero-tolerance policy related to COVID will continue to cause rolling lockdowns of major manufacturing centers and ports through the rest of 2022 and possibly into 2023.

Near-shoring, reshoring and, additive manufacturing. The combination of the long lead times and manufacturing and delivery uncertainty has served to enhance interest in and investigation of both near-shoring and re-shoring regular bicycle and e-bike assembly and manufacturing to shorten primarily finished goods in-transit time, and improve the certainty and integrity of lead times.

Bringing component parts, including frames, forks, tires, and electric systems, closer to the U.S. is more complex and will take longer than end-product assembly. Mexico and South America are being investigated as possible near-shoring possibilities.

Political unrest. The high capital investments required for both near-shoring and reshoring have been, and continue to be, a significant factor. However, the rising risk associated with continuing to rely on China as a source country along with the associated risk of relying on Taiwan, underscores political unrest as a factor to be added to evaluating future supply chain disruptions.

Closer to home, 3D printing, or additive manufacturing, while still a relatively small part of manufacturing (just 2-3%, according to a McKinsey estimate), is expected to grow rapidly over the next decade. This has already been mentioned as a possible short-term “pop-up” solution to some micromobility supply chain shortages.

Climate crisis certainty. In September 2021 Bloomberg Green said “In the years and decades to come, we can be certain about two things. Climate impacts are likely to get worse. Some amount of warming is baked into the system. At the same time, solutions will become cheaper, get deployed more widely and scale faster. Together, it means the whiplash is about to get stronger too.”

Climate has been a growing factor in supply chain disruption because of an increase in the number of storms causing an increasing number of containers being lost overboard. This will continue to increase as a disruption to the logistics portion of the supply chain, but the climate crisis has become a more immediate and growing problem for consumer riding participation, now and in the future.

On July 23 the Washington Post ran an article titled “As Europe’s heat wave melts roads, Tour de France races into an uncertain future.”

The Tour ended on a Sunday that saw the temperature reach 93 degrees Fahrenheit, 20 degrees higher than the average July high for Paris. As the Washington Post article reported “… there are questions about whether the world’s most prestigious cycling race is pushing up against its own limits, whether increasingly intense European summers are making the competition dangerously extreme.”

During the Tour de France, continental Europe experienced record-setting temperatures, as did the UK, and at times the Tour organizers sprayed water to keep the roads from “melting.” Many team managers wanted to see the stages shortened and the start times moved to early in the morning when temperatures were lower, but the organizers said no because of tradition and the television coverage, which has the highest audience, and ad revenue mid-day.

Temperatures will continue to go up during the French summer, and the most important bicycle race in the world will have to change within a year or two, hopefully before a rider dies from the excessive heat, because climate change is making parts of France, and the rest of the world, too hot and humid for humans to survive outside at high noon.

In the United States, portions of the country experienced “dangerous” temperatures, which were too hot and humid for any form or type of outdoor bicycle riding. This then is one of the climate challenges that the micromobility business faces and needs to develop multiple strategies for.

Retention of micromobility participants. The U.S. also has a more unique challenge to retaining the roughly 25 percent of adult purchasers of regular bicycles and e-bikes who were identified by the NBDA Bicycle Buying 2021 Consumer Research Study (www.nbda.com) as being new to bicycle riding participation during the pandemic.

Part of this retention challenge is a perceived fear of cycling in traffic. During the pandemic, vehicular traffic was reduced and many cities established expanded bikeway and bike route networks that were safer than micromobility riding conditions pre COVID.

However, vehicular traffic has increased in the U.S. during the last quarter of 2021 and into 2022. A recent study shows that walking and biking vehicular injuries and fatalities have increased, making these activities more dangerous for some Americans.

While the recently resuscitated Inflation Reduction Act of 2022 does contain provisions for bike infrastructure projects, it will still take a concerted effort on the part of the micromobility business to work with states, municipalities and road planners in taking action to improve the safety of micromobility riding facilities, and to make roadways safer for human powered transportation going forward.

Fastest inflation in 40 years and the threat of recession. I started working in a bike shop in 1957, the year of the fourth recession in the U.S. since the end of World War II. I went to work for Arnold, Schwinn & Company in 1966 and worked through seven recessions up to the present, including 1970, the beginning of the last true Bicycle Boom, and in 1973-75, the last two years of the Bicycle Boom, and the first year (1975) of the downturn that lasted for the bicycle business until 1980. All together I have lived through a total of 10 official recessions in my working life. What I can tell you is that each recession was different, and none of them experienced the fastest inflation in 40 years.

With that said, the U.S. has experienced the fastest inflation in 40 years and is not “officially” in a recession, although some businesses, like micromobility, may already be in one.

We have followed the shoe business as an indicator of what to expect in the micromobility business. On July 11 Retail Dive reported “Shoe companies pause hiring and investing as they brace for weaker sales.”

A recent survey of shoe company executives reported that 87 percent expect weaker sales in the second half of this year. With weaker revenue, the majority have stopped hiring and have paused capital expenditures.

Fourteen days later, July 25, a series of articles appeared that set the economic tone for perhaps the remainder of 2022.

We are entering a new phase of the economic cycle. It started with National Public Radio broadcasting a story by Alina Selyukh titled “What happens when people want all the air fryers and then, suddenly, they don’t.” I know, air fryers are not regular bicycles or e-bikes. But they were a much sought-after consumer item during the pandemic, and the story Selyukh told could have just as well been about bicycles because after two years of stocking up on stuff, American consumers shifted to being all about travel and saving what they could. In other words, the consumer demand shifted, in substantial part, to services and savings.

As Selyukh reported “… on a nationwide scale, became the recipe for a whole new problem for some U.S. stores: a glut of inventory.”

She went on to report that “Big box stores like Target and Walmart are particularly working through an excess of certain items.” She closed by reporting “The shopping frenzy has slowed but hasn’t ended.”

In the next few weeks, new data will show how long this inventory glut might last, said Jason Miller, who tracks retail inventories and sale at Michigan State University. Initial evidence suggests the retailers with bloated inventories are already starting to get things under control. That was in the morning of July 25.

During the afternoon, Walmart issued a special profit outlook slashing its profit projection for the rest of 2022. Sourcing Journal issued a special report titled “Walmart’s Warning Says Retail’s Back Is Against the Wall.”

The Walton family, who collectively owns just under half the stock in the company, lost $11.9 billion in stock value the day after the company issued the special profit outlook.

The Sourcing Journal also reported that Olympic Sports’ 35 stores had shut down and that the “new data suggests a troubling picture for retail debt.” It went on to state that “Merchants lacking Walmart’s and Target’s deep pockets might find themselves up a creek without a paddle.”

I know there are some in the micromobility business who rejoiced at hearing Walmart was having problems. I want to caution that the largest retailer of regular bicycles, and a significant retailer of e-bikes, is going to have an impact on the bike shop channel, good or bad so, be very careful about what you wish for.

Robert Armstrong, writing in his Unhedged column in the Financial Times July 26, hit it on the head when he opined about Walmart, “The company expects operating profit to be down 10 to 12 per cent for the full year.” This is not surprising, but it is important all the same. It is the first unambiguous indication from a major U.S. consumer business that all is not well among Americans in the middle and lower part of the income spectrum (barring perhaps AT&T saying last week that customers were taking longer to pay their bills). We are entering a new phase of the economic cycle.

Bloomberg reported the morning of July 26 that “Walmart rings more alarm bells for the U.S. economy. Shoppers are growing nervous. If the world’s largest retailer is struggling, the rest of the consumer sector is going to hurt even worse.”

Keep in mind that Walmart isn’t losing retail customers. On the contrary, they are gaining shoppers and buyers. The problem they face is the buyers they are getting are buying the less profitable grocery products, and not buying the more profitable clothing, electronics, fitness (including bicycles), and home improvement merchandise.

Bloomberg reminds us that: “Walmart said in February that its customer base looked a lot like the U.S. population. If that is the case, then its profit warning is a red flag not only for retail and hospitality companies, but for the engine of the U.S. economy.”

Sourcing Journal closed our reading for July 26 with an article titled “Massive Markdowns Might Add up to Earnings-Season Bloodbath.”

As I get ready to file this story for the Micromobility Reporter, I want to emphasize that I recognize this is a lot to take in, but this narrative contains opportunities for those who recognize that it boils down to the basics of inventory management, merchandising and customer service.

Human Powered Solutions will peel back and present in future issues the opportunities that we uncover in the fact-based positive probabilities for survival, growth and prosperity going forward into the future.

If you have questions or comments about anything in this article, please contact me at:

jay@humanpoweredsolutions.com

59 PERCENT OF SMALL RETAILERS ARE AT RISK OF CLOSING

As shocking as the headline is, I have taken it from a Chain Store Age article that ran July 25 by Marianne Wilson, editor-in-chief reporting on Alignable’s Small Business Revenue Report based on a poll of 4,392 small business owners conducted from June 10, 2022, to July 13, 2022.

The article reports that “Nearly half (47 percent) of small business owners said their businesses are in jeopardy of closing by the fall.” The figure is up 12 percent from the summer of 2021 when a similar poll reported 35 percent of businesses said they were in jeopardy.

According to Chain Store Age, the “… risk of shutting down is particularly intense in retail, where 59 percent of small businesses said they are in danger of shutting down.”

By region, according to Chain Store Age, the Alignable report shows small business owners in Colorado, Michigan, Ohio, Pennsylvania and Texas are at the top of the list in jeopardy of closing this year.

The problem is inventory. 50 percent of small business owners responded that they were cutting back on their orders for the fourth quarter of this year, which is in line with the latest findings from the Wall Street Journal Logistics Report that “business-inventory woes are dragging down the U.S. economy.”   

As we reported last month, brands and retailers were too slow in reacting and adjusting to consumers pivoting away from goods to services, leaving brands and retailers with growing inventory and an over-stuffed supply chain as the result of the bullwhip effect.

Comments? Contact Jay Townley, jay@humanpoweredsolutions.com

“THE FUTURE AIN’T WHAT IT USED TO BE”

Yogi Berra, all star baseball player, coach and philosopher, uttered these prophetic words “the future ain’t what it used to be.” Bicycle business philosopher Rick Vosper recently asked, “What happens to all those optimistic orders that were placed at the peak of the demand wave and are now finally going to ship in 2022 and beyond?”

We all know the bicycle business supply chain got totally out of kilter. What some of you don’t know is this started in 2019 because of imposition of Section 301 punitive tariffs on Chinese imports, and got far worse when Covid-19 hit during the first quarter of 2020, causing order reductions and cancellations, followed shortly thereafter by surging consumer demand that started the bullwhip effect through the channel of trade, consisting of aggressive forecasts and orders for as much as suppliers could make and ship.

Consumer demand continued to grow in intensity as the pandemic led to stay-at-home orders. Consumers shifted their buying from services to goods, and isolating at home with additional money from the government sparked an unprecedented online spending spree. This fed the bullwhip effect like putting gas on a fire.

Retailers ordered more, wholesalers and brands forecast and ordered more, and OEMs ordered more. Order lead times grew longer and longer as Covid-driven delays disrupted every aspect of the bicycle supply chain, while ocean freight and trucking became high-cost nightmares.

OEMs and most major component brands made it clear early on that they were not going to increase their manufacturing footprints by making substantial long-term investments in new plant expansion when demand was likely to cool before new capacity could come online.

The Just-In-Time (JIT) playbook was tossed, and the channel of trade adopted the Just-In-Case (JIC) inventory management system that drove retailers and brands to order as much as they could get when they could get it, and pay the ever-increasing product costs, as well as higher costs for logistics.

It is fair to say hoarding has occurred at both ends of the supply chain, with some OEMs hoarding component inventory, and some retailers hoarding accessory and bicycle inventory as the JIC inventory management system spread, and lead times grew to the point that top-tier component brands were telling customers that their high demand products had lead times pushing out into 2023. Like I said … out of kilter.

The bullwhip effect is supply chains buying too much during time of scarcity, ending up with excess inventory that later becomes a problem. From what we have seen, the bicycle business inventory to sales ratios didn’t look bloated by historical standards through 2021, but grew exceptionally fast during the first two quarters of 2022 as consumer demand ebbed.

As inventory grew during the first quarter of this year, it also went further out of balance, in some cases because of component shortages and delays, so that as we have reported, bike shops and brands had too much of what consumers didn’t want, and not enough of what they did want, with plenty of juvenile and BMX bikes as one example, and medium and middle-size women’s triathlon and road bikes in short supply, as another.

Brands, bike shops for certain, probably mass-merchants, as well as full-line sporting goods retailers, had been building inventory because of the uncertainty surrounding the supply chain. Suddenly there was a decline in the demand from consumers. This in turn was attributed to inflation, overlooking the shift by consumers back to spending on services, in combination with rising prices for goods.

So, now the bike shop channel of trade, and probably the other channels of trade as well, have more inventory than they have ever had. They have paid more for the inventory than they ever have, but the demand they were told would come, that they were expecting to make up for the increased cost of the inventory, suddenly evaporated.

To answer Rick Vosper’s question it is, for the most part, floating inventory, although it may help balance some of the overstock. Consumers who were willing to pay just about any price to get their hands on a bicycle last year are now walking out because of sticker shock at the prices that bike shops now have to charge because of the increased landed cost of goods.

Too much inventory has traditionally led to selling at a discount, as we have seen with Target’s huge clearance sale last month. Or it has meant putting in fewer orders, as we have seen Samsung do in freezing procurement.

We are also watching bicycle brands, including direct to consumer (DTC) brands, some that have been around for decades, and others that are start-ups new to the business, follow these same traditional reactions and actions relative to too much inventory.

That was then, this is now. We caution that the traditional ways of dealing with too much inventory in the American bicycle business simply will not be sufficient to solve the size and scope of the supply problem that has been created, and certainly not this year.

To begin with, there is too much inventory, particularly in the bike shop channel, to be sold down in a matter of months at discounted prices. There will be sales and discounting, but they will dent the overstock, not reduce it to manageable levels, according to our analysis, until next year.

This is a blunt statement, and we would like to be proven wrong, but we project an estimated six to seven finished goods units in the bike shop channel inventory for every obe being currently sold, with more in transit. Over the next two months this could increase to an estimated eight to nine finished goods units in inventory for every one being sold at retail.

Brands and their OEMs understand that U.S. finished goods inventory is linked to the supply chain, but they are going to be slow in reducing or freezing procurement because our analysis also indicates they do not want to lose their position with either the OEMs or the component suppliers.

And then there is Europe. Model year changes are already in the supply chain as evidenced by preparations for Eurobike, and the fact that top-tier component lead times, at least to U.S. brands, are still out to late 2022 and early 2023.

Keep in mind that continental Europe still has a more robust bicycle market than the U.S., with e-bikes at anywhere from 20 to 50 percent of individual country market share, well above the four percent e-bike share in the U.S. in 2021.

We are projecting the necessary order reductions from the brands will not begin until sometime in the fourth quarter of this year. The signal will be a reduction, and perhaps a dramatic reduction, in component lead times.

Meanwhile the sporadic order flow from Asia will continue into the fall as China struggles with its Zero Tolerance Policy, and the container lines shift backlogs and delays from China back to the U.S. at a time when the west coast dock workers labor agreement gets down to the brass tacks, including the possibility of labor slowdowns.

The recent opening of China’s ports means a wave of finished goods, including bicycles, to west coast ports, and already full to over-flowing brand warehouses this summer.

Inflation, consumer purchasing and spending. We are in a twilight zone that the U.S. economy has never seen before. Consumers are continuing to demand certain goods, even as they pivot back to spending on service, and inflation drives up the price of gas at the pump. So called “revenge” travel has increased airline bookings, and families are hitting the road despite the cost of gas, and import volume at U.S. ports remains high.

Table 1 is the New York Fed’s index of global supply chain pressure, and it gives a good sense of the bigger picture. It pulls together data on freight costs, backlogs and shipping delays, and strips out demand to determine how much inflation pressure is coming from supply constraints. I know this is a lot to take in, and you will have to trust me on this.

What Table 1 shows is that things are better than late last year, but we are far from any kind of normal stability in either the U.S. market or the supply chain. This is the story up and down the bicycle business supply chain: better but still bad.

TABLE 1

It will be next year before discounting and terms will bring brand inventories down to reasonable and balanced levels, closer to four or fewer units (current models) in inventory for every unit sold at retail.    

However, to make this scenario possible, the bike shop channel is going to have to cooperate and launch and support promotions through the rest of 2022 and into 2023.

As an example, on June 13, 2022, BRAIN ran the following press release in its online edition, “The Bike Cooperative, SmartEtailing and NBDA unite to offer Retailers Summer Direct Mail Promotion.” The press release started with this statement, “Three major industry organizations have announced a collaborative campaign focused on supporting retailer summer marketing promotions and community outreach. The partnership is a first of its kind, and at the core shows the dedication of these organizations to support and strengthen the Independent Bicycle Retailer. The Summer Direct Mail Promotion will launch late June and not only offers retailers special savings on direct to home mailers, but free correlating web homepage graphics for all SmartEtailing retailers.”

This is the kind of promotion and cooperation the bike shop channel of trade needs to manage its way out of the challenge presented by the evolving supply chain situation created, in part, by the bullwhip effect and resulting JIC inventory management, and turn it into an opportunity.

I mentioned earlier that shoppers are now walking out of bike shops because of sticker shock at the prices that bike shops now have to charge because of the increased landed cost of goods. This began several months after bike shop foot traffic started to slow down during the later half of the fourth quarter of 2021.

We watched the slowdown and cooling of consumer demand for bicycles during the last quarter of 2021 and first half of 2022 carefully, and gathered as much data as we could, along with anecdotal reports from the field.

One reliable source of data is the National Sporting Goods Association (NSGA). We have used NSGA data as a part of the NBDA U.S. Bicycle Market Overview Reports for over two decades because of consistent methodology and panel data.

The following Table 2 is taken from the NBDA U.S. Bicycle Market Overview Report (USBMO) 2021 that will be published and made available for sale in early July.

42.8 million Americans 7 years of age and older rode bicycles[1] 6 or more days during the year 2021. For those following the annual NBDA USBMO report this is a slight decrease of 200,000 or -0.47 percent in the number of bicycle riding participants as reported in 2021 compared to 2020, as shown in Table 2.

Table 2

What this also indicates is a slight decline in consumer demand in 2021 over 2020. 

42.8 million Americans 7 years of age or older rode bicycles that they purchased new or used, received as gifts, shared with others, found in a garage or attic, or rented through a bicycle ride-share during the second year of the pandemic.

In analyzing this slight decline and the intent for future purchase data from the NBDA Bicycle Buying 2021 Consumer Research Study, we concluded that consumer demand for bicycles would continue to ebb going forward into 2022, even as some other consumer goods would remain in demand through the year, driving the shipping volume from source countries like China, and keep the pressure on U.S. ports of entry and inland shipping to distribution centers, as shown in Table 1.

“I guess I better start doing promotions again!” In talking to bike shops, HPS partners have heard owners saying, “I guess I better start doing promotions again!” Yes, this is something bike shops did regularly pre-pandemic, but got out of the habit during the surge in demand in 2020 and 2021.

Dusting off the playbook on bike shop promotional events and activities now, and contacting suppliers and brands about promotions that the local shop can tie into is important, as is talking to the local Chambers of Commerce and Merchants Associations about local promotions (and do not forget to join).

In addition to promotions, contact other bike shops and sales reps about buying excess inventory from you, and find out which bike shops are willing to join in promotions and both buy and sell inventory going forward until the market and supply chain conditions become more stable and predictable.

Today there is a great deal of uncertainty about consumer demand and product delivery and availability. I have mentioned the NBDA several times because the association is a good and growing resource and safe harbor. The NBDA P2 Groups are well worth the investment to join a peer group to financially mentor a bike shop, and to provide research reports and timely webinars and podcasts on topics of immediate interest.

What the bicycle business is experiencing is unprecedented. It has never happened before, so there is no experience to help prepare for the future. The supply side is in the same boat, as are consultants and analysts. The past is of little or no help. We need to reach out and gather the available data, keep our eyes open, pay close attention, and be prepared to make adjustments in our businesses as market conditions and demand require.

Like Yogi said: “The future ain’t what it used to be!”

Questions? Comments? Contact Jay Townley: jay@humanpoweredsolutions.com


 

SARIS BECOMES A VICTIM OF COVID WHIPLASH

The above title is taken from a BRAIN article “Saris Cycling Group, a victim of the ‘Covid whiplash,’ restructures for sale” that appeared online June 29. According to this article, “…the company is the victim of the ‘Covid whiplash,’ which left it with excess inventory, especially of trainers, when the market dried up this spring.”

This last part is, to me, the most interesting. I started actively marketing and selling data and statistics to the American bicycle business in 1990, because it was one of the few things my non-compete with the Schwinn Bicycle Company, from which I had just resigned after 24 years and four months, allowed me to do and still stay in the bicycle business. I quickly found the American bicycle business is research averse.

From 1990 to the present, new younger owners and managers have expressed more interest in research and data, but overall the American bicycle business has still maintained its arms-length relationship with good quality consumer studies and findings, and relied more on the opinion of dealers, sales reps and “gut-feel.”

The bicycle business is not alone in this, and quite frankly, “gut-feel” has been more right than wrong, but also limiting for many companies and brands over the years. Good quality consumer research studies and reports, like those conducted and published by the Bicycle Market Research Institute, National Sporting Goods Association, National Bicycle Dealers Association (NBDA) and Sports Market Surveys, have also been consistently correct and strategically predictive of the future, but the bicycle business was still reluctant to make the investment when they had good old “gut-feel” to fall back on, and were happy with all the money they saved.

As I said in another article this month, that was then, this is now. Good old “gut-feel” never got the vibe from the unprecedented shifts, changes and disruptions of the Covid-induced consumer market of the 2020-2021 period, and was of no help in moderating or mollifying the bullwhip effect we have talked about since the fourth quarter of 2020.

Simply stated, the bicycle business, like just about every other business in the U.S., tossed Just-In-Time (JIT) inventory management because they really didn’t have much choice at the time, and adopted Just-In-Case (JIC) inventory management that condoned hoarding and ordering as much as you could get as often as you could get it. This in turn encouraged and fostered the bullwhip effect.

Consumer demand was running red hot in 2020, and the one thing I argued about at the time, and still think should have been included in the industry conversation, was a careful study of the history of the data, the historical facts, which clearly showed 2020 was not another bike boom, and as such warranted the high-quality consumer research Sports Market Surveys subsequently conducted for the NBDA in 2021.

The conventional wisdom in 2020 and 2021 was that the unprecedented surge in bicycle sales was going to continue, or at least the bicycle business could assure its continuation through advocacy and lobbying, without regard for either what the NBDA consumer research indicated or the American consumer.

This leads to “Consumer spending growth slows in May, as higher prices weigh on the economy,” an article that appeared in The Washington Post June 30.

The huge unknown in the uncertainty of the last 30 months, over and above the pandemic, the supply chain disruptions, the war in the Ukraine and inflation, has been the American consumer!

The June 29 BRAIN article about Saris Cycling Group says, “…the market dried up this spring.” Consumer demand “dried up” and the company procured inventory like consumer demand was going to continue. The disconnect was between what the company thought or was told consumer demand was going to be, and what it actually was.

The June 30 Washington Post article reports: “Americans are still spending, but at a slower pace than a few months ago, a sign that the biggest part of the U.S. economy is beginning to moderate.”

The article goes on to state, “This year, the U.S. economy unexpectedly shrank in the first three months. On Wednesday, the BEA said the contraction was even deeper than expected. It revised down its gross domestic product reading by 0.1 percent to a 1.6 percent annualized rate after factoring in slower-than-expected growth in consumer spending in the first quarter.” In other words demand “dried up.”

The signs are there, and all the American bicycle business had to do was recognize them and discuss them. One last point from the June 30 article, “Consumer sentiment fell to its lowest level ever in June, according to a closely watched survey by the University of Michigan, with nearly half of Americans saying inflation has eroded their living standards.”

The reality, the suddenness and severity of the Saris Cycling Group financial situation, inventory vs. sales and the resulting sale of the company in the next 60 days is, unfortunately we believe, just the beginning.

Rather than go forward into the fog of total uncertainty, we advise bike shops, brands and suppliers to work with the NBDA and sponsor, purchase and use the consumer research that the dealer association has and will be conducting with Sports Market Surveys. There is no future in continuing to be research averse.

Contact Jay Townley: jay@jayhumanpoweredsolutions.com

IS INVENTORY EVIL? WILL WE SOON BE SWAMPED WITH TOO MUCH STUFF?

I have been asking around the bicycle business, and so far can’t find anyone who knows what the current bicycle inventory-to-sales-ratio (ITSR) is. Or, more specifically, what their ITSR is.

Here is a textbook definition of the ITSR Key Performance Indicator (KPI): the inventory to sales ratio measures the amount of inventory in your store compared to the number of sales you’re fulfilling. The KPI is a broad measure of your store’s inventory management and helps you adjust your stock to maintain high margins.

This is obviously a definition for retail, but it works equally well for businesses of all types and sizes. It uses a broad measure of your inventory management and helps you adjust your inventory to maintain margins, meaning margins of profit.

The National Bicycle Dealers Association (NBDA) is wrapping up the first Cost of Doing Business for Bicycle Retailers study since 2014, so we will have the “typical,” meaning the median, bike shop inventory productivity shortly.

The 2014-2015 NBDA Cost of Doing Business (CODB) study shows the inventory productivity for all reporting bike shops and for high-profit bike shops as follows:

            Inventory Productivity                                             All Reporting             High Profit
                        Gross Margin Percentage on
                                    Merchandise Sales                                     36.04                     37.14
                                    Inventory Turnover                                        1.8                          1.7

While not ITSR, the CODB study does provide an idea of overall inventory productivity for the “typical” American bike shop pre-pandemic. In my opinion, the gross margin percentage on merchandise sales wasn’t that good, and the inventory turnover frankly sucked, but this is just my opinion.

While not focusing on ITSR, the study does give an idea of overall inventory productivity for specialty bicycle retail, showing 1.8 inventory turnover and for the high-profit shops, which by the way represented the top 25 percent of all reporting bike shops, 1.7 inventory turns, and a 37.14 gross margin on merchandise sales.

This was achieved utilizing a supply chain system that had been in place and functioning efficiently for over 30 years, until the pandemic driven disruptions that started during the first quarter of 2020.

One of the most important aspects of the bicycle business changed profoundly by the pandemic has been the just-in-time (JIT) principle of inventory management that was introduced to the American brands and buyers by Shimano and the Taiwanese bicycle and component manufacturers over 30 years ago.

It was the Americans who introduced JIT to Japan during the reconstruction from the world war when manufacturing started with a blank slate. In broad strokes, Toyota taught Shimano, Shimano taught Giant Manufacturing Company, Giant taught the rest of the Taiwanese bicycle manufacturing establishment, and that in turn took JIT to mainland China with them.

The JIT methodology and system worked so well that for the better part of 30 years the American buyers provided their original equipment manufacturers in Asia with forecasts, followed by firm purchase orders and letters of credit. Shipping containers, loaded with bicycles, arrived at U.S. brand warehouses 40 to 45 days after a firm order was placed. There were disruptions from time to time, but they were infrequent, and the overall supply chain returned to normal in relatively short order.

This supply chain lead-time became not only the standard operating procedure, but an accepted rule until the pandemic, and the multiple supply chain disruptions that erupted by mid-2020 and have continued in full force and effect, with new variations through year-to-date 2022.

On and after mid-2020, the lead time for finished goods bicycles from Asia to the U.S. shot up from 100 to 120 days or more, depending on the component lead times, manufacturing plants being open, available containers, container ship sailings, and trucking throughout the supply chain. Transparency and visibility dropped, and it became difficult to track shipments and get reliable information on status and location along the supply chain.

JIT was pushed aside and replaced with Just-In-Case (JIC) inventory management throughout the supply chain that encouraged hoarding and overstocking to meet customer demand. This in turn has resulted in some bloated inventories and even longer lead times throughout the channels of trade that have been tolerated and accepted, as long as consumer demand stayed intense enough to drive all the supply chains.

What is often overlooked amongst the plethora of disruptions is the simple fact that in March 2020, when COVID-19 shut everything down and a pandemic was declared, consumers who were isolated switched from spending money on services, like eating out, going to movies and entertainment venues, to buying goods, merchandise, and other “stuff” in large quantities online.

Chart A shows this graphically, and the bicycle business got caught up in this increase in consumer demand, including for service and repair.

Sales and demand for bicycles shot through the roof, and the bicycle business got caught up in thinking we were in the midst of a second “Bike Boom” as every supply chain in the business struggled to provide product and service.

Dealers ordered more from brands and suppliers, suppliers ordered more from manufacturing plants in Asia, and manufacturing plants ordered more components and raw materials from their suppliers, who ordered more upstream.

Chart A


Enter the Bullwhip Effect. Here is what Robert Armstrong wrote in a Financial Times Opinion piece, Friday, May 27, 2022, titled: The bullwhip effect, redux.

“Inventories crack that whip. Way back in December I wrote about the bullwhip effect. It works like this: in response to a drop in supply or pop in demand, companies in a supply chain over-order or hoard inventory to protect themselves.

“The over-ordering amplifies as it moves up the chain from retailer to wholesaler to manufacturer to supplier. The whip cracks when suddenly demand weakens and there is too much inventory in the chain, leading to a glut. I wrote: The question is whether bullwhip effects might go into reverse next year (2022), leading to oversupply at just the same time as rabid end demand for goods is cooling anyway because (please, please) Covid is subsiding.”

Is the bullwhip effect in reverse? On May 28 Washington Post article titled Consumers are shifting their spending from goods to services, David J. Lynch wrote: “Now consumers are returning to their previous habits with the balance between goods and services spending back to where it stood in May 2020, according to data adjusted for inflation from Flexport, a freight forwarder. A separate metric cited by Goldman Sachs shows goods consumption about 5 percent higher from before the pandemic, down from a peak gap of 15 percent.”

“We are just in the early stages of seeing the rotation of consumer spending from goods to services. As time goes on, you are going to see more of that. Food services are quite strong. Travel is picking up, airfares and hotel occupancy,” said Kathy Bostjancic, chief U.S. economist at Oxford Economics. “The consumer is looking more to services spending, especially with spring and summer upon us.”

Walmart and Target, the number one and number two largest retailers of bicycles in the U.S., were both caught off guard in recent weeks as consumer preferences abruptly shifted, leaving both with what has been described in the media as a mountain of products like appliances and televisions that both have been forced to discount. Disclosure in both retailers’ quarterly investment calls led to their stock dropping to levels last seen in the 1980’s. Are bicycles part of either or both mass merchant’s inventory problem? I don’t know for sure, but they both clearly have ITSR issues.

When Bill Austin first came to the Schwinn Bicycle Company in the late 1970’s after the first (and only) Bicycle Boom, and was new to the bicycle business, he told those of us in sales and marketing that: “inventory is evil!”

He continued to advocate this throughout his career in the business. I know he believed in the JIT system of inventory management, and wonder how he would have adapted and adjusted to the shift in consumer demand in March 2020, and the resulting bicycle business migration from JIT to JIC inventory management.

Damned if you do and damned if you don’t! Consumers not only demanded more new and used bicycles, but service and repair for those they already owned. They also changed and shifted the way they shopped, purchased, interacted and communicated with retailers and brands.

Brands and retailers followed as best they could, including turning their backs on the JIT system out of what was broadly seen and accepted as a necessity to ensure there was enough product available to meet the demands of consumers.

Too much inventory, safety stock and actual hoarding were condoned and accepted up and down the bicycle supply chains as one of the costs of keeping up with consumer demand, the increase in riders and ridership, and the immediate gross revenue.

In saying this, I am not judging, but feel obliged to point out that the JIC logic and inventory system is only as good as consumer demand, and will become “evil” when consumers don’t want it or as much of it.

Unlike Robert Armstrong, the Financial Times Op Ed columnist, HPS and this writer have opined on the probability of consumer demand for bicycles ebbing in the current year, and warned about the potential of an inventory “problem” based on both past history, and the current consumer research conducted by Sports Marketing Surveys for the NBDA, before the Russian invasion of the Ukraine.  

This takes me back to my question. What is your Inventory-To-Sales-Ratio for bicycles, and what is your inventory, merchandising and sales plan for the rest of this year?

Please, contact me if you have questions or would like more information about anything in this article. jay@humanpoweredsolutions.com

DO WE HAVE TOO MUCH OF WHAT AMERICAN CONSUMERS DON’T WANT?

The flip side of having too much of what customers do not want is having too little of what they do want.

It looks to HPS as if there is an imbalance in current finished goods inventory. Even if the energy crisis drives gas prices up so high that it triggers another so called “bike boom,” and consumer demand for bicycles surges again, there does not appear to be sufficient balance to the inventory, up and down the product categories and price points, to meet that demand if it does materialize. I will add that HPS currently gives this possibility a low probability.

Nor is there a steady flow of product from the supply chain to reliably meet a return to lower pre-pandemic demand because of component availability, shifts in consumer preferences, and the inventory already in the hands of wholesalers, brands and retailers. HPS currently believes this has a high probability.

From what HPS has gleaned from the marketplace, wholesale bicycle and e-bike unit inventory has increased anywhere from 40 to 43-percent during the first four months of this year while consumer demand has declined.

CHART A

Chart A is from Bloomberg and shows overall U.S. companies increasing inventories in late 2021 to get around supply chain delays, and to be able to meet what was perceived as consumer demand during the holidays and going into 2022. Available NPD data generally-shows the same trend for the American bicycle and e-bike business.

This should not come as a surprise. We have been reporting this inventory build in the NBDA Supply Chain Nightmare webinars in October and December, and again in February and early April of this year. Recordings of these webinars are available from www.nbda.com.

We also have reported that as brands and retailers switched to just-in-case (JIC) inventory management, consumers held back, and consumer demand for bicycles and e-bikes began to recede. Again, available NPD data generally shows the same trends for regular bicycles, while dollar value shows an increase in e-bikes. We don’t disagree that dollars show an increase in e-bikes, but do advise that both units and dollars have to be analyzed, as well as the combined units and dollars for regular bicycles and e-bikes, to measure both inventory and retail sales to consumers.

We have also pointed out during the four NBDA Supply Chain Nightmare webinars that the supply of bicycles and e-bikes will increase even as demand weakens because of what is in transit.  

Today, some 60 ships with imports from Asia, including bicycles and e-bikes, are waiting to be unloaded at the ports of Los Angeles and Long Beach, according to the Marine Exchange of Southern California. This represents “floating inventory,” and while vessels are down from the January peak of 109, the current number of container ships waiting to get into the two ports are still about triple the pre-pandemic norm.

CHART B

Chart B, also from Bloomberg, shows the rapid decline in consumer sentiment as inflation rates increased during the last quarter of 2021 and the first four-months of this year, corresponding to the reports HPS has conveyed of declining bike shop consumer traffic during the four NBDA webinars previously referenced.

What the NBDA has recognized with its Bicycle Buying Consumer Research Study is that households also hold excess inventories. While shifting to shopping and buying online while staying at home during the pandemic, Americans bought lots of bicycles, e-bikes, exercise equipment, televisions, computer games, furniture and kitchen appliances. That pushed up spending on durable goods 18% last year. It will be years before those goods wear out, and the NBDA has asked consumers who bought bicycles and b-bikes during the pandemic what their purchasing intentions are in the future.

Meanwhile, the American bicycle and e-bike business needs to prepare and plan for the up-side and down-side of profit-killing markdowns as businesses work off excess inventories, as in turn the U.S. economy contracts in the face of inflationary pressure.

CHART C

Chart C, the final chart from Bloomberg, shows the reason for this article. On April 28 the U.S. economy contracted for the first time since the pandemic began during the first quarter of 2020.

Some economists attribute this “surprise shrinkage” in the economy, at least in part, to the beginning of liquidation of bloated inventories held by manufacturers, assemblers, wholesalers, and retailers in the U.S. They also predict that this inventory liquidation has only just begun.

And, the U.S. bicycle and e-bike business still has to deal with lead times for name brand components. I just looked at the latest lead times for Shimano, and their order book is sold out into 2023, as has been reported in the trade press. This has created a problem in the supply of up-market bicycles and e-bikes for the U.S. market, and is just one of the “imbalances” we are referencing that are creating shortage of some models of some brands in the face of “bloated” finished goods inventories in the supply chain.

It seems to boil down to that if demand surges for bicycles and e-bikes, there will not be enough of what consumers want. If there is no surge, but a return to lower pre-pandemic demand, there will be too much inventory, but still not enough of what consumers demand.

While the situation may change, it appears that the American bicycle business will be in a constant state of disruption and turmoil in 2022 and probably into 2023.

As always, feel free to contact me with your comments and questions: jay@jayhumanpoweredsolutions.com.

RETAILERS AND CONSUMERS SHOULD “ONLY BUY E-BIKES THAT HAVE BEEN CERTIFIED”

This past month has seen a flurry of articles in both trade and consumer publications about lithium-ion battery fires and standards for “bicycles” as defined by the U.S. Consumer Product Safety Commission (CPSC).

Feedback about last month’s article discussing the definition of a bicycle was well received, with some concern expressed about the status of electric bicycles with performance specifications that are not within the language of the CPSC’s 16 CFR Part 1512.2.

We recommend that any questions about the definition of a bicycle be directed to the CPSC Office of Compliance and Field Operations: https://www.cpsc.gov/About-CPSC/Division-of-Field-Operations or you can call 1-301-504-7520.

The May 2022 print issue of Bicycle Retailer and Industry News (BRAIN) contains a cover story with the headline: “E-bike regulation discussion captures industry’s attention” that jumps to page 21 and a whole page with this quote: “That was a rather sobering discussion for probably 50% of the people in that room,” attributed to an industry attorney who sat in on the session, which was the closing presentation of the March 21-23 PeopleForBikes Bicycle Leadership Conference.

The author of the article, Steve Frothingham writes that it was “…not the flashiest or the best attended” but “…was the most sobering 60 minutes of the two-day conference.”

On April 26, several days before I received the May issue of BRAIN, an article titled: “Approximately none of the recent ‘e-bike fires’ in New York involved an e-bike” was posted on the BRAIN website.

I personally believe this headline is an example of poor journalism, and while I hold both the editor and managing editors of BRAIN in high regard, I don’t think this is an example of either their normal or best work.

With that said, this article does give clear and immediate direction to American bike shops. Larry Pizzi is the co-chair of the PeopleForBikes Electric Bicycle Subcommittee and chief commercial officer of Alta Cycling Group. He is quoted throughout the article including this: “Pizzi suggests that retailers and consumers only buy e-bikes that have been certified by third-party testing labs, to the UL standard or other relevant standards, followed by “All they (retailers) have to do is ask the brand to provide proof of the testing.”

There are two standards applicable to e-bikes as defined in Section 1512.2, covered in detail in last month’s article that you will find posted on the HPS website: https://humanpoweredsolutions.com/2022/04/11/what-is-the-definition-of-a-bicyclewhy-does-it-matter/

The first is the mandatory CPSC Requirements for Bicycles. The required third-party testing must be done by a CPSC-approved laboratory. The details of this mandatory testing are well established, and the brands, importers and domestic manufacturers and assemblers are aware they:

1. Must produce a General Certificate of Conformity (GCC), or if the bicycle is designed and intended for use by a child 12 years of age or younger, a Children’s Certificate of Conformity (CPC), and

2. The GCC or CPC must accompany the product or product shipment and be furnished to each distributor or retailer.
These requirements can be satisfied by either providing an actual hard copy or provided electronically.

While the frequency of mandatory testing is subject to interpretation by CPSC, it is generally accepted by the brands we have talked to as being annual, or with each model year, and is for each model type, again subject to interpretation by CPSC.

The point is that brands doing business with American bike shops have established third party testing and certification in place as standard operating procedure for all bicycles including the non-electric systems of e-bikes, as defined by Section 1512.2.

The second is the voluntary Underwriter Laboratory UL 2849 which PeopleForBikes helped develop through the participation of Trek, Bosch and SRAM, and promoted through a YouTube video in May 2020. This voluntary standard covers both Canada and the United States, and was promulgated to the global industry in January 2020.

UL 2849 – Standard for electrical systems for e-bikes, covers safety requirements of e-bikes powered by lithium or other rechargeable battery. It provides requirements with respect to the following:

  • The electrical drive train system
  • The battery system
  • The charger system combination
  • Interconnecting wiring
  • E-bike power inlet

Third party testing and certification is conducted according to UL protocols by UL or accredited UL testing laboratories, most of which are also approved by the CPSC. Many brands we have talked to are having their e-bike products third party tested and certified by the same CPSC-UL approved lab located in China or Taiwan.

We are confident that the brands listed as having joined the PeopleForBikes lithium-ion battery recycling program are aware of the above, and have  been since 2020.

HPS has a link to the YouTube video of the PeopleForBikes May 2020 webinar introducing and explaining UL 2849, and you can access it here: https://www.youtube.com/watch?v=yVicfT4X1Dk

Accordingly, bike shops should take immediate action to follow the direction given in the April 26 BRAIN article: “…that retailers and consumers only buy e-bikes that have been certified by third-party testing labs, to the UL standard or other relevant standards,” and that bike shops also take immediate action to ask the brands they do business with to provide proof of the third party testing of all “bicycles.”

If you have questions or comments, please contact me: jay@humanpoweredsolutions.com.