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.

WHAT IS THE DEFINITION OF A BICYCLE?
WHY DOES IT MATTER?

What is the definition of a bicycle? As it turns out, it depends on who you ask.

Defining a bicycle may look like a simple issue at first glance, but it is possible that differences between federal and state definitions could pose regulatory problems going forward, as well as create potential issues with insurance that covers bicycle businesses. Is a bicycle importer or retailer covered, for example, if they sell a product that doesn’t meet the federal definition of a bicycle? Could they potentially be subject to enforcement from the Consumer Product Safety Commission (CPSC) for selling Class 3 e-bikes that violate the 20 m.p.h. speed limitations of federal regulations? The answers are not clear at this point, but there would appear to be some potential risk here.

The definition of a bicycle has changed over the 65 years since I started working in a bike shop in 1957. I really got interested when the CPSC, created by act of Congress in 1972, announced that its National Injury Surveillance System (NISS) had identified bicycles as being associated with an unusually high frequency of emergency room visits in 1973.

Congress became concerned about protecting the public from hazardous products and introduced the Consumer Safety Act that created the Consumer Product Safety Commission with broad regulatory and legal powers. When CPSC went live in 1972, the agency announced that the first mandatory federal safety regulation it developed and promulgated would cover bicycles.

After innumerable public meetings, and several litigations, the CPSC promulgated Requirements for Bicycles that became effective January 1, 1975. From this date forward, bicycles must meet the mandatory requirements under the Federal Hazardous Substances Act (FHSA) regulation at 16 Code of Federal Regulations (CFR) Part 1512. The regulation has multiple performance requirements and specifications, and requires certain instructions and labeling.

I will be one of the first to agree that the CPSC Requirements for Bicycles are mostly out of date and need to be updated very badly. With that said, if you are making or importing a bicycle for sale to consumers in the U.S., it must meet the mandatory requirements of 16 CFR Part 1512.

This leads to my question. What is the definition of a bicycle? 16 CFR Part 1512.2 definitions states:

Bicycle means:

  1. A two-wheeled vehicle having a rear drive wheel that is solely human powered;
  2. 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.

 Part 1512.2 goes on to also define Sidewalk bicycle, Track bicycle, One-of-a-kind bicycle, and Recumbent bicycle.

As was recently pointed out at the PeopleForBikes Bicycle Leadership Conference (BLC) in March, this definition is contained in the Consumer Product Safety Act, which governs the CPSC, and which Congress amended, and was signed into law in 2002 to (according to the legislative history) specifically confer jurisdiction for electric bicycles that can achieve a maximum speed less than 20 mph on the CPSC. There seems no doubt that this means CPSC has jurisdiction over bicycles, including electric bicycles, as defined in 16 CFR 1512.2 definitions, as stated above.

Further, there seems to be no doubt that the CPSC definition of bicycle includes what the U.S. bicycle business has defined as Class 1 and Class 2 electric bicycles.

This also means that what the bicycle business (and jurisdictions that have adopted the industry’s suggested three-tier definition) have defined as Class 3 electric bicycles do not meet the CPSC’s definition. This is due primarily to the higher (28 m.p.h.) top speed, and means that these vehicles are to be either regulated by another federal agency, such as NHTSA,  are subject to state regulation, or are unregulated.

There is a fork in this definitional road, with one fork for importers and makers who enter bicycles into interstate commerce for sale to retailers, and the other for retailers, or direct to consumer (DTC) sellers, who we will consider as retailers for purposes of this article.

The fork in the road for importers and makers of general-use bicycles and children’s bicycles (intended for children 12-years of age and under) involves third party testing by a laboratory approved by CPSC, and either a General Certification of Conformity (GCC) for bicycles as defined or a Children’s Product Certificate, (CPC) for bicycles intended for 12 years of age or younger, both according to CPSC guidelines.

If you are already working with a CPSC approved testing laboratory in Asia or the U.S., you already know about the process and procedure. If not, you should contact CPSC (www.cpsc.gov) and confirm your obligations to third party test and certify.

Most importers and makers already know if their GCC’s and/or CPC’s need to be submitted to or approved by CPSC, or by U.S. Customs. They also know that they must furnish copies to each distributor or retailer either as a hard copy or electronically.

The fork in the road for retailers is to make sure they are receiving GCC’s and or CPC’s from their bicycle suppliers, keeping in mind the CPSC definition of bicycle includes what is now referred to as Class 1 and Class 2 e-bikes (but not Class 3), and making sure they check with their insurance agent or broker to confirm coverage that embraces the CPSC definitions of bicycle, and the products they sell to consumers.

This is just the first of a series of articles on this and related subjects and please contact me if you have any question or feel Human Powered Solutions can be of any assistance to you or your business.

Contact Jay Townley: jay@humanpoweredsolutions.com

Proposed Bill Could Shut Down Cheap E-Bike Imports

Have you ever wondered how all those “cheap e-bikes” got imported into the U.S.? Last year we asked Ed Benjamin, founder and president of the Light Electric Vehicle Association (LEVA). Benjamin told us that they were getting into the country as de minimis shipments.
 
To explain, U.S. international trade import laws allow so-called non-market economies, such as China, to ship goods for import valued under $800 to come into this country free of duties, taxes or fees. Import value translates to FOB value, not wholesale or retail, but the value of the goods. So, a “cheap” e-bike with an import value of $800 or less is shipped directly to a consumer in this country from a company or brand in China, or to a closer-to-market Canadian or Mexican warehouse, that in turn ships directly to U.S. consumers. 
 
How many? Based on Benjamin’s estimates for 2021, HPS is projecting the preliminary total number of e-bikes imported into the U.S. was approximately 780,000 to 800,000, with 260,000 to 270,000, (or about 1/3) imported as de minimis shipments directly to American consumers. This estimate will be refined over the next month.
 
Cheap e-bikes with an FOB value of $800 or less also include approximately 260,000 to 270,000 cheap lithium-Ion (L-I) batteries, because the most expensive component on any e-bike is battery, costing more than the electric hub or mid-drive motor. This large quantity of low-cost batteries enhances the probability of a catastrophic battery failure, resulting in a fire.
 
The Sourcing Journal reported January 19 the introduction of a bill by Representative Earl Blumenauer (D-Ore.), chairman of the House Ways and Means Trade Subcommittee, that would stop non-market economies from exploiting the de minimis threshold.
 
“The number of packages we receive in the United States has skyrocketed to more than 2 million daily packages, a number that will only climb in the coming years,” Blumenauer said relative to imports under the current de minimis provision. That means a total of 712 million packages entering the U.S. annually free of duties, taxes or fees, including bicycles, e-bikes and related parts and accessories.
 
The bill also prohibits goods subject to enforcement actions from using de minimis provisions. In principle, federal enforcement statutes, such as Section 301 and 232, provide the United States with leverage by assessing an additional punitive tariff on top of any already existing tariffs.
 
Bicycles, e-bikes and related parts and accessories imported from China have been, and currently are, subject to a punitive tariff of 25 percent under Section 301. However, these same products imported from China under the de minimis provision are exempt from the punitive tariff that mainstream importers are subject to, undercutting this enforcement action and creating unfair competition.  
 
The bill was subsequently incorporated into a trade package that has passed the House and has been sent to the Senate. The current language will put a stop to the abuses of the de minimis rule, and in the process stop the proliferation of cheap batteries. However, there may still be amendments affecting this language in the Senate.
 
We will keep you advised of both the status of the language and movement of the legislation through the Senate, conference and to the President for signature. If you have any questions, please contact me.
 
Jay Townley, jay@humanpoweredsolutions.com

What Keeps Me Up at Night

As the pandemic evolves to endemic, and we begin an entirely new level of geopolitical sourcing risk, the Ides of March approaches.

So too does the conference and summit season in the form of the PeopleForBikes (PFB) Bicycle Leadership Conference (BLC), and the Sea Otter Classic Summit, from the former producers of the BLC.

The BLC is a face-to-face bicycle industry conference March 21-23 (the Ides of March is the15th) at Dana Point, California. The Sea Otter Classic Summit, also a face-to-face conference, is April 5-7 at Monterey, California. It appears the two bicycle business, executive level, multi-day conferences are in competition, if the $1K+ cost to attend each is any indicator.

There is also the fact that 2022 is a transition year, with PFB now owning and producing its first live BLC, and Sea Otter Classic’s new owner’s (Life Time Inc.) attempting to find, along with previous owner Frank Yohannan, who will stay on to manage for several years, a replacement for the annual BPSA BLC that had become a regular part of the bicycle business event calendar.

Why does this keep me up at night? Even after the sales and service surge, there are few specialty bicycle retailers who can afford the cost of either of the business conferences that have now emerged from the pandemic. From the supply side this may be a sign, even if short-term, that there is no reluctance to spend the increased revenue and profit realized over the last two years.

PFB announced its agenda for the two-day BLC in a press release published in Bicycle Retailer and Industry News February 22. While very detailed and sufficiently populated with top-tier speakers, it seems to me to lack a connection to the reality of both the new era of geopolitical and economic risk we entered February 25, the in-transit goods tied up in supply chain congestion that is weighing heavily on company balance sheets, and more urgently the inventories already amassed to meet anticipated strong consumer demand that began to ebb during the fourth quarter of last year, and continues to ebb as the conference and summit season is upon us.

The Sea Otter Classic’s Summit agenda is just beginning to emerge, and new speakers were announced in BRAIN February 22.

This bicycle business conference still has an opportunity to examine and discuss the reality of the movement from just-in-time (JIT) inventory management to just-in-case (JIC) inventory management, and companies and retailers building inventories to meet what has been strong consumer demand. Over-ordering has been rife, and the impact is spreading through the supply chain. This trend will halt when demand recedes, as it inevitably will, and suppliers, brands and retailers will be holding excess inventories.

I completely understand that the antitrust laws of the land prohibit discussing certain aspects of this situation and the potential going forward, but there is plenty of room for experts to speak and interact on panels to discuss what can be the grist for public forums.

There is extensive primary consumer research that was conducted in November by Sports Marketing Surveys (SMS) for the National Bicycle Dealers Association (NBDA) that has been available since December. It can greatly enhance supplier, brand and retailer understanding of the new adult American cyclist that emerged during the pandemic years of 2020-2021. 

We say “new” because 27 percent of all adult cyclists during 2020-2021 were new to cycling, and had not participated in bicycle riding prior to the pandemic.

Add to this 20.7 percent of all adult cyclists during 2020-2021 who returned to cycling during the pandemic, and you have a total of 47.7 percent who were either new or returned to cycling during the pandemic.

Ethnicity of adult cyclists in America has been a constant and troubling demographic reality for over four decades. There has been some recent information that 44 percent of new cyclists during the pandemic were racial minorities, resulting in 56 percent being white/Caucasian, four percentage points below the national percentage of 60.1 percent.

The reality, identified by the NBDA Consumer Research, is that 73.3 percent of adults who had not cycled before and took up bicycle or e-bike riding during the pandemic were white/Caucasian, continuing the large over-indexing of the last four decades.

All demographics of American cyclists need to be reviewed and discussed because this data, along with all the other findings of the NBDA consumer research, illustrates the opportunities for the real growth of bicycle riding participation going forward.

The NBDA research was the first to identify and call out the emergence over the last two years of the new direct-to-consumer (DTC) channel of trade for bicycles and e-bikes. It provides detailed data about the American adults who identify with this new DTC retail channel, the innovative functionality of the new electric assist and throttled e-bikes, and the future intention to purchase.

In follow-up discussions with bicycle dealers and their employees, it has become clear that (1) during the last two years the DTC channel of trade has moved to an early stage of maturity, and (2) the top-tier DTC bicycle brands are primarily electric assist, and (3) the top tier DTC e-bike brands have established several new segments of e-bike product, including the so called “electric-BMX.”

While a much better name needs to be attached to this new segment, it has also become readily apparent that the American bicycle business needs to acknowledge and further define the new DTC channel of trade for retailing bicycles and separate it from online, which also needs to have its definition modified to fit the findings of the NBDA consumer research.

Defining the DTC channel of trade and its new segments includes the NBDA research findings that:

  • 50.7 percent of e-bike cyclists purchased an e-bike with a throttle because of its “ease of use.”
  • Females were more likely to purchase an e-bike with a throttle so they pedal less.
  • 88.4 percent of females stated they would consider a throttle on future purchases.
  • 94.4 percent of males stated they would consider a throttle on future purchases.

We think it is important for the American bicycle business to discuss this snapshot of important findings about the purchase intentions of e-bike cyclists, as those intentions will affect future e-bike product offerings and regulations.

This leads to Human Powered Solutions (HPS) advocacy for lithium-Ion (L-I) battery safe charging and storage. Our primary objective is to educate and inform American specialty bicycle retailers about safe battery storage and charging procedures. A summary of recommendations is available on the HPS and NBDA websites (www.nbda.com).

These protocols are offered by HPS founding partner and chief technology officer Mike Fritz as recommendations for bike shops and their policies and procedures associated with e-bike battery packs. While knowing that the chances of a battery fire are miniscule, the ramifications of a L-I battery fire are so significant that the relatively simple steps recommended are more than justified.

Why does this keep me up at night? HPS is concerned that there appears to be a reluctance on the part of much of the bicycle business to place L-I battery safety education and information on the same level, and with the same resources and visibility, as L-I battery recycling.

While I could launch into a long and detailed discussion of relevant facts and concerns, I don’t believe it would be productive. Instead, I direct you to the two webinars HPS and Mike Fritz have presented for the NBDA on this subject over the last two quarters. The recordings of both webinars are available for viewing by contacting rachelle@nbda.com.

What is appropriate is to observe, unless I am missing something, that the PFB BLC agenda published to-date does not appear to focus on or cover e-bike L-I battery safe charging and handling. Nor does the preliminary Sea Otter Classic Summit agenda published to date.

What keeps me awake at night is the knowledge that the window of opportunity may be closing for the American bicycle business to get out ahead of the adult cycling consumer’s future wants and needs relative to bicycles and safe battery charging and storage.

However, the door for HPS clients and readers of this newsletter will remain open. I will be happy to discuss this article, and what keeps me up at night, anytime. I will probably be awake.

Jay Townley: jay@humanpoweredsolutions.com

BIKE BOOM? NOT THIS YEAR.
CONSUMER INTEREST SOFTENS
(EXCEPT FOR E-BIKES)

Consumer demand is what drives the U.S. market for goods and services. The 2020 surge in sales of bicycles (including e-bikes) that some in the media are calling a “Bike Boom,” was the American consumer demanding and purchasing bicycle products in greater numbers than the business has experienced in two decades.

The demand for service work (as opposed to services like restaurants, vacation destinations, theme parks, entertainment venues, air travel, etc.) also surged to new levels, as American consumers seemed to take every available bicycle they could find in their basements, attics, and garages, to bike shops to get them serviced into riding condition.

Bike shops ran out of new bicycles to sell and ran short, or out of, components to repair the bicycles brought in for service, just as other retail channels large and small experienced shortages, outages, and an overall inability to meet and satisfy consumer demand for goods as they shifted from services. Bottlenecks and disruption in the supply chain created further delays. 

American consumers, like consumers all over the world, also shifted their shopping and purchasing of goods online because they did not want to go out into stores and run the risk of contracting COVID-19.

Given the pandemic-induced market disruptions in 2020, annual U.S. bicycle riding participation is a vital component in defining and better understanding the U.S. bicycle market demand.

The National Sporting Goods Association (NSGA) has consistently used the same research methodology to conduct its annual consumer survey of sports participation, which includes bicycle riding participation, for over three decades.

Because the same research methodology has been adhered to for such an extended period of time, the data is stable and comparable, even in a pandemic and more importantly is reliable for trend analysis. The following is presented, in detail in the NBDA U.S. Bicycle Market Overview 2020 Report that can be purchased at www.nbda.com.

43 million Americans seven years of age and older rode bicycles six or more days during the year 2020. For those following the NBDA annual report, this is a substantial increase of 5.2 million or 14 percent in the number of bicycle riding participants compared to 2019.

NSGA will publish its 2021 bicycle riding participation data in early April and the NBDA U.S. Bicycle Market Overview 2021 Report will be available, including 22 years of U.S. bicycle riding participation data, by the end of April.

The NSGA bicycle riding participation data for 2020 confirms that the surge in sales of bicycles (including e-bikes) was driven by the increase of 5.2 million Americans seven years of age and older who rode bicycles six or more days during the year, contributing a 14 percent increase in bicycle riding to the overall demand for product and service in 2020 over 2019.

In November of 2021, the NBDA Bicycle Buying Consumer Research Study concluded its field work, and the sponsor reports and first editions of the 150 Powerpoint slide supplier report were made available for sale Christmas week.

The first version of the retailer report became available for sale January 6, and the second version on February 4. All versions of this landmark consumer research reported:

  • 53 percent of adult cyclists purchased a bicycle (including an e-bike) in 2020, meaning 47 percent did not.
  • 39 percent of adult cyclists purchased a bicycle (including an e-bike) in 2021, meaning 61 percent did not.

The purchase to non-purchase ratio among adult cyclists in 2021 corresponded to reports from the field during the fourth quarter of the year that retail store traffic and corresponding sales were declining, as was demand for service work.

To investigate this further, Human Powered Solutions (HPS) looked at a number of sources of data, including, as a member, the PeopleForBikes (PFB) Business Intelligence Hub. One of the data sets is the Google Search Index from Google Trends searches for any combination of the phrase “buy bike.” Google Trends is a tool to analyze the popularity, and change of popularity, of search terms to compare the search volume of different queries over time.

PFB presents the Google Search Index as: “A near real time leading indicator” because it is a record of consumer searches, in this case any combination of the phrase “buy bike.”

Given the need to understand the recent store traffic and sales decline, we determined to dig deeper into the Google Search Index and Google Trends as real time leading market indicators as identified by PFB, and contacted the HPS webmaster, Jacob Rheuban, seeking his opinion.

HPS considers Jacob to be an expert on the subject because in addition to a bachelor’s in economics and a Juris Doctor (JD) degree, he founded his first e-commerce company in 1998 and is the founder and CEO of Prevelo Bikes, a consumer-direct youth bike brand. Accordingly, he has demonstrated that he knows a lot (at least more than we do) about search engines.

The first thing we learned is “buy bicycle” is an uncommon search term for our purposes because the data is or can be volatile. To give us some perspective Jacob ran a series of sample searches.

What we determined, is the Google search term “bicycle” yielded the least volatile and, we believe, more accurate leading indicator, as shown in Chart A below. The graph shows the results for the search term “bicycle” January 15, 2017 to August 31, 2021, a five-year period through the end of the second quarter of 2021. The market pattern per-pandemic, along with the sales surge of 2020, is clearly shown, along with the sales decline in 2021.

CHART A


Chart B shows the search term “bicycle” vs. the search term “e-bike” for four years from January 2018 through December 2021. Beginning about the second quarter of 2021, consumer searches shifted significantly from the term “bicycle” to the term “e-bike.”

Jacob reminded us that someone looking at this chart could conclude that in absolute terms interest in “bicycle” is now less than interest in “e-bike.” What this chart says is that relative to the beginning of 2020, searches, which is interpreted as interest in e-bikes, has grown while searches, as interpreted as interest in bicycles, has declined.

This is an indicator of relative interest through searches that need to be verified to the extent possible by asking consumers, as the NBDA has done.

This leading indicator of consumer searches points to increasing interest in and the possibility of shifting demand away from “bicycles” and toward “e-bikes” during the time frame charted.

CHART B

Chart C is another step in digging into the leading indicator identified in Chart B. Jacob suggested we create a basket of 10 bike shop brands and a basket of 10 direct to consumer brands (DTC), and compare the average trend lines, which is what this chart shows.

CHART C


Remember that this is not absolute, but as consumer interest, in the form of searches, shifted from the term “bicycles” to the term “e-bike,” so did consumer interest, in the form of searches, shift from the average of our basket of 10 bike shop brands to the average of our basket of 10 DTC brands.

The leading-edge indicator is apparent consumer interest, in the form of searches, shifting from “regular” bicycles to e-bikes, and from traditional bike shop brands to DTC retailers, with overall consumer demand ebbing.

While brands should be paying attention, bike shops are advised to take action to adjust strategic and business plans to accelerate development of omnichannel merchandising with a commerce-enabled website, social media presence, and an expanded offering of e-bikes integrated into all product categories and price ranges.

Do not expand your SKU count. Rather, consolidate with e-bike models integrated into your merchandise offerings, and replace regular bicycles with e-bikes, paying attention to retail price points and your gross profit margins.

Pay particular attention to new, emerging e-bike product categories being marketed by DTC brands (as an example, the so called “BMX” 20 and 24-inch fat-tire e-bikes).

Watch inventory levels carefully, and monitor KPI’s like gross margin return on inventory (GMROI), inventory turns and net profit per category and SKU weekly.

If any readers have questions, please contact me and I will do my best to help you: Jay Townley, resident futurist, Human Powered Solutions: jay@humanpoweredsolutions.com

…Supply Chain Nightmare!

By Jay Townley

From January 1983 through October of that year I served as Vice President and Assistant to the President of the Schwinn Bicycle Company. My primary focus was the closing of the company’s domestic factory in Chicago and moving 90-percent of the production to Taiwan and the remaining 10-percent to a domestic contractor. 

From November 1983 until leaving the company in April 1990 I served as Vice President Purchasing and was responsible for converting the company’s purchasing and logistics operations from supporting a domestic build-to-order manufacturing and parts supply model to supporting an import ship-to-order wholesale model.[1]

I am referencing this seven-year period because I want to confirm that I was a purchasing and logistics practitioner in the American bicycle business. While it was 30 some years ago, I still have first-hand experience with and knowledge of the current…Supply Chain Nightmare!

Over the last 30-plus years the U.S. bicycle business has become totally import-dependent and that dependency has migrated from Taiwan to China since 2000 to the present.  Table 1 is taken from the NBDA U.S. Bicycle Market Overview 2020 Report (where it is identified as Table 19), and it shows U.S. Bicycle Market Import and Estimated Domestic Production as Percent Shares of Annual Market Consumption from 2011 through 2020.  Over the ten years shown imports have spanned a low of 96 percent to a high of 99.7 percent of the U.S. bicycle market.

Table 1
U.S. Bicycle Market Import and Estimated Domestic Production
Percent Share of Annual Consumption
2011-2020

 2011201220132014201520162017201820192020
Domestic Percent*0.40.30.41.12.52.84.03.04.03.7
Imports Percent*99.699.799.698.997.597.296.097.096.096.3
Total100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0
Sources: U.S. Department of Commerce Import and Export Statistics for 2011-2020; The Gluskin Townley Group estimates for 2008-2016; Human Powered Solutions 2017-2020 *Excludes exports. Does not include Ebikes or Used Bicycles.

Table 2 is also taken from the NBDA U.S. Bicycle Market Overview 2020 Report (where it is identified as Table 31), and it shows U.S. bicycle imports by Country of Origin for the last three years, 2018, 2019 and 2020.  China has dropped from 94.9 percent of total U.S. bicycle imports in 2018 to 88.9 percent in 2020.

Table 2
U.S. Bicycle Imports by Country of Origin 2018, 2019, 2020
Units and Country Percent of Total

YearChina UnitsTaiwan UnitsCambodia UnitsVietnam UnitsOther Countries UnitsWorld Total U.S. Imports
201816,287,067581,209128,3647,769166,18017,170,589
2018%94.9%3.4%0.7%0.0%1.0%100%
201911,578,356792,931264,919104,809147,79812,888,813
2019%89.8%6.2%0.8%0.8%1.1%100%
202015,109,868755,691793,715104,308226,61416,990,196
2020%88.9%4.4%4.7%0.6%1.3%100%
Source: Bicycle Retailer and Industry News March 2021 Issue; Human Powered Solutions Analysis

Section 301 25 percent punitive U.S. tariffs were imposed on imports from China in 2018 (in addition to the standard 5.5 percent and 11 percent import tariffs on bicycles and the 0 percent tariff on Ebikes), and were suspended in late December 2019, and remained suspended throughout 2020, and were reimposed late December 2020.   Section 301 tariffs had no appreciable effect on the consumer demand at retail for bicycles and Ebikes – until perhaps, most recently.

Also of interest is the sub-total of U.S. bicycle imports from the four Asian source countries of China, Taiwan, Cambodia and Vietnam 99 percent in 2018, 97.6 percent in 2019 and 98.6 percent in 2020, leaving only 1.3 percent of total U.S. bicycles imports coming from any other source country.

This becomes extremely important to the evolving Supply Chain Nightmare when viewed in the context of reports in the last week that COVID-19 is surging back into Asia-based supply chains – creating a fresh wave of disruptions and bottlenecks from ports in China to factories in Taiwan and Malaysia.

According to the Wall Street Journal Logistic Report June 11; “Dozens of vessels are backed up off the Yantian port in Shenzhen, straining fragile shipping operations that have been battered by a persistent empty container shortage and a continuing bottleneck at U.S. West Coast ports.”  The reason?  A shortage of workers because of a surge in COVID-19 cases! 

Container costs are soaring, and logistics service providers report desperate American importers paying well beyond even the listed spot rates.  Human Powered Solutions (HPS) Senior Logistics Advisor Dave Karneboge reported June 7 that the none contract rate, which currently represents about 30 percent of container shipments, is currently $10,000 for a forty-foot container that cost under $2,000 a year ago.  Twenty-foot containers now cost $9,000 – which makes them currently unaffordable, and HPS is advising clients to use freight consolidators until container prices come back down.

A recent Sea-Intelligence analysis shows an estimated 60 percent of container ships globally were late in arriving at ports in March, and according to the Wall Street Journal Logistics Report this “…trend toward increasing delivery delays” has undercut the efforts of brand and retailers to restock depleted inventories. 

The following Chart A is from Sea-Intelligence and shows the Average Monthly Schedule Reliability by Major Container Shipping Line Since January 2020 through March 2021.

Chart A

Note that the Average Monthly Schedule Reliability has steadily declined since July 2020, and while it did increase in March 2021 it was at 40 percent On Time, meaning 60 percent of scheduled container shipments were late – adding to the uncertainty and disruption.

Bicycle Retailer and Industry News ran an article June 11 quoting a Shimano Newsletter announcing the component brands “…Malaysia factory is shut down completely until June 14based on the Malaysian government direction.”  Further, “…So far, the Malaysian government has not informed Shimano what it plans to do after June 15th, so stay tuned.” The reason for Shimano factory being shut down?  The current COVID-19 situation. 

This past week Taiwan announced an alarming increase in COVID-19 cases and deaths, and the spread of the virus into Taiwan’s factories that is threatening to delay shipments that are already behind schedule because of component shortages.

While relatively small, with 23.86 million people, Taiwan is, in many ways, the linchpin in the American bicycle business supply chain, and it is suffering from its first large COVID-19 outbreak.  It is estimated that about 80 percent of the bicycle export business done by China is owned or controlled by Taiwanese companies and brands and this supply chain is already under huge pressure, so any further reduction in supply capacity is going to exacerbate the shortages.

While discussing this situation at the end of this past week the HPS team was informed that a component brand (not Shimano) had just announced a new lead time, out to December 2024 – that in turn was threatening new start-up customers with literally shutting down.

Part of this situation is being driven by both the availability and rising cost of raw material.  On June 2, the Wall Street Journal reported that, “China’s factories are buckling under the weight of rising raw materials prices.”

According to this article, “Some manufacturers are refusing to accept new orders and are even considering suspending operations” and while we could not confirm that any of these manufacturers are in the bicycle supply chain, the article did go on to report that the pressure to suspend operations was the result of, “…the added costs weigh on production and threaten to further strain global supply chains.”

There is no question that many Chinese manufacturers have passed along higher costs to overseas buyers, evidently some are finding it hard to raise prices enough to make up the difference.

The quandary the Wall Street Journal is reporting is just the latest result of COVID-19-led disruptions that have thrown supply and demand fundamentals grounded in Just-In-

Time, or JIT Systems, off balance, triggering shortages in many sectors and soaring prices for many commodities.

From 1990 to 2020 the bicycle industry global supply chain has been focused on improving and refining Just-In-Time, or JIT manufacturing and logistics.  The JIT System was conceived by an American, Dr. William Edwards Deming (October 14, 1900 – December 20, 1993) who was an American engineer, author, and management consultant.  Deming helped develop the techniques still used by the Asian bicycle supply chain manufacturers engaged in exporting their products to the rest of the world.    

Deming is best known for his work in Japan after WWII, particularly his work with the leaders of Japanese industry including Toyota. That work began in 1950 and was soon embraced by Shimano Corporation and spread to the rest of the Japanese bicycle industry and to the Taiwanese and eventually the Chinese bicycle industries.  However, Deming and his JIT System was not known, recognized or taught in the U.S. until the early 1980s. 

At its very best, the JIT System forecasts, purchases, manufactures and delivers on the day and hour that a component is planned and required for assembly of a manufactured product so that it can ship on schedule and be delivered anywhere in the world on the day it is scheduled to ship to a retailer or directly to a consumer.  This is the ideal that was continually strived for, and while not often achieved pre-pandemic, most supply chains came close.

These are the supply and demand fundamentals of the bicycle supply chain that are grounded in JIT Systems that COVID-19 led disruptions have thrown off balance! 

Today, because of the growth of direct-to-consumer and the mind-set of the JIT supply chain, there has been inventory and an on-going demand, in just about every zip code in the U.S. Companies, including bicycle brands and retailers, are struggling with the trade-off between the customer experience and the cost of inventory – in the midst of shortages created by a supply chain that is totally off balance.  

At the OEM side of the supply chain, what is being reported is China’s factory owners hoping that if they delay orders or slow production, they will be able to ride out the present period until commodity prices normalize or global demand for consumer goods cools. 

Assuming that this reporting is at least partially if not totally accurate, this represents a bigger gamble than that taken by the American bicycle importers in reducing order flow in 2019 to minimize the financial impact of the Section 301 punitive 25 percent tariffs.  The end result was a self-imposed shortage of 4.4 million fewer bicycles to meet the increase in consumer demand during the first two quarters of 2020 – when the Chinese OEMs could not increase production to meet the increased orders from the American importers.

The gamble the Chinese factory owners (including those owned or controlled by Taiwanese) are taking now has the immediate impact of more inflation across supply chains, including the bicycle supply chain, right down to the showroom floor and store shelves.  While there is a lot of speculation right now about inflation, the most significant comparison with the consumer price index won’t be available until early next month so we will hold further comment on this topic until the beginning of the third quarter.

Of more immediate concern relative to the U.S. bicycle business supply chain is what logistics experts refer to as the Bullwhip Effect. The Bullwhip Effect (also known as the Forrester effect) is defined as the demand distortion that travels upstream in the supply chain from the retailer through to the wholesaler and manufacturer due to the variance of orders which may be larger than that of sales.

Chart B illustrates the Bullwhip Effect, starting with the Consumer to the left, which is the handle of the bullwhip, or consumer demand.

Chart B
The Bullwhip Effect

The dark lines represent the Order Quantity, and the lighter lines represent the Stock or Inventory in the supply chain, starting with the Retailer, followed by the Wholesaler, or Brand and finally the Manufacturer to the far right. 

What is not shown in Chart B is Component brands and manufacturers who certainly play a key role in the industry supply chain for bicycles and Ebikes to meet consumer demand.

However, Chart B does provide a visual representation of how the Bullwhip Effect manifests itself, moving from the Consume, upstream to the Manufacturer, and the reason why the American brands and wholesalers are doing everything possible to minimize its effect – despite the Supply Chain Nightmare!

The Bullwhip Effect in the supply chain can be reduced through shared knowledge with suppliers and retailers. If members of the supply chain can determine that there is skewed or bad information causing the overreactions, they can be resolved through improved communication and the exchange of accurate and timely information and data. However, this cannot be a one-way street and has to be open two- or three-way communication.

This only serves to emphasize what we have come to realize – 2020 was an Inflection Point!  Economists tell us an Inflection Point Event, like 2020, results in a significant change in the progress of an industry, business or sector and can be considered a turning point after which a dramatic change, with either positive or negative results is expected. 

2021 is truly a Supply Chain Nightmare, but that doesn’t mean the American Bicycle Business cannot quickly learn and adapt to shifts and changes in consumer buying habits and change and modify both the supply chain and supply chain logistics to adapt to consumer wants and needs and turn the Nightmare into a positive result – a dream for the Future!  


[1] Schwinn Bicycle Company established a national network of four regional warehouses from 1964 through 1977 known as Sales Companies that stocked and sold parts, accessories and tires and tubes to Schwinn retail dealers, along with a back-up stock of bicycles and exercisers. So a complete wholesale warehouse structure was already in place when bicycle and exerciser manufacturing converted from domestic manufacturing and build-to-order to foreign sourcing and importing and ship-to-order from 1983 forward. 

2020….A Nantucket Sleighride!

2019 to 2020

2020

…A Nantucket Sleighride![1]

By

Jay Townley

We are at the beginning of the third decade of the new Millennium.  2019 was a year of disruption for bicycle business supply chains, stress on economic systems and uncertainty about sourcing and distribution channels.

2019 was also a seminal year when important new business models, innovations and technology that will influence the future of the American bicycle business and Micromobility emerged, and those focused on Micromobility, as new and separate economic systems. 

All in all, 2019 was not a particularly pleasant experience for the traditional-mainstream American bicycle business, although it was a relatively better business year for the European bike business, and the American bicycle brands doing business in Europe, primarily because of ebikes. It was also a relatively good year for the emerging new economic systems around the world. 

The new decade that starts January 1, 2020, is a leap year and the first time in 60-years that the Gregorian calendar coincides with the start of the 12-year cycle in the Chinese zodiac and the year of the rat, beginning in January with Chinese, or Lunar New Year. 

It is also an election year in Taiwan and America.  The Taiwanese election in January is of importance to the American bicycle business because it is estimated that over half (or more) of current sourcing, primarily in China, is owned or controlled by the Taiwanese bicycle industry.

Early in 2019, as the U.S. – China Trade War was heating up the future of Tsai Ing-wen, the current Taiwanese President was bleak at best.  Nine months later American trade policy and President Tsai’s reshoring strategy have her positioned in most polls to win a second term, although the opposition will probably win control of the legislature.  A second term for President Tsai is projected as generally a win for the American bicycle business supply chain. 

While the Taiwanese election will be over in January, the American election will just be ramping up.  According to The Economist[2], two subjects will dominate social media, news and headlines around the world in 2020: America’s presidential-election campaign and the weakness of the global economy.  Quoting the Economist:          

“Both will induce anxiety, and each will influence the other.  It will be a volatile year, characterized by unstable, angry and polarized politics, and an enfeebled economic outlook for the world, regardless of who wins on November 3rd, when American voters go to the polls.”

America itself has hitherto been least affected by global growth slowing in 2019, and American consumers ended 2019 still confident and ready to spend.

But look for that confidence to start ebbing in 2020, as the stock market stumbles, the fiscal boost disappears and the jobless rate inches upwards.

There is a high probability America will escape a formal recession, particularly since the Federal Reserve will act promptly to reduce interest rates further.  However, the mood in the country will be gloomy as the longest expansion on record slowly comes to an end.

Retail sales of bicycles of all types and 20-inch wheel & larger have been essentially flat in terms of units in the U.S. for the past decade, while retail dollars have increased. 

The Specialty Bicycle Retail, or Bike Shop channel of trade has experienced a decline in the total number of American store fronts, but has maintained retail sales of about 3 million units per year while controlling over half of total retail sales dollars of new 20-inch wheel & larger bicycles.

All indications ten-months year-to-date are that 2019 will be another flat year, with no growth in 20-inch wheel & larger wheel new bicycle unit sales or retail dollars.

This finding is complicated by the imposition of punitive import tariffs on new bicycles and components from China, the source country for most new bicycles and components sold in the U.S. 

Some of the punitive tariffs were passed along to consumers in the form of price increases, and some were absorbed by the supply chain and were not passed along as retail price increases.  Punitive tariffs affecting the American bicycle market started with the application of Section 232 tariffs March 23, 2018, Section 301, List 1 July 6, 2018, Section 301, List 2 August 23, 2018, and Section 301, List 3 on imports arriving after June 1, 2019.

There is a probability that the passing along of at least some of the price increases to consumers has had a dampening effect on the sale of new 20-inch & larger wheel bicycles in the American market through the 12-months of 2019 resulting in another flat to down year in unit volume.  The impact on 12-month YTD 2019 retail dollar volume has yet to be determined and will have to wait for year-end data during the first quarter of 2020. 

The specter of the American stock market stumbling will serve to compound weakness elsewhere in the world as it becomes a reality.

China’s economy will gradually slow further, as its government strains to provide enough stimulus to keep its growth targets in sight.  This will serve to further slow the already contracting retail bicycle market, creating financial strain on the Taiwanese and American brands doing business in the Chinese consumer market.

It appears that Europe will face a particularly difficult 2020 because of the EU’s reliance on foreign demand, particularly from China.  Germany, the largest European market begins 2020 close to recession. 

Britain’s finally reaching a reckoning with Brexit will leave the country divided, and unfortunately damaged and diminished.

This could have a negative impact, slowing the surging ebike sales growth throughout the EU and dampening sales of the Taiwanese and American bicycle brands doing business in European markets.

GDP

Monetary stimulus will help keep global GDP growth at around 3.2% in 2020, just above the 2019 figure. 

America’s Federal Reserve, as noted will cut interest rates to take the edge off a potential slowdown.  China will do the same. 

Overshadowing the business climate will be America’s greater protectionism.  The trade war won’t ease much, and other countries will be under pressure to pick sides. 

In the worst case, tensions between America and China could morph into a global currency war, which would be a bad situation for American bicycle business importers. 

So long as this is avoided, there could be trade growth with Taiwanese and other
Asian bicycle sources able to capitalize on China’s trade difficulties with the U.S.  

Interestingly, much needed infrastructure growth in potential bicycle business source countries like Vietnam could come from China’s “Belt and Road” investment initiative.

Source countries like Taiwan, Vietnam and Cambodia will have to figure out how to position themselves, in trade and technology, between a Chinese sphere of influence and an American one.

American bicycle brands and related products will have to craft strategies incorporating short term initiatives including sourcing, distribution and uncontested market space that support mid and long-term positioning for the future. 

Trade

Although the United States will succeed in signing a Phase 1 mini-deal with China on January 15, the bulk of America’s punitive tariffs on Chinese goods and its growing determination to limit China’s access to American technology will continue. 

This and the lack of detail about what China and the U.S. must do to comply with Phase 1, and the fact that confirming compliance has not been locked down is the “Catch 22”[3] the American bicycle business faces in 2020.      

According to Bloomberg Policy & Politics: “How much Beijing complies with the recent agreement will set the tone for relations in an election year.”  As of this writing China and the U.S. have different understandings of how quickly remaining U.S. punitive tariffs will be removed once a Phase 1 deal is signed January 15, 2020. 

One of the objectives of the U.S. is to greatly reduce the trade deficit with China so that the U.S. sells more to China than it buys.  U.S. Trade Representative (USTR) Robert Lighthizer says that under the Phase 1 deal China will have to double imports of American goods and services.  Additionally, the U.S. is demanding China protect intellectual property and technology transfer. 

The biggest immediate issue for the U.S. Administration will be determining how it will monitor Chinese compliance, and perhaps more importantly, what it will do about noncompliance. 

For the most part the American bicycle business is an interested participant that has limited intellectual property and technology transfer issues with its Chinese supply chain. 

Some of this is because many bicycles and related products are not high-tech, but mostly because the American brands and companies have supplier agreements with the Taiwanese owners or JV partners with manufacturing facilities in China that protect intellectual property and technology transfer under international and U.S. law.

Where the American bicycle business is involved and vitally interested is tariffs, and what punitive U.S. tariffs on bicycles and related items imported from China will be rolled back under the Phase 1 and any subsequent deals.

What has been disclosed so far is that the U.S. is only lowering punitive tariffs from 15-percent to 7.5-percent on the smallest tranche of Chinese goods, which are the Section 301, List 3 imports arriving in the U.S. after June 1, 2019.  This covers primarily bicycle accessory and components and does not cover complete bicycles. 

The U.S. has already announced that in a show of good faith for China agreeing to the Phase 1 deal it has delayed indefinitely the Section 301, List 4 punitive tariffs that were scheduled to become effective December 15, 2019. 

List 4 would have added bicycle related imports from China that were not on Lists 1 thru 3, including lights, helmets, unspecified parts and accessories, apparel and footwear.

The Phase 1 deal leaves in force and effect punitive tariffs imposed and not subject to exceptions or suspension under Section 232 (steel and aluminum) effective March 23, 2018, Section 301, List 1 effective July 6, 2018, and Section 301, List 2 effective August 23, 2018. 

This means that most complete bicycles and ebikes imported into the U.S. from China are still subject to regular and punitive tariffs, with the exception of12-inch, 14-inch, 16-inch, 20-inch and 24-inch wheel bicycles, that were granted and exclusion from the punitive tariffs.  This exclusion reportedly went into effect mid-December 2019 and expires August 7, 2020. 

On December 31, 2019 the USTR announced an exclusion for HTS numbers that when combined with the other 20-inch wheel bicycles excluded from punitive tariffs in mid-December 2019 results in all 12-inch wheel through 24-inch wheel bicycles imported from China being excluded from the punitive tariffs through presumably August 7, 2020.  The USTR also excluded certain bike saddles imported from China. 

The exclusion also stipulated that U.S. importers of 12-inch through 24-inch wheel bicycles and certain bike saddles are entitled to recover the punitive tariffs they have paid on the specific HTS numbers covered in the exclusions.   While the importers are entitled to recover the punitive tariff payments they made, experience indicates that this might be an expensive and lengthy process.

Earlier in 2019 the Administration had granted exclusions to narrow product categories, including some single-speed adult road bikes, some cruisers, carbon fiber frames valued under $600 and some wired cycle-computers.

For China and the American bicycle business the issue of punitive tariffs and the rapid rollback of all these additional tariffs that are both still in force and effect and outside of the Phase 1 deal is of paramount importance. 

As Bloomberg Politics & Policies reports, Beijing is insisting on rapid rollbacks in U.S. punitive tariffs for “simply having reached this deal.”  If this is reasonably factual, this is the issue that will most likely sink the current deal and any hope of a Phase 2, or any comprehensive trade deal with China in 2020. 

The USTR has indicated that the Administration prefers a discretionary approach to lowering punitive tariffs contingent upon commitments made by China being met.  Normally the U.S. and China would agree to scheduled tariff rollbacks based on metrics like performance or time.  The reported lack of a schedule that both sides agree on and adhere to is at the core of the concern about the success of Phase 1.

Assuming no schedule emerges from the January 15 signing of Phase 1, we suggest three date ranges to watch for to gauge the volatility and potential disruptive impact of the trade situation between the U.S. and China for the rest of the year.

  • By early in the second quarter (April to mid-May) of 2020 we should be getting an idea of how well China is following through on its Phase 1 commitments.
  • By the summer and early fall (July to mid-September) we should know without question if China is making acceptable progress on its’ Phase 1 commitments – or not.

By September 2020, if not earlier, the Administration will have to decide between escalating the trade dispute and reigniting the trade war with China – or risk appearing unwilling to challenge Beijing in the middle of an election campaign.

This is because the Administration, and the incumbent cannot afford to be branded “soft on China” by his Democratic challenger.  No Democratic candidate will run a campaign championing a more co-operative strategic relationship with China.  If anything, the pressure to be more aggressive will grow.

Depending on who the Democratic challenger is a destabilizing link between politics and economics could kick-in.  Fearful of a radical overhaul of swathes of American business financial markets may stumble further if, as could be the case, the election seems close. 

There is no question 2020 is going to be a turbulent, disruptive year for international trade and potentially for supply chains built on the principals of globalization, like the traditional, mainstream American bicycle business and its dependence on Taiwan, China and South East Asia. 

Future Trade Probabilities

The two most important trade issues to the American bicycle business going forward from 2020 are:

  • [4] and to decouple from China and other developed production economies and focus on dramatically reducing or eliminating trade deficits by producing and manufacturing more in the U.S. and negotiating bilateral and unilateral[5] trade agreements. 

In 2020 the results of the trade war with China and the national election in the U.S. will either yield a slower and constructive transition away from the old and to the new global economy that will unfold over the next decade, or a more rapid and disruptive protectionist transition that will unfold over the next four to five years and lead to much more pronounced shifts to the new global economy during the second half of this decade.   

Imports from China and any other country will need to be strategically negotiated to minimize the impact of U.S. import restrictions and create collaborations and alliances that take maximum advantage of the new emerging global economy for the purpose of establishing assembly and manufacturing in the U.S. and other target consumer markets around the world with the emphasis on speed to market and gross margin return on inventory and investment (GIMROI)[6]

The current Administration has been straight forward in its promotion of making consumer and industrial goods in the U.S.  Depending on the results of the 2020 and subsequent 2024 and 2028 national elections and the impact of the Climate Emergency on the geopolitics of the U.S., eco-friendly variations and economic options will emerge that combine made and grown locally with global sourcing and collaboration.    

Disruptive Trends in 2020

Trade is obviously the single most important and disruptive issue facing the mainstream American bicycle business and the emerging Micromobility economies, as covered in detail above.

However, there are seven trends that we are following that have or will be disruptive and which we are advising clients to both follow and adjust their strategic business planning to accommodate or take full advantage of.

Ride Share, or Self-Service bicycle rental and bicycle-sharing systems have been gaining ground and expanding in America and are now firmly established as part of Micromobility and the last-mile solution for 200 cities and municipalities[7]

Going into 2020 two trade associations, the North American Bike Share Association (NABSA), www.nabsa.net and the National Association of City Transportation Officials (NACTO), www.nacto.org represent what is projected to be a significant part of a $200 billion to $300 billion Micromobility business in the U.S. by the year 2030.

Chinese dockless ride share brands have come and gone in a blur of 24 to 36 months, but the bicycle ride share economy has been transformed by dockless as well as electric bikes. 

The latest innovation in the form of electric scooters has spread quickly and has been incorporated into most municipal ride-share programs – but not without controversy and rancor on the part of city governments and the public. 

Governor Andrew Cuomo of New York vetoed a bill the end of December 2019 that would have legalized both ebikes and e-scooters, and in the process angered supporters of environmentally friendly last-mile solutions. 

However, Governor Cuomo said he would introduce a similar bill right after the new year – with the safety requirements included that he said were the reason for his veto.

This addresses another issue that the whole bicycle business, including bike ride share faces, and that is rider safety!  Governor Cuomo wants a requirement that riders of battery powered conveyances wear helmets, which is similar to what the National Transportation Safety Board recommended in its November 2019 Safety Research Report on Bicyclist Safety. 

E-scooters have been quickly adopted by the Micromobility ride share business and many municipalities as “battery powered conveyances” and while there is still a great deal of controversy the traditional mainstream bicycle business and NABSA representing the new Micromobility economy have jointed together in advocating that e-scooters be included within the definition of ebikes, and in some states, bicycles.

The traditional, mainstream bicycle business, or the old economy, has been tracked at a total annual retail revenue of $6 billion for the better part of the last decade. 

Micromobility in America essentially took root with the 4 to 5 bike ride-share systems in 2010, defined by NACTO as having at least 10 stations with docks and 100 ride-share bicycles. By 2018 NACTO reported 55 bike ride-share systems with at least 10 stations and 100 ride-share bicycles from which people took 28 million trips.

As already noted, Micromobility is projected to be a significant part of a $200 billion to $300 billion business in the U.S. focusing on sustainable, environmentally friendly transportation connecting the first and last mile of, or completing journeys to work, school, shopping by the year 2030. 

The brands, companies and investors already involved in Micromobility, or the new economy, except for B-Cycle which is owned by Trek, are not from or involved in the old economy, and include:

            B-Cycle founded in 2008 and owned by Trek Bicycle Company

            Motivate founded in 2009 and owned by Lyft

            Jump founded in 2010 and owned by Uber

            Lime Transportation Company founded in 2017 private, largest investor Alphabet

            Zagster founded in 2007 private

            Spin founded in 2017owned by Ford

            PBSC Urban Solutions founded 2008

Specialty Bicycle Retailer, or bike shops have the best current opportunity to become involved in the bike ride share portion of the new Micromobility business economy by offering rentals, including renting an ebike with the rental fee applied to an eventual purchase.

Also, bike shops and brands have already started to lease both high-end bicycles and ebikes, which could become the preferred way of acquiring access to, but not actually owning going forward into the new decade.

We are rapidly heading toward a time when bicycle advocates will finally achieve what they have desired since the end of World War II.  There will be more Americans riding bicycles and other forms of human powered transportation. 

Thanks to Micromobility and bicycle ride share, bicycle ridership and participation including ebikes will reach double the incident rates of 2019 during this decade, but at the same time retail sales of bicycles will be flat to declining! 

The bicycle business trade associations will need to change the metrics used to measure success.

There are many factors that have triggered a renewed interest in, and are increasing sales of Electric Bicycles in the U.S., including the rapid deployment of ebikes in bicycle ride share fleets, and the aging of the population coupled with the desire of aging baby boomers to be mobile while growing healthier and living longer.

Some combination of these demographic changes is highly likely to trigger the next surge in the sale of electric bicycles, which didn’t emerge as strongly in 2017 or 2018 as originally thought – but will take off as a part of the future Micromobility movement.   

 In 2018 ebikes were the strongest selling retail category in the bike shop and specialty outdoor channels that together accounted for 19-percent of all new bicycles sales and 63-percent of annual new bicycle direct effect retail dollars.

The U.S. bicycle market is much different than the European bicycle market that it is often erroneously compared to.  With this said, ebikes will grow to become a major product segment in the American bicycle business, but we seriously doubt that it will gain the market share realized in bicycle friendly countries like Holland and Germany.

As already noted, in the month of July 2018 a trade war that erupted between the U.S. and China, the source country for a very high percentage of compete ebikes and ebike motors sold in and used to fabricate ebikes assembled in the U.S.

On August 7, 2018 the United States Trade Representative announced that the round of tariff increases that included ebikes and ebike motors had been approved.

This meant that tariffs on electric bicycles imported under Harmonized Tariff Schedule (HTS) headings 8711.60.00 or 8711.90.01 increase from zero to an import tariff of 25 percent.

Tariffs on e-bike motors imported under HTS heading 8501.31.40 increased from four percent to 29 percent. The tariffs went into effect on August 23, 2018 and are still being imposed and collected as of January 2020 and are not anticipated to be changed by signing of the Phase 1 trade deal between China and the U.S. January 15, 2020.

The impact of the 25-percent tariff is being felt in consumer pricing as ebike brands decide if they will absorb all or a portion of the increase in their cost, or pass some or all of the increase on to retailers and consumers in the form of price increases.

Despite this dampener, the natural growth trends for the ebike market in the U.S. remain positive and the probability of substantial growth going forward remains high.

All significant bicycle brands have added ebikes to their lines, including the high-end Trek, Specialized and Giant road and MTB offerings for 2020. 

Brands and all channels of retail can benefit by adding ebikes and related accessories including replacement parts and service. 

Demographics and the resulting changes in purchasing behavior, including the preference of younger consumers not to “own” assets and things will make rental and leasing options popular.

As the Circular economy expands there will be a growing market for used ebikes and refurbished lithium-ion batteries. 

The trade associations will need to consider including segmented and category definitions for ebikes to insure proper gathering of retail sales data for analysis.  Ebikes are now designed and available in the Road, MTB and Lifestyle / Leisure product categories and are quickly becoming an option within categories and not just a category choice. 

Internet and Retail are now intertwined.  Bricks-and-mortar retailers will struggle in the face of relentless competition from the likes of Amazon.  The situation is particularly dire in America where more than 12,000 stores faced extinction in 2019[8] and the number could rise as the economy slows in 2020.

Rising political uncertainty and changing consumer tastes will put the brakes on retail-sales growth globally, which is forecast to drop to 2-percent in 2020.

As online shopping increases, e-commerce revenue in the U.S. is forecast to increase to $120 billion in the coming year. 

Walmart, the largest employer in the U.S. and the county’s largest retailer of bicycles is reaping the benefits of making a substantial strategic investment in growing its online retail business which will thrive in 2020 despite being challenged by Amazon. 

Specialty bicycle retailers can gain the advantage over their online competitors by becoming omnichannel and developing a retail methodology that integrates the personal touch that can customize products and service to an individual customer while using 24-7 availability as a tool in creating a sticky third place that is valued in their community.

Also, the purpose of retail stores is changing and BOPIS, or buy online, pick-up in-store has gained a lot of traction and is a hot trend that bike shop and other specialty bicycle retailers can take advantage of as a key component of omnichannel strategies.

The specialty bicycle retail supply chain needs to focus on collaboration and shorting time to market and enhancing gross margin return on inventory up and down the supply chain.

The mass merchant and full-line sporting goods channels will experiment with sales of ebikes and leasing to attract up market consumers to relatively high-priced ebike products as the middle-class consumer continues to decline.

As American consumers become environmentally conscious adapting a Circular business model will become particularly viable for bike shops and specialty bicycle retailers.

Climate Emergency is what Climate Change and Global Warming were called in the last decade! 

Use of recycled materials and formal and proactive recycling and sustainability and the effect on the Climate Emergency is going to become increasingly important to consumers – and will be an important piece of strategic planning and sourcing tactics for manufactures, brands, distributors and retailers. 

Greta Thunberg and the Climate Strike movement have gained the attention of activists of all ages around the world, and the Climate Emergency is rapidly finding its way into global geopolitics.

The Climate Emergency will become a major factor and will be debated as a policy plank by the time the Democratic and Republican conventions roll-around this summer.

Candidates from both parties will be confronted by young people leading voters of all ages in demanding promises and pledges to be proactive and take immediate action concerning all the issued surrounding the climate and the environment.

Companies, brands and retailers are going to have to decide if they get actively involved, one way or the other, or try to stay on neutral ground and take no active position.  This will have to be a strategic and a moral decision that will be scrutinized by more than the board of directors for the good of the company and brand, because in the Internet age such decisions will be judged by its employees and its customers. 

The mainstream American bicycle business and the Micromobility economies will be impacted as the Climate Emergency and its weather events restrict the ability and desire of customers and consumers to ride and exercise outside.

Smart Trainers and Indoor Cycles have come into their own, partly because of the Climate Emergency and partly because fit athletic bicyclists are time starved and want an efficient and stimulating experience from each riding session.  The endorphin rush is no longer good enough! 

In 1990 trainers were primarily rollers and stationary exercisers.  At the beginning of the new millennium indoor trainers had evolved to wind, electric and hydraulic resistance and robust frames that could be used by amateur and professional bicyclists to warm up before a race. 

Over the last twenty years rollers have become old school and are rarely used, while trainers have become more sophisticated, spanned a whole new generation of Indoor Cycles from unplugged trainers with no electronics or connectivity to sophisticated electronics that can use an App to micro-adjust the fit to match the riders bicycle, replicate the riders shifting and transmission system, monitor full body function throughout a ride, measure work and connect through the Internet to high quality virtual reality riding scenarios and competitive environments with other riders from around the world.

And online providers of ride and race software like Zwift, Rouvy, The Sufferfest and TrainerRoad have formed marketing alliances with Smart Trainer and Indoor Cycle brands like Saris, Wahoo, Stages and Wattbike.

This segment of indoor cycling has gone from an accessory to a full-blown category with at least three distinct and definable product segments.  The bicycle business trade associations will need to modify the criteria for collecting retail sales data to include:

  • Unplugged indoor trainers to accommodate a bicycle
  • Plugged-in indoor trainers with connectivity to the Internet to accommodate a bicycle
  • Indoor Cycle that adjusts to an individual bicycle with connectivity to the Internet and duplicates a complete riding experience while plugged into ride simulation software.

Zwift has raised millions with the goal of having virtual racing become a professional sport – and even an Olympic event.  In September of 2019 Zwift signed an agreement with the International Cycling Union (UCI) to hold the first virtual Cycling Esports World Championships in 2020. 

There will be rapid growth of the Indoor Cycle segment of this multifaceted category and the top-end Indoor Cycling segment features retail price points from $1,500 to $4,000 and subscription-based ride and race software.  Look for one or more top tier bicycle brands to enter the segment with Indoor Cycles.

REI, the leader in the Specialty Outdoor retail channel is already a national retailer of the Wahoo Indoor Cycle and other Specialty Retailers, including Bike Shops have an opportunity to expand their representation of this emerging and evolving category.

The Summer Olympics in Tokyo will generate interest in all the Cycling Events, including BMX and the Sport of Cycling is going to get a boost through exposure to a broader global audience that is huge compared to the TV coverage the Tour de France and other Grand Tours get in the middle of the night – the Summer Olympics will get prime-time coverage.

Rock climbing, skateboarding, surfing and karate have been added as Olympic sports, and baseball and softball are returning to the games after 12-years.  These new “sports” along with the return of several old favorites and the continuation of young and old cycling events will help attract an audience in the U.S.

There is also the technology!  Beyond the avid cyclists, a wider audience of Americans will be interested in watching the technology from the UK and Australia that is being hyped now and will be covered by the news media for the six months leading up to the summer games.

BMX is already the leading sports related activity in the American bicycle market and as noted, it should get a nice up-tick from Olympic exposure – along with the track events where a lot of the new technology will be showcased up front and personal.

Bike shops and Specialty Bicycle Retailers have a golden opportunity to promote and host Olympic viewing events at their stores through the summer Olympic cycling events.

Technology and innovation go beyond the summer Olympics and Bosch will be hyping its Smart Glasses at the Consumer Electronics Show, or CES that starts January 10 in Las Vegas. 

We are also confident that Bosch will feature it new technology, including it Smart Glasses at the CABDA Trade Show in January, February and March.

3D printing has been a topic covered in our predictions about future technology for five years or more, and 2020 will be the year that 3D produced products have found their way to the bicycle business.

HEXR has introduced a fully custom bicycle helmet that is manufactured through a 3D process of printing from a unique headscan. 

Specialized and Italian brand Fizik have both introduce adaptive bike saddles utilizing a 3D printing process called digital light synthesis to build an individual saddle that can have varying densities of cushioning depending on what the rider prefers.

We believe this is just the start, and 2020 is the year that technology will be introduced in several categories of componentry and accessories, including communication and connectivity.

Pollution and air quality issues will drive purification and filtering systems for cycling helmets.  Safety will bring motorcycle clothing-airbag technology to bicycling along with enhanced reflectivity and innovations in active lighting, sensors and braking.    

This concludes our introduction to 2020 and our recommendations and insights for the coming year.  If you have questions or comments, please email jay@humanpoweredsolutions.com

Thank You and Enjoy the Future!


[1] I am opposed to all forms of whale hunting, but historically, a “Nantucket Sleighride”is an archaic term from the early days of industrial whaling, when the animals were harpooned from small open boats. Once harpooned, the whale attempts to flee, but the rope attached to the harpoon drags the whalers’ longboat along with it. The term refers to NantucketMassachusetts, the center of the American whaling industry; as well as the speed associated with riding in a horse-drawn sleigh. A Nantucket sleighride was extremely dangerous.

[2] The Economist: The World In 2020, on display until 2/18/2020

[3] A Catch-22: is a dilemma or difficult circumstance from which there is no escape because of mutually conflicting or dependent conditions.

[4] Globalization In Transition: The Future Of Trade And Value Chains published in January 2019 by McKinsey Global Institute

[5] A unilateral trade agreement is a commerce treaty that a nation imposes without regard to others. It benefits that one country only. It is unilateral because other nations have no choice in the matter. … Another type is a bilateral agreement between two countries.

[6] See Human Powered Solutions White Paper: Globalization and Global Trade are in Transition, not decline

[7] Reported by NABSA

[8] The Economist World In 2020 edition, page 115.

Micromobility Is the Future!

picture of micromobility

Micromobility is already disrupting the automobile industry and has started to disrupt transportation and transport and is contributing to the disruption of the America bicycle business. 

What Is Micromobility?

It is currently defined as urban transport in sub 500kg (1,102.3 pound) vehicles, that are human-powered, electrically assisted or electrically powered.

2018: The Year of Micromobility

During 2018 the American bicycle business and related industry changed profoundly as the economics of the traditional business were disrupted in part by the larger transportation and mobility sectors as they evolved and focused on Micromobility.  According to the National Association of City Transportation Officials (NACTO):

  • Micromobility offers some of the best city-based transportation mode options because they are the fastest way across town and can be parked just about anywhere.

Dockless pedal (non-electric) ride share bikes, which rapidly spread like wild-fire across the U.S. in 2016-2017 – have largely disappeared from American cities, with just 3 million trips in a handful of cities in 2018.

Electric bikes emerged as a popular option, accounting in 2018 for 6.5 million trips, 6 million in dockless systems and 500,000 in station-based systems.

What is Shared Micromobility?

According to NACTO Shared Micromobility “…encompasses all shared-use fleets of small, fully or partially human-powered vehicles, such as bikes, e-bikes and e-scooters.” All fit inside the definition of Micromobility that we presented previously. 

Uber, Lyft (automotive ride share) and Ford (automotive) have all made recent acquisitions in Shared Micromobility and Bosch (electric bicycle), along with Jump, owned by Uber, Motivate, owned by Lyft, BCycle owned by Trek are all members of the North American Bike Share Association (NABSA).

In 2018, Americans took 36.5 million trips on station-based bike share systems and as we have already referenced, 38.5 million trips on shared e-scooters.

Why Micromobility?

Micromobility services offer a tantalizing solution to address the first mile/last-mile problem and an opportunity to shrink transit deserts (neighborhoods underserviced by public transit services); limited survey data suggests that support for e-scooters tends to be highest among lower-income users.  

But Micromobility’ s potential extends well beyond connecting people to mass transit. More than half of the car trips taken annually in the United States cover less than five miles (8 kilometers), making those journeys open to short-range alternative modes such as e-scooters, bicycles and e-bikes.  

Micromobility investor and evangelist Oliver Bruce estimates that more than 1.4 trillion miles of annual US passenger travel—and more than 4 trillion miles globally—could be converted to Micromobility modes, an addressable market potentially worth hundreds of billions of dollars.

Micromobility rapidly attracts cash and customers

According to McKinsey, Micromobility has already attracted a strong customer base and has done so roughly two to three times faster than either car sharing or ride hailing. In just a few years, for instance, several Micromobility start-ups have amassed valuations that exceed $1 billion.

Two circumstances have driven this accelerated expansion:

First, most launches of shared Micromobility take place in conducive environments.

Micromobility appears to make people happy—it’s faster than car-based trips in many situations, and users often say the freedom of being in the fresh air traveling to their destinations while avoiding traffic jams puts a smile on their face.

Second, the economics of shared Micromobility are largely favorable to industry participants, generally ensuring lower break-even points.

Companies find it much easier to scale up Micromobility assets (for example, electric bikes) compared with car-based sharing solutions.

How big is the market?

McKinsey modeled the baseline shared Micromobility market and created a forecast, which revealed a 2030 market potential of roughly US$200 billion to US$300 billion in the United States, US$100 billion to US$150 billion in Europe, and US$30 billion to US$50 billion in China.

Growing the shared Micromobility market

While the base case represents a healthy market, the question arises: What is needed to grow the shared Micromobility market into a truly disruptive trillion-dollar business?

For this market potential and mileage cannibalization to become a reality, cities need to support shared Micromobility proactively. 

Whether the disruption Micromobility causes matches the hype generated so far will largely depend on how cities react to the service.

While the industry is hoping urban governments view Micromobility favorably as an antidote to congestion and pollution, and a way to provide consumers with an enjoyable alternative to gridlock, cities could instead see it negatively.  In fact, some anecdotal evidence of the latter has already surfaced.

So, in addition to building their businesses, Micromobility players will likely have to take proactive roles in lobbying for and shaping the industry in key urban areas.

What about the traditional, mainstream American bicycle business?

Growing Micromobility to its full market potential will also require an increase in the use of individually owned and individual investment in human powered transportation including bicycles, electric assist bicycles, electric scooters and light electric vehicles of all types.     

Electric bicycles represent one of the connectors for growth

Electric bicycles represent one of the connectors between the traditional mainstream American bicycle business and the emerging Micromobility ecosystem.

The reason: E-bikes are simply easier and more fun for people to ride. The extra push from a motor makes previously unconquerable hills manageable, and for people with mobility issues, older residents, or those who have not biked in a long time, the assist makes cycling more accessible.

Electric bikes also are effective in closing the distance between the “enthusiast cyclist” commuter set (typically fit, middle-age men who commute in spandex) and people who just want a reliable, efficient and environmentally friendly way to get around their city.

The bottom line – a broad range of people like electric bicycles.  Accordingly, they represent potential growth for the American bicycle business.

Bicycling Advocacy – disrupted and improved by Micromobility

For the last decade Federal funding for bicycling has averaged about US$800-US$880 million per year with projects ranging from trails to bicycling paths and designated lanes in cities. 

These funding levels were generally considered minimally acceptable by the traditional mainstream American bicycle business trade and advocacy associations – but are being challenged as not being adequate to sustain and grow the Micromobility movement in American cities. 

There seems to be agreement among the large consulting firms in McKinsey’s finding that: “…in addition to building their businesses, Micromobility players will likely have to take proactive roles in lobbying for and shaping the industry in key urban areas.”  

Accordingly, it also seems obvious that the issues of overall safety, accessibility and connectivity will require the Micromobility providers of the first mile/last-mile solution to become actively involved in bicycling and pedestrian Advocacy relative to cities.

It is both logical and inevitable that the traditional American bicycle business and the new Micromobility ecosystem will come-together to advance their mutual interests under the Micromobility banner and expand the bicycling, electric scooter and pedestrian access, connectivity and safety first-mile/last-mile network throughout American cities and suburbs. 

A reminder that America is not Europe

There has been a tendency over the last two decades to look to Europe as the example of what bicycle riding facilities and participation can be in both the short-and-long term future in America. 

The conventional wisdom that persists is that electric bicycles, or ebikes will be accepted and adapted by Americans in the same way they have been in Europe, where the category has grown over the last ten years to become the dominant category in the European market.

While we agree that there is little doubt that electric bicycles will be accepted and will grow substantially in the American market, it will take more time and there are and will be different reasons and motivations for market acceptance than has been experienced in Europe, and will be much more dependent on the connections and boost given by Micromobility. 

The role of technology

The rapid rise of Micromobility in the U.S. simply would not have been possible or be viable going forward without technology and specifically hand-held phones, cell technology and Apps.

By the beginning of 2019 shared Micromobility technology had expanded to include the latest in docking technology and communication, new dockless technology and Apps, new e-scooter dockless technology and Apps and electric bicycle options for both docking and dockless systems – all with either server based or cloud based data collection and storage and AI analysis. 

Ride share bicycles and scooters have driven the rapid development of a range of technology that will continue to evolve, and will have an impact on the development of both smart bicycles and the next generation of componentry for individual bicycles and electric bicycles that will contribute to the growth of Micromobility.

The future

Micromobility in form, function and definition didn’t exist 48-months ago.  It may not exist 48-months from now…but it already has – and no matter what it is called in the future – will continue to disrupt the establishment and the traditional channels of trade and advocacy. 

Human movement and transportation will continue to evolve and change and will be served in some way, shape or form.  Human Powered Solutions will be riding the wave, and whether it is Micromobility or its off-spring or replacement HPS will enjoy, participate, report, analyze, inform and advise its clients and fellow travelers in our community of interest. 

Look to The Future! 

Note: A Micromobility White Paper is available as a PDF file from this website.