THE HPS FEBRUARY LETTER: FEAR-MONGERING, JOURNALISTIC MALPRACTICE, A WELCOMING SMILE, AND MORE

01-02-24: “2024 will mark the end of the post-pandemic economy.” Bloomberg Opinion: “Economists did not believe it was possible, but they’ve been wrong a lot lately, and in their defense, it has only ever happened once (or maybe twice) before: We may be witnessing that rare achievement known as a soft landing. The U.S. Federal Reserve’s latest forecast expects the inflation rate to slide back down to 2 percent without much job loss or economic slowdown. But before we celebrate this bravura monetary performance, or decide unemployment and growth aren’t sensitive to inflation or interest rates after all, allow me to offer two observations, one looking backward and one forward. First, the last few years have been highly unusual. Second, this year will mark the end of the free-lunch economy. The post-pandemic economy was marked by several unlikely factors. Shortages coming out of the pandemic sparked inflation, which was then exacerbated by unnecessarily expansionary monetary and fiscal policy. Just as the economy was poised to recover, in other words, policymakers gave it rocket fuel. All that stimulus money increased household savings. Savings-rich households kept spending, and firms desperate for workers faced an exceptionally tight labor market. Meanwhile the Fed not only pursued nominal zero rates, it tried to bring down longer-term rates and mortgages, and did so well after the pandemic had ended. The result was that even as rates increased, the economy stayed somewhat resilient. During the long period of low interest rates that preceded the post-pandemic, many firms, investors, and households locked in low rates. Thus they were relatively unaffected by rising rates. Now, as we head into 2024, it’s increasingly clear that America has spent its post-pandemic dividend. Households in the bottom half of the income distribution don’t have so much extra savings, and some are even going into debt. Debt-dependent firms and investors are approaching their maturity wall and have to refinance at a higher rate soon. HPS Analysis: What will follow the end of the post-pandemic economy? We have speculated about this for several years now, and in part the era we are entering will be defined by the maturity wall debt-dependent businesses face, and will either have to refinance at higher rates, become zombies, file for Chapter 11 protection while restructuring, or liquidate. Businesses that are not now debt-dependent will look to a future where making a net pre-tax profit will be dependent on managing their cost of doing business and not selling anything below their cost of doing business, including service labor. This is eminently doable but does mean some in the bicycle business will have to rethink their business models, including embracing the fact that their business is the brand. This is particularly important for bike shops to think through.

01-02-24: “China’s Xi Jinping warns of economic ‘winds and rains’ as recovery disappoints.” The Wall Street Journal: “Chinese leader Xi Jinping urged his countrymen to brace for more economic challenges in the year ahead, sounding a cautious note as a string of weak readings highlights the many headwinds facing the world’s second-largest economy. ‘On the path ahead, winds and rains are the norm,’ Xi said in a New Year’s Eve speech to the nation on Sunday, promising more efforts to shore up growth and address concerns over jobs and the cost of living. ‘Some companies are facing business pressures and some people are running into difficulties finding jobs and in their daily living.’ Xi’s remarks came hours after Beijing published data that offered fresh signs of weakness in the Chinese economy, piling pressure on the government to take bold new steps to fire up growth in the coming year. Official surveys released on Sunday suggest factory activity slid deeper into contraction in December, owing to thin order books at home and abroad, while the services sector struggled as consumers kept a tight leash on spending.” HPS Analysis: We have tried to inform our readers about the importance of the Chinese bicycle consumer market to the multinational bicycle brands and the global market. The quarterly financial reports of the public bicycle companies have reinforced our assumption, and while we still don’t know the exact amount of business being done in China, we do know it is substantial. Since China is the second-largest global economy, we think it is logical that it is the second-largest market for many of the multinational bicycle brands. A warning from the Chinese leader about ‘winds and rains’ in the Chinese economy in 2024 does not bode well for the financial reports from the multinational bicycle brands.” Note: HPS uses the U.S. CPSC definition of a “bicycle” as found in 16 CFR 1512.

01-03-24: “These are the five potential trouble spots that could knock the global economy off course.” Bloomberg: “The global economy was tested in 2023 as it rarely has been before: inflation and the most aggressive monetary tightening campaign in decades, wars in Europe and the Middle East, a festering real estate crisis in China, and the deepening rivalry between Washington and Beijing, which is forcing companies to rethink supply chains and security.” “The International Monetary Fund forecasts global growth of 2.9 percent in 2024, a whisker below last year. With two wars raging and some 40 national elections on the calendar, political developments will shape the year, especially as Donald Trump makes a go at winning back the presidency. But crucial economic stress points could upend the benign outlook.

  1. Will the American consumer capitulate?
  2. Can Beijing keep a lid on the housing crisis?
  3. European laggard
  4. Japan’s risky exit from negative rates
  5. Can India live up to its promise?”

HPS Analysis: We don’t often stray into the weeds of politics, wars, and international economic pain points, but the five trouble spots that Bloomberg has identified as having the potential to knock the global economy off course got our attention. We think the top three are of most interest to the global bicycle business. Number 1. “Will the American consumer capitulate?” The whole point of the Fed’s efforts to cool down Inflation impacts American consumers, and the difference between a recession and a soft landing will depend in great measure on how the job market holds up. The Fed’s latest projections see the jobless rate climbing to 4.1 percent by the end of the year. Unemployment claims, published weekly, are a leading indicator of labor market softness and should be watched closely. Number 2, “Can Beijing keep a lid on the housing crisis?” The world’s second-biggest economy is in the midst of a multiyear slowdown. Nomura Securities Co. estimates that 20 million apartment units were presold for which construction has been delayed or hasn’t started. Top officials have pledged to prevent a cascade of debt defaults by developers that will engulf the banking sector, and this may be the year of a full-blown government bailout. Number 3. “European laggard” refers to Germany being the worst performer among major economies in 2023. Higher energy prices and tight monetary policy, coupled with weaker global demand for its exports, caused a slight contraction in gross domestic product for the year. Germany is the largest bicycle market in the EU. China is an important market to the global bicycle business as is the U.S., meaning that the first three of the potential trouble spots are very important to the bicycle industry.

01-04-24: “Wall Street’s ambitions in China run into a rising firewall.” Bloomberg: “One of Wall Street’s biggest banks stopped briefing the head of its subsidiary in mainland China on sensitive company strategy, so the government can’t easily eavesdrop or demand details later. At nearby outposts for other U.S. and European banks, executives are spending tens of millions of dollars to locally house financial data and set up on-site internal controls. Some units are even looking at reshaping balance sheets to stand separate from parent companies. Those are just some of the many behind-the-scenes machinations taking place inside the Chinese arms of global financial firms as they try to navigate heightened tensions between the world’s two largest economies, as well as new rules in the name of national security. JPMorgan Chase & Co., Morgan Stanley, and HSBC Holdings Plc are among a long list of banking behemoths that have deep ties and long histories in China.” HPS Analysis: This is very disruptive to the Wall Street powerhouses who back in 2020 benefited greatly from China ending an era of frustration for global investment banks by loosening rules to let them take full control of the joint ventures they had set up with local partners in China. Western bank leaders had hoped to integrate their joint ventures into their mainstream businesses to compete harder for deals and trading in China’s growing economy. Four years later, their big banks’ local outposts are being left as underdogs against China’s domestic giants.

01-05-24: “U.S. unemployment has been under 4 percent for the longest streak since the Vietnam War.” National Public Radio: “The U.S. job market held up well in 2023 despite rising interest rates. Employers added 2.7 million jobs last year and unemployment remained under four percent throughout the year. The U.S. job market capped off a strong year in December, as employers continued hiring at a solid pace. Employers added 216,000 jobs last month, according to the Labor Department. The unemployment rate held steady at 3.7 percent. Unemployment has now been under four percent for almost two years, the longest streak of rock-bottom jobless rates since the Vietnam War.” “December’s job gains were concentrated in government and health care. Retailers added 17,000 jobs, suggesting a solid finish to the holiday shopping season.” HPS Analysis: As HPS understands the economic dynamics at play. U.S. unemployment being “under 4 percent for the longest streak since the Vietnam War” is the primary reason many economists are predicting a soft landing, as inflation edges toward two percent and the country avoids a recession. It is also an important factor in the probability that the bicycle business could see a modest increase in unit volume in 2024 over 2023. There is still a great deal of uncertainty, with the biggest unknown being consumer demand for sporting goods and specifically bicycles in Q2 and Q3 of the 2024 season.

01-05-24: “A major Chinese shadow bank has filed for bankruptcy on the grounds it was unable to pay its debts.” BBC: “On Friday, a Beijing court accepted the application from Zhongzhi Enterprise Group (ZEG), which has lent billions to real estate firms. Chinese officials launched an investigation into ‘suspected illegal crimes’ against the firm in November. It followed reports that ZEG had declared it was insolvent. The struggling group reportedly told investors in a letter in November that its liabilities – up to $64bn (£50.6bn) – had outstripped its assets, now estimated at about $38bn.” “ZEG is a major player in China’s shadow banking industry, a term for a system of lenders, brokers, and other credit intermediaries who fall outside the realm of traditional regulated banking.” HPS Analysis: First, please do not confuse Zhongzhi Enterprise Group (ZEG) with ZEG, the large European bicycle dealer cooperative, ZEG. Second, the shadow banking industry is also well-established in Europe and North America. It is unregulated, as it is in China, and is much more willing to take financial risks in return for much higher interest rates on loans compared to the regulated banking sector. This may not be quite the white-collar version of a loan shark, but it does show the desperation of some of the Chinese real estate firms.

01-05-24: “Yellen declares U.S. economy has achieved soft landing.” Bloomberg: “Treasury Secretary Janet Yellen declared Friday that the U.S. economy had achieved a long-sought soft landing, a historically unusual event in which high inflation is tamed without significantly damaging the labor market.” “Government figures out earlier Friday showed job gains and wage increases in December both exceeded expectations. The report, which suggested continued upside for inflation, prompted investors to trim bets that the Federal Reserve would begin cutting rates in March.” “Yellen zeroed in on the latest wage data, which showed average hourly earnings rose 4.1 percent in the year through December. Given consumer inflation for the year is projected by economists to come in at 3.2 percent, that would mean wages exceeded price growth in 2023.” HPS Analysis: Treasury Secretary Janet Yellen is a respected economist. Two years ago she consistently rejected the gloomiest predictions for the U.S. economy, even as the central bank pursued an aggressive rate-hiking campaign through 2022 and 2023. While never ruling out a recession, Secretary Yellen said she saw a so-called soft landing for the U.S. economy. HPS appreciates her optimism. She has been mostly alone in declaring a soft landing, although several well-respected economists have also opined that the U.S. economy is on the cusp of a soft landing, which will be generally good news, bringing one certainty to an uncertain 2024.

01-08-24: “Vosper: compared to last year, 2024 doesn’t look so bad after all.” Bicycle Retailer and Industry News: “It’s been a tough year for a lot of people, both suppliers and retailers. If you’re one of the businesses that did well in 2023, congratulations, and more power to you. As for the rest of us (you know who you are), there’s some relief to be found in knowing 2023 is finally behind us. To get a sense of what happened on a nationwide basis, I reached out to Patrick Hogan, senior research manager for the PeopleForBikes Coalition. ‘2023 (consumer bike) sales have been at an all-time low for 20 of the last 24 months,’ as measured through Circana (formerly NPD), Hogan told me. ‘We’ve seen a steady decline in unit sales for adult non-electric bikes. Units have historically ticked down, while dollars tick up as the price tags get higher every year. This is especially true as more and more e-bikes enter the product mix.’” “The year is projected to come in at 12.8 million units, he says, for specialty and mass channels combined, a number that does not include the growing category of consumer-direct sales, which leaves out a huge piece of the e-bike market. In fact, it’s the weakest year for bike sales since PFB began keeping track of that data in 2015. Combine all-time low sales with all-time high product inventories, and it’s made for a 12-month series of body blows to many in the industry.” HPS Analysis: Rick Vosper has done his usual excellent job with this article. Patrick Hogan and PeopleForBikes (PFB) have provided all the data that is required to get a really good picture of the past year, and the decade from 2015 through 2024 based on the Global Risk and Opportunity Forecast as produced by S&P Global for PFB. But therein lies the rub. The first thing that jumped out at me was “… the weakest year for bike sales since PFB began keeping track of that data in 2015.” 2023 was most certainly a weak year for bike sales, but there are good, accurate bike sales figures readily available going back to the 1950s. The second thing that jumped out to the point that I stared at off and on for about a week, is the bar chart in the article (see below). I talked to a friend who works on bike industry data in Europe, and he mentioned the same thing I did. Both of us stared at and studied this bar chart and then did a rough trend analysis. In my uneducated but experience-based opinion, this would have been a better and perhaps a tad more credible forecast if it had been based on 20 or 30 years of sales history, which is still available.

01-15-24: “No, e-bike fires are not a ‘leading cause of death’ in NYC.” electrek: “It’s a new year and yet we’re facing the same old problem as last year: electric bike fear-mongering from irresponsible journalists painting an overblown risk of e-bike fires. This time we’ve got a doozie of a headline from Men’s Journal: ‘E-bike batteries a leading Cause Of Death in NYC.’ “The only problem is it’s wrong. As in, completely wrong. The premise is not even close to aligning with reality. This isn’t to say that fires from improperly constructed or tampered with electric bike lithium-ion batteries are a non-issue. It is an important matter requiring increased regulation, something NYC has already begun. The issue is a fatal one, even. New York City saw at least 17 deaths last year from fires started by faulty lithium-ion batteries. It’s worth noting that many, if not most, of these fires aren’t actually caused by e-bike batteries but rather electric scooters and e-motorbikes that firefighters don’t understand and thus lump into the e-bike category. But that’s a nuance lost on most people so we’ll ignore it for now and include all micromobility-related fires. Every one of those 17 deaths last year is a tragedy. And increased regulation to weed out the ultra-cheap, poorly made e-bikes can help. But to call it a “leading cause” of death in NYC is journalistic malpractice. In fact, in all of my extensive research, I can’t even tell you what rank it is because it is so far down the list of leading causes of death in NYC that the statistics don’t even go that low.” HPS Analysis:  Micah Toll, author of this electrek article is right on. The media is guilty of “journalistic malpractice” and “fear-mongering” if it over-hypes the actual risk, and ignores the legitimate New York City education campaign about the risks and dangers of non-complying lithium-ion batteries for micromobility devices, like e-bikes and e-scooters. What the Fire Department of New York has been saying is that lithium-ion battery fires are tragically causing fire deaths, but that the fatalities attributable to these fires can be reduced with community education and understanding of both the dangers and best practices for managing the hazardous, noncomplying lithium-ion batteries now in the hands of consumers, including recycling and getting them out of the public domain. (For reference, there were reported 386 deaths by homicide in New York in 2023).

01-16-24: “Scott Sports next to get multi-million loan from owner.” Bike europe, SEOUL, South Korea by Jo Beckendorff: “Scott Sports owner Youngone Corporation has granted its subsidiary a temporary financial injection of SFR 150 million (€160.6 million). The high inventory level throughout the bicycle sector is tying up so much capital that even profitable companies like Scott Sports are in urgent need of capital to continue their daily operations.” “According to the official Youngone statement, the loan will be used to support the company’s working capital, including the payment of the salaries of Scott Sport employees. Youngone has also appointed a dedicated controller to manage and supervise the process.” “Scott Sports, known for their bicycle and outdoor bands like Avanti, Bach, Bergamont, Bold Cycles, Dolomite, Lizard, Malvern Star, Powderhorn, Scott and Syncros, intends to use the capital injection ‘to support its business operations.’’’ HPS Analysis: The key issue pointed out by Jo Beckendorff is, “The high inventory level throughout the bicycle sector is tying up so much capital that even profitable companies like Scott Sports are in urgent need of capital to continue their daily operations.” It is true that Scott Sports is primarily a European brand, but there is distribution in North America, and the point that HPS is concerned about is that there is simply not enough capital in the whole of the global bicycle business for many companies to continue daily operations without either a loan from a parent company or a financial institution. Additionally, debt-dependent firms and investors in the global bicycle business are approaching their maturity wall and will have to refinance at a higher rate this year.

01-16-24: “Chinese Premier makes surprise economic growth disclosure.” The Wall Street Journal: “Chinese Premier Li Qiang gave global business elites a big hint on highly anticipated growth figures, as he sought to reassure them that investing in China is an opportunity, not a risk. Li delivered the message in an address at the World Economic Forum in Davos, Switzerland, as Chinese leaders seek to stem an exodus of foreign investment with growth slowing and relations deteriorating with the U.S.-led West. In doing so, he made an unusual early disclosure, saying that China’s growth last year is expected to be about 5.2 percent. The country is set to release the official gross domestic product figure for 2023 on Wednesday.” “The question is whether global firms are buying it. Foreign businesses and investors have been souring on China’s huge economy, data show, with billions of dollars fleeing Chinese stocks and bonds through most of last year. Foreign direct investment in China was negative in the third quarter, with outflows of capital exceeding inflows by $11.8 billion, implying that companies were yanking profits or disinvesting from China altogether. That marked the first negative quarterly outflow of direct investment recorded in balance-of-payment data that stretch back to 1998.” HPS Analysis: U.S. and European businesses are attempting a de-risking strategy that doesn’t require extensive decoupling from Chinese sourcing which has been deemed to be neither reasonable nor feasible. What this boils down to is shifting some production to Vietnam, Cambodia, Thailand, and Taiwan, without totally withdrawing and relying on China for component parts and subassemblies. Meanwhile, Taiwanese and U.S. companies are pulling capital and profits out of China. 

01-16-24: “Pandemic darling.” Bloomberg The Brink: “E-scooters and e-bikes are emerging as the latest pandemic darlings to tumble into a wave of distress as cutthroat competition weakens providers and rising costs damp consumer demand. Bird Global, which filed for bankruptcy last month, is the latest victim. The U.S. operator struggled to turn a profit, losing market share amid rising prices and waning demand after workers returned to the office, according to the filing. But the list of struggling providers is much longer. In Germany, where many of these startups emerged, e-scooter manufacturer UNU is undergoing an insolvency process, while executives at Tier Mobility spent months hunting for emergency funding before merging with peer Dott last week. ‘Some companies might have overspent in technology, expansion, and hiring when funding was cheap,’ said Kersten Heineke, a Frankfurt-based partner in McKinsey. ‘What is key is how quickly companies were able to switch gears from being growth-focused to achieve profitability as soon as possible.’’’ “Stricter safety regulation is also impacting e-scooter firms. In September, Paris became the first European capital to outlaw the devices following a referendum.” “It’s not going much better for e-bikes. KKR’s Accell Group, which defines itself as ‘the European market leader’ is grappling with cash burn, while its debt is failing to attract demand in the secondary market. In the Netherlands, manufacturer VanMoof went bankrupt in July. While many in the U.K. took to cycling during the pandemic lockdowns, the demand for e-bikes stalled in 2023, according to a survey by researcher Mintel.” HPS Analysis: It is instructive to get Bloomberg and McKinsey’s reading of the micromobility market. HPS agrees with Heineke that, “The next 18 months are going to be a defining period when most of the consolidation will happen.” Heineke goes on to opine, “You are starting to see some winners, including those who have achieved profitability, those who have already announced mergers, companies which have different lines of business aside from e-scooters and e-bikes, or those focused on niche geographies.”

01-17-24: “How will store of the future look?” Sourcing Journal: “Physical retail is here to stay, but the shops of the future are upgrading the in-store experience. At the National Retail Federation’s Big Show in New York City this week, industry experts and executives outlined what they see as a new model for the store of the future, one that emphasizes experiential elements and a focus on community.” “In general, shoe brands appear to be opting for newer, smaller concept stores that aim to blend a showcase of top-tier products with unique experiences catered to specific regions. They’re interesting because they’re smaller square footage, so they’re much more productive, and they are hyperactive in that you can use those stores to ship to the consumer locally. Other retail leaders emphasized the need for stores to build connections with their local communities. HPS Analysis: Brand was also mentioned in the article, and the fact that consumers know your brand goes right to the point that local bike shops ARE the brand in the minds of their local communities, and are the brand the local consumer knows. The fact that the National Retail Federation (NRF) is making the statement that “physical retail is here to stay” is significant, coupled with declaring that “… the shops of the future are upgrading the in-store experience.” Omni-channel has fallen out of popularity as a descriptor, but it tells the story of the retail methodology that the vast majority of bike shops need to migrate to, along with a major change in dropping the attitude and adopting an inclusive, welcoming smile for everyone that walks through the door.

01-17-24: “Retailers are stuck in a cycle of constant sales.” Marketplace: “Retail sales numbers were up 0.6 percent in December, the month that closed out the 2023 holiday season. Last year, holiday promotions started as early as the day after Halloween. Meanwhile, we just came off Martin Luther King weekend that also came with deals. Next up, there will be sales for Valentine’s Day, President’s Day, and every ‘Day’ after that. We’ve even gotten to the point where sales inspire sales. When Amazon has Prime Day, Target has Target Circle Week and Walmart has Walmart Plus Week. So the question is: if everything’s always on sale, is it actually ever on sale? And how did we get to this 24/7 sales environment?” HPS Analysis: While the rest of the retail world got to the 24/7 sales environment before the pandemic, and the whole of the bicycle industry joined the constant sales and discounting retail environment at the end of 2022 as the direct result of rising retail prices during the pandemic and an extraordinary glut of inventory, we are now stuck in a cycle (no pun intended) of constant sales. Consumers enjoy getting something they want on sale. MSRP (Manufacturers Suggested Retail Price) was what the mainstream brands used to control the American market, and what kept retail pricing in check for the better part of several decades. They may try to bring MSRP back. It will be a question of whether consumers will let them. Marketplace tells the story of Ron Johnson. In the early 2010s JCPenney hired a new CEO, Ron Johnson, a former VP at Target and Apple. Under Johnson, JCPenney made a bunch of changes, the biggest one being doing away with sales. Johnson figured consumers would rather pay a consistent, low price instead of having to deal with coupons, markdowns, and sales. He was wrong. Shoppers were confused about the brand, so they stopped shopping. Sales plummeted, Johnson was fired, and JCPenney went back to markdowns and sale prices. During the pandemic the bicycle brands were able to double MSRP, followed by roughly eight months of drastic discounting and sale pricing. When inventory ratios stabilize, will brands be able to get away from the 24/7 sales environment?

01-17-24: “Holiday sales hit new record – so do full-year sales.” Chain Store Age CSA: “Despite inflation and high interest rates, consumers ramped up their spending in December, helping to end the holiday season and full year on an upbeat note. Core retail sales during the 2023 holiday season grew 3.8 percent over 2022 to a record $964.4 billion, according to U.S. Census Bureau data. The results easily met the National Retail Federation’s forecast that holiday sales would increase between three percent and four percent over 2022 to between $957.3 billion and $966.6 billion. Sales for the full year grew 3.6 percent over 2022 to a record $5.13 trillion.” “The holiday total, which is not adjusted for inflation, includes online and other non-store sales, which were up 8.2 percent at $276.8 billion.” HPS Analysis: American consumers kept spending in 2023, just not on bicycles. According to this report’s data from key sectors for the two months combined on an unadjusted year-over-year basis, electronics and appliance stores were up 9.3 percent, the highest of the seven categories. Sporting goods stores were up 0.3 percent, the lowest of the seven categories.

01-18-24: “Macy’s to cut more than 2,300 jobs, about 3.5 percent of its workforce, and close five stores.” CNBC Retail: “Macy’s on Thursday said it will cut about 3.5 percent of its workforce and close five of its namesake mall locations as the legacy department store moves to trim costs and turn around slowing sales. The move will affect approximately 2,350 positions across its corporate office and stores, company spokesman Chris Grams said.” “The company notified employees about the layoffs on Thursday and the last stores that will be shuttered are located in Arlington, Virginia, San Leandro, California; Lihue, Hawaii; Simi Valley, California and Tallahassee, Florida. The stores will close in early 2024.” “Macy’s is in the middle of an effort to turn the roughly 166-year old department store into a brand that resonates with consumers who are shopping online, looking for value, and turning to competitors including e-commerce retailers such as Amazon and Shein, big-box players such as Target and off-price names such as TJX-owned T.J. Maxx, instead of its stores.” “Macy’s has 723 locations across the country as of Oct. 28, the end of the most recently reported quarter. The majority of those, roughly 500, are its namesake stores, followed by 158 Bluemercury stores and 56 Bloomingdale’s stores.” HPS Analysis: Macy’s is a legacy department store retailer with a 166-year history. It is taking on every retail format that has chipped away at its legacy over the last 30 years and become an online player in the bargain. Macy’s was in the business news at the end of January for turning down a multimillion-dollar buyout offer that analysts concluded was all about the land and buildings Macy owns, and not the retail business. This alone was a huge clue to the challenge Macy’s has in pulling off its multi-channel retail strategy.

01-18-24: “Shipping costs to increase more than 5.9 percent in 2024.” Logistics Management: “To no one’s surprise, the big two carriers raised rates for 2024, announcing an identical 5.9 percent general rate increase (GRI). It was smaller than recent increases but make no mistake, it will drive up the cost of doing business for millions that rely on shipping. Hidden fees, changing requirements and added surcharges drive actual increases well beyond the reported rate. Reveel’s analysis finds the average customer will pay 7.72 percent more with UPS and 8.17 percent more with FedEx. HPS Analysis: Ocean freight rates dropped like a rock at the end of 2023. The big carriers raising rates in 2024 is no surprise as they attempt to gain some degree of profitability after, in HPS’ opinion, gouging the market during the pandemic. HPS will watch this situation carefully, and we urge ocean shippers to talk to their carriers and brokers and work at locking in the most favorable rates and routes possible for 2024. Fortunately, the Suez Cannel isn’t an important route for North America, but the Panama Canal is, and there is an East Coast longshoremen’s strike almost certain in Q2. West Coast ports will be loaded as will intermodal routes to the Midwest and East Coast.

1-19-24: “Davos sees nothing normal about the global economy for 2024.” Bloomberg Economics: “The world is finding an uneasy equilibrium with a more benign economic backdrop overshadowed by a panoply of geopolitical risks, according to the final Davos panel of 2024. The prospects of subsiding inflation and a pickup in global trade offer some encouragement for investors despite the backdrop of war and populism, European Central Bank chief Christine Lagarde and peers agreed, as the World Economic Forum drew to a close. ‘Normalization – that’s what we have begun to see,’ she told the audience in the Swiss resort town, before adding an important qualifier. ‘It is not normality that we’re heading to,’ she added. The six-member panel was charged with summarizing the mood in Davos after a week where participants tended to put a brave face on the global outlook, accentuating the likelihood that a deep recession will probably be avoided despite unprecedented monetary tightening to bring inflation under control. HPS Analysis: The overriding theme at Davos was uncertainty. Several members of the final panel agree that the world economy is seeing more normalization, but it is clearly not normality that the world is headed toward in 2024. The global economy was challenged during the pandemic when global trade was disrupted and the J.I.T. (Just In Time) systems were totally blown up and replaced with J.I.C. systems (Just In Case) that led to over-capacity, excess W.I.P. (Work In Process), and finished goods inventories that are still disrupting supply chains and markets. The U.S. economy beat down inflation and just might make a soft landing, but recession still looms as uncertainty grips the world’s economies.

01-19-24: “Sports Illustrated announces major layoffs, putting the brand’s future in jeopardy.” The Wall Street Journal: “Sport Illustrated announced major layoffs on Friday, according to the publication’s union, throwing the future of the legacy sports magazine into question. The union said it was notified by the magazine’s publisher, the Arena Group, that it intended to ‘lay off a significant number, possibly all’ of Sports Illustrated’s unionized staffers because Arena had lost its license to publish the magazine.” “Arena said in a regulatory filing that it lost the license to publish Sports Illustrated after it missed a $3.8 million quarterly payment to its licenser, Authentic Brands Group.” “Arena said it was in discussions with Authentic Brands and would continue to publish Sports Illustrated until the matter was resolved.” HPS Analysis: The union reports more than 80 unionized employees at Sports Illustrated. This situation shows again the extreme difficulty publishing has in keeping pace with the transition to digital media and the changes in advertising. I thought Sports Illustrated had figured it out when they chose Martha Stewart as their swimsuit model last year.

01-22-24: “The one thing all great bike shops know.” Bicycling: “Local Bike Shops are a cycling institution. They’re up there with the cycling club or the group ride as one of the handful of concepts that are core to riders of all kinds. But while other things in cycling have moved forward, many shops seem to be stuck in the past. The basic tenets of bike shops haven’t changed much since I first worked in one in the early 2000s. The business model is the same — one part as a dealer of bikes, gear, and apparel, and the other as a service department that fixes almost anything with two wheels. What changed is how riders buy their bicycles and cycling gear. Even though I believe buying a bike in person is a good idea, especially if you’re unsure of sizing or simply want to throw a leg over it before laying down the money, I acknowledge that many of us buy bikes from direct-to-consumer brands. While this buying model has pricing advantages, it also has drawbacks, the obvious being not knowing if you’re buying the right size and difficulty in finding spare parts, especially proprietary ones. But a big disadvantage of purchasing a consumer-direct bike is one that shouldn’t exist and that I’ve experienced often: the resentment you feel when you walk into a shop with a bike you bought online.” “It’s off-putting to get a lecture or a snide remark from mechanics or the shop’s owner simply because the bike wasn’t bought from them. It’s bewildering as a consumer and it’s self-defeating for the shop itself.” “The death of the local bike shop has been foretold over and over. But the good ones are still here. And they keep thriving. They do so, in large part, because they respect that there’s still one thing that can’t be ordered online, great service.” HPS Analysis: We recommend this article to you. We encourage bike shop owners, managers, and employees to get past their prejudices, drop the attitude, and replace it with an open mind, welcoming smile and attitude for everyone who walks into the shop. Great service goes beyond the service shop and the service department staff. Great service is all about attitude and truly wanting to help customers and serve their needs no matter where they may have purchased the bicycle they own. They are coming to you for something they need, and that’s the magic that can create a connection that can last a lifetime.

01-22-24: “Investment bankers are starting to see Mexico as a money spinner.” Bloomberg Markets: “For years, Mexico was an afterthought among investment bankers, a perennial underperformer overshadowed by Brazil. Not anymore. Suddenly there’s growing conviction on Wall Street that the country is on the cusp of a breakout if it can avoid squandering the opportunity. Bank of America Corp., Morgan Stanely, and Goldman Sachs Group Inc. all predict investment banking revenue from Mexico will jump this year. Banco Santander SA, the top local bond underwriter last year, will invest $1.5 billion to beef up technology for retail clients. JPMorgan Chase & Co. CEO Jamie Dimon said his bank has ‘doubled or tripled’ capital in the country over the past six years and sees a ‘great’ outlook for growth.” HPS Analysis: This is most welcome news. Finally the “real” money in the U.S. is taking capital investment for manufacturing and distribution in Mexico seriously. This is the BIG piece that has been missing up to now. The Chinese have already established manufacturing beachheads, but this is an opportunity for European and Taiwanese entities with the know-how in bicycle manufacturing to find financial partners and establish manufacturing inside North America.

01-24-24: “Just-in-time makes a comeback.” The Wall Street Journal Logistics Report: “Retailers are reviving an old playbook for managing inventories. Companies have largely brought inventories back in line with sales after struggling the past four years to find a sweet spot between holding enough merchandise and not too much. The WSJ Logistics Report writes that retailers now say they are replenishing items rather than building stockpiles. The shift marks a return to the ‘just-in-time’ inventory management strategy many companies had employed before pandemic-driven product shortages and volatile shifts in consumer demand prompted a switch to a ‘just-in-case’ approach. Executives at apparel seller Tailored Brands, furniture maker IKEA, and big-box retailer Walmart, say their supply chains are running smoothly, allowing them to better predict lead times and forecast customer demand. But logistics experts caution retailers could change back if supply-chain turmoil gets worse amid disruptions at the Suez and Panama canals.” HPS Analysis: It is about time! Purchasing and manufacturing best practices are finally getting re-established after the J.I.C. (Just In Case) system was made necessary by the disruptions of the pandemic years. There may be better forecasting methods coming online, but they are all improved front-ends for J.I.T. supply chain systems.

01-25-24: “U.S. economy grew at 3.3 percent rate in latest quarter.” The New York Times: “The U.S. economy continued to grow at a healthy pace at the end of 2023, capping a year in which unemployment remained low, inflation cooled and a widely predicted recession never materialized. Gross domestic product, adjusted for inflation, grew at a 3.3 percent annual rate in the fourth quarter, the Commerce Department said on Thursday. That was down from the 4.9 percent rate in the third quarter but easily topped forecasters’ expectations and showed the resilience of the recovery from the pandemic’s economic upheaval. The latest reading is preliminary and may be revised in the months ahead.” HPS Analysis: While the sporting goods sector and the bicycle business haven’t benefited from the strength in 2023, and will by all accounts continue to struggle in 2024, it is a strong U.S. economy that holds the promise for a slow and steady recovery for the bicycle business going forward.

01-25-24: “Pacific Cycle recalls e-bike models because of fire hazard.” Bicycle Retailer and Industry News – WASHINGTON D.C.: “Pacific Cycle is recalling two e-bike models because the wiring harness that manages the lithium-ion battery charging was improperly assembled and can overheat and catch fire. There have been three reports of the battery catching on fire, resulting in one injury of second-degree burns. About 1,700 Ascend Cabrillo and Minaret e-bikes are affected by the recall and consumers should stop using and keep them unplugged before receiving a refund.” “The e-bikes were sold at Bass Pro Shops and Cabela’s stores nationwide and online from January 2023 through November 2023 for between $1,400 and $1,500.” HPS Analysis: Product safety recalls are always troubling. In this case there are no reported fatalities, although there are injuries. This product recall case stands out to HPS because it is proof of the position the NBDA has taken based on the advice from HPS to advocate for testing, certification and listing for UL 2849 and UL 2271 by a N.R.T.L. (Nationally Recognized Testing Laboratory). A N.R.T.L. is required to perform four unannounced inspections of the component manufacturers that make up the electrical systems tested for compliance to UL 2849 throughout the year after the testing of the system is successfully completed and the e-bike electrical propulsion system is certified. Some in the industry have argued that only the battery should be tested, and others that the testing and certification should be done by an authorized testing lab that has no requirement for unannounced inspections after the initial testing. HPS has advocated for testing of the whole system under UL 2849 by a N.R.T.L. to make sure the components, like the wiring harness, are tested and the manufacturer is visited and inspected after the initial testing to make sure they are producing the same level of quality that was tested as part of the complete system. This recall of a population of 1,700 e-bike systems has resulted in three fires and one injury. You do the math.

01-26-24: “REI lays off more than 300 employees as it warns about rocky 2024.” Sourcing Journal: “CEO Eric Artz notified employees in a Jan. 25 letter that the outdoor retailer would lay off 357 people across its organization, including 200 corporate employees at its headquarters, and 121 in its distribution centers. The news follows Nike’s December announcement to ‘streamline’ its organization and cut costs, partly via layoffs. Google and Amazon have also announced fresh job cuts for 2024 .In announcing the layoffs, Artz described an ‘increasingly challenging’ state of REI’s business and the outdoor industry at large, and said he expects these challenges to persist this year. He projects 2024 revenues to be down compared to 2023. ‘As you know the state of the business – and our industry – has become increasingly challenging and highly promotional,’ Artz wrote, adding that the outdoor specialty retail channel has been in decline for four quarters. ‘While we were able to outperform this trend for much of the last year, it caught up to us in Q4 and we now expect conditions to remain very challenging throughout 2024.’“ HPS Analysis: My compliments to Eric Artz for his honesty about the situation. I have had to lay off employees and terminate employees in my past experience as a company executive, and I didn’t like it. The layoffs are just a symptom of a financial problem that goes to the capital strain on REI that is probably attributable to excess inventory in the face of reduced and declining revenue. I am troubled by his prediction that: “we can expect conditions to remain very challenging throughout 2024.”

01-30-24: “8 logistics trends to watch in 2024.” Supply Chain Dive: “Risk is sparing no mode of transportation in 2024, as geopolitics, labor talks, freight demand and capacity fluctuations will continue to alter supply chain strategies.” “While conversing with several experts on the risks ahead for the year, Supply Chain Dive rounded up eight logistics trends to watch in 2024:

  1. Red Sea crisis threatens rates.
  2. Panama Canal restrictions add complexity.
  3. East Coast port labor talks loom large.
  4. West Coast ports may experience heightened traffic.
  5. Overcapacity remains a problem for trucking companies.
  6. Labor clashes a risk for parcel delivery networks.
  7. Air forwarders eye growing e-commerce activity.
  8. Forwarders wary of geopolitical risk.”

HPS Analysis: So much for “normalization” in the face of uncertainty. Freight volume of all types is down, but freight rates are increasing again, primarily because of the eight disruptions listed above. The Red Sea crisis affects primarily European ocean routes. However, the Panama Canal restriction, because of a drought and low water levels, effects ocean shipment to the Eastern ports of the United States. East Coast port labor slowdowns and a possible strike make the East Coast port problem worse. More ocean freight can be routed to the West Coast ports and more containers can be routed to stack trains to the Midwest and East, but the railroads are reducing service and laying off train crews. Shipping by truck is still viable. Parcel delivery services have increased rates as they are laying off people and there are more labor problems coming up this season that might interfere with shipping service. Air forwarders are increasing rates and reducing service, and forwarders are dealing with a great deal of uncertainty and avoiding as much “risk” as they can, which will affect both shippers’ cost and service.

Contact Jay Townley: jay@humanpoweredsolutions.com

THE HPS JANUARY LETTER: INFLATION EASES, BUT BEWARE OF PHANTOM DEBT AND ZOMBIES!

11-30-23: “Investors descend on Dubai,” Bloomberg Green Daily: “The larger-than-usual group of investors and bankers in attendance at COP28 in Dubai are not there primarily (if at all) for altruistic reasons. They’ve traveled to the United Arab Emirates for the same reason they’d go to an airshow or a heavy industry convention: the possibility of making a lot of money. For Nikita Singhal, co-head of sustainable investment & ESG at Lazard Asset Management, the climate crisis is too often portrayed as a risk in investors’ portfolios, while the opportunities to profit handsomely from the economic changes required to slow global warming are regularly overlooked. Climate change is ‘one of the largest economic disruptions of our lifetime,’ [emphasis added] Singhal said at the Bloomberg Business Forum at COP28. The other side of that coin, she says, might be a chance for ‘the greatest alpha-generation or investment-return’ in a long time.” HPS Analysis: COP28 did not, to the knowledge of HPS, receive any trade press coverage by the bicycle industry and there was no attempt on the part of the American micromobility sector to reach out and connect with “one of the largest economic disruptions of our lifetime.” Climate change has been, and will be, one of the leading disruptors, impacting strategic thinking and planning relative to the bicycle industry as it merges into the micromobility sector going forward. The significance of COP28 is the attention now being paid by the world’s financial community to all of the aspects of climate change, including the investments in fossil fuels, alternate forms of energy and power and mobility and micromobility.

12-5-23: “Companies are going broke gradually, not suddenly,” Bloomberg Opinion: “Lots of things were supposed to happen this year, but didn’t. With only weeks to go, neither the recession in the U.S. nor the dramatic post-Covid rebound in China have come to pass. But perhaps the strangest non-event has been the widely anticipated wave of corporate defaults. That doesn’t mean that problems aren’t coming. Oleg Melentyev of Bank of America points out that the bankruptcy of WeWork happened ‘relatively quietly,’ even though it was the largest U.S. company to go bust since the global financial crisis, while the Austrian property group Signa, whose assets included a share in New York’s Chrysler Building, last week became Europe’s biggest post-GFC insolvency. A major repricing of the credit markets to account for those awaited defaults has also failed to happen. But if widespread corporate failures did arrive, they might provide just the catalyst to bring along the much-delayed recession.” HPS Analysis: There is, in HPS’s opinion, a definite difference between the European trade press coverage of the financial events of the past year compared to U.S. coverage that, again in our opinion, tended to focus more on specialty retailers and less on companies, suppliers and brands. With this said, HPS has come to the realization that companies in the bicycle and micromobility space are: “…Going Broke Gradually. Not Suddenly.” It’s like slow motion and it is also because debt-dependent firms and investors in and around all aspects of micromobility are approaching their maturity wall and will have to refinance soon, and at higher interest rates, if they can actually get access to higher interest financing. Stay tuned.

12-5-23: “China’s debt outlook downgraded as economy slows,” BBC News: “China’s debt outlook downgraded as economy slows. Moody’s issued a warning as it cut its outlook on the government’s debt to negative, from stable. The firm is the latest to raise concern about problems facing the world’s second-largest economy. China said it was disappointed by the move, calling the economy resilient. The country has signalled plans to ramp up stimulus spending, as it battles soaring youth unemployment, weaker global demand hitting its manufacturing industry and deepening woes in the property sector.” HPS Analysis: Keeping in mind that the U.S. credit rating was downgraded in the third quarter of last year, this action by Moody’s to downgrade China from stable to negative adds another uncertainty to an already increased risk to North American, European and Asian companies to doing business with and in China. Keeping in mind that China represents both the primary manufacturing source and a key growth consumer market for the multinational bicycle business brands, this additional uncertainty serves to add to the risk going into 2024.

12-5-23: “Canyon sales up 23 percent in first three quarters, but profitability declines.” Bicycle Retailer and Industry News: “Privately-held Canyon Bicycles announced December 4 that its year-on-year sales increased 23 percent in the first nine months of 2023. According to a statement from Groupe Bruxelles Lambert, which acquired Canyon in 2020, the bike brand’s sales in the first nine months of 2023 were 621 million euros ($670.5 million at today’s exchange rate), up from 506 million euros in the same period of 2022. Despite higher sales volume, Canyon’s EBITDA growth declined 6 percent in the period. GBL said the EBITDA performance was due to ‘higher discounts on certain bike categories and a supply shortage of high-demand bikes due to issues at on of its suppliers.’ The supplier issues affected the availability of Canyon’s road and gravel bikes in the third quarter and have since been resolved, according to GBL.” HPS Analysis: An increase in sales and a decrease in profitability is not a sustainable financial strategy over the long term and is unfortunately indicative of what brands are facing through the last quarter of 2023 and going into 2024. Canyon’s Direct-To-Consumer (D2C) business model is built on the premise that it can provide top of the line quality at bargain pricing and generate the same profitability as traditional distribution.

12-7-23: “Ride1Up Portola review: Is this the new go-to low-cost electric bike?” electrek: “When Ride1Up unveiled the Portola folding electric bike, it was obviously a major play to snatch the title for the leading low-cost electric bike. Now that we’ve had sufficient time in the saddle, it’s high time to see how this budget electric bike stacks up. When it comes to low-cost e-bikes, there are essentially two groups. Sure, that’s oversimplifying it, but stick with me here. There are ultra-budget mega-retailer bikes, like those found on Amazon, Walmart, etc. You can often find those e-bikes in the $500-$800 range. Then there are the actual e-bike companies that sell really low-cost e-bikes, such as those from Lectric Ebikes, Rad-Power Bikes, Aventon and today’s review, Ride1Up. These budget e-bikes are usually a bit more expensive, often starting at between $800-$1,200 (and increasing from there), but they have more reliable service and support because they come directly from an electric bicycle maker that deals only in e-bikes. not also in toasters and air mattresses. So that’s the lens through which we have to look at the Ride1Up Portola. At $995, it’s not going to compete well against the super cheap price of a Walmart e-bike, but it still undercuts most of the main e-bike players in the market, and comes from an e-bike brand that stands behind its products. Plus, it’s got way more features and nicer build quality than you’d ever find on a typical Walmart or Amazon special.” HPS Analysis: You have probably noticed that American bicycle market consumer pricing has been pummeled by discounting and sale pricing with the end result that the race to the bottom has resulted in e-bike pricing steadily dropping over the last four quarters. Micah Toll, writing for electrek, is providing an explanation for the bifurcation of the D2C portion of the e-bike segment of the American market. Walmart and Amazon, or what Micha Toll calls the “ultra-budget mega-retailer bikes” in the $500 to $800 retail range, and “budget e-bikes” sold by “actual e-bike companies that sell really low-cost e-bikes” in the $800 and $1,200 retail range. Ride1Up is what Micha Toll calls an “actual e-bike” company and the focus is on the introduction of the Ride1Up Portola 20-inch fat tire folding e-bike sold D2C for $995. HPS’s concern is not the retail price but testing and certification by a NRTL (nationally recognized testing lab) to UL2849 (which is inclusive of UL2271). HPS called Ride1Up and talked to a customer service representative, and found out that all Ride1Up lithium-ion batteries are tested to the UL2271 lithium-ion battery standard, but complete electrical propulsion systems are not tested to UL2849 because of the cost of testing. HPS maintains that this is no longer acceptable as an excuse nor as a standard for customer and consumer safety. Walmart and Amazon both have programs for testing and certification of e-bike electric propulsion systems to UL2849, which includes testing to UL2271 and for aftermarket and replacement lithium-ion batteries to UL221. NBDA has already posted and distributed eBike Lithium-Ion Battery Pack Storage, Use and Care Protocols (Updated December 26, 2023), and it is now time for all industry trade associations to adopt and similar protocols and guidance to members. In addition, online and print publications like electric need to include “Tested and Certified by a NRTL to UL 2849” as a standard line item, indicating “yes” or “no” for each e-bike they test and evaluate so consumers know what e-bikes are certified and which are not yet certified.

12-7-23: “Shimano investigating report of ‘modern slavery’ at one of its Malaysian suppliers.” Bicycle Retailer and Industry News: “Shimano says it is investigating after a news report that a supplier to its factory in Malaysia has operated under conditions that are ‘akin to modern slavery.’ The U.K.’s The Telegraph reported December 7 that the factory, Kwang Li Industry, has deducted fees from foreign worker paychecks that reduce pay by as much as a third, putting the pay below Malaysia’s minimum wage. Additionally, the article said workers from Nepal and Bangladesh have to take out high-interest loans to pay recruitment fees to a third-party agency the factory uses. According to The Telegraph, the recruitment payments by workers are in breach of a 2018 memorandum between Malaysia and Nepal that requires employers to pay recruitment fees. The Telegraph also cited reports of worker abuse in the Kwang Li factory. Andy Hall, a British labor rights specialist, told The Telegraph that conditions at the factory were ‘akin to modern slavery.” HPS Analysis: Does anyone else see the irony in The Telegraph publishing this story on December 7? This is the date, December 7, 1941, that Japan attacked at Pearl Harbor, Hawaii and brought the U.S. into World War II. Beside what HPS thinks is an obvious attempt by The Telegraph to add prejudice to its allegations, what is described is totally unacceptable, and cannot be tolerated, but is also all too common throughout the world. The poor and incarcerated of every nation are taken advantage of and so called “modern slavery” is sadly found in the U.S. as well as throughout Asia. The global and U.S. bicycle industry associations need to work with Shimano and every multinational company and brand in the bicycle industry to establish manufacturing and sourcing codes of conduct that include standards for employment and work

12-8-23: “RIP to fast and free shipping.” Bloomberg Opinion: “This year might go down in history as the end of free and fast shipping. The good old days were sweet. Nearly any online goods, big or small, could arrive at your door within a couple of days for free and often could be sent back at no cost. It was exhilarating. For a time, businesses were willing to eat the cost of shipping, which can take as much as 10 percent to 15 percent of a company’s profits, because they were in a fierce fight for e-commerce dollars. But over the last year, retailers have been quietly rolling back options that would get orders to your door within days as their operating margins suffered. To cut down on costs, retailers, including Amazon.com Inc., Walmart Inc., Chewy Inc. and Wayfair Inc. have closed or canceled the opening of distribution centers this year. At the same time, retailers have followed the lead of companies such as L.L. Bean Inc. by adding new minimum order values for free shipping after years of requiring no minimum. HPS Analysis: What is happening here is rising costs of handling and shipping eating into profitability, as the article states. “Fast and Free Shipping” has been one of the advantages that D2C retailers have had over brick-n-mortar retailers, and this will serve to level the playing field somewhat. In addition to cost, the demise of free shipping takes away one of the marketing points made about the advantage of buying online.

12-10-23: “Don’t burn your house down. Here’s how to buy safer electronics.” The Wall Street Journal: “Faulty electronics are causing more fires in homes lately. This holiday season I don’t want to give my neighbors the wrong kind of light show, so I sought advice on how to avoid buying potentially dangerous devices. E-bike and e-scooter battery fires are soaring, particularly in New York, where 17 people have died and dozens have been injured this year.” “Chances are, your electronics won’t become incendiary devices the moment you plug them in. But safety officials and product testers say that if you buy cheap, low-quality or fake products, you increase your risk of a fire and face other hazards. Online shopping, while convenient and cost-effective, exacerbates the problem. In marketplaces hosted by Amazon and other major retailers, items sold by third-party sellers aren’t vetted with the same rigor as merchandise sold directly by the stores. As a result, you have to be extra diligent.” “Look for a certification label from a nationally recognized testing laboratory, markings such as UL, ETL, CSA, or SGS, said Patty Davis, a spokeswoman for the U.S. Consumer Product Safety Commission. These typically appear on packaging or the product itself, which is why it is sometimes easier to assess product quality in-person.” “When it comes to e-scooters and other mobility devices, the UL label is particularly important, says the CPSC. A 2022 letter from the agency highlighted a ‘rise in fires and other thermal events’ and urged manufacturers and retailers to adopt UL certification to ‘significantly reduce the risk of injuries and deaths.’ “ HPS Analysis: This was a very good and well-researched article that the American bicycle market can use more of. Electric bicycles, while not the only “electronics” covered, are prominent and there certainly is enough good information that can educate consumers, not the least of which is the advice to: “Look for a certification label from a nationally recognized testing laboratory, markings such as UL, ETL, CSA, or SGS.” The U.S. bicycle trade association representing e-bike and lithium-ion battery brands and distributers has an opportunity to send out press releases and provide articles by and interviews with “experts” providing useful educational information about e-bikes and the care and maintenance of lithium-ion batteries.

12-12-23: “LEVA and NBDA bring E-Bike training to CABDA 2024.” Bicycle Retailer and Industry News: “The Light Electric Vehicle Association (LEVA), in partnership with the National Bicycle Dealers Association (NBDA) and the Chicago Area Bicycle Dealers Association, is proud to bring fresh e-bike training content to CABDA Midwest 2024 from February 6-8. Together, they are adding three education opportunities to visiting retailers, including a half-day hands-on technician training workshop on the day before CABDA officially opens, a battery safety and handling certification on both show days, and a presentation on the state of the U.S. e-bike market in 2024, including forecast on how the market will develop in the coming years.” HPS Analysis: While several brands now conduct proprietary technical training exclusively for their dealers, this is the first step in the bicycle industry providing hands-on e-bike and lithium-ion battery technician training for all independent specialty bicycle retailers. The half-day training is for a modest fee February 6 at the Schaumberg Convention Center and is co-sponsored by CABDA and the NBDA, and conducted by LEVA. In addition, LEVA will conduct seminars and an e-bike market presentation during the CABDA Midwest Expo and HPS’s chief technology officer, Mike Fritz will present two technology and lithium-ion battery seminars per day, February 7 and 8. Please refer to the CABDA Midwest Expo Schedule for details.   

12-13-23: “Fed begins pivot toward lowering rates as inflation declines.” The Wall Street Journal: “Slowing inflation prompted Federal Reserve Chair Jerome Powell to pivot away from raising interest rates and toward considering when to cut them, igniting a rally on Wall Street. The Fed held its benchmark federal-funds rate steady at a 22-year high on December 13, and offered every reason to think that its most recent increase this past July probably marked the end of the most aggressive cycle of hikes in four decades.” HPS Analysis: While Treasury Secretary Yellen may have been premature in declaring a soft landing for the U.S. economy, the Fed chair made it clear that raising interest rates may be over, and that the central bank’s attention is now focused on when it will begin cutting rates. Meanwhile, HPS is advising clients not to expect reductions during the first quarter of 2024, and that resulting reductions in the cost of loans will probably mot be a reality until the second quarter at the earliest.

12-13-23: “2024 retail predictions: five trends to watch.” Chain Store Age CSA: “The rise of the physical store. Research shows that improving customer experience remains the number one priority for businesses. The rise of the ‘phygital” store is the result of a fusion of physical and digital retail strategies to create a cohesive customer journey. The physical approach recognizes that customers move seamlessly between physical and digital touch points when shopping. While customers know how to use retailers’ online stores to make their purchases, when they go into physical stores they are not just looking for a specific product, but also the purchasing experience.” HPS Analysis: The other four retail predictions are important, but we feel the number one prediction: “The rise of the physical store” is not only significant, but lands right in the middle of the specialty bicycle retail strategy going forward. Physical stores are growing in importance, even among those retailers that have been strictly D2C up to 2024.

12-15-23: “It’s a bad time in the cycling industry and a great time to buy a new bike.” Bicycling: “The Tarmac SL7 Expert is one of the nearly 200 Specialized bikes on sale. I take no joy in saying this: The bicycle industry seems kinda effed right now. While I am decidedly not a business expert, headlines and conditions seem grim, and many people and brands are feeling the pain. However, it’s also an extremely good time to shop for a new bicycle.” HPS Analysis: Specialized isn’t alone. This article also mentions Kona’s Process bike two-for-one deal, with a link, Cannondale with 100 models on sale, Trek with over 50 models on sale and Giant with 100 bikes on sale (and of course links), 40 Canyon models on sale with a link, Santa Cruz, Pivot, Cervelo, Yeti, Ibis, Norco, with a link to Competitive Cyclist, Allied, Alchemy and SCOR with links, and e-bike brands Rad Power, Aventon and REI’s Co-op house brand with, of course, links. The secondary market is also covered with references to Facebook’s used bike group and Pinkbike’s BuySell postings and The Pro’s Closet with a link to an “extensive list of products on sale.” The author, Matt Phillips, senior test editor for Bicycling, has an extensive interview with Rick Vosper. Phillips opines, “Although things are grim right now, the bike industry expects the overstock problem to (eventually) correct itself. I’ve seen statements from brand representatives and experts expressing confidence that the inventory situation will normalize… in 2025 or 2026.”

12-16-23: “‘Underwater’ car loans signal U.S. consumers slammed by high rates.” Bloomberg Wealth: “Negative equity on automobiles is at the highest level in more than three years, with higher prices and borrowing costs hitting owners. It’s a tough time to be a car owner in the US. Prices for new vehicles are high and interest rate hikes have made loans more expensive. And many car owners now owe more on their loans than their vehicle is worth. This situation, commonly called being ‘underwater’ or having ‘negative equity,’ occurs when the price of a car falls faster than the owner can pay down the loan for it. In November, people with negative equity were underwater by an average of $6,054, the most since April 2020 and well above pre-pandemic averages, according to automotive information firm Edmunds.com Inc. It’s a precarious spot for many Americans, coming after a twin surge in car buying and interest rates has strained finances and fueled an uptick in automobile repossessions.” HPS Analysis: This is bad news because it means many consumers will have less expendable money to spend on things like new bicycles, but good news because it makes an investment in a regular bike or e-bike as a low cost, environmentally friendly, clean means of transport a good investment. Rebates and subsidies for e-bikes are added incentives.

12-17-23: “Buy now, pay later keeps people spending – without credit agencies knowing.” The Wall Street Journal: “Consumers are shifting more of their spending to so-called buy now, pay later lenders, a trend that is only accelerating as high interest rates dent budgets and pandemic savings dry up. That is sounding alarms at consumer-advocacy groups that say companies like Afterpay and Klarna provide fewer protections than credit cards and encourage shoppers to take on more debt than they can afford. A quarter of all American adult consumers have used buy now, pay later loans, according to LexisNexis Risk Solutions. Over Black Friday and Cyber Week, such payment plans accounted for 7.2 percent of all online sales, a 25 percent jump from last year, Adobe found. (They were also a big factor in the declining use of store credit cards.) Buy now, pay-later firms can extend loans as large as $25,000, offering annual interest rates ranging from 0 percent to 36 percent. The rates offered are dynamic and depend on the borrower’s standing, payment timeline and the item being purchased. Retailers can also pay fees to offer better terms, such as 0 percent interest, at checkouts. In comparison, the average annual interest rate on credit cards is 21.19 percent, according to the Federal Reserve.” HPS Analysis:  There is no question that bicycle retailers and D2C brands have employed Buy Now Pay Later tactics to close sales during the last quarter of 2023 and continue to use this tool going into 2024. 7.2 percent of all online sales may not sound like much, but this amounts to a little over $16 billion that may not have been spent in whole or part if this means of getting a loan to make a retail purchase wasn’t available. That’s the upside. Read on to learn about the downside.

12-17-23: “Electric Bike Report best electric bikes of 2023, December 17, 2023.” Electric Bike Report: “Our picks for the Best Electric Bikes of 2023:

  • Best Fat Tire Electric Bike: Aventon Aventure 2
  • Best Folding Electric Bike: Lectric XP 3.0
  • Best Electric Bike for Women: Electric Bike Co. Model S
  • Best Budget Class 3 Commuter: Ride1Up 700 Series
  • Best Electric Bike for Seniors: Aventon Pace 500 3 ST
  • Best Commuter Electric Bike: Aventon Level 2
  • Best Utility Electric Bike: Rad Power Bikes RadRunner Plus
  • Best Budget Fat Tire Electric Bike: Lectric XPeak
  • Best Step-Thru Commuter Electric Bike: Rad Power Bikes RadCity 5 Plus

HPA Analysis: There is also a “best price” category, to which you can add Mokwheel Basalt, and the Blix Sol Eclipse to the five e-bike brands and models listed above by Electric Bike Report. Lastly, a “best high-end” category lists seven models between five brands, including Specialized with three models, Evelo, QuietKat, GoCycle and Trek with one model each. This dovetails into my earlier “rant” and preliminary list of pandemic induced disruptive changes they were instrumental in creating. If you do not already read electrek, Electric Bike Report and Bicycling every day, I recommend you do so. Why Bicycling? Because it not only is an indicator of what is trending in the gearhead and enthusiast segment, this consumer publication, in the opinion of HPS, does an objective job of covering the e-bike market and both traditional and new brands. There are other trade and consumer publications and please let me know of any that you recommend.

12-17-23: “1903-The First Flight.” National Park Service: “December17, 1903 The 27-m.p.h. wind was harder than they would have liked, since their predicted cruising speed was only 30-35 m.p.h. The headwind would slow their groundspeed to a crawl, but they proceeded anyway. With a sheet, they signaled the volunteers from the nearby lifesaving station that they were about to try again. Now it was Orville’s turn. Remembering Wilbur’s experience, he positioned himself and tested the controls. The stick that moved the horizontal elevator-controlled climb and descent. The cradle that he swung with his hips warped the wings and swung the vertical tails, which in combination turned the machine. A lever controlled the gas flow and airspeed recorder. The controls were simple and few, but Orville knew it would take all his finesse to handle the new and heavier aircraft. At 10:35 he released the restraining wire. The flyer moved down the rail as Wilbur steadied the wings. Just as Orville left the ground, John Daniels from the lifesaving station snapped the shutter on a preset camera, capturing the historic image of the airborne aircraft with Wilbur running alongside. Again, the flyer was unruly, pitching up and down as Orville overcompensated with the controls. But he kept it aloft until it hit the sand about 120 feet from the rail.” HPS Analysis: The brothers, who were from Dayton, Ohio, flew four more times that day, taking turns. Wilbur’s second flight and the fourth and last on December 17, 1903, was an impressive 852 feet in 59 seconds. But it was Orville’ first 120-foot flight of the day that would go into the history books as man’s first powered flight. What I personally marvel at is the total disregard that the American bicycle industry has for, in my opinion, the single most significant historical event in our industry and business. Orville and Wilbur Wright not only owned and operated the Wright Cycle Company, they designed front hubs and a coaster brake, as well as assembling and eventually manufacturing their own line of bicycles. Orville and Wilbur were top-tier bicycle mechanics, and perhaps not up to the level of today’s Cat 1 UCI Certified team mechanics, they designed and built the first wind tunnel, light-weight aircraft engine, the first functional propeller and the first airplane, all in their bike shop in Dayton, Ohio, and the bicycle industry totally ignores these wonderful historical facts. This didn’t happen anywhere else in the world. It happened right here in the good old U.S.A., and everyone in the bicycle business and particularly those of us that worked in a bike shop should not only be proud, we should celebrate every year on December 17.  My question to the powers that be in the American bicycle business is why don’t we?

12-18-23: “eBliss Global partners with automotive products manufacturer.” Bicycle Retailer and Industry News: “E-mobility company eBliss Global will collaborate with Petra Automotive Products to utilize its dealership partners for delivery, setup, and support in North America for its ALWAYS e-bikes. The ALWAYS line of e-bikes are designed exclusively for auto dealerships, including folding, e-cargo, and fat tire models. Entry-level models start at $3,495. ‘We want to meet customers who may have never considered an e-bike before where they already buy vehicles,’ said Dave Boyle, head of automotive at eBliss Global. ‘We are ecstatic to be partnering with Petra Automotive Products, a company these dealers know and trust, to help facilitate future relationships with auto dealerships.’ Petra Automotive Products is located in Houston and founded in 2010. It manufactures more than 360 maintenance products and services for automotive dealers, chains, and independent vehicle repair facilities.” HPS Analysis: If you have heard the monthly NBDA podcast, you have heard HPS talk about the automotive industry and our conviction that the future of the American bicycle industry and business is going to be driven (no pun intended) by the automobile industry and its vision for the future of micromobility, which includes the bicycle business. This may be an example, although we haven’t done enough homework to be sure yet. Note that this is not an automotive business that wants to attract and sell bike shop customers. This an automotive business that wants to attract and sell e-bikes to automotive customers.

12-20-23: “E-scooter company Bird files for bankruptcy.” electrek: “Global e-scooter company Bird, an early pioneer of shared micromobility, has seen better days. It has confirmed that is filing for bankruptcy for its service in the U.S., while keeping its Canadian and European operations intact for the time being. Bird released a press release this morning announcing it has entered ‘into a financial restructuring process aimed at strengthening its balance sheet and better positioning the company for long-term, sustainable growth.’ The company said it will continue to ‘operate as usual’ during the process by maintaining service and commitments to its partner cities, fleet managers, and employees. Bird runs its operations in some 350 cities around the world, with the bulk of those being in the U.S.. The company was founded in 2017 by Travis VanderZanden, a former Lyft and Uber executive, as one of the key dockless micromobility players on the scene. In 2021, Bird went public via a SPAC merger, but the stock plummeted from more than $2 billion at its New York Stock Exchange debut to $70 million a year later, which earned it a stern warning that its stock had dipped too low. In September, its stock became delisted from the NYSE because of its inability to lift its market cap to $15 million. Bird recently acquired its rival company Spin from Berlin-based Tier Mobility, and then announced a round of layoffs. According to Bloomberg, the Miami-based company listed assets and liabilities of between $100 million and $500 million in a court filing. The Chapter 11 bankruptcy will give Bird a chance to restructure its finances without the disruption of its day-to-day operations, with the ultimate goal of selling its assets within the next 90 to 120 days, according to the press release.” HPS Analysis: There are some in the specialty bicycle retail channel of trade that will be happy that Bird and other ride share companies are in financial trouble and are in danger of leaving the market. All in all, Bird going into Chapter 11 is not a good thing for the bicycle market or business, although it might be a good thing for Bird as a company to stabilize and develop a plan to become profitable across the board. The available data from the North American Bicycle Rideshare and Scooter Rideshare Association (NABSA) shows that ride share leads to consumer purchases of their own micromobility transport, and that the loss of bicycle and scooter rideshare results in more consumers utilizing mass transit. It would benefit the bicycle industry to work with bicycle rideshare companies like Bird to help them become more financially stable going forward.

12-20-23: “U.S. consumer confidence surges most since 2021 in broad upturn.” Bloomberg Economics: “U.S. consumer confidence rose in December by the most since early 2021 as Americans grew more upbeat about the labor market and the inflation outlook. The conference board’s index increased to 110.7 in December from a revised 101 reading in November, data published Wednesday showed. The median estimate in a Bloomberg survey of forecasters called for a 104.5 reading. A measure of expectations, which captures the outlook for about six months out, advanced as consumers saw better business conditions, incomes and labor market prospects. Expected inflation a year ahead fell to the lowest level since late 2020. Meanwhile a gauge of current conditions rebounded from the lowest reading in more than two years. The report showed optimism across the board, from job prospects and inflation to future incomes and business conditions. More Americans said they are planning to go on vacation, buy a car or purchase big appliances. The results point to an economy holding up well going into 2024.” HPS Analysis: This is welcome news after several months of low consumer confidence. While good news for the overall American economy, it may still not translate to an increase in consumer traffic in bike shops or shopping and buying online or in-store. The American bicycle industry can be its own worst enemy, and after months of slow business, sale pricing and discounting the brands and suppliers are telling the NBDA that they can not afford to step up and sponsor the consumer research that will provide guidance as to why consumer demand has ebbed, and when it will pick back up going forward.

12-20-23: “Americans may be taking on too much pay-later ‘phantom debt.’“ The New York Times: “Buy now, pay later loans are helping to fuel a record-setting holiday shopping season. Economists worry they could also be masking and exacerbating cracks in Americans’ financial well-being. The loans, which allow consumers to pay for purchases in installments, often interest free, have soared in popularity because of high prices and interest rates. Retailers have used them to attract customers and to get people to spend more. But such loans may be encouraging younger and lower-income Americans to take on too much debt, according to consumer groups and some lawmakers. And because such loans aren’t routinely reported to credit bureaus or captured in public data, they could also represent a hidden source of risk to the financial system. ‘The more I dig into it, the more concerned I am,’ said Tim Quinlan, a Wells Fargo economist who recently published a report that described pay-later loans as ‘phantom debt.’ Traditional measures of consumer credit indicate that U.S. household finances overall are relatively healthy. But, Quinlan said, ‘If those are missing the fastest-growing piece of the market, then those reassurances aren’t worth a darn.’” HPS Analysis: The 25 percent increase in Buy Now, Pay Later (BNPL) loans to pay for online purchases during the holiday season helped record retail sales for the holiday selling season, but it may have been part-and-parcel of consumers taking on too much “phantom debt.” Whether BNPL are going to hurt or help remains to be seen, but it does appear these loans have helped sell more bicycles and e-bikes during the last quarter of 2023.

12-21-23: “Is there light at the end of 2023?” Bike europe: “In contrast to recent years when the ‘best read’ items in Bike Europe were related to high-level investments and buoyant market developments, 2023 marked a vivid turning point. This year was notable for bankruptcies, closures and concerns over financial positioning. HPS Analysis: The whole Bike Europe article provides a chronological walk through insolvency, bankruptcy and the financial troubles of the bicycle industry across the pond. Bike Europe has, in the opinion of HPS, been candid and timely in reporting the problems and issue as they arose. The question is rhetorical and there unfortunately there is no light penetrating the fog of uncertainty – yet.

12-21-23: “Fitch Ratings warns Accell Group finances are ‘unsustainable.’” Bike europe: “The reorganizations announced at three of its subsidiaries was already a clear indication of a new policy at Accell Group BV. Now the reason why has become clear. Fitch Ratings has downgraded Accell Group and questions the company’s possibility of meeting its financial commitment. According to Accell Group, ‘the Fitch report reflects the difficult market circumstances.’ “According to Accell Group, ‘KKR has continuously supported the liquidity needs of the business in this challenging environment with a long-term conviction on the industry and business outlook. Most recently, they have provided incremental funding of €150 million in addition to the €100 million made available in mid-2023. The commitment of €250 million in this year is a clear signal of the confidence they have in the business, and this provides Accell Group with sufficient liquidity to weather these short-term challenges. Other stakeholders have also been highly supportive including by providing a €75 million ABL facility (Asset Based Lending) and up to €100 million receivables securitization.” HPS Analysis: This would be a whole lot more scary if it were not for Accell Group being able to publicly disclose the financial support it has received from KKR and its other investors. However, with this said, the total financial support of €425 million so far discloses the magnitude of the financial problem, and the Fitch rating will not make the road back to financial health any easier.

12-25-23: “E-bike maker SONDORS up for sale as company enters receivership.” electrek: “After a series of financial setbacks, followed by an Electrek expose revealing the failed Metacycle electric motorcycle project, e-bike maker SONDORS has appeared to enter receivership. The search is now on for a buyer who can scoop up the company and its assets. Electrek has reviewed documents sent out by Rock Creek Financial Advisor (RCFA) indicating that an RFCA representative has been appointed as receiver of SONDORS, Inc. and that the company is being offered for sale along with its assets.” HPS Analysis: As an earlier article points out: “Companies are going broke gradually, not suddenly.” SONDORS financial troubles appeared to start when it got into the electric motorcycle business mid-pandemic, and it never was able to recover. In the first half of 2023 electrek reported that SONDORS had walked away from its motorcycle manufacturer in China without paying what was owed for finished goods sitting on the factory floor.

12-26-23: “USTR extends exclusions from China Section 301 tariffs to allow for comments on sunsetting of the exclusions and alignment with four-year review.” USTR Press Release December 26, 2023: “The Office of the United States Trade Representative today announced the further extension through May 31, 2024, of the reinstated and COVID-related exclusions in the China Section 301 investigation. The exclusions were previously scheduled to expire on December 31, 2023. USTR announced the opening of a docket for public comments on existing exclusions on January 22, 2024. The extension will enable the orderly sunsetting of the exclusions, except in cases where current information suggests that, consistent with statutory factors and objectives, additional time would enable shifts in sourcing to the United States or third countries. The extension will also facilitate the alignment of further decisions on these exclusions with the ongoing four-year review.” HPS Analysis: Good news for the financially-challenged American bicycle industry, at least for the next five months until May 31, 2024. The Section 301 tariffs are an additional 25 percent which is added to the already existing import tariffs on bicycles, most bicycle parts and accessories and e-bikes originating in China. HPS refers to Section 301 as punitive tariffs, because they are paid within two weeks of the goods entering the customs territory of the U.S., by the importer of record. However, the Section 301 punitive tariffs have been suspended for over a year and the regular tariffs on complete bicycles of 5.5 percent and 11 percent have been collected and included in the landed cost of goods. The percentage collected is of the FOB, or factory cost of the goods. The price-cutting and discounting has, so far, been off of the landed cost of goods that, generally speaking, has not included the Section 301 punitive, or additional tariff of 25 percent. What has happened is the United States Special Trade Representative, or USTR, has kicked the can down the road and both allowed for more comments, and delayed a decision, about doing away with, or sunsetting, the suspension, or exceptions. That’s good, right? Not exactly. What it means is the additional 25 percent punitive tariff would go into effect at 1:01 a.m. June 1, 2024, unless the suspension or exceptions are continued, or the Section 301 punitive tariffs are done away with altogether, which at this point seems unlikely. If this is a major planning concern HPS suggests you consider submitting comments to the USTR following the guidelines provided and reach out to the trade associations already engaged in lobbying this issue.

12-27-23: “Big Four bike brands can be crucial for retailer success.” Bicycle Retailer and Industry News by David DeKeyser: “When I read Rick Vosper’s October opinion/analysis piece, headlined “Nearly half of U.S. bike shops don’t carry any Big Four brands,’ my obvious reaction was; ‘but more than half do.’ And it must be pointed out that the stores that carry a Big Four brand sell far more than half the products being sold in the dealer channel. I believe that a counterpoint to Rick’s column is necessary for bicycle retailers who are looking to bring on a brand from the Quadumvirate (Rick’s term), or perhaps those who are considering opening or purchasing a store. They should consider both the positive and negative implications of working with a Big Four brand.” HPS Analysis: David DeKeyser called and talked to me before he penned his rebuttal to Rick Vosper’s article, and I told him basically what I have detailed in my rant above. I think both Rick and David are making the same error I did in assuming the pre-pandemic bicycle market and business is the same, or relatively the same, as the post-pandemic bicycle market and business. The simple fact is that it is not, and it is dramatically different enough that the premise that one or more of the Big Four bike brands are crucial for retailer success is not longer valid.

12-27-23: “Banking crisis plays out at America’s smallest lenders.” The Wall Street Journal: “The failure to anticipate how quickly the Fed would raise interest rates has upended banks big and small this year. Three bigger ones collapsed this spring, but it is community banks that have been in a full-blown crisis. The losses on long-term bonds have unnerved depositors, investors and regulators who have questioned how bankers failed to properly protect themselves from interest-rate risks. Community banks typically focus on plain vanilla lending, making a lot of small-dollar loans to businesses and households that fuel local economies. They also usually stay close home, serving deeply loyal depositors but limiting their diversity and reach. In the wake of the pandemic, that business model has proven problematic. The banks were flooded with deposits. But loan growth had been slow, so banks turned to parking deposits in Treasuries, mortgage-backed securities and municipal bonds. While normally considered safe, the market value of those securities fell when interest rates climbed. That left many banks sitting on billions in paper losses, raising regulatory and investor concerns.” HPS Analysis: For many small to mid-sized businesses, including bike shops, the health and financial position of their local bank is crucial to their business viability, and particularly if they have a loan renewal or new loan request to finance their business going forward. HPS advises that if you have a maturity wall or other financial obligation coming due this year, talk to your loan officer as soon as possible and find out if (1) your business is eligible for a loan extension or (2) if your business is eligible for a loan, and (3) what terms are now being offered. Do this as early as possible so there is still time to explore options and/or alternatives.

12-28-23: “Why corporate bankruptcies were up in 2023 despite the improving economy.” National Public Radio: “Imagine taking a Bird scooter to Rite Aid before heading to a WeWork, where you read a news article on Vice and then buying a gift on Bed Bath & Beyond’s website. What is this, 2018? No, this is 2023 and you’ve just interacted with five of the hundreds of companies that filed for bankruptcy this year. Most of these companies have not completely collapsed, but they are limping along. While most major indicators like inflation finally cooling off and consumer confidence improving, show the economy turning the corner, corporate bankruptcies this year have moved in the opposite direction.” “According to S&P Global Intelligence, there were 591 corporate bankruptcies in 2023, one of the highest bankruptcy totals since 2011. Only 2020, with 639 corporate bankruptcies, witnessed more. ‘This is the market swing we’ve been expecting for some time,’ said Brook Gotberg, a professor at Brigham Young University who specializes in bankruptcy law. ‘Bankruptcies are cyclical,’ Gotberg said. ‘There are periods of prosperity. Companies borrow. Then a spike in interest rates, and companies can’t refinance, and bankruptcies suddenly surge,’ she said. Chapter 11 gives a little bit of time for a company to get their act together and fix their problems,’ said Edward Altman, a bankruptcy expert at New York University. Altman also studies what are known as ‘zombie companies,’ which are firms that do not make enough money to pay the interest on their debt. They are called zombies because despite not doing the very minimum on their debt obligations, they still exist, even if their fundamentals are essentially dead.” “The number of zombie companies, Altman’s research has shown, has grown from 1.5 percent in the 1990’s to nearly 10 percent today among publicly traded companies in the world’s 20 largest economies. ‘Corporate zombies are on the rise, and I predict it is going to get worse in 2024, when an enormous amount of corporate debt is coming due and companies are facing difficulties trying to refinance or pay off that debt,’ Altman said, pointing out that for many of the companies, insolvency will be their likely fate.” HPS Analysis:  We may be fixating on the whole Chapter 11 thing, but 591 corporate bankruptcies in 2023, and 639 in 2020, with 2011 being the next largest year, reinforces our concern for what may be coming. The zombie company thing is also a concern and their growth to approximately 10 percent of the publicly traded companies in the world’s 20 largest economies, and more specifically China. We will now have to wait and watch as Edward Altman predicts: “Corporate zombies are on the rise, and I predict it is going to get worse in 2024, when an enormous amount of corporate debt is coming due and companies are facing difficulties trying to refinance or pay off that debt.”

12-28-23: “Surveyed retailers say this past year was one of the worst ever when corrected for inflation.” Bicycle Retailer and Industry News: “Our industry is awash in bad news. As we publish this in December, and Christmas layaways already a distant memory, it’s certain that 2023 will turn out to be the worst sales year this century when corrected for inflation.” HPS Analysis: There are a whole bunch of statistics from the survey questions and quotes from bike shop owners that complete the bulk of this article by Ray Keener, but the headline and 3.5 lines above tell the tale. The industry association won’t have 12-month year-to-date 2023 data for a month or so, but it is readily apparent that there was no up-tick in the bike business during the last quarter of 2023 and isn’t likely to be an increase during the first quarter of 2024. Meanwhile the industry trade association, to our knowledge, continues to claim it doesn’t have the funds to help sponsor the consumer research NBDA has proposed to get answers, or at least guidance, from consumers as to why they stopped purchasing bicycles and related products and services and just as importantly, when and what they will start purchasing in the future. Maybe the specialty bicycle retail channels were the only retailers that report “… this past year was one of the worst ever when corrected for inflation” but we doubt it. The mass merchant, full-line sporting goods and D2C channels have had their problems with demand and sales, with the end result that it was not a good year for the total U.S. bicycle business. HPS has already gone on a rant about the 2024 American bicycle market being totally changed from the pre-pandemic market and as Pete Drucker warned, “The greatest danger in time of turbulence is not the turbulence – it is to act with yesterday’s logic.”

12-30-23: “As 2023’s abysmal bicycle and accessory sales year wraps up, hand-wringing and debate over the drivers behind the downturn, and the timing for a potential rebound are ricocheting around the cycling media.” THE OUTER LINE AIRmail Weekly Newsletter: “Everyone – from YouTube content creators to established bike industry analysts – seems to have an opinion about supply chain prioritization changes, demand forecasting mistakes, and the collapse of traditional product distribution channels like Wiggle. However, most agree that the market has been flooded by the late arrival of 2023 products (and even some from 2022) just as 2024 products are being delivered. Fire sales to dump dead stock, highlighted by online retailers purges of Wiggle’s Nukeproof and Vitus brands, historic discounts on major manufacturer brands, heartburn suffered by local bike shops, and even a 2-for-1 Kona deal (!?), seem likely to continue to suppress sales into 2024 as well.” HPS Analysis: THE OUTER LINE provides a hard-hitting and candid narrative that HPS feels is an accurate picture of 2023 from the enthusiast portion of the market. We recommend you add the AIRmail Weekly Newsletter to your reading list.

12-31-23: “The rules of the road are changing, but not fast enough for everyone” National Public Radio: “Traffic fatalities in the U.S. are up sharply since the beginning of the pandemic, especially for pedestrians and cyclists. That’s bringing attention to a previously obscure federal manual that’s sometimes called the Bible of road design. Since 1935, the Manual on Uniform Traffic Control Devices has set national standards for street signs and road design, with major revisions every decade or so. The latest version runs to more than 1,000 pages. And while the MUTCD doesn’t get much attention outside of transportation circles, it has a major impact.” “Safety advocates have been urging federal officials to make the manual friendlier to pedestrians and cyclists in the first major revisions to the document since 2009.” In the latest version, the bicycle section is twice as large as it was in the previous edition. HPS Analysis: We think this is a fitting close to this month’s The Micromobility Reporter because it is all about the all-capital letter SAFETY that the American bicycle industry and business is going to have to address, and soon, if it hopes to gain back and grow the number of butts that get on bicycles, including e-bikes. The League of American Bicyclists (LAB) is very aware of the Manual on Uniform Traffic Control Devices, o“r MUTCD, and why the latest version doesn’t go far enough in addressing motor vehicle speed to make a significant reduction in pedestrian and bicyclist motor vehicle accidents, injuries and fatalities. Make plans to attend the LAB National 2024 Bike Summit, March 19-21 at the Martin Luther King Jr. Memorial Library. Washington, D.C, to support and advance pedestrian and bicyclist SAFETY.

Contact Jay Townley: jay@humanpoweredsolutions.com

WHAT JUST DIDN’T HAPPEN?

You may have noticed that a lot of things that were supposed to happen this year didn’t! Looking at the big picture, we are weeks away from the end of the year, and neither the recession in the U.S., nor the post-pandemic rebound in the Chinese economy, have come to pass. Perhaps the strangest non-event, from the standpoint of the big picture, has been the widely anticipated wave of corporate defaults.

This doesn’t mean that a wave of corporate defaults isn’t coming in the new year. It only means they haven’t happened yet. Bank of America points out that the bankruptcy of WeWork happened “relatively quietly,” even though it was the largest U.S, company to go belly-up since the global financial crisis (GFC) of 2007-2008, while last week the Austrian property group Signa became Europe’s biggest post-GFC insolvency.

The slow-motion crumbling of Signa has taken its U.S. business units with it, including those in the bicycle business, and the D2C channel is now without Wiggle as one of multiple negative results. Some of you in the bike shop channel of trade may applaud the demise of Wiggle, but be careful what you wish for.

What troubles me is the data showing that the financial strength of multinational and domestic companies has been declining for a while, a trend that was only briefly interrupted by the attempted restructuring and stress-testing during the wake of the GFC in 2008.

The economists HPS has looked at have employed U.S. companies’ Altman Z-scores, a measure developed by New York University professor Edward Altman, to estimate how close to bankruptcy a public company is.

In the last century, more than 50 percent of all public companies looked strong and healthy using Altman’s metric. That number has now dropped below 10 percent for the first time.

Many companies in the bicycle industry, both multinationals and U.S. domestic, are privately owned, so the Altman measurement of their financial health cannot be measured. However, it is logical that private companies will generally follow public companies relative to financial health.

HPS readily concedes that the Altman system may be outdated in the new era where intangible assets make up a far greater share of company balance sheets and do have value, but the point is that U.S. company financial strength and credit quality have degraded since the GFC.

We also recognize that the very biggest multinational U.S. companies, often referred to as the “Magnificent Seven” big-tech stocks, don’t need to worry about default, and it’s the large number of smaller companies, including many in the bicycle industry, that worries us.

The single biggest factor helping to push off bankruptcies to date has been the success of company CFOs and financial managers in negotiating long-term debt when they had the chance during the protracted low-interest rates that followed the pandemic.

But even a generous low-interest rate is going to expire, and the debt is going to have to be renegotiated. Companies are balking at renewing debt at much higher rates, but if they have not reached a place of relative financial stability or outright strength based on cost-efficient, JIT inventory that customers want, delivered at disinflationary prices that allow a positive net profit at competitive consumer prices, they have no leverage.

The end result is that they will have to assume debt at higher rates that will force internal changes to generate even modest net profits by reducing expenses and forgoing growth.

Too gloomy for the holiday season? Could be. However, we would rather err on the side of caution and have our clients and the bicycle industry develop business plans that create an attitude of optimism about profitably surviving to be a part of the future of the new, emerging micromobility industry and market.

Happy Holidays to You and Yours!

Contact:  jay@humanpoweredsolutions.com

THE HPS DECEMBER LETTER: E-BIKE NEWS, MARKET TRENDS, DEFLATION

11-3-23: “Maersk Cuts 3,500 Jobs, Reports Net Income Down 94.5%.Sourcing Journal: “Global container shipping titan A.P. Moller-Maersk is cutting its workforce by another 3,500 employees, with up to 2,500 of those in the coming months and the remaining 1,000 cuts extending into 2024. The cuts are part of a 10,000-employee layoff that started earlier this year to get headcount down to 100,000.” “The cuts at Maersk come as the shipping line announced third-quarter earnings. Sales in the period plummeted 46.9 percent to $12.1 billion from $22.8 billion a year ago. However, net income fell 94.5 percent to $489 million, down from the $8.8 billion generated in the year-ago period when ocean carriers were making record profits amid tight capacity and astronomical freight rates.” HPS Analysis: Ocean carriers have gone from feasting to famine in one year. Rates per 40-foot container peaked in early 2022, as did landed costs and pricing downstream to the consumer. In the 4th quarter of 2023, the question is whether the much lower ocean and domestic freight costs have been passed along in the reduced price of goods to retailers and consumers?

11-3-23: “Fox Factory to Buy Baseball-Softball Brand Marucci for $572 Million.” Bicycle Retailer and Industry News:  “Fox Factory is striking out in a new direction with the acquisition of Marucci Sports, a baseball and softball equipment brand. Marucci also owns Lizard Skins, which started as a bar tape company in Utah 30 years ago and has found new growth selling grip tape for bats and racquets.” “Fox also announced a sharp decline in sales in its bicycle-related businesses in the most recent quarter, which it blames on high inventory in the channel. Sales in the division were forecast to hit a ‘low water mark’ in the third quarter, but the results were $25 million lower than the company expected.” HPS Analysis: You have to read between the lines and also understand that there are two different “Fox” businesses. In this case, Fox Factory has experienced a decline in its bicycle-related businesses, and it is taking its cash to make an acquisition in the baseball and softball equipment business. What will happen to the financially challenged bicycle-related businesses remains to be seen.

11-3-23: “HLC Experiences Layoffs, Will Close Texas, Pennsylvania DC’s.” Bicycle Retailer and Industry News: “HLC had a round of layoffs that included some of its e-commerce business solutions team, while sources told BRAIN the South Carolina-based distributor will close its Texas and Pennsylvania distribution centers.” In September 2022, private equity firm MiddleGround Capital acquired HLC. HPS Analysis:  HPS ranks HLC as the number two independent bicycle business wholesaler to the IBD channel in North America. Number one, QBP, had previously announced layoffs. Now HLC, which was acquired by a venture capital firm in 2022 at the cresting of the pandemic-driven bicycle business surge, has announced layoffs and contraction in the face of unfavorable market conditions.   

11-4-23: “Honda Shows Off Its First Electric Bicycle.” electrek: “Honda is taking a page out of just about every other major automotive manufacturer’s playbook by debuting its first electric bicycle, the Honda e-MTB Concept. The bike was just shown off at the Japan Mobility Show in Tokyo, where it joined several other futuristic and/or brand-widening debuts from other leading Japanese motorcycle companies and automakers.” HPS Analysis: There is nothing unusual about a major automobile brand like Honda showing a “concept” e-bike at the fall mobility and automotive shows, never to be heard or seen again because they were just for show. What is unusual about the Honda e-MTB Concept is that the brand may actually be serious about going into production and entering the market. Rather than a design concept that can’t actually be produced, the e-MTB Concept is well-specified with name-brand, mainstream components, and could be produced by any number of quality OEMs for delivery into the 2024 marketplace. Distribution and marketing are just two of the remaining big issues, but Honda is well positioned if it decides to take the next steps.

11-6-23: “WeWork Files for Bankruptcy Amid Glut of Empty Offices.” The New York Times: “WeWork, the real estate company that offered start-ups and individuals sleek quarters to pursue their entrepreneurial dreams, filed for bankruptcy in the United States on November 6 after years of struggling to find its footing.” “WeWork listed 660 locations in 37 countries. Monday’s actions will not affect WeWork franchises outside the United States and Canada.” HPS Analysis: The bankruptcy of WeWork happened relatively quietly, even though it was the largest U.S. company to go bust since the global financial crisis. There was no major reaction by financial institutions or the government. Business and commerce just jogged along as if nothing much had gone down. To quote John Authers, a senior editor for markets and Bloomberg Opinion columnist, “Companies are going broke gradually, not suddenly. Like a U.S. recession or China’s post-Covid rebound, a wave of corporate defaults was anticipated this year but didn’t happen. That doesn’t mean it won’t.

11-6-23: “Analog Vs. Electric – Is This a Real Fight or a Discussion?” BikeMag: “Although we are on the same side of the fence regarding transportation, this discussion can still ruffle a lot of feathers. Can’t we all just get along? A fascinating debate has been growing over the last several years: the rhythmic hum of the analog bike chain versus the electrifying buzz of the e-bike revolution. As a member of the electric commuter squad who has spent his whole life as an analog rider, let’s pedal this discussion and dissect the merits of sticking to the classic pedal power or embracing the new wave of electrified cycling.” HPS Analysis: Bruno Long, the author, is pointing out an internal conflict that the bicycle industry in America doesn’t want to acknowledge:  the conflict between the hard-core analog bicycle aficionados, new e-bike riders, and the analog converts to e-bikes like the author. This most often manifests itself in communities where the hard-core analog bikers fight against allowing young e-bikers to ride on community bikeways and bike paths. The bicycling movement, with the goal of getting more butts on bikes, will be much better off if we can all just get along.

11-8-23: “Why Shein Isn’t Sweating De Minimis Reform.” Sourcing Journal: “Peter Pernot-Day is Head of Strategic Communication at Shein, and he was interviewed by Sourcing Journal. Shein has recently made significant investments in its U.S. supply chain despite the “…increasing weight of congressional scrutiny over Shein’s potential ties to forced labor in China’s Xinjiang Uyghur Autonomous Region, as well as its use of the de minimis provision in customs law to purportedly skirt duties, taxes or fees to the U.S. government, as well as any additional oversight.” “Our competitiveness comes from the fact that we have extremely low inventory waste, in many cases below one percent, and this almost sell-through-like nature of our business, Pernot-Day said. It’s technology enablement, it’s the use of machine learning, and very efficient production capabilities. If de minimis was to one day go away, Shein will still be able to compete on price, he said.” HPS Analysis: While Shein has been singled out as the single largest abuser of the de minimis exception, and its largest beneficiary, this article makes it clear that Shein has used its wealth and its ability to change its operations over time to arrive at a point where it is no longer dependent on the de minimis rule to underpin its U.S. business. While HPS agrees with the vast majority of what has been said about how bad de minimis is, and the very real safety hazard it has facilitated relative to lithium-ion batteries, it may be time to move the argument away from Shein and focus on other abusers, and excluding e-bikes and lithium-ion batteries from inclusion in treatment under the de minimis exception.

11-9-23: “Human Powered Solutions Chief Technology Officer Mike Fritz Has Been Accepted As A Member of UL Technical Committee 1487 on Battery Storage and Containment Standards.” Human Powered Solutions Press Release: “UL Standards & Engagement confirmed that the chair of the newly formed TC1487 approved Fritz’s membership application to the technical committee that will be developing and writing a test standard for lithium-ion battery storage and containment. HPS Analysis: Lithium-ion battery storage and containment has quickly grown as a vitally important subject for bike shops, wholesalers, and multiple occupancy buildings. New York City has recently promulgated a city ordinance that has established the laws and regulations that bike shops must now follow to store and charge e-bikes and lithium-ion batteries. The city of San Francisco is now considering a similar ordinance. Both and probably all future municipal ordinances provide cabinets to store and charge lithium-ion batteries for e-bikes and other micromobility devices. However, there are currently no safety standards that such cabinets must be tested and certified to a standard. That is what TC1487 has been convened to develop and publish. Mike Fritz, as a member, will represent the perspective of bike shops and the American bicycle industry.

11-9-23: “Rad Power Bikes Is Shutting Down Its New York Store In Latest Belt-tightening.” electrek: “Rad Power Bikes, a leading U.S.-based electric bicycle retailer, has just announced that it is closing its New York City retail store. The company didn’t give an exact date for the closure, but confirmed yesterday that the Brooklyn-based Rad store would be sunsetting. The retail location has operated for over a year and was part of Rad’s expansion into brick-and-mortar stores. That strategy sought to expand Rad’s U.S. retail presence to provide prospective customers with local shopping, servicing, and test ride opportunities. It was seen as a power move that smaller brands wouldn’t be able to match, helping Rad maintain an edge over the wave of low-cost yet lower-quality brands entering the U.S. market. Other Rad Power retail locations have opened in Seattle, Denver, Salt Lake City, St. Petersburg, Berkeley, Santa Barbara, Huntington Beach, and San Diego, according to GeekWire.” HPS Analysis: Rad Power Bikes is rated by electrek as the largest D2C e-bike retailer, with over 600,000 owner-riders since the pandemic started in March 2020. Rad has become a member of PeopleForBikes (PFB), and its founder and CEO served on the PFB board of directors. Over the last three years, Rad Power Bikes has been the subject of a wrongful death lawsuit and several other product liability-related litigations. The company, which at one time had a valuation over $1 billion, has recently announced layoffs and the shutting down of its European operations effective the end of this year. Belt tightening continues as the largest of the new wave of D2C e-bike retailers struggles, with the rest of the American bicycle business, with a slowing in consumer demand.

11-10-23: “Ringing in the Holiday Season with Consumer Sentiment At A 6-Month Low.” Marketplace: “Americans are still feeling pretty grumpy about the economy, according to the latest consumer survey from the University of Michigan. Sentiment dropped for the fourth straight month in November to a new six-month low, which could spell trouble for the all-important holiday shopping season. But as we’ve talked about before, consumers’ feelings and how they spend haven’t always lined up in this weird post-lockdown economy.” HPS Analysis: This is one of the great conundrums of both the economy and the bicycle market in the U.S.. The American consumer has continued to spend in the face of inflation, but not on bicycles. This is the subject of a number of articles and analyses this month, and hopefully will be the subject of a much-needed consumer research study that the NBDA has been soliciting brands and suppliers for sponsorship. So far HPS understands that the supply side has informed the NBDA that it cannot afford the sponsorship cost. Go figure. The NBDA is offering an answer to one of the most important questions the supply side needs to get to the future. Now the same companies that made a pile of cash during the great pandemic demand surge say they cannot afford it?

11-10-23: “Bike Shop Brands Are Finally Giving E-bike Riders What They Want: Throttles.” electrek: “To grossly oversimplify the e-bike market in the U.S., there are two types of electric bikes: those with hand throttles and those without. Traditionally higher-end bike shop brands have long eschewed throttle-enabled electric bikes, opting instead for pedal assist designs that only provide helping motor power when the rider also pedals. On the other hand, direct-to-consumer (D2C) e-bike companies have long embraced throttle e-bikes. As D2C brands scoop up more of the growing market, traditional bicycle brands are starting to take note.” HPS Analysis: This is one of the most interesting facts to come out of the NBDA 2021-2022 consumer research. A large percentage of e-bike riders, mostly women, said they wanted a throttle on their next e-bike. At least three of the Big Four have figured this out, but instead of adding throttles to their top-tier brands, they have added them to their secondary offerings. Trek now has a moped-style model with a throttle in its Electra line. Specialized has a moped-style model with a throttle in its Globe line. Giant has a moped-style model with a throttle in its Momentum line. HPS has also noted that the secondary brand offerings also are more affordably priced at around $2,000 MSRP, and are available either D2C or direct with store pick-up or delivery. This is also a very clear sign that the American bicycle market has shifted appreciably from the beginning of the pandemic to the end of 2023. It is no longer your father’s bike business.

11-10-23: “Round of Applause for Amazon, Who Is No Longer Selling Illegal E-Bike Batteries to New Yorkers. Finally.” Bicycling Magazine: “In a significant step forward for fire safety in New York City, Amazon is now at least partially in compliance with new city laws banning the sale of uncertified e-bike batteries. E-bike safety continues to be a serious issue in New York City, where thousands of delivery workers rely on the vehicles each day for work. Earlier this year, New York City passed Local Law 39, which makes it illegal for anyone to sell batteries to New Yorkers that don’t meet certain safety standards.” HPS Analysis: HPS agrees that this is a big step in the right direction. With this said, Amazon, Walmart, and all of the D2C retailers reaching into New York City and beyond need to more aggressively require their e-bike and lithium-ion products and their third-party sellers to test, certify and list to UL 2849 and UL 2271 ASAP.

11-13-23: “Vosper: Top-ten Bike Brands Have Shifted Significantly Since 2010.” Bicycle Retailer and Industry News: “Make no mistake: when it comes to bikes, we are still very much a dealer-driven industry. Absent pure D2C labels like Canyon, the enormous majority of both brand prestige and sales dollars for most bike companies comes down to the strength of their dealer networks.” “Gain more dealers over time, your brand strengthens. Lose them, and you weaken. All of which makes the size of a brand’s dealer network one good indicator of its overall health.” “Christopher Georger’s company, Georger Data Services, keeps track of those indicators.” HPS Analysis: Rick Vosper has done his usual great job of researching and explaining the status of the bike shop market segment in the U.S. Rick reached out to Georger Data Services. Between them they have discovered and disclosed that the “Top-ten bike brands have shifted significantly since 2010.” HPS agrees! However, we have real concern that the U.S. bicycle industry is no longer “dealer-driven.” There is no question that bike shops and specialty bicycle retailers are an important segment, but the rise of D2C and the e-bike product segment have created profound changes in the U.S. bicycle industry and market construct that defuse and remix market segments. While still very much a work in process, HPS hopes to bring more clarity to its findings in the coming months. Meanwhile – good job Rick.

11-13-23: “Bad Consumer Sentiment Is Not Surprising.” Financial Times Unhedged: “And sentiment is not getting any better even as the inflation rate grinds down and markets stage a recovery. The preliminary November reading for the University of Michigan consumer sentiment survey was 60.4, the lowest since May and consistent with the miserable sideways trend that extends back almost two years. At Unhedged we don’t find this surprising at all. Prices are up almost 20 percent since the pandemic began. The price of food is up 24 percent, energy 37 percent. That this should make the world feel malign and unpredictable is only natural. It doesn’t matter that wages have, on average, kept pace. If I get a raise, I earned it; it is not a mere symptom of a strong national output. If the price of food is spiraling upwards, that’s a bad economy, or the government’s fault. Nor does it matter that the rate of inflation has fallen. People don’t see the rate of change on the side of a gallon of milk. They see a price that is vastly different from what it once was. Even so, one might ask why sentiment has not improved even as arguably the most important price of all – petrol – has come down in the past six weeks. That can be explained by the fact that while consumer sentiment can fall quickly, it is slow to recover. It is like a personal reputation: built slowly, gone in an instant.” HPS Analysis: Sentiment and spending do not have to travel together. We will visit this inconsistency several times through this month’s articles because the fact that consumer sentiment about the economy is inconsistent with consumer spending is an important factor going forward.

11-13-23: New Partnership Aims to Encourage U.S. E-bike Manufacturing.” Bicycle Retailer and Industry News: “The co-founders of Propel Bikes and Vela Bikes announced November 13 the creation of Bloom, a vertical integration partner for light electric vehicles, with its first manufacturing location in the Motor City. Leading Bloom will be Propel’s Chris Nolte and Vela’s Justin Kosmides, who will collaborate with micromobility strategic partners to provide domestic contract manufacturing, assembly, delivery and servicing. Propel operates three e-bike retail stores, located in New York, Delaware and California. Vela is an e-bike brand that began in Brazil and relocated to Brooklyn, New York.” HPS Analysis: Bloom’s partnership with Newlab in Detroit’s Michigan Central innovation district will offer “flexible, specialized manufacturing capabilities and world-class prototyping equipment.” This is according to the founders. However, we caution that efficient and profitable domestic U.S. bicycle/e-bike manufacturing is not easy to scale up to consistently deliver quality products. All Bloom has to do is go down the block and visit Detroit Bicycle, or maybe they already have.

11-13-23: “Anger Is What’s Driving the U.S. Economy.” Bloomberg Opinion: “A deep-seated resentment about a ‘rigged’ system has been simmering since long before the pandemic and continues to affect consumer attitudes. As it turns out, the big economic story of 2023 is not a recession, as many had predicted. It’s the disconnect between consumer sentiment and behavior. Higher than normal inflation over the past two years is an obvious reason that people would be down about the economy. The puzzle is why people are still behaving as if their economic situation is good. Inflation-adjusted consumer spending is way up, not only above 2019 levels, but above the pre-pandemic trend. In fact, it’s largely the reason that U.S. economic growth is above expectations. And yet consumer sentiment is at levels typically seen only in a recession. All of which raises the question: What’s going on? HPS Analysis: Part of the question is why is the gap between consumer attitudes and action in spending so large. Betsey Stevenson, Ph.D., the author of this Bloomberg Opinion piece, is a professor of public policy and economics at the University of Michigan. She opines that “Much of the economic anger expressed in the polls may be less about current economic conditions and more about the economy the U.S. has built over the past 40 years: one of high and rising inequality, with greater economic fragility due to higher income volatility and a reduced safety net. A deep-seated anger about how the economy is ‘rigged’ has been simmering since long before the pandemic. This anger, mixed with the real pain of inflation and the frustrations borne out of cognitive bias and partisan politics, has created a toxic stew. The result is that, at a moment when America should be celebrating an economy that has outperformed both expectations and its international competition, people are gloomy and anxious. Like a dysfunctional family, we are heading into a holiday season overflowing not with joy but with resentment.”

11-13-23: “Three Economic Risks Facing America in 2024.” The Economist: “America’s economy in 2023 provided a lesson in humility for forecasters. Before the year began almost all predicted that it was for sluggish growth at best, and a recession at worst. The logic was simple: beating inflation was bound to be painful. Instead, America powered ahead at an annualized pace of roughly 2 percent growth, even as inflation receded. This has persuaded many analysts to ditch their gloom. Their median forecast heading into 2024 is that America will avert a recession and get price pressures under control. This would qualify as a ‘soft landing’ after the inflationary scare of recent years. But, given how wrong many were in 2023, it is worth asking if the same is possible in 2024. Three dangers stand out. First, there is always a delay between when central banks raise interest rates and when the economy feels the effects. In 2023 consumers and companies had savings that limited their need for financing. In 2024 they will have thinner buffers, thus increasing their exposure to higher rates. Second, even though the Federal Reserve may have finished raising interest rates, real rates will become progressively more restrictive as inflation falls. Finally, cracks are showing. Unemployment, though still low, is ticking up. Once an economic slowdown gets under way, it risks feeding off itself.” HPS Analysis: There are always risks. Lots of things were supposed to happen this year but didn’t. The strangest non-event from the HPS perspective has been the anticipated wave of company and corporate defaults that were anticipated during the last quarter of this year. That doesn’t mean they aren’t coming. The three dangers referenced above support our concern that companies and corporations, large and small in the global bicycle industry, are for the most part going broke gradually and will take their time, either solving their financial problems through downsizing, mergers, acquisition, refinancing, or not.

11-14-23: “Why Businesses Are Pulling Billions in Profits from China.” BBC News Business: “Foreign businesses have been pulling money out of China at a faster rate than they have been putting it in, official data shows. The country’s slowing economy, low interest rates, and a geopolitical tussle with the U.S., have sparked doubt about its economic potential. All eyes will be on a crucial meeting between Chinese leader Xi Jinping and U.S. President Joe Biden this week. But businesses appear to be already erring on the side of caution. HPS Analysis: Taiwanese business interests own or control over 70 percent of the Chinese export business to Western countries and markets. Given the geopolitical tensions between Taiwan and the PRC, Taiwanese companies started taking their profits and some of their investments out of China starting, HPS understands, in 2022. Obviously, much bigger global businesses are now engaged in “pulling billions in profits from China.” This is part of the reason President Xi Jinping agreed to meet with President Biden in San Francisco in November. However, there is no indication that making multinational businesses confident and comfortable investing and keeping profits in China didn’t come up, and has not yet been addressed despite the best efforts of the U.S. secretaries of Commerce and Treasury. As far as HPS knows, Taiwanese profits from the Chinese export bicycle business remain out of the PRC.

11-14-23: “Taller Cars and Trucks Are More Dangerous for Pedestrians, According to Crash Data.” National Public Radio News: “American cars and trucks keep getting bigger, and new research suggests that additional height comes at a steep cost to safety. Vehicles with higher front ends and blunt profiles are 45 percent more likely to cause fatalities in crashes with pedestrians than smaller cars and trucks, according to new research published November 14 by the Insurance Institute for Highway Safety.” HPS Analysis: While American cars, vans and pick-up trucks have become safer for drivers and passengers, they have become much more dangerous to pedestrians and bicycle riders. The League of American Bicyclists (LAB) has launched a campaign to put pressure on the National Highway Safety Administration (NHTSA) to write rules and regulations to protect and make it safer for pedestrians and bicyclists on American roads. The rest of the bicycle business and community needs to get on board with this LAB initiative as soon as possible, because HPS believes this is one of the issues that has contributed to the recent decline in consumer demand for bicycles.

11-14-23: “U.S. Inflation Eases as Lower Gas Prices Offset Rent Rise.” BBC News Business: “A drop in petrol prices last month helped to drive U.S. inflation to the lowest rate since July. Prices increased at a rate of 3.2 percent over the 12 months to October, the Labor Department said. That was down from 3.7 percent a month earlier. Housing costs continued to climb, but overall price pressures were milder than analysts had expected, suggesting the country’s fight against inflation may nearly be over. From September to October, the price index, which measures prices of a basket of items, was unchanged. Stripping out food and energy prices, which tend to fluctuate and mask wider trends, prices rose by 0.2 percent, easing from a month earlier.” HPS Analysis: Conventional wisdom says that gas prices at the pump are a good indicator of when consumers will buy bicycles. However, post-pandemic there has been a definite disconnect between the retail price of a gallon of gas and both the purchase of bicycles and consumer sentiment. Overall, the drop in gas prices has been highly noticeable across the country during the last quarter of the year, and it has fallen in line with the time-worn conventional wisdom that holds that consumers don’t rush to buy bicycles when gas prices go down.  

11-15-23: “U.K. Bike Industry Bodies Issue E-bike Battery Guidance as New Safety Bill is Proposed.” Bike Europe: “An increase in e-bike battery fires in the U.K. has prompted a call for new legislation to mandate the safety of e-bike batteries including third-party approval. In response, two cycling industry trade bodies in the U.K. have joined forces to issue guidance sheets for the industry and called for stricter enforcement of product safety for products supplied to the U.K.” HPS Analysis: The Bicycle Association (BAGB) and the Association of Cycle Traders (ACT), have issued a joint response to the legislation proposed by Electrical Safety First (ESF) on e-bike fire safety. The new legislative proposal would require immediate mandatory third-party approval of e-bikes and battery packs, among other aspects. The NBDA has brought this initiative in the U.K. to the attention of PeopleForBikes (PFB), and offered to cooperate in a joint industry campaign to issue e-bike battery guidance to the American public.

11-15-23: “Target Earnings Smash Expectations but Sales Fall as Consumers Delay Spending.” Chain Store Age CSA: “Target Corp. reported third-quarter earnings and sales that easily topped Street estimates as strength in beauty and other ‘frequency’ categories helped offset ongoing weakness in discretionary spending. On the company earnings call, chairman and CEO Brian Cornell said that while consumers are still spending, pressures like higher interest rates, the resumption of student loan repayments, increased credit card debt and reduced savings have left them with less discretionary income, forcing them to make trade-offs in their family budgets.” HPS Analysis:  Target is the second largest mass merchant retailer of bicycles in the U.S. Target’s net income “surged” 36 percent while sales decreased 4.3 percent and same-store sales fell 4.9 percent. Digital sales declined by 6 percent. The number of transactions was down 4.1 percent and the average transaction amount was down 0.8 percent. For the fourth quarter, Target expects same-store sales to decline to the mid-single-digit percentage range.

11-16-23: “Walmart Sinks on Cautious Consumer Outlook, Late-October Dip.” Bloomberg Markets: “Walmart Inc’s stock fell the most in more than a year as the retailer struck a concerned tone on the outlook for U.S. shoppers after signs of weakness in the second half of October. There was a ‘sharper falloff’ in sales during the last two weeks of the fiscal third quarter, which ended Oct. 31, said Chief Financial Officer John David Rainey. While the exact cause is hard to identify, higher interest rates, dwindling savings and student loan repayments are weighing on demand, he said. November is off to a good start so far, thanks in part to promotions and holiday shopping. We are more cautious on the consumer than we were 90 days ago at this time, Rainey said.” HPS Analysis: Walmart is the largest retailer of bicycles in the U.S.  While its stock fell in late October, Walmart’s U.S. sales rose 4.9 percent during the three months ending in late October, while Target and Home Depot reported sales declines.

11-16-23: “Five Things We Learned from the Biden-Xi Meeting.” BBC News: “While officials tried to keep expectations low before the meeting between Joe Biden and Xi Jinping on Wednesday, the encounter resulted in agreements on several key issues.” “Here are five things we learned from their California talks:”

  1. There was common ground on climate.
  2. They agreed to tackle fentanyl trafficking.
  3. After a tense period, military communication will resume.
  4. Talks will continue.
  5. Pandas as “envoys of friendship.”

HPS Analysis: The fact that there were five things from the Biden-Xi meeting that the BBC learned is significant in and of itself. However, easing restrictions on foreign investments and businesses in China was not discussed and was left unaddressed. We will have to wait and see if there is any progress in business relationships going forward. But for now, no change.

11-16-23: “National Bicycle Dealers Association Retailer Summit to be Held in Bentonville, Arkansas.” NBDA Press Release – Irvine, CA: “The National Bicycle Dealers Association (NBDA) is pleased to announce the second annual Retailer Summit, to be held in Bentonville, Arkansas on May 22 and 23, 2024. The event will take place at the 21C Museum Hotel Bentonville and is expected to attract retailers from across the country. The Summit ties in with the Bentonville Bike Fest, a three-day festival featuring over 120 brands in expo, races, and consumer events for a dynamic, multi-day industry gathering in the mountain biking capital of the world.” HPS Analysis: This is excellent news from the NBDA. The second annual Retailer Summit at the beginning of the 2024 high-selling season will bring together some of the best minds in the bicycle business to discuss the future and what it holds for the evolving American market and business. HPS is a sponsor and is looking forward to attending and actively participating in this landmark event.

11-16-23: “Walmart CEO Says Shoppers Could See Falling Prices in Coming Months.” Bloomberg: “The head of the world’s largest retailer just used the D word on an earnings call: deflation. ‘In the US, we may be managing through a period of deflation in the months to come,’ Walmart Inc. Chief Executive Officer Doug McMillon told analysts on an earnings call November 16. Granted, prices of Walmart’s U.S. groceries and general merchandise are higher than a year ago, and sharply up on a two-year basis. But McMillon said the increases are slowing and could even begin to reverse. “If that happens, Walmart shoppers could start to see deflation – or a decrease in prices – in dry groceries and consumables in the coming months,” he said. Dry groceries are items such as canned goods and pasta, while consumables refers to day-to-day products such as toothpaste. General merchandise prices “came down a little more aggressively in the last few weeks or months, he added.” HPS Analysis: This may be the most significant pronouncement this year. The CEO of the largest retailer in the U.S. has cautioned that the country is headed into deflation and a decrease in retail prices. Retail prices for bicycles have roughly doubled since the pandemic started, and over the four quarters of 2023, have been pounded down by discounts and price reductions to move a glut of excess inventory. Deflation doesn’t mean retail prices for bicycles and related products will not go back up as the market begins to stabilize, but it does mean that retail prices will be affected by declining costs in the supply chain, and retail prices will settle into new, lower MSRPs.

11-16-23: “Walking has Plummeted Across America.” AXIOS: “There’s been a staggering decline in the number of trips Americans take by putting one foot in front of the other, per a new report. Why it matters: Walking is good for us. That’s true both on an individual level (thanks to the many health benefits it confers) and in the big-picture climate change sense (given that it’s the OG form of zero-emissions travel). In every metro and state that StreetLight analyzed, walking trips declined over the three-year period by at least 20 percent per the report. The rate of decline slowed from -16 percent between 2019 and 2020 and -19 percent between 2020 and 2021, to -6 percent between 2021 and 2022. But that’s still a significant overall drop, from about 120 million trips in 2019 to fewer than 80 million in 2022. HPS Analysis: According to StreetLight, who conducted the study, “It’s clear that the pandemic had an “obvious impact” but beyond that, the group isn’t sure what’s keeping Americans off their feet. Active transportation – that is, walking and biking – accounted for just 10 percent of overall trips in 2022, down from 14 percent in 2019. Driving, however, is only four percent below 2019 levels, yet another sign that America is a country of car lovers. Walking is so fundamental. How can Americans not walk? But the data reveal that over the three years from 2020, 2021 and 2022, walking declined by at least 20 percent. Bicycle riding participation didn’t decline, but it was only up a couple of percentage points, and consumer purchases of new bicycles declined from 2021 to the present. This is yet another inconsistency in post-pandemic consumer behavior.

11-17-23: “Retailer Supply Chain Costs Receding.” The Wall Street Journal Logistics Report: “Lower supply chain costs for retailers may be reaching store shelves. Some merchants say inflation has cooled in many categories, and the WSJ’s Sarah Nassauer and Suzanne Kapner report that retail giant Walmart has seen prices for nonfood items come down more aggressively in recent weeks. Higher prices have helped prop up sales revenue for many retailers as consumers have pared some of their discretionary spending. Walmart saw its U.S. comparable-store sales rise 4.9 percent in the three months ended Oct. 27. Now, Walmart CEO Doug McMillion says the company would need to further reduce expenses as prices fall further. Cost savings are already coursing through shipping operations. Diesel prices are down nearly 34 cents a gallon in the past two months. The Cass Freight Index measure for freight rates in the U.S. domestic markets is down 15.2 percent since January and the Drewry World Container Index is off 39 percent since last December.” HPS Analysis: If higher prices have been propping up sales revenue at America’s bike shops, that is about to end. Lower supply chain costs are flowing through the channels of trade to product prices, reducing gross sales and net revenue as unit volume declines.

11-20-23: “National Bicycle Dealers Association Establishes Bicycle Industry Retailer & Supplier Best Practices Panel.” Bicycle Retailer and Industry News: “The National Bicycle Dealers Association (NBDA) is proud to announce the formation of the Bicycle Industry Retailer & Supplier Best Practices Panel, a collaborative effort bringing together top retailers and suppliers in the bicycle industry. This initiative aims to formulate best practices that contribute to the positive financial health of both suppliers and retailers on a global scale. Scheduled to convene for its inaugural meeting on January 16, 2024, the panel will address a wide array of critical topics integral to the success of the bicycle industry. Key areas of focus include supplier health, retailer health, D2C & e-commerce, human resources, ridership numbers, marketing cycling in general, and the impact of the change in consumer spending habits.” HPS Analysis: A forum to objectively discuss bicycle industry retailer and supplier business practices is long overdue and congratulations to the National Bicycle Dealers Association (NBDA) for launching the Bicycle Industry Retailer & Supplier Best Practices Panel. HPS is looking forward to participating in the inaugural virtual meeting of the Panel on January 16, 2024.

11-20-23: “Taiwan’s Top 3 Face Further Sales and Profit Slumps in Q3 Results.” Bike europe/Jo Beckindorff: “Taiwan’s top three bicycle and e-bike producers, Giant Manufacturing Company Limited (Giant Group), Merida Industry Co., Ltd. and Ideal Bike Corporation, have presented their Q3 financial results. All three are mainly affected by the sales and profit slumps oF the valuable western market. In the long term, and due to the rising awareness of bicycles and e-bikes as an urban mobility solution, the trio forecasts a bright future. However, at the present time there are some hurdles to face, primarily the continued high inventory level within all local sales networks.” HPS Analysis: All of Taiwan’s “top 3” are public corporations traded on the Taipei stock exchange. Giant Group net profit 3-months year to date was 44.6 percent lower than the same period a year ago, Merida’s pre-tax profit was 25.5 percent lower, and Ideal posted a net loss for the period of €4.25 million. All three pointed to continued high inventory levels within all local sales networks, along with reduced demand, for-profit slumps. Without having higher retail prices to prop up sales and facing higher interest rates on borrowings, the Taiwanese “Top 3” faces a challenging 2024.

11-21-23: “The Two Biggest Problems With Electric Bikes Aren’t Even About E-bikes.” electrek: “The rise of electric bicycles is leading to a critical shift in urban transportation, bringing with it the potential for cleaner cities, reduced traffic congestion, and a boost to riders’ physical and mental health. However, there are still two significant barriers preventing many from adopting this green mode of transportation. The strange thing though is that neither of the two biggest problems with e-bikes are even about e-bikes themselves.” The two biggest problems are identified as:

  • The deadly risk of cycling on roads
  • The lurking threat of bike theft

HPS Analysis: HPS has referenced the increasing road accident, injury and fatality data as one of the reasons we believe demand for new bicycles has declined during 2023 and will continue into 2024. Last month we mentioned safety as a key issue that the American bicycle industry must address across the board and as quickly as possible in order to win back consumer confidence in bicycling as a solution.

11-22-23: “Harley-Davidson’s E-bike Company Sold Off in Surprise Deal, Planning U.S. Production.” electrek: “Serial 1, the premium electric bicycle brand originally started by Harley-Davidson, announced today that it has been acquired by a Florida-based manufacturer of light electric vehicles. The shake-up lays the groundwork for Serial 1 e-bikes to be produced in the US, according to a joint statement. HPS Analysis: Reshoring Serial 1 e-bike production in the U.S. is a good thing if it can be accomplished in a consistent and profitable way. The bigger surprise is Harley-Davidson divesting of its e-bike business now, at the end of 2023. We don’t know the details of the purchase price or the terms of the deal, or what has been committed to related to manufacturing, distribution or marketing, in a less-than-robust market.

11-27-23: “Retailers Lean on Tight Inventories.” The Wall Street Journal Logistics Report: “Retailers believe they’ve finally got inventories in the right place after several years of pandemic-driven volatility sent stockpiles and profit margins on a roller-coaster. Merchants this year are heading into their crucial holiday sales period with warehouses no longer overstuffed with mismatched merchandise, and store shelves lined up for steady seasonal demand. The WSJ Logistics Report’s Liz Young writes retailers ranging from Walmart and Target to more specialized sellers like Best Buy and Dick’s Sporting Goods, have pared back their inventories while trying to focus their supply chains more tightly on products that shoppers want. Forecasting fast-changing consumer demand was a major challenge for retailers during the pandemic. This year’s fourth quarter marks a test of new forecasting efforts, and of a disciplined focus on profit margins rather than top-line revenue. Supply-chain flexibility is a major focus this year, including an effort to keep inventory “fresh and clean.”HPS Analysis: We have reported the recent Q3 revenue and earnings from America’s top retailers and most have acknowledged their getting inventories under control and streamlined to better meet consumer demand during the critical year-end shopping season. New-found profitability is based in large part on new forecasting systems that rely more on AI than previous systems. HPS is concerned that little or nothing has been heard about new forecasting, ordering or inventory management systems within the American bicycle business, and we are concerned that the required investments are not being made, or will be made too late to help make necessary corrections.

12-3-23: “The Impact of Healing Supply Chains Is Reaching Deeper Into Consumer Markets.” The Wall Street Journal Logistics Report: “After a historic run-up in inflation, Americans are now starting to see deflation in some goods categories, and economists say goods prices likely have further to fall. The WSJ’s David Harrison reports that prices for durable goods have fallen on an annual basis for five straight months, and were down 2.6 percent in October from their peak in September 2022. That’s a sharp reversal from last year, when product shortages, snarled supply chains and surging consumer demand sent prices soaring. Durable goods inflation peaked at a 47-year high of 10.7 percent in February 2022. One report shows that supply disruptions such as shipping backups accounted for roughly half of the run-up in inflation in 2021 and 2022. The White House estimates that better-functioning supply chains accentuated by weaker demand account for roughly 80 percent of the fall in inflation since 2022.” HPS Analysis: There is the D word again, deflation, and it’s happening in some durable goods and in a growing number of supply chains. The chart below tracks the durable goods pricing against services and the personal expenditures price index from 2016 to the present. Bicycle retail prices, like Icarus, may have flown too close to the sun, and now they have fallen back to earth.

THE HPS NOVEMBER LETTER: THE EYE OF A HURRICANE

“We Are in the Eye of a Hurricane!” HPS Comment: The conflicts and loss of life reported in October 2023 have pushed geopolitical and economic news and reports of consumer behavior to the corners of the news cycle and for good reason. HPS Analysis: The industry trade press has, from our perspective, been split, with the European trade publications doing more hard-edged and in-depth reporting about the press releases announcing third-quarter revenue and earnings, financial difficulties, including excess inventory and bankruptcies, compared to the U.S. trade press. This includes the recent SHIFT23 event held in Bentonville, Arkansas, that didn’t spend any time, with the possible exception of the insightful presentation by Raymond Gense, Pon Holdings director of future technology, discussing the very real business and financial challenges the American bicycle business is facing today or, more importantly, what the industry can do collectively to improve the future. October was like being in the eye of a hurricane. After being buffeted by high winds and rain there is this worrisome calm that will be followed by another wave of high winds and a winter storm.

October 1: “E-bike Popularity is Surging, Creating Regulatory Challenges on U.S. Roads.” PBS NEWS: “The popularity of bikes with electric motors has soared recently, with U.S. sales topping $1.3 billion in 2022. But while e-bikes are being hailed as a more accessible mode of transportation, their introduction hasn’t been the smoothest ride. Ali Rogin speaks with Molly Hurford, who writes about e-bikes for Bicycling magazine and co-hosts the Consummate Athlete podcast.” HPS Analysis: We urge you to access and read this complete interview with Molly Hurford. What you will find is a still-developing e-bike safety and regulatory landscape that is multifaceted and growing more complex by the day. In addition to the New York City lithium-ion battery fire issue, the city mandate of UL 2849/2271 voluntary third-party standards, and U.S. CPSC development of mandatory federal product safety standards, there is a League of American Bicyclists (LAB)-led safety initiative aimed at the National Highway Traffic Administration (NHTSA), along with a new Coalition For Cyclist Safety (C4CS) advocating for V2X technology in North America, and demands for user requirements and enforcement to address e-bikes on both public roads and off-road facilities and trails. If you are keeping score, that’s a total of five major e-bike safety issues and initiatives that require urgent and immediate response.

October 5: “America Has a Bankruptcy Problem.” Bloomberg: “Rapid rate hikes have helped fuel an increase in company failures this year, and there’s probably more pain to come.” “The surge in U.S. interest rates over the past year has come at a historic pace, and some industries are having a hard time keeping up. Bankruptcies are rising at the fastest rate since the pandemic, but companies are still taking on more debt, possibly a sign the Fed’s work may not be done.” HPS Analysis:  All the signs over the last month indicate more bankruptcy filings over the coming months. Keep in mind that there is actually a growing and financially rewarding business being done in buying brand name companies and individual brands out of bankruptcy protection, pumping capital into them, and taking them back to the market. During the pandemic, big money in the form of venture capital and private equity bought into the bicycle business, and their financial requirements and pressure from their stakeholders will be a factor in what companies and brands are taken into Chapter 11 and 7 over the next two quarters.

October 6: “China Is Becoming a No-Go Zone for Executives.” Wall Street Journal: “Foreigners are thinking twice about business trips to the country after Beijing has barred some executives from leaving.” “Foreign executives are scared to go to China. Their main concern: they might not be allowed to leave. Beijing’s tough treatment of foreign companies this year, and its use of exit bans targeting bankers and executives, has intensified concerns about business travel to mainland China. Some companies are canceling or postponing trips. Others are maintaining travel plans but adding new safeguards, including telling staff they can enter the country in groups but not alone.” HPS Analysis: Within the supply chain there is no doubt that China remains the largest single source of complete bicycles, including e-bikes, and for the majority of components and raw materials required for fabrication and manufacturing, and will be for some time to come. Frequent round-trip travel to China from North America, Europe, and Taiwan is very important to the current supply chain process, as was evident during both the pandemic and post-pandemic. Until the bicycle business substantially changes the supply chain process, managers and executives are going to have to continue to travel to China, even as the difficulties and risks increase. The early adopters who innovate effective changes in the supply chain process will mitigate this risk and also gain an advantage over the competition.

October 8: Big-Company Bankruptcies Hang Over Economy.” Wall Street Journal: “Businesses that loaded up on debt when interest rates were lower now face a growing risk of failure. Business bankruptcies are rising briskly. What’s even more worrisome: many of the troubled companies are large. Corporate behemoths including SVB Financial, Bed Bath & Beyond, and Yellow sought Chapter 11 bankruptcy protection this year. The filers blamed elevated inflation, higher interest rates, waning government aid, and lingering supply-chain disruptions. More corporate filings are likely on the way as high interest rates push big companies over the edge.” HPS Analysis: Pre-pandemic the bicycle business was not populated by many big companies. As the pandemic created the surge in demand for all things bicycle between 2020 and 2022, venture capital and private equity stretched out and rolled up or consolidated brands into big companies like Vista Outdoor and Signa Sports United, whose current financial problems will definitely have an impact on the bicycle business going forward. 

October 9: “Retail Needs Promotions to Survive ‘Picky’ Consumers and Weak Sales.” Sourcing Journal: “Growth in the global retail and apparel sectors stalled, but the industry should see modest growth in 2024, according to credit analysts at ratings firm Moody’s Investors Service. They also expect that U.S. retailers will continue to face margin pressures as weak sales outpace inventory cutbacks.” “The analysts expect U.S. retailers to experience continued margin pressure over the next six to nine months as they readjust inventory levels to reflect weakening retail sales. Most retailers in the discretionary space, apparel and footwear retailers in particular, overestimated demand and were caught off guard by how picky consumers have become in their spending as they grappled with a higher cost of living. As consumers dial back on spending, retailers will need to ramp up promotions to clear out inventory. That’s because even though inventories are lower than their peak in August 2022, they are still higher than May 2022. Credit analysts believe retail inventory levels will need to fall further to align with weaker sales. They expect promotions to increase over the next six to nine months as retail sales falter.” HPS Analysis: Bike shops are for the most part truly small retailers, and need to be very aware of their financial situation to understand and gauge if their sales are truly weak, moderate, or good before developing and fielding a merchandising and sales plan. Yes – a plan. Carefully consider your expenses, cash on-hand and realistic sales projections. What is your current inventory and what is on order and due to be received? What is your turnover rate and is there inventory that you need to place on sale and turn into cash, and at what price and margin? What can you do as a retailer to make the inventory you have to sell appealing to “picky” consumers, and can you afford the promotion to make it happen? Make a plan, write it down, revisit your plan with financial information and results weekly if necessary, and don’t hesitate to cut costs, including staff, if that’s what it is going to take for your business to survive.

October 9: “Owning a Car Has Never Been This Expensive.” The New York Times: “Pandemic disruptions drove the expenses associated with owning a car through the roof, creating a financial burden that many drivers didn’t bargain for. For millions of Americans, cars are a necessity to get to work, to carry children around, and to buy food. In recent memory, they’ve also never been as expensive to own. According to AAA, the average annual cost in the first five years of new-car ownership rose to $12,182 this year, from $10,728 last year, reflecting increased purchase prices, maintenance costs, and finance charges. That’s 16 percent of the median household income, before taxes. (The figure includes depreciation.)” HPS Analysis: This is very good news if you can use it effectively. Do some research and find out if your municipality or state have some form of rebate program for micromobility purchases, and promote this financial assistance for the purchase of a bicycle or e-bike to replace an automobile. Find out what kind of financing you can offer to your customers and promote on your website and in your store newsletter, and make sure you and your sales staff have all the details to present with every presentation you give along with hand-outs and takeaway materials. Schedule webinars and in-store education sessions for individuals and families about the household economics of owning and operating a bicycle or e-bike compared to a car.

 October 9: “Shipping Rates Sinking.” The Wall Street Journal Logistics Report: “Ocean freight carriers have little to show from an anemic peak season that has seen container shipping rates plunge from pandemic highs. Daily market prices to move cargo from Asia to the U.S. and Europe in September were down as much as 90 percent from early 2022, extending a downturn that began in the second half of last year. The WSJ’s Costas Paris reports the steep decline is leading carriers to cancel sailings in bigger numbers during a period when operators and their customers are usually rushing to push goods through supply chains. Capacity cuts helped pump up rates a bit in August, but prices have faded more recently and more cancellations are planned this month following China’s Golden Week holiday. There is little relief on the horizon. Wholesale inventories have been ticking down in recent months but are well above pre-pandemic levels, a sign that goods orders may remain depressed for some time.” HPS Analysis: The chart below is from The Wall Street Journal Logistics Report, November 6, 2023. It shows the detail from January 2022 through YTD November 2023:

HPS estimates, depending on how they are packed, that 300 standard bikes and 200 e-bikes are loaded in a standard 40-foot ocean freight shipping container. The container price to the importer has dropped from approximately $53 each to $6 each for a standard bike and $80 each to $10 each for e-bikes. That is an 87 percent decline in ocean freight shipping costs to the importer of record from January 2022 to November 2023.

October 16: “Vosper: Nearly Half of U.S. Bike Shops Don’t Carry Any of the Big Four Brands.” Bicycle Retailer and Industry News: “According to September data from Georger Data Service, some 45 percent of the approximately 7,000 U.S. bike shops do not carry any of the industry’s four biggest brands, Trek, Specialized, Giant or the Pon Group (Cannondale, Santa Cruz, Cervelo, et al). It’s an interesting fact, and one that calls into question the supposed hegemony of the group I like to call the Quadrumvirate. After all, if they’re so dominant why don’t they have greater market penetration, which is to say why aren’t those four brands in a higher percentage of dealers, a combined 70-80 percent, as is typical in other mature industries?” HPS Analysis: Rick Vosper has done his usual excellent job of researching and explaining the current state of the bike shop channel of trade as specifically relates to what percentage of bike shops have signed Authorized Dealer Agreements with the Big Four brands, and what percentage have not. Rick asks a great question, and HPS opines that the American bicycle business has entered a new era of competition that spreads the channels of distribution out to include a viable and expanding D2C channel, as well as a rapidly growing e-bike segment that has multiple sub-segments that are new to the overall market. E-bike specialty retailers like Pedego are not remotely interested in the products provided by the Quadrumvirate. While the American bicycle business is still in a state of perfect competition, HPS doesn’t think it will be in quite the same place after the current shakeout ends. What do our readers think?

October 17: “E-Scooter and E-Bike Injuries Soar: 2022 Injuries Increased Nearly 21 Percent.” United States Consumer Product Safety Commission: “As e-scooters, hoverboards, and e-bikes become more popular for personal transportation and leisure activities, emergency departments are treating an increase in injuries nationwide. A new report, Micromobility Products – Related Deaths, Injuries, and Hazard Patterns, released October 17 by the U.S. Consumer Product Safety Commission (CPSC), shows that injuries associated with all micromobility devices increased nearly 21 percent in 2022 from 2021. Micromobility-related injuries have trended upward since 2017, increasing an estimated average 23 percent annually.” “CPSC is also aware of 233 deaths associated with micromobility devices from 2017 through 2022, although reporting is ongoing and incomplete.” HPS Analysis: This is the CPSC press release that Commissioner Mary Boyle referenced during her Q&A session at the SHIFT23 event October 17. HPS agrees with the other analysts who see this as further cause for the U.S. Consumer Product Safety Commission moving ahead with an adjunct mandatory regulation of e-bikes and lithium-ion batteries, as well as a rewrite of the current 16 CRF 1512. However, Commissioner Boyle made it clear that at best the regulatory process with take a minimum of two years before there will be new and additional mandatory federal standards for bicycles. Given the multiple safety initiatives surrounding e-bike and lithium-ion batteries, HPS supports the NBDA in crafting model voluntary regulations for publication by its Safety & Standards Industry Panel to coalesce support for the combination of UL 2849 / UL 2271, and harmonization with the European standards, including ISO 4210.

October 19: “A Financial Crisis in China Is No Longer Unthinkable.” Wall Street Journal: “Extensive fiscal and financial imbalances have taken China, its leadership, and the world into uncharted territory. The world’s second-largest economy has a deflating property bubble, local governments struggling to pay their debts, and a banking system heavily exposed to both. Anywhere else these factors would be seen as precursors of a financial crisis. But not in China, the conventional wisdom goes, because its debts are owed to domestic rather than foreign investors, the government already stands behind much of the financial system, and capable technocrats are on top of things. Conventional wisdom might be dangerously out of date.” HPS Analysis: Bicycle industry multinationals are financially dependent on sales in North America, Europe, and China. Giant Group, as an example, in its Q3 shareholder report called out strong sales in the Chinese market as the reason its gross sales were just down a single digit. The Chinese economy and expanding consumer market have been attractive to multinationals like Apple, Giant, Trek, Shimano, and Specialized because it has been considered “safe” because it is managed and controlled by the state. As the article warns: “Conventional wisdom might be dangerously out of date.”

October 19: “The Price of Money Is Going Up, and It’s Not Because of the Fed.” Bloomberg: “What’s the most important price in the global economy? The price of a barrel of crude? A microchip? Or maybe a Big Mac? More important than any of these is the price of money. For more than three decades, it was falling. Now it’s going up. Take the yield on 10-year U.S. Treasury notes, which has surged toward 5 percent in recent weeks, pulling up the cost of mortgages and corporate loans in its wake. At first, it seemed as if the market was reacting to another blistering jobs report. But when what looked like a blip turned into a bond market rout, an alternative explanation emerged: investors are finally coming to grips with the realization that something fundamental has changed. Money is going to stay expensive for a good long while, and not just because it’s taking longer than expected for the Federal Reserve to wrestle down inflation.” HPS Analysis: We urge our readers to access and read this article. The time of cheap money is gone, and we have entered what HPS believes is an extended period of high interest rates, meaning the cost of money, in particular business loans, will be correspondingly high. Lean and just-in-time inventory management, as well as the productivity of employees and revenue per square foot of retail space, will become essential key performance indicators (KPI’s). Importers and domestic manufacturers will also be challenged to become more efficient and manage supply chains for reliability and maximum, profitable, turnover.

October 20: “Signa Closes North American Offices as it Prepares for Insolvency Filings.” Bicycle Retailer and Industry News: “Signa Sports United has closed its U.S. offices, which included operation for the Vitus and Nukeproof bike brands and the Hotlines wholesale distribution business, all based in Park City. Signa, headquartered in Berlin, announced earlier this week that it had lost access to a 150 million euro ($159 million) equity commitment from its parent company. The company has reported serious liquidity challenges and had begun the process of delisting from the New York Stock Exchange. It announced Friday that it is preparing to make insolvency filings for its various subsidiaries in the coming days.” HPS Analysis: We still don’t know all the details, so have limited knowledge to evaluate what happened here, and why this big company has imploded and is in the process of crumbling. We do know that “inventory” is mentioned frequently as is the decline in consumer demand. This article points out that the American management was taken by surprise, given they had achieved the sales and revenue objectives given to them. HPS is concerned that this is not an isolated case and that more financial failures are going to emerge as the winter begins.

October 20: “Survey: “Brand Loyalty Decreases as Consumers Look for Ways to Save.” Chain Store Age CSA: “With prices remaining high, brand loyalty is continuing to decrease among American consumers. The U.S. experienced a 14 percent decline in customer loyalty, or those who are loyal to one brand or more, as it dropped from 79 percent in 2022 to 68 percent in 2023, according to the 2023 Customer Loyalty Index from Emarsys among the five loyalty types defined by index. For the third year in a row, nearly half (49 percent) of consumers fall under incentivized loyalty. However, incentivized loyalty has plummeted by 36 percent from 76 percent to 49 percent. Emarsys says that incentivized loyalty depends on the suspension of normal prices. While nearly half (49 percent) of Americans expected regular discounts, loyalty points, and incentives, nearly six-in-10 (59 percent) consumers would also typically switch products if a cheaper option were available, making cost the top reason a shopper would leave a brand.” HPS Analysis: Conventional wisdom holds that regular bicyclists have been “loyal” through thick and thin. However, the current cohorts of American bicyclists have never experienced anything like the pandemic or the post-pandemic economies, and attendant changes in the channels of trade and the ecosystem. Yes, there was D2C pre-pandemic, but nothing like what developed and grew during the pandemic and emerged as what HPS is calling a “new bicycle-business” post-pandemic, where brand loyalty has not only decreased, but is a totally foreign concept to a new wave of younger bicyclists.

October 22: “Welcome to the Age of the Hermit Consumer.The Economist: “In some ways COVID-19 was a blip. After soaring in 2020, unemployment across the rich world quickly dropped to pre-pandemic lows. Countries re-attained their pre-COVID GDP in short order. And yet, more than two years after lockdowns were lifted, at least one change is enduring: consumer habits across the rich world have shifted decisively, and perhaps permanently. Welcome to the age of the hermit. Before COVID, the share of consumer spending devoted to services was rising steadily. As societies became richer, they sought more luxury experiences, health care and financial planning. Then in 2020, spending on services, from hotel stays to haircuts, collapsed. With people spending more time at home, demand for goods jumped, with a rush for computer equipment and exercise bikes. Three years on, the share of spending devoted to services remains below its pre-COVID level. Relative to its pre-COVID trend, the decline is sharper still. Rich-world consumers are spending around $600 a year less on services than you might have expected in 2019. In particular, people are less interested in leisure activities that take place outside the home, including hospitality and recreation. Money is being redirected to goods, ranging from durables like chairs and fridges, to such as clothes, food and wind.” “In countries that spent less time in lockdowns, hermit habits have not become ingrained. Elsewhere, though, the behavior looks pathological.” HPS Analysis: The Economist may have gotten this right. This article points the way to one of the reasons bike shop consumer foot traffic fell off post-COVID. Keep in mind this is not the only reason, but it does peel back the change in behavior to hunker down and cocoon to stay safe and isolated during the pandemic, and one of the permanent to semi-permanent after affects. HPS will work with the NBDA and Sports Insights to validate the “hermit consumer” and try to craft proactive merchandising to make the outdoor activity of bicycling more appealing. Your thoughts are most welcome.

October 23: “Treasury 10-Year Yield Breaches 5 Percent for First Time Since 2007.” Bloomberg: “The 10-year Treasury yield crossed 5 percent for the first time in 16 years, propelled by expectations the Federal Reserve will maintain elevated interest rates and that the government will further boost bond sales to cover widening deficits. The yield rose as much as 11 basis points to 5.02 percent, the highest since 2007. Fed Chair Jerome Powell suggested last week that central bankers are inclined to hold rates steady at their November meeting, but remain open to hiking again if a resilient economy fans inflation risks.” HPS Analysis: This may be old news to some of you. If you are holding 10-year yield treasury bonds in your investment portfolio this is good news. If you are shopping for a loan from a bank or savings and loan, it means interest rates are going up, as previous articles have explained. Note that the Chinese government is currently selling off some of the U.S. treasury bonds it has purchased to “cash-in” so to speak and take advantage of this windfall.

October 24: “Xi Makes Unprecedented Central Bank Visit in Sign of Focus on Economy.” Bloomberg: “Xi Jinping made his first known visit to China’s central bank since he became president a decade ago, according to people familiar with the matter, underscoring the government’s increased focus on shoring up the economy and financial markets. Xi, along with Vice Premier He Lifeng and other government officials, visited the People’s Bank of China and the State Administration of Foreign Exchange in Beijing on October 24, said the people, asking not to be identified discussing private information.” HPS Analysis: Not sure when was the last time a U.S. president visited the Federal Reserve, but for China watchers this visit by the president of China to the central bank was a big deal, and a sign that Xi is paying personal attention to the financial condition of the domestic economy. What impact, if any, this visit will have on consumer and domestic business confidence remains to be seen.

October 24: “Shimano Bike-Related Sales Down 25 Percent in First Three Quarters.” Bicycle Retailer and Industry News: “Shimano is reporting that sales in bike-related products were down 24.8 percent in the first three quarters of its fiscal year, compared to the same period last year. The company’s operating income in its bike business was down 48.8 percent over the same period. The company reported that a ‘free inspection program,’ an apparent reference to the global inspection and replacement program involving millions of Hollowtech cranksets, had already cost it 17 billion yen ($114 million) in the third quarter, which Shimano categorized as an extraordinary loss. It also included a 144 million yen ($961,000) non-operating expense for a voluntary recall.” HPS Analysis: It is a little difficult to sort out the dense Shimano quarterly financial statements, but what is clear is a decline in sales revenue and profitability year-to-date Q3 2023, some of which is attributed to the costs of an extensive recall. Given the rather limited number of public companies in the global bicycle business, HPS thinks it is fair to generalize that what’s happening with Shimano is probably happening to the rest of the global bicycle business. 

October 25: “Navigating the Blaze: The Imperative of UL-Certified Batteries in the World of Micromobility.” BIKE MAG: “In the bustling streets of New York City, a silent menace looms within the sleek frames of electric bikes. The quest for affordable alternatives has inadvertently given rise to a perilous trend, cheap, uncertified electric bike batteries that pose a significant threat, leading to fires that endanger lives and property. In response, New York City has taken a bold step by banning electric batteries that lack UL certification, aiming to curb the rising tide of unsafe micromobility incidents. The term ‘UL-certified’ stands as a beacon of safety in the electric battery realm. UL, or Underwriters Laboratories, is a global safety certification company that rigorously tests products to ensure they meet stringent safety standards.” HPS Analysis: This is one of the best articles about the e-bike-related lithium-ion battery fires reported in New York City written and published by the American cycling consumer press. Although much maligned without either justification or true cause, UL is, as this article states: “… a global safety certification company that rigorously tests products to ensure they meet stringent safety standards.” The City of New York and the U.S. Consumer Product Safety Commission both accept and advocate for testing and compliance to UL 2849 and UL 2271, and HPS urges the whole of the American bicycle business to give its complete support as well.

October 25: “NYC Council focusing on Having Delivery Apps Provide Workers Certified E-bikes, Batteries.” Bicycle Retailer and Industry News: “The City Council met with the city’s Committee on Consumer Worker Protection on Monday to discuss a bill that would require third-party delivery app companies like DoorDash to provide workers access to certified e-bikes and batteries, and another that would require workers taking an e-bike safety course developed by the Department of Transportation. A new bill also was introduced Monday aimed at curbing the rising lithium-ion fires, requiring e-bike or e-scooter businesses to obtain a license to operate in the city.” HPS Analysis: While New York City requires e-bike certification to UL 2849 and lithium-ion battery certification to UL 2271, there is still an unknown but substantial number of low-quality, non-complying e-bikes, and an even larger number of potentially hazardous lithium-ion batteries in use in the city. Fires are continuing to damage property, injure people of all ages, and take lives. It is this safety problem the NY City Council is doing its best to address with its latest round of legislative proposals. The NBDA and HPS are actively engaged in trying to assist in advancing the best legislative requirements possible, while still allowing retailers to stock, sell, and service e-bikes and lithium-ion batteries.

October 26: “Retailers Face Unhappy Returns.” The Wall Street Journal Logistics Report: “Those new fees charging consumers for returning online purchases might be too effective. Logistics company Happy Returns found that about half of the companies that it surveyed say the tactic has worked as intended by slowing the flow of goods coming back into their warehouses. The WSJ Logistics Report’s Liz Young writes that a third of the companies also say they have lost customers since they began charging consumers fees to return items that they purchased online. That suggests merchants are seeing a backlash, as their cut reverse logistics expenses also hit them with a cost in the checkout line. The question surrounding returns is crucial for retailers heading into Christmas since the seasonal surge in sales usually leads to a burst in returns, effectively extending the peak parcel shipping period into January. Retailers last year expected nearly 18 percent of merchandise sold during the holidays to be returned.” HPS Analysis: This is an opportunity. The Big D2C retailers like Amazon have told consumers that they will be charging for returns that until most recently have been free. Returns are a growing problem that the Big D2C retailers are finding both difficult and growingly expensive to deal with. Their answer is to charge the consumer for returns. Consumers do pay attention, and they are pushing back by not purchasing and looking elsewhere. Bike shops don’t have to change their return policies. All they have to do is let consumers know what their return policies are, keeping in mind it is an opportunity to get them back in your store and sell them something else.

October 29: “The U.S. Economy Posted Stunning Growth in the Third Quarter – but it May Not Last.” National Public Radio NPR: “The economy roared over the late summer and early fall as Americans went on a strong spending binge. Data on Thursday showed gross domestic product (GDP) grew at an annual pace of 4.9 percent in July, August and September. That’s more than twice as fast as the previous quarter.” “Forecasters warn the economy is unlikely to sustain this blistering pace in the final months of the year. Growth is expected to moderate as the impact of higher interest rates continues to be felt.” HPS Analysis: Most bike shops already know this. While the economy grew during the third quarter of this year, consumer foot traffic and purchases didn’t increase as the major trade association predicted. We posted this article because it is a caution for the retail channels that did enjoy an uptick in Q3 business that there is a growing probability that it will not last going into the last quarter of this year.

October 26: “U.S. Trade Loophole Fuels Rise of China’s New E-Commerce Firms.” The Wall Street Journal: “A law that allows low-price packages to enter the U.S. duty-free and with little customs scrutiny has enabled the breakneck growth of two e-commerce companies with roots in China: Shein and Temu. Packages valued under $800 can enter the U.S. under simplified procedures known as the de minimis exception. Lawmakers and some U.S. businesses say it is a loophole that the Chinese companies are using at a huge scale, allowing shipments of products that are unsafe or made with forced labor, while avoiding taxes.” HPS Analysis: A billion packages entered the U.S. under the de minimis exception over the 12 months from September 2022 to September 2023, and Shein is reportedly spending over $600 million per month to keep the de minimis exception on the books and in place. The oversized lobbying machine of K Street is gearing up for a fight with the members of Congress that want to eliminate or substantially change the de minimis exception. HPS agrees with the NBDA and PeopleForBikes that the best solution for the American bicycle business is to advocate for eliminating bicycles, e-bikes and lithium-ion batteries for micromobility devices from eligibility under the de minimis exception.

October 26; “GenZ is Not Interested in Driving. Cities are Happy to Accommodate.” Via: “Gen Zers are turning their backs on cars, due to various concerns: financial, environmental, safety, and more. The trend provides a unique chance for city planners to rethink transit design and take steps to steer American society away from the high reliance on cars.” HPS Analysis: Here is good news wrapped up in another piece of the puzzle about the new, post-COVID bicycling consumer. The percentages in this article make it clear that younger Americans are not interested in owning or driving a car. I have experienced this up front and personally with my family. While I live in a rural setting, the impact of GenZ and its interest in owning and driving micromobility vehicles will have an immediate effect on cities of all sizes. City planners are also in the process of evolving, and a whole new generation of under-30-year-old civil engineers and city planners are taking charge and changing conventional wisdom relative to traffic speeds, bike lanes, bike paths, and traffic calming. I am not making this stuff up, and the NBDA just hosted a Monday Mingle that featured a young traffic planner from a community in South Carolina that is making some of these changes.

October 27: “Bosche E-Bike Systems CEO Explains Coalition for Cyclist Safety.” Bike Europe: “19 leading innovators in the automotive, cycling, and technology industries have founded the ‘Coalition for Cyclist Safety [C4CS]. The aim of the alliance is to pursue the goal of advancing the development and expansion of a comprehensive vehicle-to-everything (V2X) communication ecosystem to improve cyclist safety. Claus Fleischer, CEO of Bosch eBike Systems, explains why they were one of the initiators together with Audi of America and Spoke Safety.” HPS Analysis: It took us a while, but in reading this rather lengthy news piece in Bike Europe we found that this is a North American initiative. The CEO of Bosch eBike Systems is explaining why 19 leading innovators in the automotive, cycling and technology industries have founded an alliance to pursue the goal of advancing the development and expansion of a comprehensive communication ecosystem to improve cyclist safety in North America. The why of it has to do with a recent announcement made by the U.S. Department of Transportation, and HPS believes the recent initiative of the League of American Bicyclists to get the attention of the National Highway Traffic Administration (NHTSA) about side-guards on semi-trailers and delivery trucks. As noted earlier, safety has fast become a multi-faceted topic demanding immediate attention. HPS further believes that Bosch and the other 18 leading innovators founded the new Coalition for Cyclist Safety because the North American bicycle business was making it clear that it didn’t have a clue.

October 27: “Islabikes: Cycle Firm Ceases Production Amid ‘Difficult and Turbulent Time’.” BBC News: “A cycle manufacturer which made its name improving children’s bike design is to end production. Islabikes was founded in 2005 by triple British cyclo-cross champion Isla Rowntree. The Shropshire firm said Ms. Rowntree and managing director Tim Goodall had decided to shut after a ‘difficult and turbulent time for the cycle industry.’ It has confirmed it will continue to sell existing stock for the time being, and also make spare parts available.” “The firm confirmed it remained solvent and had no outstanding creditors. Its last company accounts show that in December 2022 it had net assets of over £4m and employed 21 people.” HPS Analysis: This is a European and UK story, but HPS finds it frightening. Here is a small UK manufacturer of juvenile bicycles that has chosen to close its doors after 18 years of relatively successful operation and let go 21 workers because of a “difficult and turbulent time for the cycle industry” with over $3 million in the bank and owing no one. HPS will do more research, but we would like to know what is wrong with this picture.

October 27: “Unlocking the Future of Retail: The Power of 2D Barcodes.” Chain Store Age CSA: “For almost half a century, one-dimensional (1D) barcodes have served as the backbone of retail, facilitating inventory tracking and point-of-sale transactions. The classic barcode, scanned an estimated 10 billion times a day, allows retailers to streamline operations, enhance pricing accuracy, and track product movements with ease, but industry needs are evolving. In an era of growing demand for greater product information transparency, traceability, and authentication, it’s clear that innovation is not just an option, it’s a necessity for brands and retailers to remain competitive. Within the next decade, industry will transition from 1D barcodes as brands replace it with the next generation of barcodes, two dimensional (2D) barcodes, or more familiarly QR codes, a newer innovative tech solution aimed at enhancing consumer shopping experiences and organizational operations.” HPS Analysis: I worked in retail at a bike shop from 1957 until December 1960 and had no experience with computers or barcodes. It wasn’t until I became president of Giant Bicycle Company in North America in the mid-1990s that I was introduced to computerized cash registers, scanning, and barcodes. From that point forward I was both very aware and a strong advocate for barcodes in the whole supply chain, from receiving raw material and components at a manufacturing facility to scanning barcodes for every step of the retail process. This technological advancement to 2D barcodes or QR codes is the beginning of what the Europeans are calling Digital Product Passports that facilitate the compiled history and tracking of a product, like a lithium-ion battery or e-bike, from its raw material, component, sub-assembly, assembly, packaging, transport, customs clearance, warehousing, retail receiving, assembly and delivery to a consumer, service history, entry into the circular economy and final end-of-life recycling. There are many sustainability and product lifecycle reasons for the advancement of this technology and HPS is of the opinion that it is here, and it will spread like wildfire from Europe to North America.

October 31: “U.S. Tax Credits and Subsidies for Electric Bikes are Growing Bigger.” electrek: “Not only are more cities and states promoting financial incentives to help residents buy electric bicycles, but the incentives are often growing in value too. Electric bicycles have proven to be a popular alternative form of transportation for many former car drivers. As prices have dropped and the number of models available has skyrocketed, more families have switched from two-car households to one-car and one- e-bike households. Many young adults are foregoing car ownership altogether, opting instead for more affordable and more fun e-bikes to accomplish their urban commuting, and using car-sharing services for occasional trips that require a larger vehicle.” HPS Analysis: There is a growing optimism about micromobility and U.S. tax credits, and subsidies for electric vehicles and electric bicycles are a sign of confidence that the micromobility business, brands, and retailers can pass on to employees and consumers. HPS will support any municipal, state, or federal proposal for tax credits and subsidies for electric bicycles that have the support of the bicycle and micromobility businesses.

Contact Jay Townley: jay@humanpoweredsolutions.com

DUTY SUSPENSION IS GOOD NEWS, BUT CREATES MARKET UNCERTAINTY

As reported in Bicycle Retailer and Industry News (BRAIN) September 7, the U.S. Trade Representative has extended its tariff exclusions for some China-made bicycle products until December 31. The products affected include children’s bikes and some electric bikes, BRAIN reported.

PeopleForBikes has estimated that the extension will apply to products with an import value of more than $100 million, meaning the exclusion from the 25 percent tariff will save the industry more than $25 millionThe Section 301 tariffs were to be applied in addition to pre-existing tariffs on China-made bikes. The exclusions began in March 2022, and have been extended previously. The current extension was due to expire September 30.


The saga of Section 301 punitive tariffs adding 25 percent of the FOB value (or cost of goods loaded into a shipping container in China), to the regular import tariffs of 11 percent, 5.5 percent or “0” (for e-bikes), on Chinese-sourced bicycles and e-bikes, goes back to List 2 effective August 23, 2018.


List 3 followed on July 17, 2018, and was applied to imports that arrived after June 1, 2019, after which importers of record paid a total tariff of 25 percent of the FOB value on e-bikes originating in China, and 30.5 percent or 36 percent of the FOB value on regular bicycles originating in China. Since the total tariff was paid by the importer, it was passed along through cost of goods and product retail pricing to retailers and American consumers.


List 4, effective June 24, 2019, covered all the bike products imported from China that had not been previously covered by Lists 2 and 3.


So, the higher and punitive tariffs were in effect, and included in pricing from the last half of 2019 through the end of the first quarter of 2022. At that time, the Section 301 punitive tariff of an additional 25 percent was suspended, and bicycles and e-bikes imported into the U.S. from China, were charged a reduced import duty of 11 percent or 5.5 percent for pedal-only bicycles, and “0” for e-bikes.


The suspension of the additional 25 percent tariff substantially reduced the landed cost of bicycles and e-bikes, but because of the feeding frenzy of consumer demand, we have no way of knowing if it resulted in any wholesale or retail price reductions.


It is this suspension of the 25 percent additional punitive tariff that is now in effect on imports from China until December 31, 2023. At that time, USTR will decide if this punitive tariff is to be either (1) continued into 2024, or (2) continued to be suspended, or (3) eliminated permanently.


This has created uncertainty about pricing, forecasting, purchasing, manufacturing schedules and financial planning going into 2024.


Contact Jay Townley: jay@humanpoweredsolutions.com

THE HPS OCTOBER LETTER: LET’S GET LOUD ABOUT E-BIKE FIRES

September 1: “Industry Needs to be Louder and Clearer About E-bike Fires.” Cycling Industry News: “Today see the London Fire Brigade reveal e-bike and e-scooter fires are at a record high in London, with more fires in London in 2023 than there were in the whole of 2022.” HPS Analysis: This is London calling! There seems to be this misconception that the e-bike lithium-ion battery fire problem is isolated to one big city in the U.S., and that it isn’t a problem where e-bikes have been established market leaders since before the pandemic. HPS talks regularly to an industry expert in Europe, and variations of the e-bike battery cause and effect are occurring across the Atlantic with the same tragic results. HPS will do everything it possibly can to encourage and facilitate communication between the U.S. and Europe about both causes and more importantly preventative solutions. While the UK may be off the back on this, the EU is about to promulgate Digital Product Portfolio legislation that will, in the opinion of HPS, greatly improve manufacturer, brand, importer and retailers tracking of bicycles, e-bikes and lithium-ion batteries through the circular economy all the way to recycling and disposal.

September 1: “West Coast Port Dockworkers Ratify Six-Year Contract.” Sourcing Journal: “Two months after striking a tentative six-year contract agreement with their maritime employers, West Coast union dockworkers officially gave the deal a stamp of approval.” HPS Analysis: The International Longshore and Warehouse Union (ILWU) voted 75 percent in favor of ratifying the new agreement. The contract is retroactive to July 1, 2022, and runs through July 1, 2028. We know this is old news, but it took until September 1 for the trade press to publish this news. Since this contract was such a big, looming issue that could have made the overall bicycle product shortage much worse during the pandemic, HPS wanted to make sure the American bicycle business is made aware for planning purposes that a labor issue at U.S. West Coast ports has a low probability over the next four to five years.

September 1: “Fayetteville to Consider New E-bike Rules on City Trails.” Fayetteville Flyer: “The City Council will soon consider some new rules about which types of e-bikes are allowed on the city’s trails. The new regulations are partially aimed at aligning Fayetteville’s rules with state laws that define the different classes of e-bikes, but also will address what types of bikes are allowed on both paved and soft-surface trails.” HPS Analysis: We include the Fayetteville Flyer in our weekly media scanning because this newspaper also covers Bentonville and what is happening locally with the region’s largest employer, Walmart, the Walton Foundation, and other regional businesses including The Ledger. Also, the Northwest region of Arkansas has emerged as a cycling trail-based ecosystem that is part of what HPS sees as the future “gentrification” of bicycling in large regions of the country going forward. The state of Arkansas has adopted the PeopleForBike three-class definition for the use of e-bikes on state roadways, which the Fayetteville City Council will be considering when shaping its proposed paved trail rules.

September 5: “Pon Holdings and Volkswagen Combining to Expand Company E-bike Leasing.” Bicycle Retailer and Industry News: “Pon Holdings and Volkswagen Financial Services will collaborate to expand e-bike leasing for employees and commercial customers in the U.S. and Europe. Volkswagen Financial Services acquired a 49 percent stake in Pon’s bike leasing subsidiary Bike Mobility Services (BMS). The partnership became official September 5 when the agreement was signed at the IAA Mobility motor show in Munich.” HPS Analysis: BMS provides company bikes to more than 600,000 employees in 65,000 companies in Europe, with 90 percent of the bikes being e-bikes. BMS just opened an office in San Francisco, and is bringing the company bicycle lease business model to the U.S. This business model is economically large enough to function with or without bike shops in the delivery and service chain, and time will tell (1) if this business model gains traction in the U.S. and (2) whether it will include bike shops or not.

September 5: “Retailer Roll: Bicycle Company Files for Chapter 11.” Bicycle Retailer and Industry News: “Roll: Bicycle Company filed for Chapter 11 bankruptcy protection on August 31. Roll has three retail stores and its own bike brand that it sells wholesale and to consumers. In a filing with the U.S. Bankruptcy Court for Southern Ohio, Roll listed total assets of $1.7 million, including $480,000 in inventory. Liabilities are $2.1 million.” HPS Analysis: As Bill Austin said: “inventory is evil!” I have known the owner of roll: Cycling since he started his first specialty bicycle retail store in Columbus, Ohio, and he is a professional retailer. I do not know the details of the roll: Cycling business or financial situation that led to the decision to file for Chapter 11 protection, but the fact that it became necessary is of concern as the American bicycle business heads into the uncertainty of the fourth quarter of 2023.

September 6: “Trek to Sell Used Bikes Through its Red Barn Refresh Program.” Bicycle Retailer and Industry News:“Despite the marketplace awash with new bike inventory, Trek Bicycle is encouraging cyclists to buy used in the name of sustainability through its new Red Barn Refresh program. Launched September 4, Trek says the program is the industry’s first manufacturer-led bike-certified trade-in and refurbishment program that is at the heart of Trek’s circular-economy mission statement.” HPS Analysis: Trek has taken leadership in advocating for the circular economy within the bicycle business. Embracing used bicycles is a very sound economic strategy as evidenced by the latest NBDA Cost of Doing Business Study showing that used bicycles, which includes e-bikes, is the highest gross margin product category, at an average of 50 percent. The NBDA has been actively educating bike shops about establishing used bicycle departments for their businesses. The circular economy will shortly receive a major boost when the EU promulgates a new Digital Product Passport (DPP) law with attendant regulations. U.S. regulatory agencies and Congress are tracking the new EU DPP for law for applicability.

September 7: “China Exports Fall Again as Economy Struggles.” BBC Business: “China’s exports have dropped for fourth month in a row, as the ‘world’s factory’ struggles with weak demand at home and abroad. Exports fell 8.8 percent in August compared with a year earlier, while imports dropped 7.3 percent, official figures show. However, those declines were not as bad as expected, and were an improvement on the previous month. China is facing several post-pandemic challenges, including a property crisis and weak consumer spending.” HPS Analysis: Based on the published financials from Giant Group through the first half of 2023. HPS is projecting that all of the American and European multinational bicycle brands are selling at wholesale and/or retail in the Chinese consumer marketplace. While Giant Group was down substantially in Europe and North America, in global total revenue it was down just 5 percent, because of a substantial increase in gross revenue in China, 6-month YTD 2023. We may be wrong in whole or part, but HPS opines that all of the multinationals in the bicycle business are generating enough revenue from the Chinese consumer market that a downturn has the probability of dragging down their total global revenue and profitability. Since Giant Group is the largest of the multinationals that is public, we will base future assumptions on the Group’s third quarter and second half financial disclosures.

September 7: “USTR Extends Tariff Exclusions Until Year’s End.” See the entire article HERE.

September 7: “Blaupunkt Achieves Prestigious UL-2849 Certification for its Electric Folding Bicycles.” Bicycle Retailer and Industry News: “Blaupunkt, a revered global brand with a rich 100-year-old heritage of product excellence, is proud to announce the successful completion of the UL 2849 certification by UL Solutions for its range of electric foldable bicycles. This achievement signifies Blaupunkt’ s commitment to meeting the highest safety and performance standards, tailored specifically for the U.S. market.” HPS Analysis: Despite the public relations hyperbole, the core message is important for the American bicycle business. UL 2849 testing and certification for electric bicycles marketed and sold in the U.S., is the product safety standard that retailers and consumers should look for and rely on. UL 2849 is now officially recognized and supported by the American bicycle industry trade association, and the National Bicycle Dealers Association.

September 11: “U.S. Partners Ready Trade Corridor.” The Wall Street Journal Logistics Report: “The U.S. and its allies are trying to build new trade infrastructure to match shifting geopolitics. Washington and partners in Europe, the Middle East and Asia are completing plans to build a trade corridor linking the regions, the WSJ’s Stephen Kalin and Laurance Norman report, a massive initiative that could undercut China’s inroads in a key global trade route. The project aims to connect Saudi Arabia, the United Arab Emirates, and potentially Israel, by freight rail, then use sea transport to reach India and Europe. The U.S. and its European partners have stepped up plans to finance global infrastructure projects in a bid to counter China’s influence through its Belt and Road Initiative. Beijing’s overseas ambitions for that $1 trillion rail, road, and ports plan, have been fading more recently. The new U.S. effort would have all signatories commit financing, but details won’t be hashed out for several months.” HPS Analysis: Why are we even mentioning this? In addition to highlighting the extent to which the drive for decoupling from China is driving U.S. trade policy, what it potentially means for the American bicycle business is ocean freight volume, along traditional trade routes for bicycles being reduced, which will also reduce sailings and could drive up ocean freight costs.  

September 11: “Vosper: What’s New – and Not So New – About Bike 4.0.” Bicycle Retailer and Industry News: “Way back in May of 2022, I wrote a piece about the three ‘ages’ of the U.S. bicycle market since World War II, which I labeled Bike 1.0, Bike 2.0 and Bike 3.0, respectively. To review,

  • “Bike 1.0, roughly 1950–1975, when the specialty retail market was dominated by a single brand, Schwinn, creating an era of relative stability at both the supplier and retailer levels.
  • “Bike 2.0, extending from the end of the bike boom and the introduction of the mountain bike through the late 1990s and the early 2000s. This period was governed by the phenomenon of Perfect Competition, where no particular brand or brands could accrue enough market share or competitive advantage to gain control of the market.
  • “Bike 3.0, starting near the turn of the current millennium. That era featured a few dominant players, a group of four companies: Trek, Specialized, Giant and the Pon brands (formerly just Cannondale, but now with the addition of Santa Cruz, Cervelo, and others). I labeled these four brands The Quadrumvirate, and they each tried, and failed, to overcome the forces of Perfect Competition. Part of the Quadrumvirate’s strategy behind Bike 3.0 was to control key retailers in each market by tying them as closely to a single brand as possible, locking competing brands out of those dealers. The strategy met with limited success as many of the largest dealers ended up representing more than one Quadrumvirate brand.

“Then, about seven months ago, I wrote that Bike 4.0 had arrived. The new dynamic differed from the 3.0 version in four fundamental ways:

  • “Dilution of the IBD and the proliferation of alternate retailing models, specifically, direct-to-consumer sales by brands like Canyon and many e-bike labels.
  • “The traditional sales channel is replaced by an omnichannel sales‘ecosystem’ where buyers can purchase bikes through any channel they choose.
  • “Complementary to the previous two points, we now have direct sales to consumers by traditional bike suppliers (either through D2C or Click & Collect dealer fulfillment), and
  • “Vertical integration of suppliers and retailers (bike bands buying bike shops) by at least some of the largest industry players, as we’ve seen with Trek, Specialized and the Pon Group.”

HPS Analysis: I started working for a bike shop in 1957, went to work for Schwinn in 1966, left in 1990 and worked for Giant in the mid-1990s, Browning Components in the late 1990s, and as a consultant from 2000 forward to today. My point is that I have experienced all four of the “ages” Rick Vosper describes in his article. Overall, I agree with Rick’s analysis as it pertains to the specialty bicycle retail channel of trade. However, I suggest it can benefit from the addition of one key component, the American Consumer, both the non-cyclist and the cyclist. As Marc Sani recently said in his September 2023 Grapevine column in BRAIN: This isn’t your father’s industry anymore. The industry is undergoing profound change.” From Vosper’s recently-arrived Bike 4.0, to the gentrification of cycling, to the rapid growth of e-bikes that has brought new people to cycling riding new moped, step-through and cargo styles, to advocates of the Circular Economy who want to purchase, and ride used bicycles and e-bikes. The NBDA has delivered a consumer study conducted by an internationally-recognized research firm that I suggest everyone in the American bicycle business should read (www.nbda.com), and which Rick Vosper may want to dovetail into the next chapter of his excellent specialty bicycle retail channel analysis.

September 12: “Rad Power Bikes Announces Major Update to its Entire E-bike Lineup.” Electrek:Seattle-based electrek bike maker Rad Power Bikes has just announced the biggest update to its entire product lineup while promising full UL compliance for its batteries and e-bikes. The move comes as UL listing is seen as an increasingly popular issue among e-bike makers, customers, and local governments seeking ways to regulate e-bike safety.” HPS Analysis: According to Rad Power Bikes, all of their e-bikes moving forward will be compliant with UL 2849, and all the company’s lithium-ion batteries will be compliant with UL 2271. More e-bike brands are announcing their testing, compliance and certification to UL 2849 and UL 2271, but the top tier of the bike shop channel of trade, Trek, Specialized, Giant and the Pon.Bike Group including Cannondale, are not among them, at least not yet. Also, the October 2023 issue of BRAIN published the results of a recent survey of bike shops on page three showing that only 41 percent of the e-bike suppliers asked if their products were UL certified said yes, 31 percent reported e-bike suppliers had not even responded to their inquiries about UL certification, 6 percent reported e-bike suppliers said no and 40 percent of the bike shops surveyed said they have not even asked their e-bike suppliers about compliance with or certification to UL standards.

September 12: “European Pre-owned Bike Marketplace Buycycle Makes Move Into U.S.” Cycling Industry News: “(The) marketplace for high value, pre-owned bikes buycycle is making a move across the Atlantic to reach the U.S. cycle market from its German HQ. Launched in 2021, buycycle said it guarantees buyer protection, insurance, and provides a safe space for cycling enthusiasts to buy and sell their bikes. CEO and co-founder Theo Golditchuk explained: ‘Since we launched buycycle in 2021, we have grown super-fast across Europe. The strong demand in the U.S. took us by surprise. We noticed an uptick in organic sales which showed us that there is a big interest in pre-owned bikes and the need for a platform where people can buy and sell them safely and conveniently. We have built a dedicated U.S. team to launch in the market, and are incredibly excited to expand the success we have witnessed in Europe.’” HPS Analysis: HPS doesn’t buy into most press releases, but this one got our attention because it talks about the opportunity a European pre-owned bike marketplace sees in the U.S. Also the comment that “… strong demand in the U.S. took us by surprise” reinforces a high probability of both demand and potential success. HPS has felt strongly about the positive business potential for bike shops in the previously owned segment, and urges investigation of expanding bike shop business plans to include a used bicycle department, including e-bikes.

September 14: “New York City Council Approves City-funded E-bike and Lithium-ion Battery Trade-in Program.” Bicycle Retailer and Industry News: “The City Council on September 14 approved a two-year city-funded trade-in program to get uncertified e-bikes and lithium-ion batteries off the streets in the latest legislative action to reduce the growing number of fires that have averaged four a week. The program will provide a new certified e-bike and/or replacement battery and charger at reduced or no cost after trade-in. Beginning September 16, the city will require all e-bikes, as well as other powered mobility devices, and lithium-ion batteries, to meet certification like UL to be sold in the city. The new city law does not prohibit the use of non-certified bikes or batteries.” HPS Analysis: We understand applications for the trade-in program are off to a slow start, and that the city of New York is making changes in the details of the program as quickly as possible to make it both accessible, easy, and affordable to apply for by as many delivery workers as possible. This is just the beginning of the positive steps needed to get the population of potentially dangerous lithium-ion batteries now part of e-bike propulsion systems and equally dangerous replacements, out of circulation and use. If a trade-in program proves too slow, the City of New York has additional options, including asking the U.S. Consumer Product Safety Commission to step in.

September 14: “Retail Sales Notch Small Gain in August Despite Slowing Economy.” Chain Store Age CSA: “Core retail sales in August inched up 0.1 percent from July, and were up 3.3 percent year-over-year, reported the National Retail Federation, whose calculation excludes automobile dealers, gasoline stations, and restaurants, to focus on core retail. In July, sales rose 0.3 percent month-over-month, and increased 3.3 percent year-over-year. ‘NRF’s numbers show the pace of retail growth cooled from July but that consumers are still active even as they continue to be selective and price sensitive,’ NRF chief economist Jack Kleinhenz said. ‘Households have the capacity to spend, but momentum is slowing, in part because savings built up during the pandemic are running lower and credit costs are rising.’” HPS Analysis: We remain less optimistic about a U.S. bicycle market recovery during the end of 2023 than the industry trade association does, because of our analysis of reports from the economists at NRF,  Bloomberg, and the FED. Keep in mind that the bicycle business and the overall sporting goods sectors are underperforming the rest of the economy, and have to post relatively significant gains to pull even with the performance of the rest of the consumer economy. We readily admit that the U.S. consumer demand side of the economy is uncertain and sending mixed signals, but our team does not see a high enough probability for an optimistic outlook for the fourth quarter of 2023, at least not yet. There are still three more months of the year. For now, we are advising clients to plan for continued contraction and slowing sales and revenue going into Q1 of 2024.

September 14: “NYC Council to Weigh Making Delivery Apps Pay for Drivers’ E-bikes.” Gothamist: “The bill – which is set to be introduced on September 14, is the latest attempt to quell the hundreds of e-bike related fires that occur each year in the city, and hold the delivery apps more responsible for the safety of their drivers. HPS Analysis: If this legislation gains traction, or becomes law, it is sure to face strong opposition and backlash from the apps who will, in all probability, launch well-funded legal challenges. The members of the New York City Council are concerned about the safety and lives of their constituents, while the apps seem mostly concerned about continuing to make a profit. 

September 17: “The Rise of Surge Pricing: ‘It Will Eventually be Everywhere.’” Financial Times: “’‘Dynamic’ pricing, as many in industry call it, or ‘surge’ pricing as it is more widely known by consumers, is when businesses flex prices at particular times in response to shifts in supply and demand, and is not a new phenomenon. It has been used by airlines in the U.S, for instance, since 1983 when the U.S. government relinquished the power to set domestic airfares. When booking flights and hotel rooms, consumers have become accustomed to the rhythms of the dynamic pricing model: book early or during the shoulder season and get a good deal, book last-minute or during the busy holiday periods and get penalized. However, powered by algorithms and artificial intelligence, it is being introduced at a rapid pace by a growing number of consumer industries. Amazon changes the price of its products on average every 10 minutes, using millions of real-time data points to benchmark against competitors and track demand surges. ’It will eventually be everywhere,’ says Robert Cross, who created a computerized dynamic pricing model for Delta Air Lines in the early 1980s, before doing the same for hotel giants Marriott, Hyatt and InterContinental Hotels Group.’” HPS Analysis: We believe the brick-and-mortar specialty bicycle retail business has remained largely untouched by dynamic or surge pricing until a mismatch between suggested retail prices, inventory, and demand created a situation ripe for dynamic pricing in the form of discounting and sales that started during Q4 2022, has lasted through Q3 2023, and may well cascade into Q1 2024. Whether dynamic pricing will remain an operating feature of the bike shop business in the U.S. remains to be seen, but the rapid growth of cloud POS systems and the deployment of AI, will make it much easier to implement and manage going forward.

September 18: “Why More High-end Bike Companies are Making Budget-level Electric Bikes.” Electrek: “An increasing number of premium bicycle companies have thrown their hats in the budget-minded electric bike ring lately, resulting in lower prices than ever before from major bike shop brands. So what’s behind this move? … One of the reasons for this focus on more entry-level bikes is quite likely a mere numbers game. While profit margins aren’t as high on lower-priced e-bikes, they sell in much higher numbers in the U.S. Compared to Europeans that often buy e-bikes as car replacement vehicles, and thus are prepared to spend many thousands of dollars for a higher-end model, a much larger percentage of American e-bike riders use their bikes either to supplement car trips or purely for sport/recreation.” HPS Analysis: America isn’t Europe, and HPS keeps bringing the differences to clients’ attention when they point to Europe as the example of why and how the e-bike market will grow in the U.S. Micah Toll is a knowledgeable observer of the European and North American e-bike market dynamics, and in this electrek article he makes the important point that Europeans “often buy e-bikes as car replacement vehicles and thus are prepared to spend many thousands of dollars for a higher end model.” He goes on to opine that Americans use their e-bikes “either to supplement car trips or purely for sport/recreation.” The NBDA Consumer Research Study (www.nbda.com) conducted during the pandemic, also found that adults who had never ridden a bicycle before purchased and rode an e-bike because it represented a new type and style of bicycle. The increasing number of premium bicycle brands introducing lower-priced e-bikes is in recognition of American consumers embracing e-bikes as upgraded replacements for regular bicycles. This is something that many of the new D2C e-bike brands recognized and targeted when entering the U.S. market during the pandemic.

September 18: “American Business Confidence in China Slumps to Lowest in Decades.” The Wall Street Journal: “U.S. companies are painting the bleakest picture in decades over doing business in China, as tensions between Beijing and the West are compounded by a deteriorating environment for their operations. HPS Analysis: Decoupling is proving to be very, difficult for many U.S. and European companies, and this article covers the things the PRC is pilling on to increase the difficulty, and adding to the risk, of continuing to conduct business in China. The American bicycle business is primarily guided by the Taiwanese bicycle companies that have taken the Americans by the hand into China, starting some 40 years ago. Essentially Americans know how to design a bicycle but lack the knowledge and expertise to make a bicycle. That skill set rests with the Taiwanese, Chinese, and Europeans. As we caution our clients, this makes mitigating risk difficult, and is a major challenge to reshoring, although it doesn’t mean it cannot be done.

September 19: “NBDA Bicycle Industry E Bike Safety & Standards Panel Unites to Propel Safe E-Bike Adoption in the U.S.” Bicycle Retailer and Industry News: “The National Bicycle Dealers Association (NBDA) Bicycle Industry E-bike Safety and Standards Panel convened on September 12 to address critical concerns regarding e-bikes in the United States. This panel’s discussions revolved around de minimis reform, the implementation of a three-class e-bike classification system, the best way to accelerate the proliferation of safe and regulated devices in U.S. markets, and the challenges faced by commercial and multifamily building owners, particularly in New York City (NYC), in managing e-bike usage. HPS Analysis: This NBDA E-bike Safety & Standards Panel was a two-hour Zoom meeting open to anyone in the global bicycle business. The four questions discussed during the panel were selected from questions submitted to the NBDA. Panel members notified the moderator if they wanted to speak about one or more of the questions, and each discussion was summarized, along with actions that will be taken. The next panel meeting is scheduled for Tuesday, December 12 from 10:00 a.m. to Noon Pacific. The follow-up action items will be circulated to panel members prior to the meeting when they will be reviewed. Four additional questions will be presented for discussion. HPS urges you to contact the NBDA (www.nbda.com) to submit a question for discussion, to participate, or to listen.

September 20: “Fed Officials Take a Pause to Assess as Inflation Cools.” The New York Times: “Federal Reserve officials left interest rates unchanged on September 20, a decision that gives policymakers more time to assess whether they have raised interest rates enough over the past 18 months to fully wrestle inflation under control. But policymakers also released a fresh set of economic projections suggesting that they still expect to make another rate increase before the end of 2023, and that borrowing costs are likely to remain higher than officials had previously expected in 2024.” HPS Analysis: Inflation is still with us, and the Federal Reserve has steadily raised interest rates to record highs in its fight to moderate and pull down the rate of inflation. None of this is the friend of bike shops or other small businesses. Inflation drives up retail prices and reduces consumer demand, and higher interest rates increase the cost of credit card debt and borrowing. Keeping in mind that economic data continues to suggest the high probability of at least one more interest rate increase before the end of this year, HPS continues to be pessimistic about a rebound in the American bicycle market and business during Q4 of 2023.  

September 23: “Biking to Work Isn’t Gaining Any Ground in the U.S.” Bloomberg: “After increased investments in bicycle infrastructure, big experiments with urban bike sharing, an explosion in electric bike sales, and an overall pandemic bike-buying boom, the latest news on bike commuting in the U.S. from the Census Bureau’s annual American Community Survey is not impressive. An estimated 731,272 Americans used bicycles as their chief means of transportation to work in 2022, up from 2021 but down almost 75,000 from before the pandemic, and 175,000 from the peak year of 2014. The big rise in working from home during the pandemic means that fewer people need any transportation to get to work, of course. But redo the statistics as a percentage of those commuting, and they don’t look much better. The 0.54 percent of U.S. commuters who usually made the trip by bike in 2022 was the same as in 2019, but well down from 2014 and not far above the 0.5 percent measured in the decennial census way back in 1980. Many people ride bicycles for other reasons, of course, with a survey conducted for the advocacy group PeopleforBikes finding that 34 percent of Americans rode one outside at least once in 2022. But that share, while up from 33 percent in 2020, is the same found in the group’s first survey in 2014.” HPS Analysis: There is a collective reluctance within the American bicycle community to recognize and embrace the changes brought about by the pandemic and shifting demographics as they impact bicycling advocacy. There is good news here, if we take the time to examine all the facts and data, and realize that bicycling advocates need to get organized and develop the collective planning required to take on the automobile and trucking lobby, the federal agencies that regulate them, and the Congress. Right now we play around the edges, but back away when it comes to the heavy lifting. The author of this Bloomberg piece is essentially correct. What we are missing is the collective wisdom of all of the bicycling and pedestrian advocacy non-profits and what they have learned and know about DOT, NHTSA, and other regulatory agencies, and the committees in Congress that have budget authority and oversight. Instead of fighting with each other for membership and foundation funding. we simply need to work together.

September 26: “New Cars are Supposed to be Getting safer. So Why are Fatalities on the rise?” AP News:Roadway deaths in the U.S. are mounting despite government test data showing vehicles have been getting safer. While the number of all car-related fatalities has trended upward over the last decade, pedestrians and cyclists have seen the sharpest rise: over 60 percent between 2011 and 2022. It coincides with a steep increase in the sale of SUVs, pickup trucks, and vans, which accounted for 78 percent of new U.S. vehicle sales in 2022, according to Motorintelligence.com. Current U.S. ratings only consider the safety of the people inside the vehicle. The National Association of City Transportation Officials is leading an effort asking U.S. transportation officials to begin factoring the safety of those outside of vehicles into their 5-star ratings.” HPS Analysis: As the pandemic was starting and government checks were sent out, Americans had money to spend, and many purchased pickup trucks and the biggest SUVs they could find. When I asked older folks why, many responded that they needed the “protection” a bigger vehicle provided. Whatever the reason, you can see the data above, and when the pandemic ended and these big vehicles got back on the roadways, they created unsafe conditions for pedestrians and cyclists, and fatalities went up. This, we feel, is a contributing factor to the decline in bicycle sales starting during the second half of 2022, and why biking to work has been flat or declining throughout the country. The League of American Bicyclists has initiated a lobbying campaign aimed at NHTSA, urging side guards on delivery trucks and trailers, and asking DOT to reduce traffic speeds on roadways. All aspects of bicycle (inclusive of e-bikes) and bicycling safety is the overarching issue that needs to be aggressively lobbied if we, as an industry, expect to ever see America reach its full potential as a bicycling country focused on sustainability.

September 26: “Target Closes Nine NYC, West Coast Stores to Stop Losses From Rising Theft.” Bloomberg:  “Target Corp. is closing nine stores in four states to stem losses from rising retail theft. One Manhattan location will be shuttered, along with two in Seattle, three in Northern California, and three in Portland, Oregon, Target said in a statement September 26. The stores will close Oct. 21.” “Target has been fuming on its earnings calls for more than a year about losses from theft, which are adding pressure on its slender profit margins. The company says organized retail crime is spurring an increase in shrink, an industry term for inventory losses from external and internal theft, damage and administrative error. In May, Chief Financial Officer Michael Fiddelke said the blow from shrink would be $500 million worse this year than last year.” HPS Analysis: The first thing I did when I read this article was contact Heather Mason, president of the NBDA, to ask if “shrink” has become a problem for bike shops. Heather responded that insurance companies are becoming concerned by the volume of theft and fraud claims they are receiving from specialty bicycle retailers, which are both part of the growing shrink problem at retail. Target isn’t the only large brick-and-mortar retailer having a big enough problem with shrink that it is impacting profitability. It has reached a point where the National Retail Federation (NRF), Walmart, Target, Costco, Dicks Sporting Goods, et al, are actively lobbying Congress to introduce legislation to address the problem. HPS isn’t quite sure what legislation can really do, but other preventative measures are in the works that should be helpful and bike shops, depending on the scope of their individual problems, are going to have to adopt what affordable solutions become available.

September 26: “U.S. Consumer Confidence Drops to a Four-Month Low on Outlook.” Bloomberg: “U.S. consumer confidence slumped to a four-month low in September, dampened by a deteriorating outlook for the economy and labor market. The Conference Board’s index declined to 103 this month from an upwardly revised 108.7 in August, data out September 26 showed. The figure fell short of the median estimate of 105.5 in a Bloomberg survey of economists.” HPS Analysis: Consumers are the driving economic force in the U.S. economy. It is consumer spending on goods and service that the FED is targeting, in the hope of cooling that spending when it raises the prime interest rate, which flows down-stream in the form of tighter bank lending, higher interest rates on business loans, and higher credit card fees. A drop in consumer confidence is welcomed by the FED, but is not necessarily the best news for retailers of all sizes and types.

September 28: “Accell Group sees Fitch Rating Drop for Second Time in Months.” BIKE Europe: “Citing ‘limited progress on addressing supply chain challenges, which has eroded liquidity headroom and led to deeply negative free cash flow (FCF) in 2023,’ the international credit rating agency Fitch has revised its outlook for bicycle manufacturer, Accell Group, downwards for the second time in months. Fitch has downgraded the rating to ‘B-’ from ‘B’. The Fitch outlook formally applies to Sprint BidCo BV, the new holding company of Accell Group that delisted the company on August 22, 2022. Accell Group was delisted following the take-over by a KKR-led consortium last year.” HPS Analysis: Accell Group is one of the largest bicycle and e-bike manufacturers and importers in the global marketplace. Headquartered in The Netherlands, Accell Group took an unsuccessful run at the U.S. market before pulling back to Europe, and in being acquired by a KKR-led consortium, was taken private. Too much inventory was a problem after the pandemic and evidently remains a problem that has resulted in the second rating drop from Fitch this year. We are in a protracted shakeout, probably the worst I have seen. One of the features, in addition to business failure and consolidation, is the situation we are witnessing with the Accell Group credit rating being downgraded. If we are correct in our current assumption that there will not be a resurgence in business this year, we can expect more news like this.

September 28: “All Those Pandemic Savings? They Might Already Be Gone.” Marketplace: “Americans saved a lot of money during the early years of the pandemic, more than they normally would. At one point, they had squirreled away an estimated $2.1 trillion dollars work of ‘excess savings.’” “As people squirreled away cash, the savings rate went from about 8 percent in early 2020 to an all-time record high of almost 34 percent later on that year.” Since then, we have been spending down those savings. The saving rate fell to just 2.7 percent in 2022, and right now it’s at 3.5 percent.” HPS Analysis:This is another one of those indicators that HPS watches as relates to consumer ability to spend discretionary funds on bicycles and related products. Some economists believe that all the pandemic savings have already been spent, and others believe the last vestiges of those savings will be spent during Q4 of 2023. Bottom line, the so-called pandemic savings are not available to spend this year.

Contact Jay Townley: jay@humanpoweredsolutions.com.

MIKE FRITZ ACCEPTED AS MEMBER OF TWO UL TECHNICAL COMMITTEES

After inviting Mike Fritz to apply for membership, UL Standards & Engagement confirmed that the technical committee chair of TC2849 approved Fritz’s membership, followed by confirmation of TC2580, which covers the standards UL2271 and UL2580. 

UL2849 is the voluntary standard for electrical systems for e-bikes, while UL2580 is the standard for batteries for use in electric vehicles, such as e-bikes, including voluntary standards UL2271 and UL2580.

Fritz is chief technology officer for Human Powered Solutions, a consultancy focused on pedal-only, electric-assist, electric component, connectivity and communication product and system design, manufacturing, and management. In addition, it has extensive industry and consumer research experience, and data and insights on retail dealers.

“I’m old school,” Fritz said. “I started my professional career at the Schwinn Bicycle factory in Chicago back in 1973. Over the years, I have worked in product engineering management for several e-bike brands, as well as being CTO for e-bike propulsion system component manufacturers. Importantly, I was employed as the North American technical representative by a leading battery pack supplier to the e-bike industry. 

“This experience enables me to offer our micromobility clients a level of technical insight that they would not have when sub-contacting product development and manufacturing engineering to OEMs and third- party suppliers. This is especially true with respect to lithium-ion batteries and related micromobility propulsion systems. I was trained on technologies, processes, and protocols associated with the design, production, and servicing of high-quality lithium-ion batteries used in the e-bike industry.”

“A key service Human Powered Solutions offers to micromobility clients is the ability to interact with lithium-ion battery pack suppliers to establish complete battery pack specifications and necessary performance attributes to ensure that clients are integrating appropriate battery packs into propulsion systems that are suitable for their application.” 

The global nonprofit UL Standard & Engagement is a safety science organization that develops, publishes, and maintains consensus standards that guide the safety, performance, and sustainability of new products and evolving technologies and services, delivering solutions that range from household appliances to smoke alarms, from batteries and building materials, to cybersecurity and autonomous vehicles. www.ulse.org

Contact Mike Fritz: mike@humanpoweredsolutions.com

THE HPS SEPTEMBER LETTER: ARE TEENS AND E-BIKES A DANGEROUS MIX?

July 29 “A Dangerous Combination: Teenagers’ Accidents Expose E-Bike Risks.The New York Times: “The e-bike industry is booming, but many vehicles are not legal for teenagers, and accidents are on the rise. On a Thursday evening in late June, Clarissa Champlain learned that her 15-year-old son Brodee had been in a terrible crash, the latest teen victim of an e-bike accident. He had been riding from home to shot-putting practice. The e-bike, a model made by Rad Power, had a top speed of 20 miles per hour, but his route took him on a busy road with a 55-mile-per-hour limit. While turning left, he was clipped by a Nissan van and thrown violently. Ms. Champlain rushed to the hospital and was taken to Brodee’s room. She could see the marks left by the chin strap of his bike helmet. ‘I went to grab his head and kiss him,’ she recalled. ‘But there was no back of his head. It wasn’t the skull, it was just mush.’ Three days later, another teenage boy was taken to the same hospital after the e-bike he was riding collided with a car, leaving him sprawled beneath a BMW, hurt but alive. In the days following, the town of Encinitas, where both incidents occurred, declared a state of emergency for e-bike safety.” HPS Analysis:There is much more to this New York Times article, and I urge you to read every word. I you cannot find it, let me know and I will email it to you. While there is a good argument to be made for our society ignoring the real problems of our car culture, the very real accidents, injuries and fatalities associated with bicycles and e-bikes are growing, and our industry needs to immediately reevaluate and reconsider everything it knows, and become aggressively proactive about all aspects of safety. There are two federal agencies currently evaluating how to best address the safety of electric bicycles: the Consumer Product Safety Commission (CPSC), and the National Highway Traffic Safety Administration (NHTSA), as well as New York City, the State of New York, and the State of California. In addition, CPSC is also evaluating how to best address the safety of pedal-only bicycles. Last month, HPS recommended PeopleForBikes take immediate action to form a Standards and Safety Committee to focus the resources of the American bicycle industry on all the issues associated with product safety and user safety. We are burning daylight people.

July 30 “The New York Times Attacks E-bikes While Ignoring the Real Dangers All Around Us.elecrtrek: “The New York Times published a pair of articles this weekend highlighting the rising number of deaths of cyclists riding electric bikes. However, in one of the most impressive feats of victim-blaming I’ve seen from the publication in some time, the NYT lays the onus on e-bikes instead of on the things killing their riders: cars. The first article lays out a number of recent tragic deaths of e-bike riders, including that of a 15-year-old boy in Encinitas, California. The article even explicitly lists the biggest danger that played a role in that crash, explaining that the boy’s bike ‘had a top speed of 20 miles per hour, but his route took him on a busy road with a 55-mile-per-hour limit.’Yet the article seems to imply that the e-bike’s presence was the compounding issue, instead of reading into the author’s very own sentence to realize that the true problem was that the road didn’t have anywhere safe for cyclists to ride. There was no protected bike lane.” HPS Analysis: Here again, I urge you to read the whole article in electrek by Micah Toll, and if you cannot find it, please let me know and I will e-mail it to you. The city of Encinitas declared a state of emergency for e-bike safety, but did it really mandate safer roads for all of its citizens including walkers, joggers, bicyclists, and vehicular operators? Or, did it put band-aids on the problem to satisfy the public outcry? And, what role did the American bicycle business play in working with federal, state, and local government, as well as schools, user groups, and NGO’s, to stay engaged for the long term to bring safe streets, education, and protected bike lanes to the community? This is what HPS means by the American bicycle industry becoming aggressively proactive about all aspects of safety.

July 30: “E-bike Battery Fires Prompt Call for Better Regulation.” BBC: “Batteries for e-bikes should be regulated in the same way as fireworks, heavy machinery or medical devices, because of the fires risk they pose, a charity has said. In June a woman and two children died in a fire linked to an e-bike battery. Currently, manufacturers can self-declare that e-bike and e-scooter batteries meet safety standards. But campaigners Electrical Safety First says the batteries should require third-party approval before sale. Cambridgeshire Fire Service said the bike was the ‘most probable cause’ of the fatal blaze in June, and it is investigating the e-bike that was left charging in the flat. Meanwhile, the London Fire Brigade said it has been called to a fire caused by e-bike batteries on average once every two days in 2023.” HPS Analysis: This BBC article is confirmation that the UK, where e-bikes have been popular and sold in greater quantities before, during, and after the pandemic, is now experiencing e-bike-associated lithium-ion battery fires, and is seeking regulatory safety standards and related solutions. This article quotes Electrical Safety First CEO Lesley Rudd as saying: “The UK should adopt regulations similar to rules introduced in New York City in March 2023.” While we do know the primary origin of the hazard present in the UK is different than that in New York City, the net effect is, sadly, the same. This shows the importance of lithium-ion batteries being manufactured, tested and certified to UL 2271, e-bikes manufactured, tested and certified to UL 2849, along with education of retailers, including DTC sellers, and consumers concerning the proper management of lithium-ion batteries supplied with e-bikes and other micromobility devices.

July 30: “Trucking Giant Yellow Shuts Down Operations.” The Wall Street Journal Business: “The 99-year-old company, with 22,000 Teamsters employees, advises customers and workers of shutdown. Yellow, one of the oldest and biggest U.S. trucking businesses, shut down on July 30, wrecked by a string of mergers that left it saddled with debt, and stalled by a standoff with the Teamsters union. The 99-year-old- company is known for its cut-rate prices, and has more than 12,000 trucks moving freight across the country for Walmart, Home Depot and many other smaller businesses. What Yellow couldn’t deliver, despite swallowing rivals, getting union concessions, and securing a government bailout, was consistent service for customers or profits for investors.” “A failure imperils nearly 30,000 jobs, including around 22,000 Teamsters members, and hundreds of its nonunion employees were laid off July 28 after the company stopped taking in new shipments from customers. It would be the biggest collapse in terms of revenue and jobs for the fickle U.S. trucking industry, though customers say disruptions should be limited. Manyu shifted their cargoes to rivals in recent weeks, hastening Yellow’s demise.” HPS Analysis: Two-years ago, the collapse of Yellow would have been a disaster for the U.S. economy and the bicycle business. Even 12-months ago, it would have been a major disruption to American commerce. Today, not so much. The U.S. economy has cooled enough, and consumer demand has ebbed, to the point where rival domestic trucking firms have picked up all the freight Yellow could no longer take. Unemployment spiked the two weeks after Yellow shut down operations, but dropped back to previous levels as the non-union workers and union drivers found work. Domestic freight continued to flow, and there was no discernable disruption to shipments of bicycle business merchandise. While this bankruptcy ended up having no real impact on the U.S. economy, it did leave the American people with about a one-third ownership in Yellow as the result of the terms of the financial bailout negotiated by the previous Administration.   

August 2: “Columbia Has Too Much Footwear While Prana Sales Plunge 32 Percent.Sourcing Journal: “In a Nutshell: Columbia Sportswear chairman and CEO Tim Boyle told investors in a second quarter earnings conference call that “elevated inventory levels, particularly in footwear,” contributed to higher clearance and promotional activity in the quarter. Getting rid of excess stock has been a priority for several months now. Boyle said the Sorel owner is taking a more ‘conservative approach to planning the balance of the year,’ such as managing expenses and looking for growth opportunities.” “U.S. e-commerce net sales were down mid-single-digit percent. The online environment has become more competitive and promotional, as consumers seek out value in the marketplace, Boyle said. Columbia Sportswear got a boost from lower inbound freight costs. However, higher clearance and promotional activity, as well as higher distributorship, which generally carries lower gross margins, didn’t help.” “We continue to anticipate that China will be one of our fastest-growing markets in 2023, Boyle said.” HPS Analysis: Athletic and sports footwear appears to be tracking along the same arch as the bicycle business, and too much inventory and too few sales are the primary issues. Columbia, like the top bicycle brands, reports second-quarter sales declines in Canada and the U.S., and increased sales in China. Columbia also reports e-commerce net sales were down in the second quarter.

August 3: “Industry Makes its Point, but Can the CPSC Regulate Lithium-ion Batteries?Bicycle Retailer and Industry News: BETHESDA, Maryland: “Mike Fritz left last week’s Consumer Product Safety Commission public hearing on lithium-ion battery safety confident he and other industry representatives convinced the agency that mandatory regulations are needed. ‘Whether they have the resources to take effective action in the short term remains to be seen,’ said Fritz, Human Powered Solutions’ chief technology officer, who has worked with the National Bicycle Dealers Association to educate retailers about safe storage and handling of batteries. Matt Moore, PeopleForBikes’ policy counsel, agreed. ‘That was part of my testimony, that they don’t currently have the resources to effectively enforce regulations for various reasons, one of them being the de minimis exemption, and the difficulty inspecting those shipments,’ Moore said. Whether they have the resources to do the rulemaking, is really dependent on their budget and budget priorities. The current climate in the House is not good for additional appropriations. In fact, they’re looking to cut what has been allocated for agencies across the board.” HPS Analysis: I sat in the audience through all the testimony presented July 27, and participated in the conversations during the breaks, lunch, and over beer after the public meeting. The summary of the day was that the need is urgent because of the fires and deaths in New York City and elsewhere in the country; there is agreement that mandatory federal standards are required; that harmonization and merging with European and UL lithium-ion battery and bicycle/e-bike regulations and standards is eminently possible; and immediate action is required by the Consumer Product Safety Commission. What surprised the Chairman of the CPSC was the general unanimity of all the presentations. He also warned that the CPSC mandatory standards and regulatory process is arduous and difficult, and made more so by the oversight exercised by the House Commerce Committee. The future of standards and regulation of lithium-ion batteries, e-bikes, and bicycles, is going to be up to the fortitude of the American bicycle business and the global industry to rally around and fight for safety.

August 7: “WFSGI Postpones 2023 World Cycling Forum.” Bicycle Retailer and Industry News: “The World Federation of the Sporting Goods Industry has postponed its World Cycling Forum 2023 to a later date. The Forum had been scheduled to take place during the IAA Mobility conference in Munich, Germany, next month. ‘In discussion with senior leaders of the industry, and seeing the ongoing economic challenges within the bicycle industry, we have made the decision to postpone the World Cycling Forum 2023, the WFSGI announced Monday. While we know this is disappointing, our first priority is to listen to the bicycle industry’s current situation. The new date will be communicated in due course,” the group added.” HPS Analysis: Scheduled for September 5-6, this would have been the fourth year for the World Cycling Forum, initiated by the WFSGI in 2020, the first year of what has become known as the Pandemic Bicycle Boom in the U.S. “…Seeing the ongoing economic challenges within the bicycle industry” is cited as a major reason for postponing the event, which we respectfully opine is the wrong reason. If anything, this should be the driving force in going ahead with the scheduled gathering of global leaders in the bicycle/e-bike industry, including PeopleForBikes as the leading U.S. industry association. What is the global bicycle industry so afraid of discussing out in the open?

August 7: “China Property Giant Country Garden Warns of up to $7.6 Billion Loss.” BBC Business: “Country Garden, which is one of China’s biggest property developers, has warned that it could see a loss for the first six months of the year of up to $7.6 billion (€6bn). The announcement is the latest signal of the major issues facing the world’s second-largest economy. This week official figures showed China had slipped into deflation for the first time in more than two years. Exports have also fallen sharply, while youth unemployment is at a record high.” HPS Analysis: China remains the largest source country for bicycles and related finished goods imported into the U.S., and while the problems of the Chinese economy have so far represented manageable issues for importers into the U.S., the looming problem is for multinationals selling bicycles and related products in China. Over the past three decades it has become conventional wisdom in the global bicycle business that Giant taught Trek how to successfully enter the Chinese home market, Merida taught Specialized, and so on. China has proven to be a significant OEM market for international publicly-owned brands like Shimano. For all the multinational bicycle, component, and accessory brands selling in the Chinese market, they are conducting local business in what is a domestic, or home market. With the European and North American bicycle markets declining, the Chinese home market has become very important to some, and perhaps many, of the multinational brands. A decline in Chinese demand for components and finished goods will only add to the sales and profit woes for multinationals.

August 7: “Strong Sales in China Help Keep Giant Group Revenue Decline to 5 Percent.Bicycle Retailer and Industry News: TAIPEI, Taiwan – “Giant Group’s first-half revenue was NT$42.6 billion ($1.34 billion US) in its first fiscal half, down 5.4 percent from the same period last year. But the company said strong sales in the China market helped. The domestic China market’s interest in performance cycling drove a 70 percent sales increase in the half there. However, sales for Giant-branded products in Europe were down 12 percent in the half, and in the U.S., they were down 44 percent, the company reported. First half e-bike sales supplied 35 percent of the Group’s revenues in the half, up 6 percent from the year prior.” “Overall the Group’s gross margin rate decreased to 21.3 percent, and net profit before tax came in at NT$3.35 billion, a decline of 32.9 percent. Net profit after tax came in at NT$2.02 million, a decline of 44.3 percent. First-half earnings per share were NT$5.15. HPS Analysis: Giant Group is a publicly-traded company on the Taipei Stock Exchange, and as such is obligated to publish its quarterly financials, as are Merida and Shimano, which is traded on the Tokyo exchange. Giant Group is only down 5 percent in revenue for the first half of this year because of a 70 percent sales increase in the Chinese domestic bicycle market. While this is a relatively small loss overall, the U.S. was down 44 percent, and Europe was down 12 percent, meaning any significant decline in the Chinese home market during the second half of this year will serve to increase the negative revenue for Giant Group. There is a definite link between Giant Group’s financial results and the Chinese home market, and this link may exist between other multinationals in the global bicycle business and the Chinese consumer goods market.

August 8: “Moody’s Downgraded the Credit of Several Regional Banks, Citing Rising Costs and Troubled Commercial Real Estate Sector.” Marketplace: “It’s been about five months since Silicon Valley Bank and Signature Bank collapsed. Shortly afterward, First Republic folded. But since then, things have been relatively calm in the banking world. That is, until this week. The ratings agency Moody’s announced that it downgraded the credit rating of several regional banks, citing problems related to rising interest rates and troubled loan portfolios. A lot of the problems in the banking sector that emerged earlier this year haven’t gone away.’ ‘Generally speaking, you don’t want to force banks to undergo significant and costly changes during periods of time when credit is less available,’ Kathryn Judge, a law professor at Columbia, is quoted as saying. ‘Judge went on to say: ‘…this week’s downgrades are a sign that that period of time is going to last a while, even though dramatic bank failures, like those earlier this year, are likely behind us. That means regional banks will keep paying more interest to depositors, and lending out less of their deposits.” HPS Analysis: HPS Senior Advisor Steve Bina’s related article covers Moody’s downgrading the credit ratings of several regional banks, and the potential impact on the availability of loans to small businesses, and the cost of that money from lending institutions. This is the issue that has been most important to the bicycle business and the specialty bicycle channel of trade since Silicon Valley Bank and Signature Bank collapsed: the overall availability and tightening of lending on the part of the remaining banks. The inventory that got financed during the pandemic bicycle sales surge that has not been sold is going to have to be turned into cash or refinanced at a higher interest rate, if banks are willing to refinance it.

August 8: “Bike Imports Plummet as Average Value Climbs.” Bicycle Retailer and Industry News: WASHINGTON – “Bike imports were down steeply in the first half of the year compared to the year prior, even as the average import value of bikes increased significantly. The U.S. imported about 1.4 million adult non-electric bikes through June, down 62 percent from the same period in 2022, when the U.S. imported 3.6 million. In dollar value at port, the imports were worth $504 million, down 38 percent from last year’s first-half value. The figures are from Department of Commerce USA Trade data released August 8. E-bikes lack a unique product code at import (they share a code with electric motorcycles and other electric cycles), making it difficult to include them in the totals. All the numbers in this article are for non-electric bikes. The average value of an adult bike at import in the first half this year was $360, up 60 percent from a year prior. HPS Analysis: First, let me say this is a great article. I went back over the tables and charts a dozen times. As many of you know, I am a data junky, and the five detailed tables and pie-charts are well worth examining carefully, and absorbing the story they have to tell. However, as the author Steve Frothingham makes clear: “All the numbers in this article are for non-electric bikes.” Electric bikes are not included because: “E-bikes lack a unique product code at import,” making it impossible to include the hottest category with the greatest growth potential for the industry in the data and the totals. While this is a great report, it highlights what we, as an industry, do not know. And there is agreement that what we do not know is very vitally important to the future of our industry. And yet, we do not seem capable of creating and rallying around a solution that provides the data we need about imports, domestic assembly, and manufacturing of e-bikes, to define and plan our future.

August 9: “Radio Flyer to Open its First-Ever Store at Woodfield Mall.” Chain Store Age: “The maker of the iconic ‘Original Little Red Wagon’ is entering brick-and-mortar. The 106-year-old Radio Flyer will open its first-ever retail store in November, at Woodfield Mall in Schaumburg, Ill. The store will offer the company’s full product lineup, including stroller wagons, scooters, tricycles, go-karts, bikes, and more, along its new line of electric bikes and ‘unique’ gift items for the holiday season. The store is designed to offer customers the ‘ultimate Radio Flyer experience.’ The attractions will include a test track where kids can get in the driver’s seat for rides and hands-on experience in products such as go-karts and scooters. Shoppers will be able to customize wagons and other items. In addition, an in-store bike shop will offer free rides for kids’ bikes and adult electric bikes, along with services that include professional assembly, custom bikes, accessory fittings, and more. HPS Analysis: Heather Mason, president of the NBDA, told us the news about the first Radio Flyer retail store before this CSA article, and before it was published in BRAIN. Heather had interviewed `Robert Pasin, chief “wagon” officer and CEO at Radio Flyer, for a Podcast. Pasin, is the third-generation CEO of this 107-year-old Chicago company. Radio Flyer recently entered the electric bicycle market with its Flyer line, and is expanding its dealer network in the U.S. HPS is looking forward to visiting the new Radio Flyer retail store after it opens in November of this year.  

August 10: “China’s Economic Shocks Have Thrown the World Off Balance.” Bloomberg Opinion: “Trade is plunging and prices are sliding. How much disappointment can the global economy bear? In the later year of the epic U.S. growth stretch that ended with COVID-19, a phrase began to catch on to describe the buoyant conditions spreading across the globe. The world was said to be on the cusp of an unusually synchronized expansion. Few people still spoke of a jobless recovery in America, and China, after some rare stumbles, appeared to be returning to its old robust self. Inflation was off the floor, seen as a good thing. HPS Analysis: The question at the beginning of this article is factious, but nonetheless has deep meaning for those of us who have been practitioners importing bicycle products into the U.S. from Japan, Taiwan, and China over the last five decades. From 1973 to 2019, the business of efficiently manufacturing and shipping bicycles to the U.S. evolved into Standard Operating Procedure, cost-efficient, predictable, and reliably repeatable month in and month out.  During the disruptions of the pandemic, a protectionist attitude rose up about Chinese high-tech products like computer chips during a time of shortages and surging consumer demand. This, coupled with the false premise that punitive import tariffs of up to 25 percent on top of regular tariffs would force China to the bargaining table to import more American goods like corn and pork, has evolved over the past five years to the point where a recent survey shows that 66 percent of Americans would support a pro-tariff presidential candidate, despite the fact that it is the American importer of record, and eventually the consumer, that pays the total cost of tariffs. Decoupling is very hard, in large measure because the Chinese have become vertically integrated and very good at what they do. Despite the bicycle business moving production to Cambodia and Vietnam, China remains the largest source of units, supplying 83 percent of all sizes and types of non-electric bicycles imported into the U.S. six-months year-to-date 2023. Politicians and governments want one thing, while consumers want another, and on the supply side buyers and sellers are doing their best to deal with the reality of market demand. If that isn’t “Off Balance” I don’t know what is.

August 10: “Shifting Trade Winds.” The Wall Street Journal Logistics Report: “A persistent downturn in world trade raises questions about whether deeper changes are underway that will alter long-term patterns of good flows. Weak global economic growth, high interest rates, and geopolitical tensions are weighing on goods trade, the WSJ’s Marcus Walker and Yuks Hayashi write, even as trade in services gets a boost from rebounding Chinese exports, suggesting decades of global integration may be unwinding. Instead, shifting supply chains suggest trade is entering a new era in which the West and China do more business with their political friends and less with each other. The change toward more fragmented trade patterns would have significant implications for a shipping sector that has supported far-flung supply chains. For now, forecasters are projecting only meager global trade growth this year, and a recovery next year well short of average yearly growth.” HPS Analysis: Yes, there is a definite and pronounced downturn in the flow of goods from China and other Asian source countries, as evidenced by regular bicycle imports into the U.S. being down 62 percent in units and 38 percent in value six months year-to-date. Consumer demand in Europe and North America has been declining steadily since the last half of 2022, and now consumer demand in China is starting to decline. Computer chips and other high-tech products like cell phones are shifting their sourcing, as the article indicates, but decoupling and resourcing for the relatively low-tech bicycle business, including e-bikes, is proving much more difficult, and will be years behind the high-tech sector. What this means from a geo-political standpoint relative to manufacturing, and from a logistics standpoint as pieces of the longstanding global integration unwinds and shifts, represents a series of near-term issues the bicycle business is going to have to face and manage to craft modified patterns for the flow of goods to the markets outside of China and Asia.

August 11: “Cycle Industry’s Collapse After Bike Boom Ends This Year, Say Analysts.” Forbes: “Bicycles may be greener than cars and globally outsell them, but the $61 billion bike biz isn’t as healthy as many might assume. Periodic surges, such as the emergence of mountain biking in the 1980s or the stellar demand driven by COVID lockdowns, hide the industry’s low margins. According to an analysis by Yahoo in Taiwan, the bicycle industry is facing a ‘super cold winter’ of falling demand. Asian suppliers of cycles and cycle components have yet to recover from the inevitable market crash that followed the COVID bike boom, and still carry high inventory levels … Industry analysts believe 2023 will be a trough year, with sales recovering through 2024 and beyond, and at a more sustainable level than the heights of the COVID bike boom.” HPS Analysis: This article is by Carlton Reid, a long-time bicycle advocate and writer, and senior contributor to Forbes. The HPS Analysis is that he is generally correct concerning the “super cold winter.”  We agree with the pre-pandemic industry generated universally low margins. However, we are of the opinion that overall prices increased during the pandemic, which also increased gross margins. These increases are baked into costs in the tiers of distribution, and have not yet all stripped out by discounting and price reductions. 2023 is definitely a “trough year,” but we are not as confident in the prediction for 2024 because of the new bicycle riding and purchaser demographics.  

August 13: “Multinationals turn to generative AI to manage supply chains.Financial Times: “Some of the world’s biggest companies are turning to artificial intelligence to navigate increasingly complex supply chains as they face the impact of geopolitical tensions and pressure to eliminate links to environmental and human rights abuses. Unilever, Siemens, and Maersk are among those using AI to negotiate contracts, find new suppliers, or help identify those connected to issues including the alleged repression of Uyghur Muslims and China’s Xinjiang region. Although AI support in supply chain management has been used for years, and the development of so-called chain management has been used for years, the development of so-called generative AI technology has been offering more opportunities to further automate the process … Up to 96 percent of supply chain professionals are planning to use AI technology, according to a survey this month of 55 executives by logistics group Freightos, although only 14 percent were already using it.” HPS Analysis: All of the major bicycle brands selling in the bike shop and specialty retail channels are multinational at $1 billion or more in sales revenue. The top-tier OEMs and component brands are also multinational, with sales revenue of $1 billion or more. HPS believes the top-tier multinationals in the bicycle industry, including the large mass merchants in North America and Europe, are turning to generative Artificial Intelligence (AI) to manage their supply chains. Generative AI means the process of analysis, tracking, mapping, generating contracts, letters of credit, purchase orders, tracking shipments, and more, are either totally automated or partially so. As the survey indicates, almost all plan to employ generative AI systems to manage their supply chains, but only a minority are currently doing so. Big changes are coming in supply chain management, and the bicycle industry needs to both adopt the new methodologies, and openly share the data and information generated with every touch point in the supply chains.

August 14: Vosper: Midsummer Blues for the Specialty Retail Channel.” Bicycle Retailer and Industry News: “It’s been a long, tough spring, and now it’s shaping up to be an even longer, tougher summer. Not only has the weather across most of the United States been terrible for business – unprecedented heatwaves plus massive rains, and even tornadoes and flooding, depending on what part of the country you’re in – but consumer demand continues to be weak in many product categories, not just bicycles. As a result, bike industry sales are way down, and the massive inventories we carried into 2023 are still with us. If anything, the product oversupply has increased each spring. Although there are still shortages at some high-end price points, many of the bread-and-butter bikes we took on in Q4 of 2022, and the beginning of 2023, are still with us. HPS Analysis: Rick Vosper does his usual thorough job of logically presenting the details, and in this case the grim facts, of where the American specialty retail channel is, and where it is probably headed. This article is a must-read, and Rick is quite right in that the specialty bicycle channel is really good at shooting itself in the foot,  in this case by unnecessarily introducing 2024 models when 2023 merchandise is still available, and heavily discounting direct to consumers, and devaluing the finished goods inventory still in retail inventory. This is not all, but covers the highlights. One point that I believe needs to be made relates to climate change and “… the weather across most of the United States” being terrible for business. While absolutely true, the bad weather that will be terrible for our business and all outdoor-related businesses has become the new normal, and our industry needs to plan climate and weather-related disruptions into our annual planning and forecasting going forward, including communicating with customers.

August 14: “China’s Worsening Economy Is Hurting Corporate America.” The Wall Street Journal Business: HONG KONG – “China’s deepening economic slump is damaging the fortunes of big American companies deeply rooted there, with some growing increasingly pessimistic that the country’s long-awaited post-pandemic boom will materialize. Companies embedded in China’s ailing manufacturing, construction, and export industries are reporting weaker sales. In some cases, they are warning of further trouble to come as growth grinds to a near halt, and economic readings are dour.” HPS Analysis: We have subscribed to the conventional wisdom that the top-tier bike shop brands established distribution and retail stores in China starting in the 1980s. We do know that the top-tier OEMs like Giant, Merida, and Ideal have large manufacturing footprints in China, as do most of the component manufacturers. While none of them are of the size in terms of revenue as the American companies named in this article, we believe they all have distribution established inside China, and they will be adversely impacted by a worsening Chinese economy. The ripple effect will be felt during the last half of 2023 and into 2024.

August 14: “Is the Bike Industry in Trouble – Or Is It Making Another Comeback?Bicycling: “Between the COVID-19 bike boom, and the slump in sales that followed, the cycling industry has been on a wild ride for the last four years. But industry experts say that by 2024, the business of bikes may finally stabilize. Admittedly, it’s hard to see an end in sight now, with brands like Van Moof declaring bankruptcy, All City Cycles announcing their closure, Bell announcing layoffs, and bike behemoths like SRAM and Shimano still taking hits to profits quarter after quarter. According to a recent Forbes article, major players in the cycling space in Taiwan are going so far as to call this moment in time a ‘super cold winter’ due to falling demand but huge overstock. HPS Analysis: This is the bicycling consumer press covering what the bicycle industry trade press seems reluctant to come to terms with, i.e. the bike industry is in trouble. The editors at Bicycling see the sales and discounts, and also the shifting ad revenue, and as the article acknowledges, read the international press coverage. It is interesting that the Forbes article is an authoritative source, and neither the bicycle industry association nor the industry trade publication.    

August 14: “NBDA to Host Special Industry Supplier Update with Guest Expert Bob Margevicius.” Bicycle Retailer and Industry News: “The National Bicycle Dealers Association (NBDA) is excited to announce an upcoming informative webinar titled: ‘NBDA Special Industry Supply Update’ featuring guest expert Bob Margevicius, executive vice president of Specialized Bicycle Components.” HPS Analysis: Over 300 folks from the bicycle business signed in, and stayed for this amazing webinar that logically explained the current status of the bicycle supply chain using Bob Margevicius’ insightful analysis of the most current data available. Here is the link to the recording of the webinar, and HPS urges everyone who receives this newsletter to watch and listen carefully, even if you have already seen it.

August 15: “Pacific Northwest Heat Wave Could Break Temperature Records through Thursday.” National Public Radio Weather: “Numerous heat-related warnings and advisories are being issued for a dangerous heat wave blanketing the Pacific Northwest to the northern Rocky Mountains this week. High and low temperatures could tie or break records. The National Weather Service (NWS) urged people in parts of Washington, Idaho, Oregon, Montana, and Northern California to prepare for dangerous triple-digit temperatures this week, with little reprieve due to record-warming overnight temperatures until Thursday.” HPS Analysis: We are going to keep hammering on this – bad weather that will affect the ability to get outside to ride a bicycle is a here-and-now, recurring issue in all regions of the country. The bicycle business needs to get ahead of managing this issue, and invest in and develop a “bicycling weather channel” that retailers and consumers can access 24-7 in-store and online, to help bicyclists plan when and where they can get outdoors. Developing and stocking bad-weather riding gear and emergency kits opens new opportunities. 

August 15: “The 10 Brands with the Most ‘Influential’ Branding Are…” Chain Store Age: “The controversial OnlyFans platform topped the list, with an average of 147,736 combined monthly searches, according to Web design company Digital Silk, which analyzed search data for more than 200 of the world’s largest brands by combining each name with the terms ‘logo,’ ‘brand,’ and ‘branding,’ to see which brands people are searching for the most in America.” Here are the Top 10 most influential brands, as ranked by Digital Silk: OnlyFans, Instagram, YouTube, Starbucks, TikTok, Facebook, Nike, Amazon, Apple, and Jordan. HPS Analysis: Influential branding is the key takeaway here. What influences average age 65 is far different than what influences average age 25, and when it comes to the bicycle market, the pandemic profoundly changed the “most influential branding,” So has the Internet, and who the influencers are, that sway the brand thinking and preferences. If you want more proof, visit electrek.co and electricbikereport.com, and take a look at the brands they have tested and are recommending, compared to bicycling.com.

August 16: “Heybike Receives UL2849 Safety Certification.” Bicycle Retailer and Industry News: SAN FRANCISCO – “Heybike, a leading e-bike brand, is proud to announce that it has received the UL 2849 battery safety certification. Receiving this certification validates Heybike’s constant pursuit of quality and safety assurances underlined in its design and manufacturing process. Strict quality controls are integrated into every stage of Heybike’s production process, from design conception, down to the finished products that reach consumers.” HPS Analysis: Heybike is a brand of e-bike that you find frequently on Amazon and Walmart.com. However, this DTC second or third-tier e-bike brand has launched UL2849 Safety Certification as a marketing tactic, joining a small but growing number of e-bike brands that are promoting and marketing UL2849 Safety Certification as an important difference between their brands and all the other brands of e-bikes in the American market, including, at least for now, all the top-tier brands. The top-tier complain that testing and compliance with UL2849 is costly, and will take a long time to implement. Heybike and other brands are doing what HPS believes will become a rapidly growing trend of using UL2849 Safety Certification as a marketing tool to differentiate and capture market share in a turbulent consumer marketplace.   

August 16: “Target Slashes Full-year Earnings Forecast as Retailer Struggles to Win Over Thrifty Shoppers.” CNBC: “Target on Wednesday missed quarterly sales expectations, and slashed its full-year forecast, as it again had trouble convincing shoppers to buy more than necessities. The big-box retailer cut both its full-year sales and profit expectations. Target offered a gloomier outlook, even as some top economists have scrapped calls for a recession, and government data show signs that inflation is cooling. The company said it now expects comparable sales to decline by about mid-single digits for the full fiscal year, and earnings per share to range from $7 to $8. It previously anticipated comparable sales would range from a low single-digit decline, to a low single-digit increase, and earnings per share would come in between $7.75 and $8.75. HPS Analysis: The second largest U.S. mass merchant retailer of bicycles is having a difficult time as the consumer market continues its shift to lower-priced value. What isn’t included in this article is an additional problem Target is having with theft and shrink. As far as HPS knows, Target has not pursued an aggressive private-label bicycle program. Accordingly, the decline as it impacts the bicycle business falls on suppliers like Pacific Cycles, now owned by PON.

August 17: “Walmart Lifts Profit Outlook Again on Boost From Bargain Seekers.” Bloomberg: “Walmart Inc. raised its annual profit forecast again, but struck a cautious tone on consumers and the U.S. economy. Rising borrowing costs, and the resumption of student loan repayments, will add to the strain on U.S. household budgets in the coming months. After a strong first half of the year, the midpoint of the retailer’s profit forecast for the current quarter slightly trailed analyst estimates. ‘Jobs, wages and pockets of disinflation are helping our customers,’ Chief Executive Officer Doug McMillion said on a conference call with investors and analysts. ‘But rising energy prices, resuming student loan payments, higher borrowing costs, tightening lending standards, and a drawdown in excess savings, mean that household budgets are still under pressure.” HPS Analysis: The largest retailer of bicycles in the mass merchant channel, and in the U.S., is doing well, and better than its leading competitors. As far as HPS knows, Walmart is pursuing an aggressive private-label bicycle program which is resulting in even more reduction in orders to suppliers like Huffy, Pacific Cycle, and Kent. Walmart, through the Walton Foundation and the companies owned by the Walton family, has become heavily involved in bicycling, and is actively funding bicycling infrastructure expansion throughout Northwestern Arkansas. The bicycle industry is gravitating to Bentonville, AK, the epicenter of bicycling activity and global headquarters for Walmart. The Cycle of Influence will be held there in September, followed by the PeopleForBikes SHIFT23 in October.

August 19: “Road Safety Emergency Declaration Yields Promising Results in Carlsbad, California.” SMARTCITIESDIVE: “Injury-causing accidents dropped 19 percent year over year, turning around a trend of growing accidents involving bikes. But ongoing efforts will require a lot more money. HPS Analysis: This is a promising series of events that provides a case study for advocates to take to cities. The declaration of a road safety emergency released funding that allowed education and enforcement that dropped injury-causing bicycle/e-bike accidents by 19 percent year over year. That is the good news. The bad news is that more funding will be required to maintain the program in Carlsbad, and expand it to other municipalities in California, and around the country.

August 18: “The Panama Canal Has Become a Traffic Jam of the Seas.” The Wall Street Journal: “More than 200 vessels are stuck on either side of the waterway as a serious drought cuts crossings. A flotilla of ships is stuck on both sides of the Panama Canal, waiting for weeks to cross after the waterway’s authorities cut transits to conserve water amid a serious drought. Vessel-tracking data shows more than 200 ships currently waiting to transit, a figure that has been climbing since the canal capped daily transits to 32 last month from an average of 36 under normal conditions. The waterway’s entrances on the Pacific and Atlantic oceans are dotted with ships that are backed up for more than 20 days.” HPS Analysis: The steam-ship lines are rerouting ships around South America or North Atlantic routes. This is not the result of too much shipping volume. It is the result of serious drought conditions lowering the water levels. Container ships are being partially unloaded to reduce draft and allow them passage. This is climate change’s impact on global shipping. For the bicycle business there has not been any large amount of shipping dependent on the Panama Canal, and it is common practice to offload container ships at West Coast ports, and put East-bound containers on stack trains to the Midwest and East Coast.  

August 18: “Survey: 66% Percent of Americans Would Back Pro-Tariff Presidential Candidate.” Sourcing Journal: “Brands and retailers calling for an end to the Trump-era Section 301 tariffs may be out of step with the views of the typical consumer. New data shows that two-thirds of Americans believe the U.S. government should slap more tariffs on China-made goods.” HPS Analysis: Let’s be clear – the 25 percent punitive Section 301 tariffs, which are in addition to existing tariffs, are paid by the importer of record, not the Chinese manufacturer or shipper. All tariffs are paid by the bicycle brands, and are passed along to retailers who pass them along to consumers. The anti-China sentiment has simply gotten out of hand and been taken too far. HPS believes PeopleForBikes understands this, and is part of the American business community lobbying against the Section 301 punitive tariffs that should be struck down, leaving the regular tariffs on imports from all source countries, including China, that have been in place for almost 50 years. 

August 22: “Nike Suffers Record Rout on China Concern, Inventory Woes.” Bloomberg: “Nike Inc. posted a record streak of losses as concern over China’s sluggish consumer recovery builds, and elevated merchandise stockpiles continue to weigh on profitability, according to the activewear industry. The stock slid 1.4 percent to $101.46 on Tuesday, falling for a ninth straight session in its longest losing streak since the company’s initial public offering in December 1980. The latest drop came after retailer and Nike customer Dick’s Sporting Goods Inc. reported disappointing fiscal second-quarter results, and cut its profit outlook for the year, due in part to more theft at its stores. Nike’s weakness coincides with increasing signs of a soft consumer rebound in China, which is a key growth market for the sports gear giant. China’s retail sales growth decelerated to 2.5 percent in July, worse than the median forecast of 4 percent … The rout has wiped out nearly $13 billion of Nike’s market value, which currently stands at $155 billion.” HPS Analysis: We have said before that we think the athletic shoe industry is a close parallel to the bicycle industry as it related to the Bullwhip effect, and the inventory overhang that it created in supply chains, and a slowing of consumer demand beyond the overall slowing in retail sales. Nike is a specific example, although the bicycle business doesn’t have a single brand valued over $150 billion. Of note is Nike’s counting on China as a key growth market, which is also similar to bicycle brands like Giant, and we think others of the multinationals.   

August 22: “Ace Hardware Aims for a Total of 170 New Stores in 2023.” Chain Store Age: “Ace Hardware has already cut the ribbons on 100 new stores in the United States in 2023, and the Oak Brook, Illinois-based company promises that 70 more will be in operation by New Year’s Day 2024 … Ace continues to prove that local, service-based hardware stores remain relevant in a segment dominated by Home Depot and Lowe’s. It has opened more than 1,100 locations in the past five years, and last year delivered shareholders a 39 percent return of $345 million. Many of those shareholders are the independent operators of its stores, which now number more than 5,800 in 60 countries and all 50 states. Ace’s sales last year topped $22 billion.” HPS Analysis: Ace Hardware is the largest dealer-owned retail hardware business in, we think, the world, but certainly in the U.S. The point is, as the article notes, Ace “… continues to prove that local, service-based hardware stores remain relevant” with competitors like Home Depot and Lowe’s. For the 15th time in 16 years, Ace was ranked highest for customer satisfaction among home improvement retailers by J.D. Power in 2022, with a score of 869 out of a possible 1000. Lowe’s and Menards tied for second place with scores of 849. At one time in its history, Ace Hardware was a cooperative, which is a business model that has been tried with limited success in the U.S. The supply side has not supported dealer cooperatives in the past, but the times, the channels of trade, and the consumer market demographics all changed during the pandemic. Perhaps it is time for bike shops to revisit the cooperative business model.

August 24: “Merida Reports First Half Year Sales and Profit Decrease.” BIKE europe: CHANGHUA, Taiwan – “The sparse numbers reported by Merida Industry Co. clearly indicate that its 2023 export position is in decline compared to 2022. The bicycle manufacturer posted a single-digit sales decrease, and a double-digit drop in profit, for the first half of 2023 … Merida’s 2023 half-year sales were 6.6 percent down.” The half-year profit was also down 38.8 percent. HPS Analysis: While we will never see the private multinational companies’ financials, at least if they stay out of Chapter 11 or 7, the public multinational companies have to disclose quarterly, as Shimano and Giant have. Merida has now disclosed its Q2 and first-half financials, although as sparsely as it can. It comes as no surprise that Merida’s first-half sales were down 6.6 percent, or that profit was down 38.8 percent. Although it was not mentioned, our concern is the amount of business Merida is doing in China, and the impact a downturn in the Chinese business will have on Q3, and the second half of 2023.

August 25: “Dick’s Sporting Goods, Macy’s Flash Warning Signs on U.S. Consumer Spending.” The Wall Street Journal: “Rising levels of theft, student-loan repayments, and credit-card delinquencies, cloud earnings picture for retailers … The readouts from Dick’s and Macy’s illustrate the economic challenges that persist among sellers of consumer goods. Spending on items such as apparel, electronics, and sporting goods, surged early in the pandemic, but slowed significantly starting last year, causing whiplash among retailers that bet on buying patterns continuing at higher levels.” HPS Analysis: Dick’s Sporting Goods is the largest of the Full Line Sporting Goods Channel bicycle retailers. Slowing sales of sporting goods and theft are dragging down gross sales and profitability.   

August 29: “Raimondo Says Business With China Is Key But Increasingly Risky.” Bloomberg: “U.S, Commerce Secretary Gina Raimondo argued that China is driving away American companies by making investments in the world’s second-biggest economy increasingly hazardous.” HPS Analysis: We will have to wait and see if Commerce Secretary Raimondo was able to get this message across to the members of the Chinese government that she met with on her late August trip to the PRC. HPS doesn’t want to belabor this, but Secretary Raimondo has made it very apparent to the PRC leadership that old behavior and new regulations are driving American companies away. The real question is the impact on the established PRC supply chain to the U.S., which is primarily Taiwanese owned.

August 29: Study: “Secondhand Market Will Reach $276 Billion in Five Years.” Chain Store Age: “According to the 2023 Recommerce Report from mobile secondhand marketplace OfferUp, 85 percent of three percent from 2022. In addition, 27 percent of respondents ventured into the secondhand market for the first time within the last year in 2023, there was a 27 percent increase in secondhand sellers compared to the previous year. As a result, the secondhand market is projected to reach $188.5 billion by the end of 2023, and $276 billion by the end of 2028, representing a 58 percent growth rate, outpacing the overall retail market by 4.4 percent.” HPS Analysis: The NBDA conducted a fantastic webinar featuring James Moore, who went through all the detail for a bike shop developing a very profitable previously-owned bicycle and e-bike department of their retail business. The webinar was recorded and is available by contacting the NBDA at www.nbda.com. This article confirms the other articles we have been reporting on, indicating the growth in the circular economy. The NBDA Cost of Doing Business shows that the highest gross margin product segment is used bicycles and e-bikes at 50 percent.  

August 30: “Shipping’s Peak Starts Petering Out.” The Wall Street Journal: “Operators brace for a second straight fall with only tepid gains during the typically busy time of the year. Industry experts point to ongoing concerns over consumer demand as a crucial damper on shipping volumes.” HPS Analysis: This is confirming the continued slowing of exports of consumer goods from Asia and China for import into the U.S. Pre-pandemic, there was a late summer/early fall surge of imports to the U.S. of consumer goods for holiday sales. What this article indicates is that whatever shipping peak there was going to be has come, and appears to be petering out.”

August 31: “Ideal Bike Sees Double-digit Revenue Downshift in Q2.” Bike europe: TAICHUNG, Taiwan – “As the third in line after Giant and Merida, Ideal has also reported red figures for this year. While the bicycle manufacturer was still able to keep up its Q1 revenue at a comparable good level with a slight 1.8 percent decrease, Q2 2023 saw a double-digit downshift.” HPS Analysis: All three of the largest Taiwanese bicycle/e-bike OEMs with significant manufacturing footprints in China have now reported Q2 and first half 2023 results. Ideal initially reported downturns that were followed by a report that VanMoof went into Chapter 11 protection, owing Ideal over a million dollars. Ideal’s European manufacturing facility had been previously informed in April of the insolvency of its major German customer Advanced Sports GmbH.  

Contact Jay Townley: jay@humapoweredsolutions.com