DISCOUNTING, PRICE HIKES, AND A ROGUE TRAFFIC ENGINEER

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Companies that signed the WFSGI statement:

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

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

Contact Jay Townley: jay@humanpoweredsolutions.com

POTTED BATTERIES, NEW TARIFFS, AND BEWARE OF FAKE CLASS 2 E-BIKES

05-02-24: “There’s a new trend making electric bike batteries safer.” electrek:A new type of electric bicycle battery is gaining traction in the industry, potentially ushering in unprecedented levels of safety and security for riders. Get ready, because we’re quickly approaching the age of the potted e-bike battery. There’s no doubt that fire safety is an important subject when it comes to e-bike batteries. Despite the actual number of battery fires being incredibly low compared to tens of millions of e-bikes on the road, the lethal effects of just a single fire drive home the importance of the issue. Now, a new type of manufacturing process is growing in popularity, claiming to significantly increase the safety of e-bike batteries by reducing the risk of fires, even when the battery is abused or damaged. Potting, which uses a hardening resin poured between cells to isolate them from each other and the environment, can mitigate the two biggest factors resulting in fires: corrosion and physical damage.” “We recently learned from Pedego, a major national e-bike brand, that it was adopting new potted e-bike batteries that use heat-absorbing resin between cells. Potting the batteries and enclosing the cells in a thermally conductive material helps Pedego protect the battery from impact and puncture damage, and also helps dissipate heat more effectively.” “Pedego’s adoption of potted e-bike batteries follows quickly behind Rad Power Bikes’ announcement that it was introducing its own potted battery design. Neither are the first movers in this respect, with companies like Luna Cycle and Grin Technologies beating them by many years.” HPS Analysis: Potting has been employed in electronic components and consumer electronic end-items for decades, and it just took a little longer to get to the micromobility lithium-ion battery category – and it is a very good thing. While all the relevant testing hasn’t been completed, there is no reason, based on past knowledge and history, to doubt that it will prove to be very beneficial in many respects, including the prevention of thermal run-away events causing fires. However, it will take time for enough “potted” lithium-ion batteries to be entered into commerce to realize the full positive effect. So far HPS is aware of only two brands, Pedego and Rad Power Bikes, that have introduced potted lithium-ion batteries into their product lines. While we expect this to become a standard feature, it will still be several years before there is universal employment of potting throughout the micromobility market in North America. However, this is a very big step in the direction of public safety and acceptance of lithium-ion batteries for micromobility.

05-05-24: “Is the bicycle movement failing Santa Barbara? Ridership is decreasing, injuries are increasing.” By Daniel B. Fishbein, MD Santa Barbara Independent: “Despite large investments in bicycle infrastructure (paths, lanes, and tracks), Vision Zero, and bicycle purchases following COVID, bicycle ridership is decreasing and injuries are increasing in Santa Barbara – and much of the rest of the United States. Ridership. The number of people bicycling to work has fallen to the lowest levels since statistics were first collected in 2009. The downward trend began in 2015, long before COVID and the increase in people working from home. Rather, early in COVID, bicyclists joyously announced a surge in ridership. The fall in commuting to work does not appear to be accounted for by either the increase in people working from home.” “In the West Coast of the United States, cycling decreased 3 percent from 2022 to 2023. Injuries surged to 121 in 2023, the second-highest number on record. Hot spots for injuries are almost everywhere, even a few on the car-free parts of State Street. (Yes, sometimes bicyclists are responsible for bicycle injuries).“The decrease in bicycle ridership in Santa Barbara city is mirrored in the county, California, and many parts of the United States. There has been a precipitous fall in the bicycling bastion of Portland Oregon. New York City is the only major metropolitan area showing a sustained increase in ridership. Perhaps in part due to these disappointing trends, People for Bikes, Trek Bicycle’s nonprofit arm, stopped counting ridership and injury data, now focusing only on the miles and utility of bicycle paths.” HPS Analysis: What should we do?  Dr. Fishbein asks. Clearly, increasing bicycle infrastructure has had no effect in Santa Barbara, although it may have elsewhere.  Dr. Fishbein points out that constantly referring to Europe’s success in increasing ridership and decreasing deaths has also not accomplished anything. In much of Europe, in a bicyclist vs. car collision, the car automatically has to pay the victim. Try that out in American courts! As Dr. Fishbein points out, the bicycle movement in America must understand the complexity of our country’s automobile addiction. As much as bicyclists like bicycle lanes, bike paths, and trails, they have done nothing to increase ridership or safety. What can bicycling advocates, including bike shops, do? They need to figure out ways of discouraging automobile use other than building more bike paths. To show that bicyclists are changing, they could stop opposing helmet laws for adults. According to Dr. Fishbein, these laws have been shown to save riders’ brains and government’s money, and do not discourage bicycling. Bicyclists, including bike shops, could actively fight climate change in their communities. It’s one thing to advocate for bicycling, and it’s an entirely different thing to advocate for lifestyle change in your community. P.S., HPS knows that PeopleForBikes isn’t “Trek Bicycle’s nonprofit arm,” but finds it most interesting that Dr. Fishbein thinks it is.

05-13-24: “China’s sweeping new e-bike battery rules could have a major impact in U.S.” electrek: “As electric bicycles continue to grow in numbers in the US, so too have concerns over the safety of their lithium-ion battery packs. A new safety standard just passed in China may soon have a considerable impact on e-bike fire safety. E-bike battery fires, while exceedingly rare, have become a major concern in the U.S. with significant news coverage. NYC is often seen as the epicenter of e-bike battery fires due largely to the large population of e-bike delivery riders, and the low-quality Chinese batteries used on such bikes. Delivery riders’ e-bikes usually feature inferior-quality batteries in order to reduce costs to their owners, who use them to perform low-wage delivery jobs. Keeping the issue in perspective, more deaths in NYC are attributed to space heater fires each year than e-bike battery fires, but the rapid growth of e-bike use in the U.S. means that fire safety will continue to be a growing concern. With the vast majority of battery fires originating from poorly produced Chinese batteries designed for ultra-cheap e-bikes and e-scooters, it appears the Chinese government is attempting to address the issue head-on. The country just passed new technical standards for the production of lithium-ion batteries like those used in micromobility devices. Known as the ‘Safety Technical Specification for Lithium-ion Batteries Used in Electric Bicycles,’ the standards regulate the design, production, and sale of lithium-ion batteries for e-bikes. The regulations specifically address technical concerns relating to production quality and fire risk, and cover 22 specific aspects of the batteries’ design and manufacturing. Issues addressed include battery over-charging and over-discharging, external short circuits, thermal abuse, battery punctures, and several more key areas. Enforcement of the new standard is expected to begin on November 1, 2024. After that date, no lithium-ion batteries for electric bicycles will be permitted for sale in the country without conforming to the new standard. The standard currently only addresses the domestic market, which is much larger than China’s e-bike battery export market.” HPS Analysis: The vast majority of electric bicycles imported into the U.S. originate in China. While the 25 percent Section 301 punitive tariff on e-bikes that will go back into full force and effect June 14 will serve to cool the import volume from China, including lithium-ion batteries, it will be years before that volume drops below half of all e-bike and lithium-ion battery imports. The new Chinese e-bike battery standards will weed out and eventually eliminate the manufacture and exportation of hazardous lithium-ion batteries. HPS will be watching the impact of this new standard on and after it becomes the country-wide manufacturing testing and certification standard on or about November 2024.

05-14-24: “Your favorite bike company is struggling.” The Cycling Independent: As a lot of people are aware, things are not well in the velo-verse. The fundamentals (e.g. inventory to cash ratios) have been bad for nearly two full seasons, and while I think most inside the industry expected it all to shake out by the end of last season, things actually appear to be looking even worse than they did last year. Trek is massively cutting its product offering and laying people off. Cannondale laid people off recently. Rapha basically closed its U.S. office. Stages Cycling, maker of power meters, defaulted on their debts and got subsumed by Giant, to whom they owed millions. Giant is alleged to have more than 100,000 unsold bikes in the U.S. ENVE was broken off by its parent company and sold to private equity. Kona Bikes basically tanked, and their parent company is actively trying to sell them off. Popular online retailers Colorado Cyclist and Planet Cyclery are shutting down. And the hits keep coming. What’s causing it? To outline the basic problem, during the pandemic, while the world was closed down, humanity rediscovered bikes. Demand shot through the roof, and because many of the Asian factories were closed or running at diminished capacity, supply ran very short. At that stage, shops were selling everything they could get their hands on at full retail price. It was a genuine boom driven by a singular and unexpected event. Then the world reopened, and that was a good thing, except that the demand for bikes cratered. I believe this is what’s referred to as ‘reversion to the mean.’ As it turns out, the demand for bikes isn’t that variable, year-to-year. In 2023, industry revenue plummeted because everyone who wanted a bike had already bought one. The pandemic had simply caused several years of sales to be pulled forward into 2021 and 2022. Bike companies failed to foresee this precipitous drop-off in demand, so they forecasted and ordered WAY more bikes than they needed, creating an inventory glut and driving prices down. It would be easy to blame product managers and forecasters for this problem, but the factories allegedly forced their hands, basically saying “If you don’t order these bikes, you won’t get any.” It’s the macro-level equivalent of what bike companies have been doing to bike shops for decades, forcing them to inventory more products than they would choose themselves, and from there the results were predictable. So that’s the state of play, but as 2024 unwinds before us, the situation has gotten worse, even as inventory levels have started to drop. These are the reasons: First, inventory has dropped but it’s still way too high for most big brands. Second, the big players are all cash-poor, because they’re paying to float this inventory. Third, interest rates are high. Fourth, when you’re running negative cash flow, even the biggest players in the industry run low or default on debts. Fifth, because all the big players are holding prices down or extending spring sales, they’re basically stealing sales from the smaller players whose problems weren’t as big until now. So the situation has snowballed, even affecting the small domestic manufacturers who haven’t participated in creating the problem at all, but also can’t afford to discount their products to compete at the current, ludicrously lower price points. And of course, bike shops are suffering, because there is less margin for them in sales that are more deeply discounted. In a situation like this, weaker, debt-laden companies get snapped up by larger players or purchased by private equity groups on the hunt for distressed assets. None of that serves consumers, in my opinion. The massive discounting going on is going to entice a lot of people to buy bikes that either aren’t really right for them, or that they don’t really need, and that’s going to cascade into the used bike market, driving prices down there. So what does it mean in real terms? Well, I expect the acquisition and bankruptcy news to pick up steam through 2024, and it’ll be interesting to see what the landscape looks like at the end. There will be shocks. I’m sure of that. People are losing their jobs, and it’s reaching every corner of the industry. You know, it’s worth saying that even TCI is affected, because most companies we would normally approach for sponsorship have slashed their marketing budgets. Everyone I talk to seems convinced this will all work itself out by the end of 2024, and I definitely thought that two months ago, but now it’s May, so my great hope now is that we don’t lose good people and good companies to this thing largely beyond any of our own making. HPS Analysis: Well said. HPS recognizes this article is long, but it is, in our opinion, worth your time. Keep in mind – this well-researched article is from a cycling consumer publication and, in HPS’s opinion, does a better job than our industry association has done in summarizing the current, highly volatile and disruptive condition, and future of the American bicycle business.

05-16-24: “House approves lithium-ion battery standards bill – The legislation now goes to the Senate.” Bicycle Retailer and Industry News: “The House of Representatives approved the bipartisan Setting Consumer Standards for Lithium-Ion Batteries Act on Wednesday that would establish a federal safety standard for rechargeable lithium-ion batteries in mobility devices like e-bikes and e-scooters. H.R. 1797, which passed 378-34 and now goes to the Senate, would give the Consumer Product Safety Commission the authority to create that standard. The bill was introduced last year by New York Rep. Ritchie Torres, and endorsed by New York Sens. Chuck Schumer and Kirsten Gillibrand. The bill states the standard also must include requirements for battery-related equipment, including chargers, cables, battery pack external terminals, micromobility device external terminals, and free-standing recharging stations. A little over a year ago, Schumer and Gillibrand held a news conference pledging their support in the wake of New York City’s increasing number of lithium-ion battery fires. ‘We need coordinated federal leadership to mitigate the threat that unregulated and untested lithium-ion batteries pose to individual consumers and communities across America,’ said Matt Moore, PeopleForBikes policy counsel. ‘The Setting Consumer Standards for Lithium-Ion Batteries Act is a necessary first step towards a safer e-mobility future. We’re proud supporters of the bill and look forward to working with the sponsors in moving it through the Senate, to the president’s desk, and on to the CPSC to implement.’“ HPS Analysis: HPS has watched H.R1797 carefully, and been assured by representatives that CPSC is aware and supportive of the bill. This means the commission is in accord with fast-tracking promulgation of a mandatory federal standard for lithium-ion batteries for micromobility devices based on UL2271. There is little doubt, given the support of Senators Schumer and Gillibrand, that the Senate will act quickly to pass either H.R.1797 or a similar Senate version, and send this legislation to the president for signature, creating a law requiring CPSC to promulgate a mandatory lithium-ion battery regulation within one year of the legislation being signed into law. This should fast-track this portion of the electrical propulsion system regulation of e-bikes by three to six months ahead of complete e-bike regulations and revised pedal-only bicycle regulations which are now expected at the end of 2025. This will also set the stage for a preemption battle between CPSC with some of the states over conflicting state e-bike and lithium-ion battery regulations.  

05-22-24: “CABDA moves west show to Las Vegas for 2025.” Bicycle Retailer and Industry News: “The industry will return to Las Vegas for a trade show for the first time since the 2017 when CABDA hosts its west event in the Nevada city next March.

CABDA’s Jim Kersten said CABDA West, to be held at the Expo at World Market Center, will complement CABDA’s shows in Chicago and the New York City area. But Kersten didn’t sound opposed to turning CABDA West into something like a national show replacement for Interbike, which held its last Las Vegas show in 2017, followed by a 2018 show in Reno. ‘I’d love to put on just one show, believe me,’ Kersten told BRAIN at the National Bicycle Dealers Association Retailer Summit in Bentonville on Wednesday, where he announced the Las Vegas show. Still, Kersten said typically 90 percent of the attendees at CABDA’s shows are from within a five-hour drive of the venue. But it’s not unusual for retailers from farther afield to fly in, and Las Vegas is a convenient flight destination from virtually anywhere. ‘Las Vegas has been on my radar for years. It was a matter of finding an affordable way to hold it there. The World Market Center is a non-union event center — key for keeping costs low. It’s located off The Strip, between The Strip and the Las Vegas Downtown area.’ While Kersten said he’d like to produce just one event, he remains a proponent of regional shows, which evolve to suit their regions. Brands choose which show to attend based on their resources, market presence, and product emphasis. ‘I didn’t see a single studded fat tire at the west show,’ Kersten said. ‘And I didn’t see any beach cruisers at the Chicago event.’ The 2025 CABDA calendar swaps directions: instead of progressing west to east as the series has in recent years, it will kick off January 15-16 with CABDA East in Meadowlands, New Jersey, followed February 12-13 by CABDA Midwest in Chicago, and then CABDA West in Las Vegas March 26-27.” HPS Analysis: As both an attendee and participant as a seminar presenter in the CABDA Expos since the beginning, HPS is delighted to be going back to Las Vegas, whether it is a regional West Coast trade show, or the beginnings of a larger national trade show. Those who are regular readers are aware that HPS feels the global bicycle business has relegated the North American market to third-world status, and a major trade show in Las Vegas in March may be the beginning of the American bicycle market winning back the true respect that it deserves. NBDA has partnered with CABDA in producing the seminars at the Expos, and HPS is looking forward to continuing its support and working relationship with both organizations.

05-23-24: “Coalition protests against proposed e-bike regulations.” NJ Spot Light News as reported in LEVA Newsletter May 30, 2024: Bill would require registration and insurance for low-speed electric bikes in the state of New Jersey: “Members of more than 40 organizations gathered Wednesday to protest a bill (S-2292) that would require strict regulations for e-bikes in the state. The bill, sponsored by Senate President Nick Scutari (D-Union) and Sen. Vin Gopal (D-Monmouth), would require low-speed electric bikes and scooters to be registered with the New Jersey Motor Vehicle Commission. It would also ban the use of any unregistered e-bikes and scooters, and require owners to have insurance coverage. ‘Adding on an extra layer of cost just to ensure these level 1 e-bikes would really be a burden and would cut out not just people who do e-bike delivery, but anybody who, for any reason, cannot afford a car,’ said Karin Vernoppan of Bike JC. The coalition, made up of bike and pedestrian advocates, clean-energy groups, and members of the insurance industry, sent a letter to Scutari and Gopal highlighting what it calls the proposed legislation’s ineffectiveness and its inconsistencies with regard to the state’s goal of net-zero emissions. Gopal said he expects the bill will be amended, while Scutari offered no comment. The coalition wants to see a Vision Zero policy enacted across the state instead. ‘Jersey City has a great Vision Zero policy. They eliminated fatal crashes on Jersey City streets recently. And neighboring Hoboken has gone seven years without a fatal crash,’ said Corey Hannigan, active transportation program manager at the Tri-State Transportation Campaign.” HPS Analysis: While we currently do not know all the details, this New Jersey bill (S-2292) represents the confusion and misunderstanding between local, state, and federal agencies, and between bicycle associations and advocacy organizations that the current situation has fostered. The HPS partners and senior advisors have seen this before, when the CPSC mandatory bicycle safety regulation was first introduced, and after it was promulgated. There needs to be a clear distinction between product safety regulation of bicycles, as defined, and use regulations adopted and codified by local and state governments. The answer, that is still on the books, is absolute preemption. That is, preemption that clearly states that no state or political subdivision shall engage any bicycle (as defined) product regulation that is not identical to the mandatory federal regulation promulgated by the United States Consumer Product Safety Commission. HPS will probably be reporting on New Jersey S-2292 throughout June and in the July HPS Micromobility Reporter.

05-24-24: “NBDA Retailer Summit ushers in a new era.” HPS Micromobility Reporter June 2024: “The second annual NBDA Retailer Summit held in Bentonville, Arkansas May 22-23 was, by all measures, a great success and ushered in a new era of specialty bicycle retailer conferences in North America. Attendance was approximately 200 attendees, split almost evenly between retailers and associate members. The presentations were divided between main stage in front of the whole conference, and breakout sessions with smaller audiences that peeled back the details, and answered questions about the main stage topics and presentations. The after-hours networking sessions allowed attendees to discuss and exchange information and ideas. The NBDA is a sponsor of the Bentonville Bike Fest that immediately follows the conference, and opens a window to not only this type of event, but also to active bicycle riding participation for the conference attendees. Unfortunately, the Bike Fest was canceled this year due to a severe weather event, including tornados that hit Bentonville Friday night following the conference. The NBDA sent out the PowerPoint presentations and a questionnaire to all the attendees, and has already booked the same May dates for the 2025 Retailer Summit. HPS Analysis:  HPS took away two industry needs from the 2024 NBDA Retailer Summit. First, there has been a steady two-decade decay of actual bicycle rider participation in America. The bicycle business, and specifically bike shops, must craft new and comprehensive action plans to actively recruit more people of all ages, genders, and income levels to some form of bicycle (including e-bike) riding. Some important ideas were discussed at the conference, but need to be expanded, studied, and crafted into programs that can be implemented at the local bike shop and advocacy organization level. Second, there is a lack of accurate data that organizations large and small can use to craft strategic plans. It became clear that we as an industry are guessing too much, and that there is no common, collective foresight based on accurate data to take our industry into the near-term or long-term future. During the week after the Retailer Summit, the NBDA began looking critically at both of these shortcomings, and the opportunities they represent going forward.

05-30-24: “Section 301 punitive tariffs go into effect midnight, Friday, June 14.” NBDA Notice To Members and Associate Members:As you have read in BRAIN May 24, the U.S. Trade Representative announced that the exclusions from the Section 301 punitive tariffs on children’s bicycles, e-bikes, some carbon fiber frames, and water packs, which were scheduled to expire May 31, have been extended in a transition period until June 14. NBDA announced June 1t as the effective date, and this has been extended to June 14, 2024, after which a 25 percent punitive tariff will be imposed in addition to the regular tariffs on these items imported from China. 12-inch, 16-inch, 20-inch, and 24-inch wheel children’s bicycles are subject to a regular, long-standing 11 percent tariff, and after midnight on the June 14 an additional punitive tariff of 25 percent will be imposed on the FOB value of children’s bicycles originating in China, resulting in a total tariff of 36 percent.

E-bikes are not subject to any regular tariff, so after midnight on June 14, a punitive tariff of 25 percent on the FOB value of e-bikes originating in China will be imposed.

Import tariffs are paid by the importer of record within 10 days of the goods clearing U.S. Customs. In 2023 over 88 percent of all pedal bicycles were imported into the U.S. from China. While there are only estimates for e-bikes, the NBDA assumes over 80 percent of all e-bikes were imported into the U.S. from China. The additional 25 percent imposed on the FOB value after midnight June 14 on children’s bicycles and e-bikes originating in China is going to create a cash-flow problem for some brands because of U.S. Customs 10 day cash payment terms. NBDA renews its caution for members to be alert for wholesale and MSRP price increases on children’s bicycles and e-bikes, and changes in terms because of the reimposition of the 25 percent punitive Section 301 tariffs.” HPS Analysis: Section 301 punitive tariffs go back into full force and effect at midnight June 14 with a 25 percent additional import duty on 12-inch, 16-inch, 20-inch, and 24-inch wheel children’s bicycles originating in China, a total of 36 percent on the FOB value and 25 percent on e-bikes originating in China. This is not only inflationary, but creates potential cash flow problems for importers of record who must pay the 301 tariff duty, in cash, within 10 days of importation. 25 percent of an average $1,200 FOB value of a Chinese manufactured e-bike is $300 x 200 units in a 40-foot container = $60,000 additional cost per 40-foot container of e-bikes imported into the U.S. from China on and after midnight June 14, 2024. An estimated 80+ percent of all e-bikes imported into the U.S. originated in China at a total estimated FOB value of $1,188,000,000 is an additional $297 million in import duty per year! Some wholesale distributors are currently considering immediate price increases to retailers to try to get as much additional profit out of their current inventory as possible before they start paying the additional punitive tariffs. Smart retailers who have both the cash and credit line will take immediate action to purchase inventory that wholesale distributors have on-hand at the lower prices before the 25 percent is added to inbound shipments. Some wholesale distributors will refuse to ship or give any terms on inventory on hand to block retailers from purchasing before prices increase. The additional cash flow burden of having to pay U.S. Customs an additional 25 percent on the FOB value of children’s bikes and e-bikes will result in a reduction in terms offered to retailers, and some wholesaler financial difficulty and possible bankruptcies. The reaction of consumer demand to retail price increases on children’s bikes and e-bikes is not yet known, but we anticipate that it will be negative. Children’s bikes and e-bikes imported from countries other than China will have a price advantage in the American market going forward, but limited supply will cause shortages and out-of-stock problems from July forward.

05-31-24: “CPSC electronic filing of regulatory standard testing certifications of compliance.” Notice to NBDA Associate Members: “On or about September 1, 2024, CPSC will publish its final Rule for Electronic Filing of Regulatory Standard Testing Certification. On or about January 1, 2025, CPSC will promulgate the final mandatory rule covering all consumer products regulated by CPSC, including bicycles as defined in 16 CFR 1512. HPS and the NBDA can provide a CPSC PowerPoint file that contains a complete list of the consumer products covered by the eFiling Rule, including:

  • Products Requiring a Children’s Product Certificate:
    • Bicycles (Youth)
    • Bicycle Helmets (Youth)
  • Products Requiring a General Certificate of Conformity
    • Bicycles
    • Bicycle Helmets

“As a reminder, a bicycle is defined by CPSC in §1512.2 as either (1) a two-wheeled vehicle having a rear drive wheel solely human-powered; or (2) a two-or three-wheeled vehicle with fully operable pedals and an electric motor of less than 750 watts (1 h.p.), whose maximum speed on a paved level surface, when powered solely by such a motor while ridden by an operator who weighs 170 pounds, is less than 20 m.p.h. From a use standpoint, this product safety definition includes what is referred to as Class 1 and Class 2 e-bikes. Slide 19 from the CPSC PowerPoint file lists contacts at CPSC who can answer questions, and you can also contact your import broker. HPS Analysis: We urge importers of bicycles as defined in §1512.2 to join the eFiling Pilot Program as soon as possible in preparation for promulgation of the Mandatory Rule by CPSC on or about January, 2025, seven months from now. Please contact CPSC, or your import broker or HPS, and we will do our best to help you.

June 2024: “Retailers (and others) should beware of ‘Class 2’ e-bikes.” Guest Editorial by Bob Mittelstaedt, Bicycle Retailer and Industry News: “Beware of electric throttle two-wheelers masquerading as Class 2 e-bikes legal for children to ride. Selling them is not only dangerous to children, it is illegal and exposes retailers to lawsuits. Far from legalizing them, the industry’s approach of calling them “out of class” EVs highlights that they are not legal e-bikes. In this context, Sports Basement, a large California retailer of Super 73s, has discontinued selling that brand. A prudent retailer would be well-advised to consult with its lawyer and follow Sports Basement’s lead. To explain, let’s start with the basics. Most states have adopted the PeopleForBikes model legislation. Of the three classes of e-bikes, the only possible class for a two-wheeler with a throttle is Class 2. But that classification fits only if the motor is less than 750 watts and is not ‘capable’ of providing assistance above 20 m.p.h. If the motor in any gear or mode is capable of working above 20 m.p.h., it is not an e-bike. It’s a type of motor vehicle. This matters because e-bikes can be ridden by children under 16, but a motor vehicle can only be ridden by a licensed rider. States impose other regulations on motor vehicles, like registration, insurance, and safety equipment requirements.” “The model legislation requires not only manufacturers but also ‘distributors’ to ‘apply a label that is permanently affixed, in a prominent location, to each electric bicycle.’ It must contain the accurate classification, top speed and motor wattage, printed in Arial font in at least 9-point type. If someone is injured or killed, the lawsuit potential is even more serious. Check your contract with the manufacturer for indemnities. See if its insurance or yours covers this situation. And consider not just the legalities, but the morality of selling dangerous products to children.” HPS Analysis: For clarity, this is not a condemnation of Class 2 e-bikes, or e-bikes equipped with a throttle, per se. The class system is a use system, for the use of riders of e-bikes. For the product safety regulation of e-bikes, Section 38 of 16 CFR 1512 defines a low-speed e-bike as a “two or three-wheeled vehicle with fully operable pedals and an electric motor of less than 750 watts (1 h.p.) whose maximum speed on a paved level surface, when powered solely by such a motor while ridden by an operator who weighs 170 pounds, Is less than 20 m.p.h. Low-speed e-bikes that do not comply with 16 CFR part 1512 are “hazardous substances” under section 2 (f) (1) (D) of the FHSA, and are also “banned hazardous substances” under section 2 (q) (1) (A) of the FHSA. A throttle is allowed, and this definition embraces, as Mr. Mittelstaedt states, Class 1 and Class 2 from the use system. The problem is the confusion that the class system creates and, as Mr. Mittelstaedt points out, the so-called “out of class” e-bikes that do not fall within the Section 38 definition we cite above. This is important because the bike shop channel of trade is at a critical juncture relative to stocking and selling both e-bikes with mid-drive torque sensing systems and e-bikes with throttles, or both Class 1 and Class 2 e-bikes that are within the Section 38 definition. HPS agrees with Mr. Mittelstaedt as concerns the so-called “out-of-class” e-bikes, and the potential hazard they represent to children and some adult riders as well. As he points out, “Over a year ago, the industry acknowledged the illegality of these mislabeled ‘out of class’ EVs or OCEVs. To quote PeopleForBikes’ January 2023 memo to industry, ‘those with motors in excess of 750 watts and/or which can greatly exceed 20 m.p.h. on motor power alone … [are] not electric bicycles. These products are often advertised misleadingly and sold to the public as e-bikes and represent a threat.’ Mr. Mittelstaedt goes on to state, “QuiteKat tries another approach for its vehicles with motors larger than 750 watts and capable of working above 20 m.p.h. Instead of affixing a permanent label as the state laws require, it says the rider picks their own class on the display. When this violation was brought to PeopleForBikes’ attention, it declined to comment to E-Bike Access “… because OuietKat is owned by one of our members.” Bob Mittelstaedt is a resident of Marin County and a retired trial attorney. He is co-founder of E-Bike Access (www.ebikeaccess.org).

Contact Jay Townley: jay@humanpoweredsolutions.com

INDUSTRY FIGHTS THROUGH CHALLENGES, SEA OTTER CLASSIC SOARS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Contact Jay Townley: jay@humanpoweredsolutions.com.

ECONOMIC NEWS, SAFER BATTERIES, AND THE IMPORTANT LAST MILE

03-04-24: “U.S. lawmakers are calling for a crackdown on the special trade provisions that e-commerce juggernauts Temu and Shein are using to flood the country with cheap imports.” The Wall Street Journal Logistics Report: “The shipments using the de minimis rule are surging this year, the WSJ’s Richard Vanderford reports, with at least 485 million packages entering the U.S. so far this fiscal year after 685 million packages were counted in the entire previous fiscal year. The customs provision allows packages with contents under $800 in value to enter the country duty-free under a simplified procedure. Critics say that is helping companies sidestep tariffs and defy bans on imported goods made with forced labor. A House panel estimates that Temu and Shein alone account for about a third of all de minimis shipments. Freight industry officials say the trade has turned the two companies into major forces in trans-Pacific air freight markets. HPS Analysis: The bar chart below is from the Wall Street Journal article and it graphically shows the huge increase in de minimis shipments, including cheap, low-quality, untested and uncertified lithium-ion batteries representing an imminent hazard to U.S. consumers. HPS and the NBDA have joined PeopleForBikes in asking that lithium-Ion batteries intended for use with e-bikes and e-scooters be excepted from treatment under the de minimis rule, making shipment into the U.S. subject to import duty and inspection by U.S. Customs.

Chart from Wall Street Journal article March 4, 2024

03-05-24: “Target to open 300 stores over next decade.” Chain Store Age CSA: “Target Corp.’s new 10-year plan includes a big commitment to brick-and-mortar. The discounter said it plans to build more than 300 stores over the next decade as it looks to reach ‘new guests with a shopping experience that’s welcoming, convenient and fun, whether they’re shopping the aisles or using same-day services.’ The news followed the release of the chain’s better-than-expected fourth-quarter results. Target also plans to invest to enhance the vast majority of its nearly 2,000 stores. HPS Analysis: Target is the number two mass merchant retailer of bicycles, behind Walmart, which recently announced it would build 150 new stores over the next decade. 400 to 450 more mass merchant channel competitors selling bicycles, including e-bikes, can be viewed a number of ways that can be good for bicycling, communities, and for bike shops who reach out to make the “circular” previously-owned and after-purchase service business work for the benefit of their businesses. 

03-05-24: “Trek Bicycle plans to ‘right size’ with 10 percent cuts to spending – Company also will reduce SKUs by 40 percent, according to internal document.” Bicycle Retailer and Industry News: “Trek Bicycle president John Burke has told company leaders that he has decided to “right size” the company by 10 percent in response to slow sales and high inventory levels. But he says the company’s overall strategy remains unchanged. In an internal memo Burke sent to executives recently, he said details of the cuts would be announced Friday. He said in addition to a 10 percent cut in spending, Trek would substantially reduce its stock-keeping units (SKUs), saying Trek’s model year 2026 SKUs will be 40 percent lower than the model year 2024. ‘These are turbulent times in our business,’ Burke began in a confidential Company Update document that Burke sent internally, which BRAIN has obtained. He went on to say the global bike market is ‘in chaos,’ with high inventory levels at wholesale and retail levels leading to ‘significant and continued’ discounting. He said retail sales were below Trek forecasts, including in January and February this year. He said the company has not hit its monthly sales goals for the past 15 months. He said the situation left him with three options: simply hope for better days ahead, continue to make cuts around the edges, or ‘right-size our business to the realities of the marketplace.’ He said he decided to take the third route. He said Trek would reduce overall spending by 10 percent with cuts to programs and positions, with decisions made on or before March 8. Trek will also simplify its product lines and reduce inventory levels. He said the model year 2026 inventory will be 20 percent lower, measured in days in stock, than they were before the pandemic bike boom.” HPS Analysis: The post-pandemic economy and bicycle marketplace is impacting everyone in the business, including Trek. Having been through what is now called “right-sizing” more than once back in the day, I can tell you that you better get it right the first time. Making a second round of cuts is more traumatic for a company than the first round, and planning is everything. Plan it deep and broad enough the first time, get it done, and make it work until the core organization comes out the other side whole and is able to resume generating profit, working capital and financial growth.

03-06-24: “Congress, industry leaders launch coalition to close the de minimis loophole,” Sourcing Journal: “The issue of de minimis reform has gained palpable momentum on The Hill in recent weeks, culminating in the launch of an advocacy group pushing for decisive action against the controversial trade provision.” “The daily deluge of de minimis shipments is impossible for CBP to contend with, according to Michael Stumo, CEO of the Coalition for a Prosperous America, which represents U.S. producers across a number of sectors. ‘Customs officials want to – and know how to – protect Americans from unlawful goods imports and illicit drugs,’ but goods entering the country through direct mail can’t be searched effectively, he explained. Congress capitulated to FedEx and UPS to create high-volume lawlessness enabling Shein, Temu, and foreign criminal organizations to ship goods to U.S. customers and drug dealers. Nearly half a billion packages have entered the country under de minimis to date in 2024, with the majority hailing from China. “They are uninspected, they don’t pay any tariffs, we know for a fact that many of these products are made with forced labor and intellectual property theft, and they do not meet our consumer safety standards,” said Representative Earl Blumenaur (D-Ore.), ranking member of the House Ways and Means Trade Subcommittee who is spearheading The Coalition to Close the De Minimis Loophole. HPS Analysis: Under Section 321 of the Trade Facilitation and Trade Enforcement Act, packages valued at under $800 can enter the country duty-free, and they often make their way into the hands of shoppers without being inspected by Customs and Border Protection (CBP). Calling de minimis a “loophole” is an understatement. When a drug dealer can import fentanyl into the U.S. without fear of inspection, the so-called loophole, as members of Congress are saying, has become a dangerous threat to our society. A good friend of mine still believes that you still cannot ship lithium-ion batteries unless they meet international and U.S. Hazmat requirements. That’s only true if you follow the rules and regulations. Delivery via parcel post and parcel delivery services of hazardous lithium-ion batteries is occurring every day in the U.S. when shipped directly to the purchasing consumer under Section 321 at a value of $800 or less. They are not declared as dangerous, are not inspected, are not subject to import duty, and are delivered directly to the purchasing consumer just like fentanyl is. It needs to stop! Please contact your members of Congress and request they immediately sign on to The Coalition to Close the De Minimis Loophole.  

 03-07-24: “DHL is hunkering down for a continued decline in global shipping demand.” The Wall Street Journal Logistics Report: “DHL parent Deutsche Post says a weak market last year is extending into 2024, the WSJ’s Dominic Chopping reports, and it’s now projecting earnings to decline oi the first half before growing in the second half of the year. That suggests a gloomy outlook for global goods trade, from parcels to heavy freight, because of the extensive reach DHL has across cargo transportation markets. The company’s operating earnings tumbled 25 percent last year to about $6.9 billion. It’s projecting little if any earnings growth this year, saying ‘volatility in demand and geopolitical crises will remain with us in 2024.’“ HPS Analysis: DHL, UPS, and FedEx have all announced layoffs and trimming services including reducing air-freight flights from Asia. Small parcel delivery will cost more, and service will be subject to change going forward. Keep in contact with the parcel service you use and compare costs to make sure you receive the best deal available in uncertain times.

03-07-24: “Despite turbulent times, Haro Bikes is expanding and upgrading its model lineup.” Bicycle Retailer and Industry News: “Unlike many in the industry, Haro Bikes has been busy expanding instead of contracting. Unburdened by inventory concerns that have choked much of the industry, the longtime BMX and mountain bike brand is preparing what new Global Chief Commercial Officer Lars Hjort termed a full-line bike offering. ‘It’s a challenging but exciting time for us,’ Hjort said at Taipei Cycle on Thursday. He joined the company at the beginning of the year after stints at Specialized, Felt and Marin. In addition to Hjort, within the past year Haro hired CEO Bjarke Rasmussen, formerly vice president of global operations for Cycling Sports Group, senior engineer Ty Buckenberger, formerly with Specialized, supply chain director Graise Ooi, formerly with Blix Bicycles inc., and chief marketing officer Megan Tompkins, who worked for Crankbrothers, Specialized, Shimano and BRAIN. ‘We did a lot of hires because we are moving the brand from being solely focused on BMX and mountain bikes because we want to play I the big leagues,’ Hjort said.” “What Haro won’t be expanding is its sales channel to direct-to-consumer. Hjort said the approximate 700-retailer network will remain an integral part of the brand’s operation.” HPS Analysis: If I am correct, Haro Bicycle Corporation is currently owned by Jayu Yang, former owner of Kenstone, a Taiwan-based bicycle OEM. Jayu Yang and her cousin, Dr. Shu-Yuan Yang founded GRONBLA (www.gronbla.com), a company dedicated to developing recycling methodology for plastics. Haro is not only “unburdened by inventory concerns,” it has a vision and plan for the future supported by investment capital. This BRAIN article from March 7 also points out that Haro, in addition to investing in management talent, is “… building a U.S. assembly line in Vista, California, with bikes expected to be rolling off the lines in three to four months.” Onshoring is being considered and Haro is watching what is going to happen with duty rates on bicycles imported from China later this year. As I said, Haro has capital, experience, know-how, and a plan for the future.

03-08-24: “Taipei Cycle Show 2024: 7 takeaways from Asia’s largest bicycle trade show.” Cycling Industry News: “More than 950 exhibitors and 3,500 booths make Taipei Cycle the biggest bicycle exhibition in Asia and a prime business hub for the global bicycle industry and its supply chain. Therefore, the event offers an excellent opportunity to get an early sense of the current mood in the bicycle industry as well as the prevailing trends when it comes to product innovations. During our visits to the exhibition halls at the Nangang Exhibition Center, seven themes particularly stood out.”

  1. “The long wait for the turnaround – The bicycle industry has been struggling with numerous problems for almost two years now, including high inventory levels, a challenging economic climate, and falling export values. This is also clearly noticeable at the Taipei Cycle Show. Taiwan’s e-bike exports fell by a whopping 21.9 percent year-on-year. In the components and accessories segment, the decline was even 41.4 percent. The economic situation is, therefore, one of the most discussed topics at the Taipei Cycle Show. Based on several conversations at the trade fair, it seems that the industry may not turn the corner until the end of 2024 or 2025.

HPS Analysis: We urge you to read this whole article and the other six takeaways, although the first one is the most important. The theme has been repeated for several weeks now, ever since the last day of the Taipei Cycle Show. We will explore more about the details of “the long wait” as you read through this month’s newsletter. The inventory glut also includes work-in-process (i.e. finished frames) stuck in OEMs and sub-contractors, along with all kinds of components stuffed in OEM, subcontractor, and outside warehouses. This current “inventory problem” is far different than any such problem this industry has experienced before, not just because it is global, but because it has its tentacles in every step in the supply chain.

03-08-24: Bike Europe market reports: “European e-bike imports in downward freefall; Bicycle market in the Netherlands slides down by 6 percent, Lean year for e-bike sales and production in Czech Republic, UK losing heavily in catch-up game with European bicycle market, Is Denmark’s dramatic bicycle market situation a forecast for other European countries?” HPS Analysis: Just read the descriptions posted above. There is not a positive or bright spot in the bunch, and that is the point.

03-08-24: “We need to talk about Rad Power Bikes’ new e-bike batteries.” electrek: “Electric bikes just may be the biggest transportation revolution of our generation, helping millions replace car usage with more affordable, more efficient alternatives. But there’s no denying that concerns have been swirling about the safety of e-bike batteries, even if such fire fears have primarily been overblown by much of the media. Leading electric bicycle maker Rad Power Bikes has just unveiled its new “Safe Shield Battery” in an effort to mitigate worries over e-bike battery safety. And it’s something we need to talk about. The whole underlying issue here is based on the fact that e-bike batteries are usually comprised of dozens of smaller, energy-dense lithium-ion battery cells. Those cells are similar – and sometimes identical – to the cells used in everything from electric cars to power tool battery packs. The individual battery cells store lots of energy and are generally quite safe. However, danger can occur when the cells are punctured or short-circuited, with the latter often happening when water makes its way into battery packs over time. Well-made e-bike batteries use several methods to mitigate these risks, and the result is that battery fires are exceedingly rare.” “However rare though, e-bike fires can and do occur in poorly-made batteries or in battery packs that have been abused, damaged, or otherwise misused. And that’s exactly what it looks like Rad Power Bikes set out to solve with its new Safe Shield e-bike batteries. The secret sauce in Rad’s batteries isn’t actually the battery cells themselves. Those are fairly standard cells like you’ll find in many other e-bike batteries. The major difference is how the battery packs are constructed. They use a method known as potting, which basically encapsulates electronics in a waterproof resin barrier. It’s common in electronics that will live much of their lives outdoors, as it seals the sensitive components from moisture.” HPS Analysis: The article talks about “urethane resin” that waterproofs and also acts to “thermally” insulate the cells from each other, preventing a thermal runaway from occurring. Mike Fritz, HPS Chief Technology Officer, had been looking into potting for e-bike batteries when the news about Rad Power Bikes introducing its “Safe Shield Battery” broke, so it didn’t take long for him to get up to speed and start to ask pertinent questions, including the testing that has been done to validate the thermal insulating of individual cells that “cook-off” but are isolated so a thermal runaway event doesn’t occur. Other related questions include the added weight to the battery pack, and the recyclability of the packs with the resin added. However, “potting” e-bike lithium-ion battery packs may represent an added process that will guarantee low risk and maximum safety for good quality lithium-ion battery packs manufactured using LG, Samsung or Panasonic cells by manufacturers that have their battery packs tested and certified to UL 2271 by a NRTL and assembled into systems by e-bike manufacturers, brands and importers that have their complete e-bike systems tested and certified to UL 2849 by a NRTL. HPS also notes that while potentially very good news, it is prospective. It will still require enforcement, and it will not affect the past, present or near-term future that is and will be populated with low-cost hazardous lithium-ion battery packs used and intended for use with e-bikes. The whole of the industry will need to step up and take responsibility for getting the message out and educate and advocate until these dangerous battery packs are purged from the U.S. market.

03-10-24: “Two Sessions: China touts openness while tightening control.” BBC: “The National People’s Congress is usually capped off by the premier’s press conference. But this year, and for the rest of the term, the traditional has been mysteriously nixed. Officials have said there was no need for it given there were other opportunities for journalists to ask questions. But many observers saw it as another sign of consolidation and control, in what became a running theme for the congress, even as top officials preached openness. The cancellation of the press conference also effectively diminishes Premier Li Qiang’s profile. Though the event was scripted, it was a rare chance for foreign journalists to ask questions and give the country’s second-in-command some room to flex his muscles.” “The dimming of the spotlight on the premier, along with a shorter congress this year, are all signs of ongoing structural change within the Chinese Communist Party (CCP) where President Xi Jinping is increasingly accumulating power at the expense of other individuals and institutions, noted Alfred Wu, an associate professor at the National University of Singapore who studies Chinese governance. But to the outside world, the party is keen on projecting a different kind of image as it battles dwindling foreign investor confidence and a general malaise in its economy. Addressing international journalists last week, foreign minister Wang Yi insisted China was still an attractive place to invest in and do business. This year’s economic blueprint, delivered by Mr. Li at the start of the session, laid out plans to open up more areas to foreign investment and reducing market access restrictions in sectors such as manufacturing and services. These moves come after foreign investors were spooked by recent anti-espionage and data protection laws, as well as several sudden high-profile detentions of Chinese and foreign businessmen. Foreign direct investment in China recently fell to a 30-year low. HPS Analysis: My first business trip to the PRC was in May of 1983. I flew to Shanghai for a week-long meeting of the ISO Technical Committee TC 149 and its sub-committees working on the development of what became ISO 4210, the international safety standard for bicycles. Our delegation from the UK, France, Germany, Japan, and the U.S. was one of the first to be invited to come and meet in China, which in turn was just opening up to the West. In the 41 years since, the bicycle business in China has gone from no exports to the largest exporting source country in the world. The governance by the Chinese Communist Party (CCP) has also evolved. This report gives you an idea of the conflict between what is said about wanting Western investment, and the restrictions placed on Western companies doing business in China. Western companies and investments are leaving, but the bicycle business is having great difficulty leaving in whole or part. As we contemplate an uncertain future, there is no global replacement currently capitalized and in operation that can replace the production capacity of the Chinese bicycle and e-bike export infrastructure.

03-11-24: Vosper: E-bikes step up in a down market.” Bicycle Retailer and Industry News: “2023 was the year that everyone is trying to forget. Inventories were way up, sales were way down, and relations between suppliers and retailers were way more strained than anyone can remember. And as I pointed out last month, things aren’t likely to get much better anytime soon.” “Some have speculated that when e-bike imports reach 20 percent of pedal-only, it will mark an inflection point for e-bike sales in the U.S. and that some large increase in market share (the hockey stick curve) will happen as a result. I am skeptical of this projection. Here’s why: a large majority of e-bike sales are at the very bottom of the mass market as low-end bikes are shipped D2C from China and other Asian manufacturers. These units have no direct parallels in the pedal-only market segment, so there’s no basis for an apples-to-apples comparison, which renders that 20 percent number arbitrary. To really see the relationship, we’d have to look at dealer and mass retailer sales and filter the bottom feeders out of the equation somehow. At present I don’t believe the industry has the resources to do this. All the foregoing raises an interesting question: If we cut back our imports so much in 2022 and 2023, why do we still have so much excess inventory in 2024 and even into 2025? The answer, of course, is that we brought in enormously too much inventory during the COVID years, as far back as 2020 and 2021. And we’ve been choking on that inventory ever since. Which is to say our current inventory crisis is a long-term problem, and long-term problems tend not to have short-term solutions, however much we may want them. The only bright spot in this otherwise gloomy picture is that e-bikies, at specialty retail price points anyway, seem to be doing rather better than other product categories. In an informal poll in the Facebook group Cycling Industry Recovery, 56 percent of retailers responding reported that their sales are up relative to their pedal-only models.” HPS Analysis: There is no question that e-bikes are the new growth product category, with more styles and types than any new emerging category this business has seen in years. Not everyone believes that e-bikes will save the industry. Marc Sani writes in Through The Grapevine in the April issue of BRAIN that: “Will e-bikes save the industry? Not anytime soon.” HPS is also working on collecting data for the NBDA Summit in May and publication of the U.S. Bicycle Market Overview Study 2022-2023 Report due to be published by the NBDA the end of May or early June. While the data isn’t complete, we do know that in 2023 e-bikes were 9.5 percent of estimated total bicycle imports into the U.S. and regular bicycles, all wheel sizes, were 90.5 percent. When we look at the FOB value (cost at the factory shipping dock) of 2023, bicycle imports of e-bikes were 50.2 percent of the estimated total FOB value of total bicycle imports, and regular bicycles, of all wheel sizes, were 49.8 percent. From an FOB cost standpoint, just under 10 percent of last year’s bicycle unit imports represented half of the total FOB cost value. This brings focus to why the industry is fixated on e-bikes – the dollars. This is as it should be, but we caution that placing too much emphasis on dollars, starting with retail selling price and working down to FOB value, has to be done rationally, and logically, keeping unit market penetration and incident-rate or per-thousand population in focus. Meanwhile, relative to 2023, we agree that e-bikes stepped up in a down market! 

03-12-24: “NRF: E-commerce spurs sales growth in February.” Chain Store Age CSA: “So far, 2024 is off to a good start for retailers. Retail sales built off “solid gains from January” in February 2024, aided by exceptionally strong e-commerce performance, according to the CNBC/NRF Retail Monitor, powered by Affinity Solutions, released Tuesday by the National Retail Federation. Roughly 18 percent year-over-year growth in online and non-store sales, according to the Retail Monitor. That compared with a decrease of 0.16 percent month-over-month and an increase of 2.34 percent year-over-year in January 2024.” “February sales were up in all but one of nine retail categories on a yearly basis, led by online sales, sporting goods stores and health and personal care stores, and up across the board on a monthly basis.” HPS Analysis: E-commerce is growing, and bike shops need to continue to expand their omni-channel sales by improving and growing their website content and product sales, including service and rental bookings and appointments. Major bike brands are actively competing for online business, and bike shops have the advantage of offering mobile delivery, pick-up and service, and for those shops that do not compete with any of their bike brands, they can sell bicycles and e-bikes online.

03-12-24: “Financial and organisational problems piling up at Accell Group.” Bike europe: “The financial situation for KKR owned Accell Group is becoming increasingly challenging. A group of lenders decided to select advisers to assess options for the bicycle manufacturer amid struggles spurred by waning demand and operational hurdles. Accell is also facing an expensive recall of the Babboe cargo bike and at the same time, the union might shut down one of the Heerenveen factories later today. The group lenders who do not trust the financial position of Accell Group have asked Houlihan Lokey (HLI) and Milbank as advisers, while KKR is collaborating with Kirkland & Ellis to weigh their options, reports Bloomberg. According to the Dutch media outlet FD, Accell Group itself asked the British investment bank Rothschild and law firm Stibbe for advice. ‘That is a bad sign,’ says a restructuring expert in the FD. ‘It means that the company is assisted independently of its shareholder. When things go bad financially, the interests of the shareholder and the company run parallel.’ None of the financial institutions involved want to comment on the current situation. HPS Analysis: This article points out that last summer Fitch Ratings downgraded Accell Group and questioned the ability of the Group to meet its financial commitments. “We believe the current capital structure is unsustainable due to a material drop in profit with only a gradual recovery assumed from 2025,” said Fitch.   

03-12-24: “Shipping’s new port labor battle.” The Wall Street Journal Logistics Report: “U.S. importers are bracing for a new season of uncertainty as threats of a walkout at East Coast and Gulf Coast ports flare even before contract talks with dockworkers formally begin. The International Longshoremen’s Association is seeking to build on the strong wage gains other transportation unions have won, including the deal for a 32 percent increase at West Coast ports that was struck last year. The WSJ Logistics Report’s Paul Berger writes the union directed local chapters to resolve their work issues by May 17, and negotiations for a new coast-wide deal would get underway after that. ILA chief Harold Daggett has said that dockworkers will strike if a new agreement can’t be reached before the current contract expires on Sept. 30. Ocean carriers expect retailers to start bringing goods in early or ship more volumes out of Asia to the West Coast to avoid potential disruption.” HPS Analysis: In these uncertain times we will not enjoy a stable ocean freight shipping season for some time to come, if ever again. The reason bike shops need to watch what is happening with shipping container rates is being hit with an increase for freight or a surcharge, and the brand not reducing or eliminating the increase when rates go down. Ask your suppliers for periodic updates and make sure any surcharges or freight-related increases are justified and explained and removed when no longer applicable.

03-12-24: “Taipei Cycle 2024 confirms tough year ahead for supply chain.” Bike europe: “The 2024 Taipei International Cycle Show will go in the history books as the edition of high hopes, but low expectations. The Taiwanese component manufacturers are eagerly waiting for more order volume while the bicycle brands are confronted with a huge financial burden due to the inventory issue. As expected, the 2024 Taipei Cycle Show did not bring any relief to these challenges. The buzz on the show floor on the first day of Taipei Cycle could not conceal the issues faced by the industry. Compared to the 2019 edition, the Taipei Cycle Show which took place from March 6-9 saw a lower attendance of International buyers this year, although the number of visitors was remarkably up from last year. Bicycle sales are back to a regular pre-pandemic level, but the supply chain is so full that some component manufacturers are currently opening their production for only one or two days a week. I order to not lose out on future market positions, companies are doing their utmost to keep their R&D up and running.” “In various markets both retailers and suppliers are faced with credit rating decline by their banks. This only results in even higher inventory levels upstream in the supply as companies have to reduce their stock because of a limitation of their working capital. According to market insiders, the industry is afraid that the imbalance will not be over once companies manage to clear their warehouses. At what moment in the year will bicycle brands be convinced to increase their component order levels again? This increase needs to be taken stepwise to give the component manufacturers sufficient time to restart production. Still, it is expected that this restart of the market will bring extensive increases in lead times again.” HPS Analysis: It is no longer as simple as clearing finished goods inventory and placing orders for the supply to make bicycles so OEMs order components. As referenced in an earlier article, the inventory problem has become much more complex, involving OEMs, subcontractors, component manufacturers, and their subcontractors. The tentacles of the inventory problem are wrapped around every aspect of the multifaceted bicycle supply chain, and it will not get back to some form of normalization until the excess is flushed. Remember, the industry supply chain had run on the JIT system for decades. During the pandemic, as the Bullwhip effect forced a switch to the JIC system, JIT was tossed out. Now the brands want to go back to a JIT system to stabilize their finances, with no regard for the role they played in the cause and effect.

03-13-24: “Giant Group annual sales down 16 percent; company looks to e-bikes and performance bikes for growth.” Bicycle Retailer and Industry News: “On Wednesday, Giant Group’s board approved its full 2023 financial report, which shows consolidated sales of NT$76.95 billion ($2.44), an annual decline of 16.4 percent. The company said weak demand for entry-level and mid-level products in North America and Europe contributed to the decline, as did high inventory in the channel. On the other hand, the company said it had seen “huge” bicycle sales growth in China. Giant’s net profit before tax declined by 45.1 percent to NT$4.8 billion, net profit after tax came at NT$3.4 billion, a decrease of 41.8 percent, and earnings per share were NT$8.68. The board approved a cash dividend of NT$5. Since the start of 2024, Giant’s revenues have not improved. January revenues were down 18 percent from the year prior and February was down 27 percent. Giant said e-bikes, sold under its own brand and made for other brands, provided 30 percent of its revenue last year.” “The company said that in 2024 industry will continue to deal with the excess inventory challenge, as well as uncertainties in the economy. However, it said Europe and North America show strong demand for performance-level products while sales in China will continue to grow.” HPS Analysis: This is a relatively complete year-end financial report, although it still has a good helping of verbiage for the stock market, investors and stockholders, which we have done our best to skip. The headline is what the industry focuses on and “…annual sales down 16 percent” is probably as good a statistic as the managers and owners could make out of the financials. An after-tax profit drop of 41.8 percent is a tough nut to reduce and turn positive, and this is surely what the Giant management is setting out to do.

03-14-24: “Dick’s Sporting Goods reports record Q4 sales.” Bicycle Retailer and Industry New: “Dick’s Sporting Goods’ fourth-quarter sales were the largest in its history while its full-year net sales increased over 2022. Net sales for the fourth quarter ending Feb. 3 were $3.87 billion, compared with $3.59 billion year-over-year. For 2023, net sales were $12.98 billion, compared with $2.36 billion at the same time last year. Dick’s had comparable store sales growth of 2.4 percent that was driven by a 1.6% percent transaction increase.” “Giant Group confirmed on Feb. 12 that it will sell bikes through about 25 specialty stores owned by Dick’s, including House of Sports, Public Lands, and Moosejaw locations. Fourth-quarter net income increased 26 percent, from $236 million to $296 million year-over-year, with earnings per share rising from $2.60 to $3.57. Full-year net income was steady at $1.047 billion compared with $1.043 billion in 2022. Full-year earnings per share rose 13 percent, from $10.78 to $12.18.” HPS Analysis: This is the largest of the full-line sporting goods channel retailers and Dick’s is clearly having a good year. It is probably a decent assumption that this includes their bicycle and e-bike sales. As HPS has noted, the Giant brand will be sold by 12 of the specialty retailers owned by Dick’s, but not the Dick’s Sporting Goods stores. Dick’s plans for more stores to be added in the U.S. resulting in more mass merchant and full-line sporting goods competition for specialty bicycle retailers in the U.S. over the next decade.

03-14-24: “Giant benefits in Europe with integrated e-bike solutions and service.” Bike europe: “When e-bikes began to make a market entrance, global brand Giant determined that innovation in integrated in-house technologies would be the key to success. Since 2023 all R&D is carried out at the European headquarters in Lelystad, the Netherlands, where a new development centre has been opened. Now, in-house service is an additional benefit to boost sales in saturated and fragmented European e-bike markets. ‘Many dealers in the early days of e-bikes came to me and said why are you thinking so complicatedly, just go to Bosch and then we can sell your e-bikes easily,’ Oliver Hensche, managing director of Giant Deutschland GmbH explained at a recent media gathering. ‘This is true for the first year and the second, but in the long run, you will have no benefit. Because we understood the bicycle as an integrated product and from the business point of view we knew it made sense to develop our own system.’ Giant is aiming to strengthen its position on the European market with its own technology. The in-house motor SyncDrive was developed together with Yamaha and the brand has a long-standing relationship with Panasonic for battery development. For shifting technology, Giant has partnered with enviolo. Referred to as ‘SyncDrive powered by Yamaha,’ the technology is specified on all Giant e-bikes. Developing it’s own system technologies has allowed Giant to continue to innovate through investment in Europe-based R&D teams with the support of Taiwanese counterparts. This own system has also allowed Giant to open up new business opportunities when it comes to servicing.” HPS Analysis: HPS found this story very interesting. Giant has fully developed a proprietary electric propulsion system for its e-bikes worldwide, which means North America as well as Europe and Asia. This system, as described, seems well thought out and configured. The German electric training and service system is also well thought out and configured. SyncDrive is probably not only well know to North American Giant dealers, but has already been integrated into shop service systems and mechanics training. It seems logical that when North American e-bike sales have grown sufficiently, the Europe-integrated e-bike solutions and service concept will migrate across the Atlantic.

03-15-24: “We no longer forecast a recession in 2024.” The Conference Board Economic Forecast for the US Economy: “The U.S. economy entered 2024 on a strong footing. Various indications of business activity, labor markets, sentiment, and inflation have generally been moving in a favorable direction. However, headwinds including rising consumer debt and elevated interest rates will weigh on economic growth. While we no longer forecast a recession in 2024, we do expect consumer spending growth to cool and for overall GDP growth to slow to under 1 percent over Q2 and Q3 2024. Thereafter, inflation and interest rates should normalize and quarterly annualized GDP growth should converge toward its potential of near two percent in 2025. U.S. consumer spending held up remarkably well in 2023 despite elevated inflation and higher interest rates. However, this trend is already beginning to soften in early 2024. For instance, retail sales growth over the first two months of the year were weak. Gains in real disposable personal income growth are softening, pandemic savings are dwindling, and household debt is increasing. Consumers are spending more of their income on service debt, and delinquencies are rising. Additionally, the growth in ‘buy now, pay later’ plans may also weigh on future spending as bills come due. Thus we forecast that overall consumer spending growth will gradually slow to a standstill in Q3 2024 as households struggle to find a new equilibrium between income, debt, savings, and spending. While we anticipate labor market conditions to soften over this period, we do not expect them to deteriorate. As inflation and interest rates abate, consumption should expand once again in late 2024.” HPS Analysis: The Conference Board no longer forecasting a recession is good news. The fact that this forecast includes: “… overall consumer spending growth will gradually slow to a standstill in Q3 2024 as households struggle to find a new equilibrium between income, debt, savings, and spending” is not bad news for bike shops.

03-18-24: “Ballooning credit card balances already loom over 2024’s retail sales.” RETAIL Dive: “The level of debt may surpass the all-time record this year, even when adjusted for inflation, some analysts say. Retail sales in January and February indicate a possible pull-back in consumer spending, which some analysts warn is due at least in part to burgeoning credit card debt that could continue throughout the year. Retail sales in November and December, with some holiday sales pulled into October, beat many expectations this past season. Half of consumers planned to fund their purchases with debt. Indeed, in the fourth quarter credit card debt and delinquency rates surged, with card balances up by $50 billion over the period to reach $1.13 trillion, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data. ‘Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,’ Wilbert van der Klaauw, economic research advisor at the New York Fed, said in a statement. ‘This signals increased financial stress, especially among younger and lower-income households.’“ HPS Analysis: Consumers that are buying bicycles at discounted prices have used credit cards and buy-now-pay-later credit cards more frequently. The growing problem going forward is credit card balances and credit card defaults. The increase in interest rates doesn’t help. While some economists have noted these increases, they feel other economic factors, like high wages and low unemployment are moderating the growing credit card debt. HPS is concerned about how these problems will impact consumer purchases and how defaults may impact bike shops.

03-19-24: “Recent news of brand ‘right-sizing’ from Trek – one of the industry’s biggest bicycle and accessory multi-line product companies – confirmed that the bike market faces more upheaval before it can truly rebound from its inventory glut woes.” THE OUTER LINE: “Our friends at Wieierflits provided a broader global perspective on this crisis last week as part of its Taipei Cycle Show business news analysis and wrap-up. In assessing the situation, they cited how historically poor industry-wide forecasting techniques created a perfect storm coming out of the COVID-19 pandemic. ‘A gigantic deficit has led to a gigantic surplus. Production (capacity) has increased, but demand has decreased,’ and as a result, Wieierflits discovered that several of the most important brands have millions of mid-to-to-high-end frames ‘gathering dust’ with no buyers lined up, potentially suppressing several billion dollars of sales worldwide. And the situation unfortunately might not be resolved this year or in 2025, as export figures from the Taiwan Bicycle Association and the Bureau of Foreign Trade indicated that Taiwan’s bicycle industry fell by as much as 21.29 percent from January to August in the last year alone.” HPS Analysis: The Outer Line is a competitive racing newsletter and blog, written for enthusiasts who follow international bicycle racing. They, like other bicycling consumer publications, are very interested in the current inventory problem working it way through the global bicycle industry. The Outer Line contacted a European online bicyclist publication, Wieierflits, and mined their report from the Taiwan Cycle Show for detailed intel. The report that “several of the most important brands have millions of mid-to-to-high-end frames ‘gathering dust’ with no buyers lined up” is an important piece of the puzzle.

03-19-24: “Giant Group revenue pushed up by Chinese market.” Bike europe: “A huge increase in bicycle sales in China could not compensate for the weak demand of entry to mid-level products from both North America and Europe, reports Giant Group in its 2023 financial report. In this overview, the company reported a 16.4 percent decline in consolidated sales to TWD 76.95 billion (€ 2,23 billion). ‘We even ship bicycles that cannot be sold in Europe and North America to China. This market will maintain steady and show double-digit growth this year,’ said Giant Group CEO Young Liu at a press conference during Taipei Cycle Show. According to Giant, the start of 2023 was still relatively good, but later in the year, export to Europe and North America continued to decline. The challenging market situation resulted in a decline of its net profit before tax by 45.1 percent to TWD 4.8 billion (€ 139 million). Giant reports a decline in the e-bike sales volume, although this category still makes up 30 percent of the company’s total revenue, both on the OEM and ODM market. Still Giant expects that e-bikes will remain the main growth driver.” HPS Analysis: HPS has mentioned this before, and our concern is the importance of the Chinese bicycle market to Giant and the other Taiwanese and American bicycle brands that sell to Chinese consumers. The Chinese economy continues to be challenged, and there does not appear to be any real stimulus to consumer spending in the works. This article makes it clear that Giant Group is relying on Chinese consumer sales in 2024 and we will keep watching.

03-20-24: “Peak population: A growing challenge for the U.S. economy.” The New York Times: “Since its inception, the U.S. has relied on population growth to keep its economy pumping. New generations of native-born Americans and immigrants enter the workforce, they produce goods and services, and then spend their income in a cycle that drives supply, demand and growth. They also pay taxes that fund programs like Social Security and Medicare. Over every 50-year period in U.S. history, the population has grown at least 50 percent, sometimes by far more. But that’s about to change. Americans now have fewer children than past generations did. And depending on levels of immigration, the country’s population may plateau in the coming decades. HPS Analysis: Demographics are most often overlooked in discussing the bicycle market. Demographics is the study of the U.S. population and it really has everything to do with population and peak population. The number of American bicyclists per thousand of U.S. population is incident rate, or what percentage of Americans ride a bicycle. If we record the data and study it over time, we can see if more people per thousand or fewer people per thousand are riding bicycles. If the U.S. population continues to grow, the incident rate, as a percentage will ideally go up, but any case is a percentage of a growing population. Peak population is when the U.S. total population no longer grows and is about to decline. HPS will present U.S. bicycle riding participation 2000 to 2023 at the NBDA Summit in Bentonville, Arkansas in May.

03-20-24: “Federal Reserve holds interest rates steady, projects three rate cuts later this year.” National Public Radio npr: “The Federal Reserve held interest rates steady on Wednesday, but policymakers signaled they still expect to start cutting rates later this year. Updated forecasts from members of the Fed’s rate-setting committee show an average of three quarter-point rate cuts in 2024, similar to what policymakers were projecting in December. Investors welcomed that news. All of the major stock indexes climbed to record highs, with the Dow Jones Industrial Average jumping 401 points or 1 percent. Fed policymakers said their basic outlook hasn’t changed, even though inflation was slightly hotter than expected in January and February. ‘I don’t think we really know if this is a bump on the road or something more,’ Fed chairman Jerome Powell told reporters. ‘We’ll have to find out. In the meantime, the economy is strong. The labor market is strong. Inflation has come way down. And that gives us the ability to approach this question carefully.’ Markets see slim chance of a rate cut at the next Fed meeting in May, with a higher probability in June. Since last summer, the Fed has kept interest rates at their highest level in more than two decades, in an effort to tamp down demand and bring prices under control.” HPS Analysis: Most business owners, large and small, are aware the Federal Reserve held interest rates steady earlier last month. The only change has been in the employment figures which came out in early April and further dampened the possibility of cuts in the rate this year. This could all change again of course as each month unfolds. HPS thinks it is good to read what the Fed says as it moves along in its fight against inflation, including higher interest rates on money. Higher interest rates are showing more often as a problem for the bicycle business as pertains to getting loans and the cost of loans to finance inventory.

03-21-24: “Lululemon CEO warns of slow start to 2024.” Sourcing Journal: “Lululemon Athletica Inc. finished strong for 2023 with a fourth-quarter earnings beat, but chief executive officer Calvin McDonald warned ‘there has been a shift in the U.S. consumer behavior of late, and we’re navigating what has been a slower start to the year.’ For a perennial outperformer which continues to track ahead of its strategic goal to double sales over five years, hitting $12.5 billion by 2026, it was an unusual splash of cold water. Shares of the Vancouver-based company fell 10.6 percent to $428 in after-hours trading on Wall Street. But McDonald told analysts on a conference call that Lululemon remains both strong and flexible. ‘Consistent with what we’ve seen from others in the market, the consumer environment in the United States has been somewhat challenging,’ he said. ‘However, despite the market dynamics, we remain optimistic about our opportunities to grow our business in the U.S. in 2024 and to continue to gain market share.’“ HPS Analysis: The CEO of a well-established, $12.5 billion athletic clothing brand warns that: ‘there has been a shift in the U.S. consumer behavior of late.” The American bicycle business is well aware of a change in consumer behavior of late, but hasn’t been able to put its finger on exactly what or why. Despite being cautious and concerned, Lululemon is moving forward cautiously because they don’t know what the “shift” exactly is! HPS will keep asking questions to see if we can find out.  

03-21-24: “Package deliveries are clogging city streets.” Marketplace: “Online shopping surged in the pandemic, and retailers could be shipping out 32 billion packages in the U.S. alone by 2028, that makes the ‘last mile’ of delivery tricky to solve. It’s a rainy evening in New York City, a flash-flood-warning kind of rain. But it’s nothing Michael Singh hasn’t seen. ‘Yes, rain, snow, high winds, all of it,’ said Singh, who’s been a bike messenger for seven years and started with Amazon a few months ago. He begins his shift in a warehouse where he loads boxes onto an e-bike trailer the size of a bathtub. ‘This is a little light today. I’m guessing because of the rain.’ This cargo bike delivery program is a pilot with the city of New York. In a place as dense as Manhattan, trucks aren’t efficient. ‘You know, going stop to stop, double parking, congesting the streets,’ said Jessica Schumer, who leads New York City public policy for Amazon. It’s a problem that’s gotten worse in the last few years. Between 2019 and 2020, U.S. parcel volume grew almost 40 percent to 20 billion packages. By 2028, as many as 32 billion packages are projected to be shipped in the U.S. ‘This isn’t just an issue in New York City. Miami, Boston, Portland and other cities are running cargo bike programs to try to make more efficient the most expensive and emissions-heavy piece of the logistics chain, the last-mile delivery … It takes an ecosystem to be successful from a business perspective … In other words, companies are probably not going to come up with a whole new way of delivering packages unless it helps their bottom lines. Parcel delivery on foot or bikes can reduce costs, but the infrastructure has to be just right, with, say new bike lanes or warehouse-friendly zoning. Cities also need to take both a carrot and a stick approach.’ ‘We identified some incentives that can sweeten the pot,’ said Diniece Mendes, director of freight mobility at New York City’s Department of Transportation. Carrots include special loading zones and sticks include congestion pricing.” HPS Analysis: Delivery cycles and cargo bikes have been a slowly growing specialty segment since Arnold, Schwinn & Company sold the U.S. Post Office cycle trucks after World War II. There has been an active cargo bike business in New York City for at least a decade and Worksman Cycles has been a specialty supplier of food, delivery and industrial tri-wheelers for three generations of ownership. Other brands have moved in just prior to and during the pandemic, and this article sheds light on the latest developments, including the adaptation of electric propulsion systems.

03-22-24: “Frasers Group to relaunch Wiggle and Chain Reaction Cycles websites.” Cycling Industry News: “It had been rumored for a number of months, but it’s now confirmed: Frasers Group has announced the relaunch of Wiggle and Chain Reaction’s e-commerce sites, marking a significant step following the acquisition of the brands and intellectual property. Frasers Group, which already has a strong position in the UK cycling market through Evans Cycles, secured the rights to Wiggle and Chain Reaction in March 2024, alongside the brand rights for their in-house ranges which include Nukeproof, Vitus Bikes, and DhB. Alongside the e-commerce relaunch, which is due to take place next week, Frasers Group is looking to create commercial partnerships to enhance and expand these own-brand lines through development, sales, licensing, and international distribution opportunities.” HPS Analysis: This is worth bringing to the attention of HPS newsletter readers because it illustrates that bankrupt brands don’t necessarily go away. Wiggle and Chain Reaction have been really irritating online competition in the U.S. for about a decade. Online sellers who thought they had seen or heard the last of them need to look over their shoulders. 

03-22-24: “KKR’s $1.7 billion bike crash is a cautionary tale.” Bloomberg Opinion: “When KKR & Co. acquired Dutch manufacturer Accell Group NV in 2022, the private equity firm must have hoped to cash in on health-conscious consumers parking their cars and hopping on high-priced e-bikes. Instead, the owner of bike brands such as Lapierre, Haibike and Raleigh is burning cash and drowning in inventory, providing a lesson in understanding headwinds and overpaying in red-hot markets. While the bike industry should have a bright future once the current storm abates, KKR faces an uphill slog to earn a return on its €1.6 billion ($1.7 billion) purchase, which came at a 21 percent premium to the group’s all-time-high stock price. As with other consumer appliances and equipment, demand for bikes rocketed early in the pandemic, but this growth wasn’t sustainable: Having at first struggled to obtain enough merchandise, retailers ordered too much, leaving corporate cash tied up in inventory. Interest-rate hikes have compounded these problems by making customers think twice about bike purchases (which nowadays can easily cost four figures), and shops have been forced to offer big discounts to offload excess stock. The reverberations are still being felt. Japanese bike component giant Shimano Inc.’s bike-related sales plunged almost 30 percent last year, while UK retailer Halfords Group Plc last month warned on profits, blaming a ‘challenging and competitive’ cycling market. Several manufacturers, distributors and retailers have gone bust, including Dutch e-bike maker VanMoof BV and Signa Sports United NV, which owned various e-commerce sites (Signa Sports was part of Austrian tycoon Rene Benko’s ailing retail and property empire, and went public via a SPAC in 2021 at a more than $3 billion valuation.) The lights remain on at Accell, but the cycling group has become quite the headache for KKR: It’s one of three private investments that have seen the biggest decreases in value, according to the PE firm’s annual report, which didn’t quantify the paper loss. There are few comparable publicly traded bike manufacturers, but shares of Taiwan firms Giant Manufacturing Co. and Merida Industry Co. have each declined more than 25 percent since the Accell takeover was announced.” HPS Analysis: This Bloomberg article is the most comprehensive we have seen. It touches on issues that even Bike europe hasn’t gotten into. Despite this being a European public company and Group it is instructive for U.S. managers and analysts.

03-25-24: “Raised stakes in a firearms bidding war.” The New York Times DealBook: “A battle over Vista Outdoor, the company behind top ammunition brands like Remington and Camelbak water bottles, is escalating, and national security is becoming a bigger factor in the fight. The investment firm MNC Capital today raised its bid for the company to $3 billion, DealBook is first to report, hoping that a more generous offer, and further uncertainty that a rival bidder, the Czechoslovak Group, can pass a U.S. national security review, will win over Vista’s shareholders. MNC is offering $37.50 a share for all of Vista, up from a bid of $35 last month and 16 percent higher than where Vista’s stock closed on Friday. In a letter to Vista’s board reviewed by DealBook, the investment firm reiterated that it had lined up financing for its offer, despite questions by Vista about how solid those commitments were. Vista rejected MNC’s previous offer, saying a planned breakup of itself would be more valuable for shareholders. (Vista has agreed to sell its ammunition business to CSG for $1.9 billion, leaving its non-firearm division, Revelyst, as a stand-alone public company.) MNC argued that its new offer assigns Revelyst $1.1 billion in enterprise value, nearly double the $570 million implied by the CSG deal.” HPS Analysis: The bike business brands owned by Vista that it plans to move to Revelyst are Bell, Blackburn, CamelBak, Fox, and Giro. This gives some idea of how huge the conglomerates that are gobbling up brands have become.

03-28-24: “Dalio Says China Must Fix Debt Problems or Face ‘Lost Decade.’ “Bloomberg: “Ray Dalio warned that China should cut its debt and ease monetary policy or face ‘a lost decade.’ The billionaire founder of Bridgewater Associates said in a nearly 5,000-word post on LinkedIn that he agrees with Chinese President Xi Jinping’s warning of a 100-year period of unprecedented change and recommends the country take steps to manage its debt problem. The hedge fund titan was referring to the Chinese Communist Party’s political slogan of ‘great changes unseen in a century,’ used to describe the future trajectory of international order. While the phrase was first used by Chinese academics following the 2008 recession, it was adopted by the party in 2017 and since used in diplomatic contexts. ‘When there is a lot of debt and big wealth gaps at the same time as there are great domestic and international power conflicts, and/or great disruptive changes in nature, and great changes in technology, there is an increased likelihood of a ‘100-year big storm,’ he wrote.” HPS Analysis: HPS had not heard of Ray Dalio before reading this article. After we read his resume and learned why Bloomberg paid attention to him we decided to run this article. This is a long-time insider and business advisor to the CCP and Presidents of the PRC. He is trying his best to get an urgent message to President Xi. He will probably be heard. Whether he will be listened to, we can only hope, wait and watch.

Contact Jay Townley: jay@humanpoweredsolutions.com.

E-BIKE HATE, LEGISLATION, AND LIABILITY FOR AMAZON?

01-30-24: “Congress finally agrees on electric bike bill – but not the one everyone wanted.” electrek: “Republicans and Democrats rarely agree on anything in the highly divided U.S. House of Representatives. But one thing they have agreed on – unanimously this time – is electric bikes. Just not the way we all hoped. The importance of the issue has arisen partly due to an actual increase in e-bike fires, but also largely due to a media frenzy that has blown the issue out of proportion. While e-bike fires do occur in the U.S., they represent one of the lowest risks of all forms of transportation. Many more cyclists are killed by cars than people who are killed by e-bike batteries occasionally catching fire. As we’ve pointed out before, despite NYC being seen as the epicenter of e-bike fire deaths, New Yorkers are 5x more likely to die on the subway than from an e-bike fire. But why let a little logic and proportion ruin a rare chance for bipartisanship in divided Washington? In this case, the bill giving the CPSC a directive to mandate e-bike batteries has already passed in its subcommittee and regular committee, each time with unanimous support from Republican and Democratic lawmakers. The next step, and the hardest yet, will see it passed by the entire House of Representatives. If passed in the House, the bill would still be far from becoming law. It would then have to pass the Senate – which is perhaps even more divided than the House. If any changes or amendments are made, the bill would have to return to the House to be passed again in its updated form. Then, if finally approved by both sides of Congress, it would head to President Biden to be signed into law.” HPS Analysis: This article represents the opinions of electrek in presenting what HPS considers a slightly biased editorial view of the subject legislation that, as the article states, captured the support of both sides of the aisle in a fractious House of Representatives. The bill, H.R. 1797, the “Setting Consumer Standards for Lithium-Ion Batteries Act” is simple and would require the Consumer Product Safety Commission (CPSC) to fast-track the mandatory lithium-ion battery safety standards it is currently working on, and finish development and promulgate within one year of the legislation being signed into law. This House bill has garnered almost universal support, to the point that it is moving through the House under “unanimous consent.” While not yet scheduled by the Speaker, the sponsors, including the subcommittee and committee chairs, are pushing for its passage. This article, unfortunately, misrepresents the bill’s changes in the Senate, because it has the full and active support of Senator Schumer, the majority leader and senior Democratic senator from New York, who resides in Brooklyn. Unlike the House, the Senate has a very slim Democratic majority, and this bill has attracted bipartisan support from across the aisle. HPS has talked to House and Senate staff involved and confirms this is the real deal. While it represents one piece of the multi-piece mandatory federal safety standard CPSC is in the process of developing for e-bikes, lithium-ion batteries for micromobility devices, and a complete update of the mechanical standards for bicycles, it is supported by CPSC and fast-tracks one important step in the overall federal regulatory process. It will also be a big deal to have bragging rights to being a part of the signing into law of one of the few pieces of legislation passed and this session of Congress.

01-31-24: “UPS to cut 12,000 jobs and mandate return to offices five days a week.” The Wall Street Journal: “United Parcel Service said it planned to shed about 12,000 jobs this year, and mandated staff work from offices five days a week starting March 4, as the package-delivery company seeks to boost productivity amid a protracted slowdown in business. The cuts are primarily targeted at management staff worldwide as well as contract workers, UPS executives said Tuesday, adding that those jobs weren’t likely to return even when business picks up. The company has around 85,000 management employees. It predicted revenue in 2024 of between $92 billion and $94.5 billion, which was below analysts’ forecasts. Profits would be lower than year-earlier levels as well. FedEx in December cut its full-year revenue outlook amid weakness in delivery volumes.” “UPS’s financial results often serve as a barometer for the U.S. and the global economy. The carrier delivers parcels for retailers looking to fulfill consumer demand, and it also offers insights on industrial production in its handling of transportation and logistics for manufacturers.” HPS Analysis: Too many layoffs are knee-jerk cost-cutting moves with no thought given to either near-term or far-term ramifications, but that doesn’t appear to be the case with UPS. In response to the fall-off in volume and revenue, UPS has crafted what they say is a “Fit to Serve” business strategy that will save the company about $1 billion in overhead while enhancing customer service. The layoffs are exclusively white-collar jobs. Unionized package handling and transportation workers account for the majority of UPS’s 495,000 employees and aren’t affected by the job cuts. In addition, UPS is eliminating remote work at home and in so doing removing a bone of contention between drivers, warehouse staff and office staffers. Lastly, UPS is utilizing artificial intelligence and automation to handle more tasks handled by white-collar workers. While UPS may be among the companies that went too far in expanding their workforce during the pandemic, they are leading in responding strategically to the downturn in business.    

01-31-24: “Revelyst sales down 10 percent in most recent quarter.” Bicycle Retailer and Industry News: “Sales in Vista Outdoor’s Revelyst business unit, formerly its Outdoor Products segment, decreased 10 percent in the company’s fiscal third quarter, which ended December 24. Revelyst contains bike industry brands Giro, Bell, Fox Racing, QuietKat and others. Revelyst’s quarterly sales were $317 million. The company said the decrease from the same period last year was due to ‘increased discounting, lower volume, and unfavorable mix as consumers are pressured by high interest rates and other short-term factors affecting their purchases of consumer durable goods.’ The unit’s gross profit decreased 17 percent to $85 million. Gross margin decreased 228 basis points to 26.7 percent. Adjusted EBITDA decreased 53 percent to $15 million. Adjusted EBITDA margins decreased 416 points to 4.6 percent.” HPS Analysis: We have covered Vista Outdoors and its spin-off Revelyst over the past year. Large investors rolled up multiple brands in the bicycle business and the industry, including the bike shop channel, and didn’t pay much attention. Today, brands like Giro, Bell, and Fox Racing are part of large corporate structures with little or no ownership connection to the business or the cycling community. Now it’s all about the cash flow and EBITDA.

02-01-24: “Should Amazon be responsible for everything it sells and ships? A U.S. agency will soon decide.” The Wall Street Journal: “An order from the Consumer Product Safety Commission could classify the company as a distributor, making it liable for third-party products. Amazon has argued that it is a marketplace and a third-party logistics provider, rather than a distributor. Amazon.com is facing a government order that could make it responsible for the safety of goods that it sells to outside vendors on its website and ships for them through its logistic network. The U.S. Consumer Product Safety Commission is preparing an order that could classify Amazon’s online retail business as a distributor of goods, according to people familiar with the matter. That designation could give Amazon the same safety responsibilities as traditional retailers, and potentially open Amazon up to lawsuits and extensive recalls over items sold through its website. Amazon accounts for nearly 40 percent of all e-commerce in the U.S., according to eMarketer, a research firm. Amazon has fought the distributor designation because of the nature of its online marketplace. The company sells some items from its own inventory, as bricks-and-mortar stores do, but more than 60 percent of sales on Amazon.com are by outside vendors, known as third-party sellers.” “In 2021, the commission sued Amazon for distributing unsafe products from sellers on its website through Fulfillment by Amazon, which handles logistics for third-party sellers. The agency cited three specific products in that suit.” “Amazon responded to the commission’s suit by saying that the agency didn’t have the legal power to make such claims against the company because it was acting as a marketplace and a “third-party logistics provider” rather than a distributor. An administrative law judge determined that Amazon did have distributor status and responsibility. Amazon appealed, setting the stage for the commission’s impending vote.” HPS Analysis: This article points out that “A majority of the agency’s four current commissioners would have to vote in favor of the order for it to advance.” The bicycle business in the U.S. is very aware that the annual volume of faulty, dangerous or mislabeled items sold by Amazon third-party sellers, including lithium-ion batteries for micromobility devices and complete e-bikes and e-scooters, is much more extensive than the three items in the agency’s suit, and an order from the agency would likely make the company susceptible to customer lawsuits and more rigorous enforcement from the federal government across all consumer products and the City of New York. In the view of HPS and many IBD’s, this is long overdue. Amazon should have the same safety responsibilities as traditional retailers, including American bike shops.

02-02-24: “New York starts state-wide lithium-ion battery safety campaign.” Bicycle Retailer and Industry News: “A month after saying she would propose a state-wide ban on the sale of uncertified lithium-ion batteries, New York Governor Kathy Hochul announced the state of a safety campaign to raise awareness of consumer products that use cells. The Buy Safe, Charge Safe campaign started Thursday and includes display, search and social media ads directed to consumers purchasing lithium-ion battery powered items like e-bikes and e-scooters. Focusing on what to look for when buying lithium-ion battery products, safe usage and disposal, the ads will be paired with an educational video. Clicking on the ads or video will link to the Charge Safe website. In addition, the New York Department of State’s Division of Consumer Protection and the Division of Homeland Security and Emergency Services created a Lithium-Ion Battery Consumer Safety Guide.” HPS Analysis: Every bike shop in the State of New York should lend wholehearted support to this state-wide lithium-ion battery safety campaign that is aimed at consumer education and awareness, and is helping market-tested and certified lithium-ion powered e-bikes. Buy Safe, Charge Safe should be picked up by the whole of the bicycle industry at a time when the media is spreading fear-mongering, and there is a need for sound advice about preventing lithium-ion battery fires by understanding this wonderful, environmentally-friendly energy source while using it safely and ensuring households are protected to enjoy the benefits of e-bikes.

02-02-24: “Merida 2023 sales shifted down sharply in line with market trend.” Bike europe: “The preliminary 2023 results of Taiwan’s second largest bicycle manufacturer Merida Industry Inc. published this week represent the current developments on the global market. Unfortunately, no unit figures were published, but the 2023 revenue development clearly marks the market trend. Merida reported total sales of TWD 27.16 billion (€798 million) in 2023. Compared to the previous year, this represents a double-digit 26.4% drop.” “Giant sales follow a similar trend, but less dramatic. Also, for Taiwan’s biggest bicycle manufacturer 2023 was a very difficult year. Still, it looks like Giant managed to keep the sales decline better under control.” “For the whole of 2023, Giant reports a revenue decline of 16.4 percent from TWD 92.04 billion (€2.70 billion) in 2022, to TWD 76.95 billion (€2.25 million) in 2023.” HPS Analysis: For whatever reason, it still seems too hard to get a real handle on the health of the larger brands and corporations in the bicycle industry. This Bike europe article is a good example of financial reporting on the two largest OEMs providing complete bicycles and e-bikes to the American market. Giant certainly markets and sells its own brand in the U.S. However, it is also one of the largest Original Equipment Manufacturers (OEM) of customers’ brand-name bicycles and e-bikes to the U.S. that does not have manufacturing capability in-country. Merida does not market or sell its brand in the U.S. but remains a significant manufacturing source for other brand names marketed and sold in this country. It is of note that none of this information as reported by Bike europe has appeared in any American trade publications. The bottom line: the two largest OEM suppliers of brand-name bicycles and e-bikes to the U.S. market in 2023 experienced significantly difficult years that correspond to U.S. domestic market conditions.

02-03-24: “The college professor who got a weird year for the economy right.” The Wall Street Journal: “In a year where the economy was unusually hard to forecast, it seems fitting that The Wall Street Journal’s most accurate forecaster hailed not from a big financial house, but rather a small, Catholic liberal-arts university in Texas. Belinda Roman, associate professor of economics at St. Mary’s University in San Antonio, topped a panel of 71 business, academic and financial economists who participated in the Journal’s quarterly economic forecasting survey in January 2023. A set of her forecasts ranked closest to the actual values reported at year’s end by the federal government.” “Her forecast methodology? Roman said she relies on moving averages and trend lines rather than models, and asks herself what story the data is telling, a tactic she often relays to her students at St. Mary’s, the oldest Catholic university in the Southwest. ‘A lot of students, they get lost in the technical, the mathematical, and they forget that there’s a story with humans involved,’ she said.” HPS Analysis: There is something to be said for trend lines rather than models as a forecast methodology, not the least of which is Dr. Roman’s forecast topping a panel of 71 fellow economists with her forecasts ranking closest to the actuals reported by the federal government. HPS has recommended trend lines to the industry association in the past, and has been told they have data only back to 2015, which is not sufficient for the task. At the time HPS pointed out that accurate annual data is available well earlier than 1990, and that data has been published several times in the recent past by the NBDA. Perhaps it is time to revisit moving averages and trend lines as a bicycle industry forecast methodology?

02-05-24: “CPSC finally is taking real action on electronic certificates of compliance.” Bicycle Retailer and Industry News by Steve Hansen: “A certificate of compliance requirement was in the original Consumer Product Safety Improvement Act passed in 2008 and signed by George W. Bush. It has taken 16 years for the Consumer Product Safety Commission to finally implement the full intended scope of electronic certificates of compliance as originally envisioned by Congress in 2008.” “Import enforcement currently lacking: The whole rationale for this rule change and disruption is as follows. Currently, CPSC’s import enforcement methodology is labor-intensive and lacks an efficient means of using product-specific data to identify potentially non-compliant products. CPSC co-locates staff alongside Customs and Boarder Protection (CBP) staff at ports of entry to target shipments for examination. Once identified, staff requests that CBP place a shipment on hold and transport it to an examination station for CPSC inspection. An examination hold creates delay that costs businesses and CPSC time and money. Accordingly, stakeholders and CPSC have a common interest in reducing examinations of compliant products, and maximizing examinations of products that are likely to be violative. Currently, certificates are collected only after a shipment is stopped for examination. Certification data are not used to target shipments for examination. Using certificate data for more precise targeting would maximize examination for stakeholders and staff.” HPS Analysis: This is a big deal for the American bicycle business, and HPS is surprised that it has not received a great deal more examination and discussion. HPS highly recommends that you read this article, and if you have questions contact the author, Steven W. Hansen, by visiting www.swhlaw.com or email legal.inquiry@swhlaw.com. The Supplemental Notice of Proposed Rulemaking (SNPR) to amend 16 CFR part 1110 that Hansen writes about was first published on December 8, 2023, and comments had to be received by February 6, 2024. Finished products or substances that are subject to a CPSC rule, ban, standard, or regulation, are required to be tested and certified, and only such finished products that are imported into the United States for consumption or warehousing would be required to e-file certificates with the CBP. Bicycles, as currently defined by CPSC, are regulated under 16 CFR 1512 and accordingly subject to the proposed rule. According to Hansen: “The biggest issue I see right now is that the SNPR proposed a 120-day effective date for a final rule. So that means after comments on this rule are received, I expect that the rule will be final in less than six months, and once that happens, there will be another six months to get ready for enforcement. Hopefully, that will be enough time for the industry to get ready.” While HPS has no doubt PeopleForBikes (PFB) submitted a timely submission on behalf of the American importers, we have not seen any actions, including webinars to assist with compliance, including setting up an account with CPSC and learning the methods for entering all the data required on an ongoing basis.

02-12-24: “Giant agrees to sell kids and mountain bikes at Dick’s-owned specialty stores.” Bicycle Retailer and Industry News: “Giant Group will sell bikes through about 25 specialty stores owned by Dick’s Sporting Goods, including House of Sport, Public Lands, and Moosejaw locations. Giant joins Cannondale, GT, Intense and other brands available at Dick’s specialty stores. Public Lands, which has seven locations, launched in 2021. The retail chain has been seen as Dick’s challenge to REI, and its locations include full-service shops and other specialty store features. According to Giant, Dick’s has pursued the brand for five years. Giant emphasized it remains ‘100 percent’ committed to retailers. Giant said its bikes most likely will be available online from those stores’ online sites.” HPS Analysis: This is an interesting headline, implying a bicycle brand passively agreed to sell kids and mountain bikes to specialty retailers, other than bike shops. While it is possible the brand was passive, and Dick’s was aggressive in wanting to distribute the brands bicycles, HPS tends to think the brand is expanding distribution in the face of holding excessive amounts of finished goods inventory. The American bicycle industry and business are in the third year of a shake-out that started the first quarter of 2022 and isn’t expected by HPS to subside until toward the end of 2024. One of the persistent features of this protracted shake-out are piles of excess inventory of varies values, spread throughout the international supply chain that must be factored into strategies and maneuvered around as-long-as the owners have liquidity and can afford to stay in business to do so. Giant selling to Dick’s owned specialty stores is, in our opinion, one of those strategies.

02-12-24: “Get ready – California’s electric bicycle driver’s license bill is here.” electrek: “Electric bike riders in California who don’t already hold a traditional car driver’s license may soon have a new option (or requirement) on their hands: an electric bike license. California Assemblywoman Tasha Boerner introduced the new bill just before the weekend, designed to help provide more safety and structure around young or unlicensed e-bike riders in the state. The bill would ban children under age 12 from riding electric bikes. Any riders who are at least 12 but don’t have a car driver’s license would be required to complete an online course, pass a written test, and get a state ID to legally operate an electric bicycle. The proposed legislation comes in response to a significant increase in the number of young e-bike riders.” “The increased number of young riders, especially those that have shown either ignorance of or disregard for traffic laws, has become a major issue in many California towns.” HPS Analysis: HPS understands that this is not the only “operator license” legislation being actively considered in the California legislature, and the bike shop channel of trade is going to have to actively engage if it wants to have a voice in what the state of California ultimately signs into law. This is “use” legislation, and is totally different and separate from “product” standards and regulations. The legislative proposals in California also get tangled up in the e-bike class “use” laws that have already passed. Class 3 is currently not within the definitional scope of pending “product” standards and regulations, but the industry trade association has asked that CPSC consider including Class 3 and so called “out-of-class” e-bikes in the scope of the pending mandatory standards and regulations, as opposed to being left out and subject to regulation by NHTSA under U.S. DOT. The product and consumer safety use implications of e-bikes that can achieve ground speeds in excess of 20 miles and hour need to be considered very carefully in both “product” and “user” safety for on-road and off-road e-bikes for riders and pedestrians and the surrounding environment.

02-12-24: “Vosper: What’s in store for 2024, part two.” Bicycle Retailer and Industry News: “Last month I wrote that 2024 would be similar to 2023, just not as miserable, based on PeopleForBikes’ projected retail bicycle sales for the year. This month, I’d like to look a little deeper into the on-the-ground reality behind those numbers and what it means to dealers and suppliers. The bottom line for the bicycle market is that there is still a huge amount of unsold inventory held by suppliers, and that it will take most or all of the coming season to work through it, if not longer. Exactly how long is entirely up to cyclists, their willingness to buy that inventory, and to what effect an ongoing wave of discounts can stimulate their buying behavior. As before, I reached out to PeopleForBikes’ senior research manager Patrick Hogan to help clarify the situation. He provided the following chart, showing dealer sell-in versus supplier inventory from 2016 through the end of 2023.”

Source: PeopleForBikes

“In terms of units, sell-in (to dealers) is as low as it’s been since 2016,” Hogan says. “Dollars are up somewhat as prices have increased. Units on hand are coming down, but in December inventory dollars were still about 60 percent over what they’ve traditionally been, pre-pandemic. Right, there’s a lot of dollars tied up in (supplier) inventory. At the same time, Hogan says, ‘Overall, the estimates we’ve seen from Circana show that 2023 bicycle inventory levels at retailers are around 2019 levels.’ “So, while there’s still a huge amount of inventory sitting in suppliers’ warehouses, dealers’ inventory levels in general are normal and even healthy for this time of year.” HPS Analysis: At press time for this month’s newsletter, March 3, there were a total of five comments posted on BRAIN in response to this Op Ed from Rick Vosper, including one from me. The other four, and my apology to the authors, are not from movers and shakers in the bicycle industry, much less members of the industry trade association board of directors. Patrick Hogan, PeopleForBikes’ senior research manager, does what I consider a very creditable job of presenting the important facts at hand, and Rick Vosper does his usual first-class job of presenting the story. We can only hope that what is presented is both understood and is being acted on, because it seems to be totally ignored by the industry mainstream. What is the American bicycle business doing to improve forecasting, supply chain management, logistics and communication with customers? The brands and manufacturers consider these topics to be private and confidential, when in reality they and others should be topics of industry-wide discussion and improvement, both online and at industry conferences.

02-13-24: “Shimano annual sales down 30 percent in bike division.” Bicycle Retailer and Industry News: “Shimano announced full-year 2023 sales in its bicycle division of 364,679 million yen ($2.42 billion) on Tuesday, a 29.5 percent decrease from the year before. Operating income in the division was down 55 percent, to 65.251 million yen. Although the booming popularity of bicycles cooled down, interest in bicycles continued to be high as a long-term trend. On the other hand, market inventories generally remained high, despite ongoing supply and demand adjustments,” the company said of the global market, “Shimano recorded net income of 62,142 million yen, down 52.3 percent from 2022.”

HPS Analysis: Shimano is the largest brand entity in the global bicycle industry, and it can be said that as Shimano goes, so goes the industry. I won’t belabor the point, and it is obvious that Shimano, the world’s largest supplier of bicycle components, had a down financial year in 2023, in line with the financial results announced by Giant, Merida and others. What is also obvious is the North American bicycle market has been relegated to “third world” status. Can’t be? Consider the facts. There is no domestic manufacturing of component parts, accessories or complete bicycles/e-bikes in North America. Bicycle Corporation of America (BCA) is a significant assembler but does not manufacture frames or forks, and assembly per year is under 500,000 units in a market that consumes millions of bicycles every year, good or bad, imported from Asia. While there is still some R&D, major brands, including SRAM and Specialized, have moved research and development to Europe, and all top-tier bicycle brands are sponsors of UCI grand tour teams, and do not race in North America. The European and Chinese markets have become more important to U.S.-based brands and companies like Giant and Shimano have managers of their business units in North America, not presidents as they do in other global markets. Shimano spends large amounts annually on market research in Europe and nothing in North America. It is obvious that the U.S. trade association is looked at as the knowledgeable and authoritative industry entity by the global brands, and perhaps this is based on a misunderstanding about the ongoing hold current business practices, policies and governance will have on business and government. It is certainly a miscalculation relative to the North American consumer. We certainly live in interesting times.

02-13-24: “To my fellow cyclists: quit the e-bike hate.” Bicycling by Matt Phillips: “Love Your Fellow Cyclists, No Matter How They Dress Or What They Ride. I just turned 51. Ever since I can remember, cycling has been the biggest part of all parts of my life. When I was a kid, I tagged along with my dad to his bike races. Growing up I worked in bike shops. I chose my university for its proximity to great mountain bike trails. I started working at a cycling magazine as an intern in late 1995 and became full-time in 1997. I’ve been here ever since. I was riding a bike when I met the person I would marry. I was riding a bike when I experience the most physical pain and heartbreak of my life. I am a cyclist because it is how I make a living. And because it brings me the greatest joy in my life. So, I think I qualify as a ‘real’ cyclist. And to many of my fellow ‘real’ cyclists, I say: Knock it off. As long as I’ve been around this sport – again, my entire damn life – I’ve noticed how we tend to ‘us-and-them’ other riders who don’t fit our vision of what a cyclist should look like. We form cliques and freeze out others who we feel don’t fit. With this mindset, a quick glance at another cyclist is supposedly all it takes to know everything about who they are, what they stand for, how strong they are, and their skills. Have I done all this? Yes! But the longer I’m around bikes, the more I’m routinely reminded that equipment should not be used as a basis to judge other riders. I’ve been aboard the very best and latest equipment and been dropped by a rider on an old Centurion with downtube shifters. I’ve seen a guy on a mountain bike dressed in trail gear easily hang with roadies on a group ride. I’ve watched kids on rattletrap 26er mountain bikes send it further than I dare on the most dialed enduro bike. Those are only examples of making assumptions about someone’s fitness or skill based on equipment. It doesn’t even consider how much that person loves the sport or how much they give back to cycling.” HPS Analysis: My compliments to Matt Phillips. I have heard about this provincialism from many different sources over the past several months. Discussions range from “drop the attitude” to “change the attitude of your staff” to “smile at every person that walks through you shop door.” Right now, in a time when the consumer public has chosen to reduce their visits to bike shops, attitude is absolutely everything. Consumer research that HPS has been involved in over the last decade has made it clear that women do not like to visit bike shops because they are, at best, condescended to. Women are 50 percent of the U.S. population and should be respected as such by very bike shop employee. If your staff cannot respect every consumer that walks in your door, fire them and replace them with people that like people and want to serve. 

02-19-24: “San Francisco to set new rules for e-bikes, scooters powered by lithium-ion batteries.” ABC News: “If you own an electric mobility device like an e-bike, electric scooter or skateboard in San Francisco, the way you charge or store those devices is about to change. The city’s Board of Supervisors voted to create safety standards for some devices powered by lithium-ion batteries. Electric bikes and e-scooters continue to be part of San Francisco’s attempt to improve urban mobility. Even the city government is testing a pilot program where food delivery workers are using e-bikes instead of cars in an attempt to reduce emissions and traffic congestion. But with more of them on our streets, it was inevitable that new rules for how they are stored and charged would follow.” “In March, a new set of standards for charging and storing these batteries used to power mobility devices will go into effect. Anyone living in a multi-unit building will now be limited to four lithium-powered mobility devices per household and they must be parked three feet apart when charging. Each one must be plugged into its own electrical outlet, not a power strip. The new rule doesn’t apply to single-family homes.” HPS Analysis: San Francisco is following New York City and will not be the last municipality to implement ordinances in an effort to protect people living in multiple occupancy buildings and multi-use buildings. Bike shops are getting caught up in this as ordinances seek to regulate retail storage and charging of lithium-ion batteries. Unfortunately, so far New York City has ordinances that simply are beyond the financial capability of bike shops to comply with, and HPS and NBDA are working on a viable alternative in the form of December 26, 2023, eBike Lithium-Ion Battery Pack Safe Storage, Use and Care Protocols. The most important of these Protocols is: Only source, store, charge and sell lithium-ion battery packs that have been tested and certified by a Nationally Recognized Testing Laboratory (NRTL) to UL 2271 (or e-bikes that have been certified by an NRTL to UL 2849).  The complete set of 15 protocols is available from HPS or the NBDA, but this first one is the most important, and if adhered to establishes the highest possible level of safety, and reduces the hazard presented by lithium-ion battery packs to the point that HPS is advising the cities of New York and San Francisco that the December 26, 2023, NBDA Protocols should be recognized as a replacement or substitute for the ordinances in place pertaining to bike shops.

02-20-24: “Walmart tops Street as sales, earnings rise on e-commerce growth, holiday traffic.” Chain Store Age CSA: “Walmart reported net income of $5.49 billion, or $2.03 a share, for the quarter ended Jan. 31, from $6.28 billion. Walmart Inc. ended the year on a strong note amid soaring online sales and growth in store and digital traffic. The nation’s largest retailer continued to make inroads outside its core demographic as it noted share gains in grocery and general merchandise, primarily among higher-income households. Walmart also announced it will acquire smart TV maker/streaming platform provider Vizio in a deal worth $2.3 billion as it continues to increase fast-growth advertising and media business, Walmart Connect. In its earning release, Walmart said it raised its annual dividend rate by approximately 9 percent, to $2.49 a share, from the $2.28 per share paid for the last fiscal year. The retailer said the increase is its biggest dividend boost in more than 10 years, and its 51st consecutive year of dividend increases.” “Walmart U.S. same-store sales increased 4 percent, also more than expected. Sales were led by grocery and health & wellness. General merchandise sales declined “modestly” the company said. The number of transactions increased 4.3 percent, but the average ticket inched down 0.3 percent.” “Global e-commerce sales soared 23 percent during the quarter. In the U.S., e-commerce sales rose 17 percent, led by strength in pickup and delivery.” “Walmart has bucked the recent industry trend of cost cutting. In January, it said it would open or expand more than 150 U.S. stores to its larger format during the next five years. Also in January, the company announced an increase in its store managers pay.” HPS Analysis: One of the glaring omissions from the Rick Vosper Op Ed, Patrick Hogan’s data analysis, and the Merida and Giant year-end financial reports, is the mass merchant channel of trade. The previous articles, for the most part, focus on the bike shop, or specialty bicycle retail channel of trade, and totally ignore the rest of the market. The biggest channel left out is mass merchant. Walmart, in addition to being the largest retailer in America, is the largest retailer of bicycles in America. 2023 was a difficult year for mass merchant sell-through of bicycles, but it appears inventory has been stabilized and is under control. What HPS has been able to observe shows Walmart increasing the representation of Ozark Trail, its new proprietary bicycle brand, and higher-priced, fully-equipped children’s bikes. This article also makes it very clear that Walmart is doing better than other retailers, and is going against the trends in regard to expansion, store remodelings, layoffs and manager compensation. The NBDA is holding its second Retailer Summit in Bentonville, Arkansas, May 22-23, 2024, and is the next big American bicycle industry event on the HPS calendar. Representatives from Walmart were in attendance last year and will be in attendance this year. The presentations and round table discussions will include the whole American bicycle business and market. Looking forward to seeing you in Bentonville.

Contact Jay Townley: jay@humanpoweredsolutions.com.

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