THE BIG IF

I am writing this on the last day of 2022, a year that literally went from a supply chain nightmare of scarcity to the discomfort of surplus.  

From what I have been reading in the trade press in Europe and the U.S., there has been a tendency in the bicycle business to not acknowledge this excess inventory. When its existence does slip out, as it did recently with Giant, there is an uneasiness about the financial implications of the surplus.

In general, the sentiment seems to be that good sales this coming spring will ease the situation and bring inventory levels back to what is referred to as “normal circumstances.”

This to me is the big if: IF consumer demand results in good sales this coming spring. This also smacks of management by hope.

I realize the bicycle business in the U.S. is trying to be as proactive as it can relative to attracting consumers to bicycles and bicycling, including e-bikes. However, I fear the mainstream bicycle business doesn’t have all the customers and potential customers in focus, and as the result isn’t able to connect with and sway enough of them.

My premise is based on the excellent consumer research done by Sports Marketing Surveys, now known as Sporting Insights, for the NBDA in Q-4 2021 and published Q-1 2022 by the NBDA: www.nbda.com/store

This consumer research uncovered the fact that approximately 30 percent of adult cyclists were new to cycling, depending on the category, and a higher percentage were female compared to historic demographics. In the case of e-bikes, many wanted throttles and “BMX” styles.

You can dig deeper into this detailed consumer research study, but one of my take-aways was the bicycle business had attracted new and different adult purchasers during the pandemic in 2020 and 2021, but before we could study them, many quit walking into and purchasing from bike shops.

Consumer demand drives everything in our world, sales, forecasts, production, shipping, and inventory of components and finished goods. Everything! When consumer demand drops off so does everything else. When too much inventory is in the bicycle supply chain when consumer demand slows, an overhang of surplus inventory results, like a blockage in a pipeline.

In the case of the bicycle business in the U.S., we don’t really know why consumer demand slowed during Q-3 of 2022, or why it continued to drop below pre-pandemic levels of sales during Q-4.

Some additional consumer research focused on the e-bike segment has been done recently, but I believe the panel size was too small. Although I am not privy to the methodology or results, I don’t believe it captured consumer purchase information or future intent from a group that may represent both the problem and the solution.

What I am speaking about are the American consumers who have purchased directly from e-bike sources in China under the so called de minimis rule.

While this is direct-to-consumer (DTC), it is a piece of the American bicycle business that is mostly not being tracked, although DTC purchasers and riders were included in the NBDA consumer research I have referenced.

The fact that they are not tracked is because de minimis import transactions are not recorded by U.S. Customs, and do not show up in the statistics followed by everyone in the business, including the trade associations, Ed Benjamin at LEVA, and Human Powered Solutions.

American consumers purchasing an e-bike or regular bicycle valued at $800 FOB or less can have it shipped directly to their home addresses with no duty, tax or inspection, and no record of the transaction.

If you are wondering if there are a lot of these transactions, the U.S. Congress reports there are 2 million of them in the U.S. every day. We have provided detail about why America has de minimis transactions and the attempts to stop them in previous articles. Contact me if you would like to know more.

From the buzz we have been picking up from advocates and bicycle riders, the number of adults and teenagers passing them on unrecognizable no-name e-bikes has increased in recent months. Bike shops are also reporting more of this type of e-bike being brought in for service.

Bottom line: we will not know until the NBDA conducts the same type of consumer research as it did during Q-4 of 2021 with the same robust panel of 2,500 adults, using the same methodology as the previous study, which included DTC purchasers like those buying under the de minimis rule.

Meanwhile U.S. inflation hit a 40-year high at 9.1 percent at the end of 2022, and the economic picture does not present a high probability of consumers coming back to bike shops to make purchases this spring, although the unemployment rate is at 3.5 percent, tied for the lowest since 1969.

So combined with other economic factors, we will have to wait to see IF consumer demand and sales this spring will reduce the current excess inventory to “normal circumstances.”

HPS will continue to report on this situation, and I welcome your comments. You can contact me at: jay@jayhumanpoweredsolutions.com