THE HPS MARCH LETTER: THE MAJOR TRENDS FOR EARLY 2023

2/28/23 Trying to replace china’s supply chain? Don’t bother. Vietnamese factories were supposed to save globalization. It doesn’t look like that’s happening. Bloomberg. So much for the great Vietnamese supply chain that was supposed to replace China’s and save globalization. HPS Analysis: American brands, and in particular the multinationals, are finding it extremely difficult to extract themselves from mainland Chinese supply chains, and the Japanese, Taiwanese, Chinese bicycle manufacturing consortium. Vietnam, Cambodia and Thailand all looked promising before the pandemic, but their respective infrastructures and labor forces simply cannot sustain U.S. demand, even at reduced levels.  

2/28/23 Walmart partners with Citi on new supplier loan platform. Chain Store Age. Walmart’s latest fintech solution is aimed at small-to-medium-sized businesses (SMBs) in its supplier network. Walmart is connecting 10,000 U.S. SMBs with 70 lenders that provide qualifying businesses with loans of up to $10 million. HPS Analysis: Small-to-medium-sized U.S. suppliers to Walmart, like Kent International, now have access to loans up to $10 million. The U.S. bicycle business would be well advised to connect with its lenders to find out how it can emulate this loan platform.

2/28/23 Target Q4 sales, profits top estimates; gives cautious outlook as spending shifts. Chain Store Age. Target Corp. beat fourth-quarter expectations amid a “very challenging environment,” and said it plans to expand its owned brands as consumer spending shifted away from discretionary items. HPS Analysis: The second-largest retailer of bicycles in the U.S. has worked out of its inventory issues, and is warning about consumers shifting away from discretionary items to lower-cost private label products in a very challenging retail environment.

3/1/23 CPSC: The industry’s 3-class e-bike framework is not part of our statutes. Bicycle Retailer and Industry News. Consumer Product Safety Commission Chair Alex Hoehn-Saric told BRAIN the agency doesn’t recognize the industry’s three e-bike classes, but instead treats the regulation of e-bikes on a case-by-case basis. HPS Analysis: Manufacturers and brands should rely on the CPSC definition of a “bicycle” for testing, regulatory compliance and insurance, and not the three-class designations.

3/2/23 NY City Council passes lithium-ion battery safety package. Bicycle Retailer and Industry News. E-bikes will soon need to meet UL 2849 or similar certification, and batteries UL 2271. In order to be legally sold, rented, or leased in New York City, an e-bike needs to be certified to UL 2849, which is a standard that covers an e-bike’s full electrical system, including the battery, charger, and motor. Likewise, a powered mobility device needs to meet UL 2272, and all lithium-ion batteries sold separately must meet UL 2271. The NY City regulation goes into effect 180 days after enactment. HPS Analysis: New York City took appropriate action in the face of fires, injuries and deaths resulting from a recent influx of highly-questionable lithium-ion battery-powered micromobility products sold directly to consumers, and originating in China. The de minimis exception to U.S. law and customs regulations is one of the major problems allowing questionable products into the U.S. Testing, compliance and listing to UL 2849 and UL 2271, as well as CFR 1512 for all bicycle products as defined by CPSC, is essential from this point forward.

3/3/23 Top executives tackle biggest bike industry challenges at the 2023 Bicycle Leadership Conference. Bicycle Retailer and Industry News. PeopleForBikes’ 2023 Bicycle Leadership Conference (BLC) took place March 14-16, in Dana Point, California. It was a three-day event bringing together CEOs and other top executives from across the bike industry to network, learn, and tackle the biggest challenges and opportunities facing bicycling and the bike business. HPS Analysis: We received the agenda March 3, but beg to differ that the agenda was designed to “… tackle the biggest challenges and opportunities facing bicycling and the bike business.” We carefully read the agenda, and for the kind of coin this BLC cost attendees, we suggest a different focus at future conferences, with as much data as possible about why American consumers have reduced purchases of new bicycles (inclusive of e-bikes), how we integrate all styles, types and retailers of e-bikes into the bicycling community of interest, and how we shift our industry advocacy to meet the wants and needs of all bicyclists of all types.  

3/4/23 Over $30M worth of Funkos are being dumped. NPR Business. The maker of the Funko Pop! Collectables, plans to toss millions of dollars worth of its inventory, after realizing it has more of its pop culture figurines than it can afford to hold on to. HPS Analysis: According to this article, diminishing demand combined with a glut of inventory, is “driving the loss,” and the company’s decision to toss $30 million worth of product into the dumpster. While we think this is one of the dumbest ideas we have ever heard of, it is the result of accounting practice and tax law that makes this bad idea feasible for managers to execute. It also emphasizes just how evil inventory can be, and how bad a shakeout can be.

3/4/23 What New York’s e-bike law will mean to retailers. Bicycle Retailer and Industry News. Heather Mason, president of the NBDA, is advising bike shops in New York City to sell off any e-bikes that aren’t certified to UL standards before a new local law takes effect. HPS Analysis: Bike shops in NY City have six months, to sell existing inventory of e-bikes, which as Mason points out is more than reasonable. This anticipates two inventory turns per year, which is more than possible, even in a slow market. Concerns expressed in the article about brands not having enough time for testing and certification is also over-blown, given the number of qualified and listed testing laboratories in Asia and the U.S. Also, many e-bike system component manufacturers have already had their products tested, which means testing of complete systems will proceed quickly, and at affordable costs. This all means that in 180 days, NY City bike shops will be able to tell shoppers and customers that they are selling e-bikes that are certified to UL 2849, and if simple instructions about use, storage and charging of the lithium-ion batteries are followed, they are safe and enjoyable consumer products.

3/7/23 Vail closes 19 retail locations in Colorado. Bicycle Retailer and Industry News. Vail Resorts is closing 19 retail locations in the Colorado mountains. Most of the locations offered winter sports sales and rentals, but several also offered bike sales and rentals. The closures will cost 69 workers their jobs. HPS Analysis: It is always sad to hear about retail locations closing. This recent closing of eight Aspen Sports stores and demo locations in Aspen, six Telluride Sports locations, and Burton and Neve stores in Telluride, along with a Patagonia store in Snowmass, calls into question the business strategy and financial condition of the parent company.

3/9/23 Manufacturer refuses to recall $13 helmet sold at Walmart, CPSC says. Bicycle Retailer and Industry News. The Consumer Product Safety Commission is warning consumers to immediately stop using and destroy TureClos bike helmets, sold on Walmart.com last year, because they do not meet federal safety standards. The CPSC says the China-based seller of the helmets has refused to recall the helmets or offer consumers any remedy. HPS Analysis: This is the avarice of business at its worst. When Congress amended the Consumer Product Safety Act and took power away from CPSC to protect American consumers in favor of allowing businesses to make as much revenue and profit as possible, it sadly set up situations like this. All sellers, including Walmart, have an obligation to the safety of American consumers to take responsibility for the merchandise sold under their trade names.

3/10/23 Giant Group revenues up 12.5 percent in 2022 despite inventory challenges. Bicycle Retailer and Industry News. Giant Group’s revenue was up 12.5 percent, but net income before taxes was flat, and net income after tax was down 1.5 percent. The company said it still has excess inventory, but demand remains high for e-bikes and high-end bikes. HPS Analysis: The article also quotes Giant Group as saying: “At present, the balance of the supply and demand of the bicycle market has yet to be normalized.” The company said it took a 'corrective mechanism' to reduce inventory in the second half of 2022, but inventory reduction is still slow. In other words, Giant Group still has an inventory overhang that it is working at reducing at the end of the first quarter of 2023.” 

3/11/23 Silicon Valley Bank failure could have wiped out ‘a whole generation of startups’ NPR Technology. For tech startups, which for decades have relied heavily on Silicon Valley Bank (SVB), the bank failure set off a crisis that could have led to mass layoffs, or hundreds of startups collapsing, according to industry insiders. The government did step in to guarantee deposits, apparently rescuing well-known tech companies including Shopify, Pinterest, Fitbit, and thousands of lesser-known startups, in addition to established venture capital firms, like Andreessen Horowitz. HPS Analysis: If you had never heard of Silicon Valley Bank before this week, you likely have by now. According to Bloomberg, SVB was home to cash belonging to half of all venture-backed startups in the U.S. The question HPS is asking is: how many e-bike start-ups would have been affected by the SVB bank failure, and how many bike businesses have significant assets in other highly-leveraged banks? Our analysis indicates SVB was the victim of the Fed’s increased interest rate that in turn effected the value of SVB bonds, leading to the current financial melt-down and failure. The American bicycle business is relatively low-tech, and didn’t pay much attention to the SVB failure, as evidenced by the total lack of coverage by BRAIN. However, HPS confirmed that at least one of the “new” e-bike start-ups had all of its venture capital (VC) funding deposited with SVB, and could not get to its money to make payroll March 10, like a whole bunch of other start-ups with their VC funding frozen. While the news that the government stepped in was very welcome by all concerned, it pointed to another potential financial problem relative to the excess inventory being held by brands and suppliers, that may be overvalued.

3/11/23 What’s driving the battery fires with e-bikes and scooters? NPR Technology. As firefighters battled a five-alarm fire at a supermarket in the Bronx earlier this month, New York City officials gathered beside what they said was the cause of the fire: the blackened shell of what was once a sit-on electric scooter. “There is extraordinary damage. This entire building behind me is completely destroyed. The roof is caved in. There is nothing left. And it is all because of this one single bike,” said Laura Kavanaugh, the city’s fire commissioner. HPS Analysis: While it is clear that the cause of this devastating fire was an electric scooter, e-bikes are being painted with the same brush. Thank goodness there was no fatality. The recently-passed NY City law requiring testing and certification to UL 2849 is referenced in the article, as is the fact that CPSC is aware and in constant communication with NY City about the fires. The situation now calls for immediate action on the part of the bicycle business to inform and educate New Yorkers and the public at large about the safe riding, storage and charging of e-bikes, as well as their testing and compliance to and with UL 2849. The NBDA has already taken action to inform and educate bike shops in NY City, and it is now time for PeopleForBikes to step up and launch a comprehensive, city-wide e-bike and lithium-ion battery safety campaign.    

3/13/23 Gen Z spending gets supercharged by inflation and wage growth. Bloomberg The Close Americas Edition. Most people enter adulthood feeling broke and spending frugally. Not Gen Z. Spending by the youngest group of U.S. adults has been turbocharged by two once-in-a-generation drivers over the past year: decades-high inflation, and a tight job market that propelled strong wage growth. A boost in savings at the height of the pandemic also helped. Gen Z kept spending when other generations pulled back. Whether it’s out of necessity in the face of soaring prices, or because they can afford to splurge on travel and leisure, young adults today tend to be big spenders, credit-card data and surveys show. HPS Analysis: Gen Z is the generation born between 1997 and 2012. They are currently between six and 24 years old (nearly 68 million in the U.S.). HPS is wondering why the bicycle/e-bike business isn’t attracting and holding on to more Gen Z consumers. The NBDA Consumer Research, published in 2022, showed that Gen Z was among the first-time cyclists who purchased during the pandemic, but seem to be AWOL starting the last half of 2022, and going into 2023. Also, a high percentage of Gen Z bike/e-bike purchasers were women. This is among the challenges the bicycle business needs to step up, embrace and take advantage of going forward.

3/13/23 Why Fox News wants you to be afraid of electric bikes. electrek: MicahToll. Fox News is no stranger to the tactic of fearmongering as a way to stir up its viewers. But the media network’s latest misdirection campaign attempts to use fear to attack a surprising new target: electric bicycles. With a misleading story running last week entitled, “How e-bikes are exploding and killing people,” the media giant leaves little room for doubt about just how far it will go with misdirection to try to scare people away from the fastest-growing form of low-cost, efficient, and effective transportation. HPS Analysis: While it is true that micromobility devices, including e-bikes, have been identified as the source of a rash of lithium-ion battery fires fatalities in New York City, the problem is largely attributable to low-cost micromobility devices originating in China, and imported into New York City by a relatively small number of small retailers, as well as consumer-direct (DTC) sellers under the de minimis rule that bypasses U.S. Customs inspection, duty and taxes if a product's F.O.B value is $800 or below. New York City now has a new ordinance requiring e-bikes to be tested and certified to UL 2849, and lithium-ion batteries to UL 2271. The ordinances become effective on or about September 20, 2023, giving retailers six months to sell off non-compliant products, and stock up on complying products.

 3/13/23 Vosper: Scorched earth: the strategic basis for continuous oversupply. Bicycle Retailer and Industry News. As HPS has noted, the strategic basis for continuous oversupply was not on the agenda for discussion at the Bicycle Leadership Conference (BLC) this year. As Rock Vosper pointed out, “We have too much bicycle inventory. Not just right now (when we have way too much inventory), but in general. That’s because, year-after-year, we keep ordering too many bikes and then having to put them all on clearance. And this insanity has been business as usual for our quirky little industry ever since the end of the Great Recession in 2009.” HPS Analysis: Vosper does his usual excellent job of bringing out the historical facts of the marketing strategies of major bicycle brands doing business in the U.S. market. He correctly refers to the “scorched earth” strategies of the top brands as “insanity,” but these strategies have purposeful thought behind them. Even more troubling is that a significant number of bike shop owners buy into it every year. However, HPS believes 2023 may be different because, (1) the pandemic-enhanced consumer demand that drove the bull-whip effect, and badly disrupted just-in-time inventory management, and led brands and retailers to pay more than they ever have in the history of our business for finished goods inventory that, (2) backed up in warehouses in unprecedented quantities as consumer demand ebbed away, and (3) the SVB collapse and a banking crisis changed the cost and availability of loans to refinance the excess inventory. This is a combination we have never experienced before, and it may make “scorched earth” look mild.

3/14/23 Revel Bikes manufactures 3D-printed carbon fiber protype bike. Bicycle Retailer and Industry News. Revel Bikes revealed what it’s calling the world’s first 3D-printed carbon fiber downhill mountain bike. The Rodeo is a concept bike for now, but the brand said it is a ready-to-ride fully-functional bike designed and manufactured in the U.S. HPS Analysis: We have been long time advocates of 3D printing and “additive manufacturing” as a methodology that can be employed to bring domestic manufacturing of bicycles and e-bikes back to the U.S. 3D isn’t a silver-bullet, but it is a viable technology that Revel Bikes is providing as a “proof of concept” model for others interested in reshoring to investigate. At the beginning of the pandemic in 2020, a contact who is in the prototype business suggested HPS investigate “pop-up” manufacturing that involves lots of 3D printers and digital files, instead of hard tooling, and a large capital investment. As the financial risks associated with sourcing in unfriendly geo-political regions increases, additive manufacturing in friendly geo-political regions becomes more attractive.

3/15/23 Supplier, Buyer relations are shifting again as pandemic strains ease. The Wall Street Journal. Big retailers are looking to reassert leverage in supply chains to rein in costs. The commercial relationships between retailers and their suppliers that shifted under the strains of the COVID-19 pandemic are transforming again as companies cope with continuing changes in consumer spending and high costs across their supply chains. “We’re starting to see the power shift a little bit back to buyers again,” said Rob Handfield, a supply-chain management professor at North Carolina State University. Many retailers placed big orders early last year, and rushed goods around transportation bottlenecks, to ensure they had enough merchandise on hand for the fall, when consumer spending typically increases heading into the winter holidays. The result was that many retailers ended up with excess inventories and too many of the wrong items in the wrong places as Americans shifted spending to services rather than goods. HPS Analysis: Mass merchant, sporting goods retailers, specialty outdoor and specialty retail brands, have all cancelled orders and reduced forecasts with their supply chains in Asia. These order cancellations and reductions have left many OEMs in China and Taiwan with excess component inventory, and reduced their work forces. At the same time, the retailers and brands want cost reductions as they re-asset their buying power. None of this is helping working relationships in the supply chain, and the large inventory overhang from components at OEMs in Asia, to finished goods in brand warehouses and bike shops in the U.S. The American bicycle business needs to focus on short-term and long-term solutions.

3/15/23 The unexpected American shopping spree seems to have cooled. NPR Economy. Retail spending declined 0.4 percent in February compared to January, the Commerce Department said. That’s after a surprise start-of-the year shopping spree that contradicted the Federal Reserve’s goal of cooling down the economy to fight high prices. People spent about two percent less on cars and parts, and 2.2 percent less at restaurants and bars, the latest reports on retail sales showed. People bought less furniture, fewer clothes, as well as home-improvements and gardening supplies. Spending at department stores dipped four percent. We don’t know the percentage, but people also spent less on bicycles and e-bikes. Inflation has been moderating since peaking last summer, but consumer prices in February were still six percent higher than a year ago. People have been shifting more of their budgets toward activities and outings, where prices continue to rise. In February, people spent 0.6 percent more at grocery stores, and 1.6 percent more on online shopping. And overall, retail spending remained 5.4 percent higher than it was a year before. HPS Analysis: It is clear that American consumers remained “resilient” throughout 2022, were still able to spend at a healthy clip, and through February 2023 have continued to spend, but not on bicycles or e-bikes. It seem obvious that the bicycle business needs to invest in good-quality and ongoing consumer research to determine why American consumers are not spending on bicycles and e-bikes, and determine what the industry has to do to attract consumers of all ages, ethnicities and income levels to bicycle/e-bike riding participation and purchases.

3/16/23 Import prices fall again, and are now helping to reduce U.S. inflation. MarketWatch Economic Report. The cost of imported goods fell 0.1 percent in February, and declined for the seventh time in the past eight months, helping to contribute to a slowdown in U.S. inflation. Over the past year, the cost of imports has fallen 1.1 percent, helped by a big reversal in the price of oil since last summer. That’s the first time import prices have shown a year-over-year decline since the end of 2020. As recently as a year ago, import prices were rising at a 13 percent pace. HPS Analysis: We have been vocal about the excess finished goods inventory stuck in the U.S. bike shop channel of trade. While imports of regular bicycles were down over 33 percent, and imports of e-bikes increased approximately 25 percent in 2022 over 2021, that inventory entered the supply chain when import prices were rising at a 13 percent rate, and much of it is sitting in warehouses at the highest landed-cost ever paid. That same inventory is being devalued daily by discounting and sale prices, some of which is generated by brand DTC sales tactics. Replacement inventory brought through the channel of trade today is at, or should be at, a significantly lower price.

3/17/23 U.S. tariffs on metals, some China goods, raised American prices. Bloomberg Economics. U.S. importers bore almost the entire burden of tariffs that President Trump placed on more than $300 billion in Chinese goods, raising the cost of goods bought by American companies, a report by an independent U.S. government agency found. The U.S. International Trade Commission, a bipartisan entity that analyzes trade issues, found an almost one-to-one increase in the price of U.S. imports following the so-called section 301 tariffs, it said in a report on Wednesday, March 15. The conclusions back the longtime assertion of U.S. Chamber of Commerce and independent academic economists that the cost of the tariffs hurt American firms more than those in China. HPS Analysis: Bicycles and e-bikes are the poster children of the section 301 tariffs. While actual 25 percent punitive tariffs have been suspended, they are still on the books, and the Biden Administration wants them as a bargaining chip in negotiations with the Chinese over future trade. The bicycle business has explained from the beginning that importers, retailers and consumers are paying the punitive tariffs as part of increased retail prices. During the pandemic, American consumer demand for bicycles and e-bikes drove the market, followed unfortunately by the bullwhip effect in supply, but channels of distribution found little or no price resistance until the demand ebbed, and consumer purchases of two-wheeled micromobility products cooled. At this point, the 25 percent punitive section 301 tariffs are baked into price structures. While they have undoubtedly contributed to inflation, they won’t be a factor in pricing calculations (read that as price reductions) until they are eliminated entirely.

3/17/23 Consumer sentiment falls for first time in four months – and that was before Americans knew about SVB. MarketWatch. A survey of consumer confidence fell for the first time in four months, reflecting angst among Americans about high inflation, and the health of the economy. The University of Michigan said most of the survey was completed before the collapse of Silicon Valley Bank. Consumer sentiment surveys help gauge how Americans feel about their own finances, as well as the broader economy. Americans worry about inflation, and a banking crisis may add to their anxiety. Sentiment fell the most among lower-income and younger Americans who tend to suffer disproportionately from high inflation. Some wealthier people with large stock holdings were also less confident in light of a recent decline in equities. HPS Analysis: Despite inflationary price increases, and eroding confidence in the economy, American consumers have continued to spend on staples and necessities, while shifting from goods to services, like eating out or ordering in. A fall in consumer sentiment doesn’t bode well for consumer spending going forward into the spring selling season. The bicycle/e-bike business has not kept pace with consumer spending since Q3 2022, and is approaching three quarters of slowing store traffic and ebbing sales, with consumer sentiment now falling as well. The bicycle business and its associations need to get serious about customer retention, close rates, and the outreach message.

3/20/23 Acer (yes, the computer company) is building a fancy electric bike with built-in AI. Electrek Micah Toll. The Acer ebli is a lightweight (35 pound) e-bike with 20-inch wheels, mono-fork, and features built-in AI designed to predictively control the transmission, and make use of collision detection sensors for a safer ride. There are also proximity unlocking features that automatically lock the bike when the rider leaves, and unlocks it when the rider returns. There also is a built-in GPS locator. The ebli has a belt drive, 160mm hydraulic disc brakes, airless tires, and 360-degree LED lighting. There is no throttle, and the 460 Wh electric battery has a range of 66 miles. The bike has a top speed of 15 mph with a 250W rear hub. The ebli removable battery serves as a portable power station to charge mobile devices like cell phones and computers. No price has yet been announced. HPS Analysis: To our knowledge, Acer is the first electronics company to jump into the micromobility arena. The fact that it is Taiwan-based and a recognized brand gives it, we believe, a major advantage over Chinese manufactured e-bikes, both from a logistics standpoint, and a geopolitical perspective. The fact that so much AI is packed into this design also gives it a hi-tech added value leg up over its rather large field of competitors. Like everyone else, we need to see the price, distribution and availability, but this latest entry in the e-bike market is most interesting.

3/21/23 CEO Ken Lousberg on SRAM’s global production strategy. Bike Europe. The announcement in February to build a new factory in Taiwan confirmed SRAM’s commitment to its largest production base. With the investment, SRAM is expanding its capabilities and capacity in Taichung. A week before the opening of the Taipei Cycle Show, SRAM CEO Ken Lousberg elaborated on the choice for Taiwan, and his market outlook for the months ahead. Asked if he expects the market to be on the positive side again in the second half of the year, Lousberg responded, “I think it will be stable by the second half of the year, but it will depend on the price point and channel position as to when things really start growing again. I’m sure every company will experience some kind of correction, as their part of the channel has to clear out first, and then we should see a positive turn. As a component manufacturer, we are always at the tail of the bullwhip, and it hits us last. For us, sales volumes will certainly go down from the highs we experienced in the last few years, but settle above per-pandemic levels likely before returning to a regular four to five percent annual growth.” HPS Analysis. We recommend you read this whole article. We don’t know Ken Lousberg, but found his comments to be very insightful. SRAM is clearly doing “something” relative to acquiring the German company Amprio, but is still reluctant to share details, but Lousberg did state, “The e-bike market is very important to us.” Imports of regular bicycles were down just over 33 percent in 2022, while imports of e-bikes are estimated to have grown by 25 percent in 2022. SRAM needs to improve its position to take advantage of the growing e-bike segment world-wide.

3/21/23 Will Taipei Cycle 2023 contribute to solving the industry challenges? Bike Europe. Taiwan’s bicycle industry was eager to show itself to the outside world again at the Taipei International Cycle Show March 22-25. After an absence of three years, one of the leading industry events opened its doors again. The industry is facing some interesting challenges which have become pressing over the past few years. Bike Europe feels it is time to discuss them face-to-face. The biggest topic for the international industry lays in the challenges to steady the huge fluctuations between production and demand. For two years, the industry faced a massive demand for products which it could not fulfill by any means. While manufacturing went at full capacity to meet demand, this situation flipped in 2022 to oversupply, causing high inventory on markets around the world. HPS Analysis: We don’t quibble with what Bike Europe expresses as “the industry challenges,” but we don’t think the Taipei International Cycle Show is going to be the place to resolve the challenges facing the industry. The reality of the situation is that good decisions demand good data (Pew Research Center). The bicycle/e-bike business in Europe has much better data than we have in America. As just one example, while Ed Benjamin does a superb job of pulling together U.S. e-bike import data from the fractured HTS system run by U.S. Customs, he will be the first to tell you the bicycle/e-bike business has to lobby hard to improve this vital data collection source so there is clear and concise monthly data on U.S. imports and exports of e-bikes that matches that collected and reported on regular bicycles. Also, the “Scorched earth: the strategic basis for continuous oversupply” issues that Rick Vosper writes about, will sadly not get resolved, by the Taipei International Cycle Show.

3/21/23 Electric bike tax credit bill reintroduced, providing up to $1,500 off new e-bikes in US. electrek Micha Toll. The Electric Bicycle Incentive Kickstart for the Environment (E-BIKE) Act has just been reintroduced to the U.S. House of Representatives. An e-bike tax credit has long been seen as a way to help get these effective small-format EVs into the hands of more Americans. To qualify, the e-bike would have to be priced at less than $8,000, and the tax credit would be allowed once per individual every three years, or twice for a joint-return couple buying two electric bicycles. The incentive, according to the author, is designed to make electric bicycles more accessible to lower income Americans. HPS Analysis: This is most welcome, and it will gain life expectancy if it can pick up bi-partisan support in the House and the Senate. Frankly, in the face of the bad public relations being generated because of the micromobility-related fires and fatalities, primarily in New York City, this bill give advocates something big and beneficial to talk about. This bill deserves loud and continuous support from all corners of the bicycle business.

3/21/23 Study: Gen Z consumers least likely to reduce spending amid inflation. Chain Store Age CSA. Gen Z, adults ages 18 to 26, are the least likely to report that inflation has impacted their spending, and they are most reluctant to reduce spending compared to other generations, according to a report by Jungle Scout, an all-in-one platform for e-commerce sellers. The report found that even amid inflation, Gen Z consumers are also setting a new standard for e-commerce, with 32 percent of shopping online at least once daily. This compares to 25 percent of Millennials, 15 percent of Gen X, and seven percent of Baby Boomers. HPS Analysis: Gen Z has shown up several times this month as being  big spenders in this inflationary economy. Some of us remember the BMX Boom that kept the bicycle business going between the 1971-1974 Bike Boom, and the Mountain Bike Boom of the 1980’s. Yes, Gen Z is young, but they just keep spending, very actively on-line. Staff for Gen Z, merchandise for Gen Z, use social media to reach out and market to Gen Z, and use your commerce-enabled website to sell to them 24-7.

3/22/23 The Fed raises interest rates again despite the stress hitting the banking system. NPR Economy. The Federal Reserve raised interest rates for the ninth time in a row on March 22, opting to continue its campaign against high inflation, despite stress in the banking industry following the collapse of two regional banks. Fed policymakers voted unanimously to raise their benchmark interest rate by a quarter percentage point to just under 5 percent, which will make it more expensive for people seeking car loans, or carrying a balance on their credit cards. The Fed will need to weigh the impact of the collapse of the two regional lenders in deciding how much to raise interest rates going forward. Since the collapse of Silicon Valley Bank and Signature Bank, other banks are expected to be more conservative about making loans. “Recent developments are likely to result in tighter credit conditions for households and businesses, and to weigh on economic activity, hiring, and inflation,” the Fed statement said. “The extent of these effects is uncertain.” Tighter credit conditions, like rising interest rates, lead to slower economic growth. HPS Analysis: “Credit is the grease that makes small businesses’ wheels run, and makes the overall economy run,” said Kathy Bostjancic, chief economist at Nationwide. “If that credit starts to get choked off,” she said, “you’re going to have a pretty big – I would expect – pullback.” The Fed wants to curb inflation, but rising interest rates also raise the risk of tipping the economy into recession. Fed policymakers aren’t projecting a recession. Members of the rate-setting committee expect the economy to grow 0.4 percent this year, and they expect the unemployment rate to climb to 4.5 percent, from 3.6 percent in February. The bicycle business and bike shops are now between a rock and a hard place. Get inventory and payables under control, to the extent possible, and make sure you communicate with suppliers about accounts payable. Be honest about what you can do, and hammer out a payment plan and stick to it. Reach out to your banker and make sure you communicate, and again, hammer out a financing plan, and stick to it.

3/23/23 Five ways the fallout from the banking turmoil might affect you. NPR Economy. The fallout from recent bank collapses and emerging rescues can seem both alarming and distant. Is your bank account safe? If it’s under $250,000, your money is fully insured by federal authorities under all circumstances. You might ask why you should care about what happens to banks if your money is safe. All the consequences are still playing out for the U.S. economy, small businesses like bike shops, and regular people. Here are five things to be aware of. (1) Will the banking turmoil trigger a recession? This depends on many factors, but banks may become more cautious about lending, resulting in less access to money for businesses and individuals. (2) Will getting a loan become even more expensive? The Fed answered this question March 22 when it raised interest rates. These rates guide how much people and businesses pay for various loans, and they’ve been rising for over a year. (3) Will the federal rescue trickle down to higher fees for regular bank customers? This depends on a number of things, including how successful the FDIC is in selling the failed banks’ assets, and the steadiness of the banking system. Similar failures mean more insurance payouts that could result in FDIC assessing higher fees on banks, who could then pass on the new costs to all their customers. (4) Could this make big banks even more powerful? This is a possibility if there is an exodus by depositors from smaller, regional banks, to bigger ones because of the perception of less risk forcing smaller banks to close or get absorbed into bigger institutions, leaving fewer lenders with more clout. (5) Does this mean a new era of less Silicon Valley innovation? Before its collapse, Silicon Valley Bank (SVB) did business with nearly half of U.S. tech startups, including those doing biomedical research. The SVB and Signature Bank failures may lead to a slowdown in lending to smaller, untested business ventures, or a slowdown in Silicon Valley startup spending overall. HPS Analysis: This banking turmoil boils down to tighter loan policies, higher interest rates, and higher fees going forward. The Fed is not, and does not want to be, the small business person’s friend until recession is under control.

3/23/23 Dialing back rebound projections. The Wall Street Journal Logistics Report. The much-anticipated rebound in demand in the second half of the year may be a bit farther off. Freight and logistics operators are starting to dial back their expectations for a recovery in time for the traditional fall peak shipping season, as retailers signal more caution in an uncertain consumer economy, and volumes moving through supply chains tail off more than anticipated. Nike, Target and Kohl’s remain guarded in ordering from suppliers, as they continue to dig out from a glut of inventory. Logistics executives have projected a recovery, as supply-chain disruptions have eased, and companies return to more traditional inventory replenishment cycles. Several say they remain optimistic, but note that the broader economy looks increasingly uncertain. HPS Analysis: As U.S. container imports from Asia hit a three-year low in February, the American bicycle business continues the shakeout as it struggles with an unprecedented inventory overhang and imbalance, as all channels of trade struggle to increase sales through March. It appears that the year will be determined in large part by how brisk consumer demand, store traffic, and retail sales are during the second quarter of the year.

3/26/23 Bicycle industry and advocates unified behind electric bicycle rider safety. Bicycle Retailer and Industry News. This press release headline was published as the League of American Bicyclists (LAB) kicked off its National Bike Summit in Washington D.C. March 27-29. PeopleForBikes and the LAB will launch a new electric bicycle rider-specific safety education program this summer. According to the press release, this first-of-its-kind campaign will help new and experienced riders understand best practices specific to riding an e-bike. HPS Analysis: This e-bike rider safety education program is, in our opinion, overdue. We urge PFB and LAB to reach out to the NBDA to join this initiative so that bike shops across the country will become centers for e-bike education and information.

3/29/23 How big a problem is greedflation? CNN Business. Inflation is ravaging shoppers’ wallets, and the Federal Reserve has responded by instituting a regimen of painful interest rate hikes that could land the economy in a recession. But corporate profits are surging. U.S. profit margins have reached record levels not seen since the immediate aftermath of World War II. How did that happen? Some economists are pointing to “greedflation,” the idea that companies are using high inflation rates as an excuse to price-gouge their customers while they bring in record profit margins. Between the end of 2020 and the third quarter of 2022, employee pay rose by 14 percent, but corporate profits grew by a whopping 28 percent. Instead of calling this out as the primary cause of high inflation, central banks have instead chosen to focus on rising nominal wages as threatening to embed higher inflation, the so-called “wage/price spiral,” referring to the Fed’s theory that wage growth has to slow down for prices to ease. Isabella Weber, an economist at the University of Massachusetts Amherst, outlined in a recent academic study what she calls a “price-price spiral,” where companies hike prices beyond an increase in their costs. Lael Brainard, former Fed vice chair and current director of the National Economic Council of the United States, has expressed worry that a price-price spiral could ultimately tank the economy by turning consumers off from spending. HPS Analysis: The first quarter of 2023 has come to an end, and corporations will begin to report their earnings. There are not a lot of public companies in the bicycle business, but the reports from those that are will provide key insights into the profit margins, and to some extent inventory. If MSRPs keep going down, it may be a sign that margins are being reduced as raw material and shipping costs fall-away, allowing slimmer profitability while lowering prices to move inventory. Economists tell us price-price spirals can’t last forever, particularly in recessions.

3/30/23 Why the China-US contest is entering a new and more dangerous phase. The Economist. You may have hoped that when China reopened, and face-to-face contact resumed between politicians, diplomats and businesspeople, Sino-American tensions would ease in a hurry at dinners, summits and small talk. But the atmosphere in Beijing reveals that the world’s most important relationship has become more embittered and hostile than ever. In the halls of government, Communist Party officials denounce what they see as America’s bullying. They say it is intent on beating China to death. Western diplomats describe an atmosphere laced with intimidation and paranoia. In the Diaoyutai State Guesthouse, multinational executives attending the China Development Forum worried what a deeper decoupling would mean for their businesses. The only thing both sides agree on is that the best case is decades of estrangement, and that the worst, a war, is growing ever more likely. HPS Analysis: The wishful thinking that China reopening would eventually see the working relationship between bicycle business buyers and the sellers in China return to pre-pandemic norms is just that -- wishful thinking. What has happened since 2020 is a hardening of the Chinese Communist Party’s world view, including wealth redistribution among the people instead of to a wealthy class of mega rich. This does not bode well for Taiwanese-owned and controlled bicycle businesses manufacturing in the PRC, or their customers outside of China. It also places at risk the multinational bicycle brand businesses inside China. As we have said, decoupling will be very difficult, but risk assessments are pointing toward finding alternate sourcing outside of China sooner than later, as difficult as this may be.

Contact Jay Townley: jay@humanpoweredsolutions.com