THE HPS AUGUST LETTER: E-BIKES, BIKE LANES, INFLATION AND MORE

July 6 “Porsche Sets Future Strategy for E-bikes.” Bike Europe: FRANKFURT, Germany – “Porsche AG bundled its e-bike drivetrain activities under the umbrella of Porsche eBike Performance GmbH, which it founded in 2022. This includes the recently acquired brands Greyp and Fazua. The latter is celebrating its tenth anniversary this year, and a Eurobike presentation in Frankfurt was all about the lightweight e-MTB pioneer. However, the e-bike ambitions of the German company go beyond this. What can we expect from Porsche in the coming years?” HPS Analysis: This article by our old friend Jo Beckendorff is well worth reading in its entirety because it answers the question it asks. The article is based on an interview during Eurobike with Dr. Jan Becker, CEO of Porsche eBike Performance GmbH, who is responsible for “outlining the future strategy of all” combined Porsche bicycle business activities. What this article clarifies is the relationship between the two joint ventures Porsche eBike Performance GmbH and P2 eBike GmbH and Ponooc Investment, which is part of Pon Holdings, the same company that founded Pon Bike Group. HPS has been watching the automotive interest and investments in the e-bike sector since before the pandemic, and Bosch represents an automotive cross-over that has made substantial investments in the e-bike drive train business over the past two decades.

July 6 “As Downtowns Struggle, Businesses Learn to Love Bike Lanes.” Bloomberg CityLab: “From Manhattan to San Francisco, the need to rethink the urban core is encouraging business improvement districts to change their tune on prioritizing cars. In early March, New York City Mayor Eric Adams stood on a stretch of Broadway just above West 25^th Street to present Broadway Vision, his administration’s plan to transform the famous corridor with bike lanes, low-traffic shared streets and plazas closed to cars.The mayor brushed off concerns that the changes would snarl traffic. ‘There’s a culture shift that must take place in this city,’ Adams said. ‘The number of pedestrians that walk clearly outnumber the number of drivers.’ Looking on next to Adams was James Mettham, president of the Flatiron NoMad Partnership. That’s the business improvement district (BID) that represents some of the largest developers and property holders on Broadway, including countless eateries and bars. HPS Analysis: We found this article surprising and exciting. While automotive traffic increased after the pandemic, and large cities removed micromobility lanes and reopened pedestrian and micromobility-only roadways to cars, trucks and busses, the fact that New York City continued with its plan for business improvement districts to work with and encourage neighborhood businesses to embrace and install bike lanes, low traffic shared streets and plazas closed to cars is hopeful! The success of these BID’s is economic proof of changing thinking about prioritizing cars.

July 7 “Taiwan June Exports Slump the Most in 14 Years on Weak China, U.S. Demand.” Reuters: TAIPEI, Taiwan – “Taiwan’s exports fell more than expected in June, slumping the most in almost 14 years, as the island struggled with persistent weakness in demand from the U.S. and China for its hi-tech products. As Taiwan is often considered a bellwether of global electronics demand, the sharp slump adds worries about a much weaker half of the year. June exports plunged 23.4 percent in value from a year earlier to $32.32 billion, the finance ministry said on Friday (July 7), the 10^th consecutive month of decline. That was worse than a fall of 14.1 percent in May, and missed a Reuters poll forecast for a 13.35 percent contraction. HPS Analysis: Taiwan is also considered to be a bellwether of global high-end bicycle and e-bike exports to North America and Europe. This export slump is an indicator of the overall bicycle business in the American market, although what is selling are the new 2023 models introduced by the high-end brands. Exports typically slow during the third quarter but start to pick-up toward the end of Q3 and into Q4, as importing brands stock up to fill dealer orders for the new year, and DTC brands fulfill consumer orders. HPS doesn’t project this happening during the last half of 2023 as the imbalance between supply and demand continues in the face of low demand to clear inventory, and declining consumer demand at the high end as the result of continued increases in interest rates. Upper-income cyclists still have the economic wherewithal, but typically pull back on purchases in times of economic stress.   

July 10 “Rad Power Bikes Gives up on European E-bike Market, Focuses on U.S. Instead.” electrek: “After half a decade of operations in Europe, Seattle-based Rad Power Bikes is closing down its E.U. operations this year. The company cited its intention to refocus on the North American market. The company has been selling its models in Europe since 2018 when its E.U. launch marked the entry of widely-affordable electric bikes into the market. At the time, the RadWagon’s European entry was described as the ‘first high-powered longtail cargo e-bike to be available in the European market.’ The RadRover, which was launched as the RadRhino in Europe, also helped boost the popularity of fat tire adventure-style e-bikes in the market, similarly to the American model’s effect in the U.S. market several years earlier. HPS Analysis: Rad Power Bikes was valued at $1.65 billion in October 2021, according to PitchBook, making it not only one of a handful of “unicorn” startups in the Seattle region, but one of a handful of “unicorns” in the global bicycle business, although I do not believe it was given this specific recognition. Rad launched in 2007, and began selling e-bikes directly to consumers through online sales in 2015. It grew into the leading e-bike seller in North America, and raised $304 million in 2021. According to GeekWire news, a local Seattle-based newsletter, the company plans to lay off fewer than 40 employees in Europe by the end of 2023, making this the fifth round of job cuts since April 2021. Mike Radenbaugh, who helped start the company in 2015, stepped down as CEO in November 2022, and is now board chairman. He was replaced by Phil Molyneux as president and chief operations officer. Molyneux was previously president at Sony Electronics and Dyson America. The company has faced multiple challenges recently, including a wrongful death lawsuit related to property damage, and the recall of around 30,000 units because of a safety issue. Under Molyneux, the withdrawal from Europe is reported as part of a broader effort to reign in spending and focus on safety. Rad Power Bikes will be watched carefully as relates to the current bicycle business shakeout.

July 11 “Retail Defaults Set to Jump This Year, Moody’s Says.” Retail Dive: “Strong balance sheets have become even more crucial for retailers, according to a report from Moody’s Investors Service released July 10. Over the next 12 months, Moody’s expects defaults among retail and apparel to jump from 6 percent to 8.6 percent. Elevated product, labor, and freight costs, higher markdowns, and weakening consumer spending have driven profits down, per the report. Home goods, apparel retailers, and smaller companies are especially at risk. With interest rates up, credit is more expensive. Therefore, because of their higher debt levels, private equity-owned retailers, including department store Belk, are particularly vulnerable, Moody’s found.” HPS Analysis: While the National Retail Federation sees “positive momentum” for retail sales the second half of this year, Moody’s Investors Service is forecasting weak U.S. growth this year and next. “Weaker, highly leveraged companies continue to have a tough time accessing capital in a market where investors remain risk averse,” Moody’s analysts opined in their July 10 report. HPS agrees, and retailers with little financial cushion could buckle under the pressures of the current economic environment, with excess inventory acquired at high landed costs and sales and discounts undercutting inventory value in the marketplace. There are approximately a baker’s dozen multi-location specialty bicycle retail chains that exceed $10 million in annual gross revenue, including those owned by multi-national brands like Trek, Specialized, and Cannondale (Pon.Bike), and they all are experiencing sales declines as consumers spend more cautiously on goods and prioritize services. During the past 12 months, deteriorating liquidity and profitability have already claimed underperforming retailers. Some costs and overall inflation are easing, but high labor rates, availability of trained service technicians, and weak consumer demand for discretionary goods, are continuing to hurt profits.

July 12 “Inflation Eases to its Lowest in Over Two Years, but it’s Still Running a Bit High.” NPR Business: “Annual inflation hit 3 percent in June, the lowest since March 2021, a sign that the Federal Reserve’s aggressive rate hikes are having an impact, though it will likely have to take even more action. Measured from May to June, consumer prices rose just 0.2 percent, according to the Labor Department’s report on July 12. Rising rent and clothing prices last month were partially offset by falling prices for airfare, used cars, and furniture. Gasoline prices rose 1 percent last month, but are down more than 26 percent from a year ago when pump prices hit an all-time high of more than $5 a gallon.” HPS Analysis: Though this report shows that inflation continues to ease, it is still running higher than the 2 percent target that the Federal Reserve has set. As this analysis is being written, we know that the Fed raised the prime rate by a quarter percentage point in late July, with the intention of further cooling the American economy and easing inflation even further, until it reaches the 2 percent target. More economists are signing on to the “soft-landing” way of thinking, as the American economy continues to show slowing, but with sufficient employment to keep the economic engine running. The American bicycle business has not yet recovered from the rapid ebbing of consumer demand at the end of 2022, just before the pandemic subsided. As consumer demand continues to contract, as the Fed intends, the bicycle business continues to struggle with slow sales that have made it impossible to sell down and reduce the unprecedented finished-goods inventory that amassed in the supply chain during the pandemic-induced demand surge. HPS opined that the American bicycle business entered a classic shakeout in the last quarter of 2022, and we hold to this declaration. Shakeout is a term used in business and economics to describe the consolidation of an industry or sector, in which businesses are eliminated or acquired through competition. It may also refer to a situation in which many investors exit their positions, often at a loss, due to uncertainty or recent bad news.

July 13 “VanMoof Enters Chapter 11 Status After Months of Rumors.” Bike Europe: Amsterdam, the Netherlands – “The district court of Amsterdam has granted VanMoof Holding B.V. preliminary suspension of payment (chapter 11 status). It marks the end of many rumors about the financial stability of VanMoof.” HPS Analysis: VanMoof was founded in 2016, and successfully raised a total of €200 million from venture capitalists over the next seven years based on its DTC business model, which included innovative and unique designs, high-tech functionality, and extraordinary customer service. Once referred to as the “Tesla of micromobility,” reports indicate that the brand was thwarted by servicing issues, and the additional costs that came with repair and warranty. Over the last three weeks, a variety of opinions have risen about the problems encountered, and the attempts by management to get back on financial track, but it appears this specific business model has not gained sound business traction sufficient to maintain it during a market shakeout.

July 13 “China’s Drop in Exports Signals Deepening Slowdown in Global Trade.” Wall Street Journal Global Trade: Singapore – “Exports are crumbling in China and across Asia, showing the deepening toll that rising interest rates are taking on global trade and economic growth. Trade has been slowing for months, but the pullback has further to run, economists say, as central banks keep up their campaigns to beat back inflation, and the U.S. and Europe slide toward recession. Chinese exports fell at their steepest annual pace in June since the early days of the pandemic in February 2020. China isn’t the only Asian export powerhouse reporting sinking overseas sales. Exports from Taiwan fell 23 percent in June compared with a year earlier, while Vietnamese exports were down 11 percent. Exports from South Korea were down 6 percent, according to official figures compiled by data provider CEIC.” HPS Analysis: As we reported last month, American consumers have shifted their buying again this summer. During the pandemic, consumer demand shifted more to online and from services like eating out, going to movies, ordering take-out for home delivery, binge-watching streaming TV shows and movies, and splurging on goods online. After the pandemic, consumers shifted to visiting physical retail stores, and shifted the services they spent money on. During the summer consumers shifted again, this time to doing more shopping online before going to a down-market physical store to buy, and again changing some of their selection of services. In general, consumers reacted to the Federal Reserve increasing prime rates to slow the economy, and not only shifted from high-end and middle-market retailers to lower-end retailers, but also quit spending as much on electronics, home improvements, and other consumer goods. Asia and primarily China are still America’s factories, and when Americans cut back on demand for goods, those factories have fewer orders, and manufacturers lower quantities of goods. It is still all about consumer demand.

July 13 “QBP and TPC Make Staff Reductions.” Bicycle Retailer and Industry News: Bloomington, Minn (BRAIN) – “Distributor Quality Bicycle Products and retailer The Pro’s Closet each announced workforce reductions this week. Each cited the industry’s inventory challenges as cause. QBP said it reduced its workforce by 5 percent on July 12. The distributor said the layoffs affected multiple departments at the company’s U.S. facilities, and its U.S. and Canadian distribution centers remain open and fully operational.” QBP is the largest, and one of the few certified B Corporations in the American bicycle business. “On July 13 The Pro’s Closet, a Colorado-based retailer of used and new bikes, confirmed that it made workforce reductions. The company declined to say how many employees or what percentage of staff was affected.” HPS Analysis: Since this article appeared on the BRAIN website, we have been asked several times by industry insiders “… what’s up with Quality Bicycle Products?” Our response: “…QBP is being honest!” There are very few public companies in the bicycle industry, and the majority are privately-held brands, and companies that have no legal obligation to make public reports about revenue, profits, or staffing issues. QBP, to the credit of both proprietorship and management, made the decision to become a certified B Corporation, and in the process pledged to be more transparent to their customers. Pro’s Closet is a DTC retailer owned by a VC firm, and while not a certified B Corporation, is being transparent with the trade. Both are to be complimented for doing what the rest of the bicycle industry has been hesitant to do, and that is being transparent and honest about the current situation, and the near-term challenges and long-term future.

July 14 “Is Mexico the New China? Nearshoring and Reshoring Experts Weigh In.” Sourcing Journal: “Three years ago, the way supply chains operated around the globe changed dramatically as the COVID-19 pandemic shut down factories, halted production, and created shipping and logistical logjams that would persist for nearly two years. In the time since, many of those pandemic-related issues have been resolved, but geopolitical events such as the Russian invasion of Ukraine, and the growing tensions between China and Taiwan, have created new problems for those sourcing abroad. These events, coupled with other factors, have led many companies to explore reshoring their product to the United States, or nearshoring to neighboring areas such as Mexico and Latin America. Deloitte estimated in November that American companies were expected to reshore 350,000 jobs in 2022.” HPS Analysis: There are a growing number of articles about this and similar subjects. Mexico does have the potential to become the “new China” or the “new factory” for the U.S. with many advantages, including cutting finished goods lead times by at least 1/3, but for the bicycle business, like many other industries, nearshoring and reshoring remain extremely complicated and very difficult to achieve, starting with the fact that there is no common agreement among the members of the so-called American bicycle industry. I say “so-called” because there is no U.S. domestic bicycle manufacturing currently being done in the U.S. (by the CPSC definition of bicycle). There is bicycle and e-bike assembly, but there is no manufacturing defined as fabricating frames and forks, as well as assembling the final end item. This is because the U.S. is a bicycle import-dependent country, and has been for over 30 years, that the execution of a reshoring or nearshoring business plan is so complex and difficult. This, in HPS’s opinion, doesn’t mean it cannot be done successfully, but it demands knowledgeable and careful planning.

July 15 “Weeks of Extreme Heat Strain Small Businesses and Economy.” Wall Street Journal: “Heat waves stretching across large parts of the globe are straining power grids and shutting businesses that can’t keep their workers cool. Some of the hardest-hit areas will face hotter temperatures in the coming days, forecasters say, adding to the risk’s that infrastructure will fail. More than 100 million Americans are being affected by the heat barrage, according to the National Weather Service. A streak of 110-degree days is frying Phoenix, and an unrelenting heat wave is punishing Texas and other parts of the South.” “Researchers studying the impact of recent heat waves found that they can cut economic growth. There are ‘pretty clear signals that the warmer years are associated with lower output,’ commented an economist at the University of Arizona who studies the economic consequences of climate change. Excess heat hurts labor productivity, and can harm learning capabilities in school since people aren’t using their brains as well in the heat. HPS Analysis: Weather, including heat waves, are now in the top three influences on American bike shops, according to the 2023 edition of the NBDA Specialty Bicycle Retail Study. Bike shops large and small need to monitor and adjust business plans and daily merchandising to the weather. Make sure that store policies and procedures create the safest and most productive working environment for workers, and a good shopping environment for shoppers and customers. Track weather and weather events daily, and provide shoppers and customers access to weather forecasting in-store and online. Provide tips on what bicycle riders need to carry with them to be prepared for weather events, and stock and sell the items you recommend. Conduct classes on how to be prepared for weather events. Investigate indoor exercise products and trainers, and consider providing indoor training and riding space that customers can engage by the hour, day, month, or year.

July 15 “Multinationals in China Accelerate Push to Decouple Data.” Financial Times: “Beijing’s move to expand anti-espionage rules and data regulation has companies racing to hive off systems. Global companies are accelerating their push to decouple China data in response to the country’s increasingly stringent data and anti-espionage laws, as relations between Washington and Beijing deteriorate. The drive for full localization of data in China, and separation of information technology systems from the rest of the world, has accelerated over recent months as Beijing strengthens its control and regulation of data. U.S. consulting firms including McKinsey, Boston Consulting Group, and Oliver Wyman are splitting their IT systems, according to a half-dozen staff at the companies.” HPS Analysis: What this means is global companies are creating completely separate and autonomous IT and computer systems for China only, or exclusively. This way all data specific to China stays inside China, and is not sent across the PRC border. It still isn’t clear how much of this is actually going to be necessary, but the global players with offices and staff inside the PRC do not want to take a chance that their offices may get shut down by the government, and/or staff incarcerated. Worse yet would be American, Canadian, European, or Asian nationals being arrested, detained, or denied access to the PRC. While the likes of McKinsey, Boston Consulting, et al deal with this at a higher level, smaller multinationals in the bicycle industry like Giant, Merida and Ideal are caught like deer in the headlights of the new Chinese laws that they need to comply with while getting supply chains back in reliable operation, and keeping customers in North America, Europe and elsewhere in Asia informed and serviced. Data has become the lynch-pin of reviving Just-In-Time manufacturing and inventory management, along with figuring out how to provide it without being accused of spying and getting taken off to jail, or barred from entering the PRC.

July 17 “Bikeshare Is Still Growing in Popularity After Pandemic Cycling Boom.” Bloomberg: “The pandemic-era spike in biking has translated to continued growth for the largest U.S. bike-share systems. Annual ridership of bike-sharing programs in six U.S. cities jumped 27 percent in 2022 compared with pre-pandemic levels to almost 45 million trips, with 2023 on pace for another record jump, according to data from the US Bureau of Transportation Statistics. New York City’s system makes up most of the gains, with other major programs in Boston and Chicago also having more participation in 2022 than prior to the pandemic. While San Francisco and Washington, D.C., had lower ridership in 2022, this, too, may already be shifting. More recent government data shows that ridership in Washington, D.C., has far surpassed pre-pandemic levels in the first five months of 2023. ‘The pandemic resulted in a lot of people buying bikes or getting on bikes that they had not used in a good amount of time. So there were new people exposed to biking,’ said Ken McLeod, policy director for the League of American Bicyclists.” National expenditures on bicycles and accessories hit a nearly $9 billion peak in March 2021, per government data according to Alex Engel, a spokesperson for the National Association of City Transportation Officials. HPS Analysis: We have maintained for almost a decade that bike-share is, as the League of American Bicyclists points out, a way to expose new people to biking, including e-bikes. We encourage bike shops to support their municipal bike-share programs, and look into the profit potential of offering bicycle rental programs and rent or lease-to-buy options for consumers. The U.S. Bureau of Transportation Statistics numbers are also of interest, in that they paint the picture of a bicycle business that increased prices in the face of demand in 2020 that generated an increase in national expenditures on bicycles and accessories from $6 billion pre-pandemic, to a peak of $9 billion during the pandemic to just below $8 billion in 2023. This leads to the question: Where’s the beef?

July 21 “FDNY Commissioner Laura Kavanagh will testify about dangers of lithium-ion batteries” CBS New York: New York – “FDNY Commissioner Laura Kavanagh will testify before the Consumer Product Safety Commission about the dangers of lithium-ion batteries. Kavenagh is heading to Washington, D.C., next week to express concerns about the fire risks. She says lithium-ion batteries have caused 131 fires in New York City so far this year, resulting in dozens of injuries and 13 deaths. According to Kavanagh, batteries are now the second-leading cause of fire deaths in New York City.”

July 21 “Deadly Battery Fires from E-bikes, Scooters Prompt Action in NYC.” Smartcitiesdive: “The city launched an education campaign, as legislators push for new policies, and community groups strive to reach micromobility-reliant delivery workers. In New York City’s Chinatown in June, four people died in a fire caused by lithium-ion batteries in micromobility vehicles, bringing the city’s 2023 death toll related to such fires to 13. Since 2020, there have been nearly 500 of these fires in the city. Mobilized by the growing risk, the city has launched an education campaign, as local leaders push for new policies to prevent future micromobility battery fires. Community groups have joined in the effort as well, with many focusing on reaching the tens of thousands of delivery workers whose livelihoods depend on e-bikes and scooters.” “Local leaders are also pushing policies to prevent micromobility battery fires. In March, New York City Mayor Eric Adams signed into law new requirements that by September will ban the sale, lease, or rental of electric micromobility devices that are not certified by safety accreditation company Underwriters Laboratories.” HPS Analysis: FDNY Commissioner Kavenagh went on to make a detailed presentation to the four sitting Consumer Product Safety Commissioners on July 27 at the CPSC headquarters in Bethesda, Maryland. She ended her testimony by stating that the FDNY had declared an emergency relative to the storage and charging of lithium-ion batteries for micromobility devices, and was actively inspecting bike shops and other charging locations, and issuing tickets for non-compliance with applicable New York City (NYC) fire codes. HPS is researching the applicable NYC fire codes for the NBDA, and will be issuing a report and guidelines for NBDA bike shop members in NYC. HPS will also be actively researching additional assistance for NYC delivery workers to purchase micromobility devices, including e-bikes, chargers and replacement batteries that are certified by UL.

July 22 “California Wants to Create a Driver’s License for Electric Bikes.” electrek: “A driver’s license for an electric bike? It could be coming soon in California. Believe it or not. That’s if some state lawmakers who drafted Assembly Bill 530 get their way. A new bill has been proposed to create such a driver’s license in California. The move is in response to many young electric bike riders who often take to the streets without having tested for or received a typical driver’s license for a standard car. That means they are often ignorant of many traffic laws and safety information.” “Assembly Bill 530, which will soon enter committee, would require both an online written test and a state-issued identification for riders who do not have a driver’s license. The bill would also ban riders under 12 years old from riding e-bikes.” HPS Analysis: This legislative proposal has already sparked a lively debate between The New York Times reporter Matt Richtel, who lives in Irvine, California, and electrek’s Micah Toll, who lives in Israel, with a variety of “experts” and wannabe’s tossing their comments in for good measure. The bicycle industry trade association is going to have to eventually take a policy position on this and similar legislation that is going to be introduced, because California is a bellwether state, as is New York, and will be followed by other state legislatures. The NBDA will also have to take a position, as will the League of American Bicyclists. The American bicycle industry is not prepared for the storm of federal and local ordinances, mandatory regulations, and state laws, that is fast approaching, and the NBDA is the only bicycle industry association that has formed and scheduled a Quarterly Forum to discuss being proactive and taking constructive action going forward.

July 23 “World’s biggest recreational bike ride begins anew for golden anniversary trek across Iowa.” Associated Press: Sioux City, Iowa (AP) – What bills itself as ‘the world’s longest, largest and oldest recreational bicycle touring event’ was more like the world’s biggest traffic jam Sunday as riders, packed together in a sinewy stream of brightly colored jerseys and shorts, churned across the Loess Hills on the western edge of Iowa. It’s called RAGBRAI – the Register’s Annual Great Bicycle Ride Across Iowa – and it promised to be bigger than ever this year, as the brainchild of two writers from The Des Moines Register celebrated its golden anniversary with a route similar to its first. That meant a start in Sioux City, where ambitious riders ceremonially dipped their rear tires in the Missouri River, and a finish for those with legs and the temerity to last that long seven days later in Davenport, on the Mississippi River.” HPS Analysis: I remember RAGBRAI when I was VP of marketing for Schwinn Bicycle Company, back in the day. We were a sponsor, and our cycling activities manager rode the event, and our advertising manager arranged for the delivery of a truckload of water melons to the official encampment for each night for the seven nights. Calling this the biggest recreational bike ride in the U.S. is no exaggeration. There were 20,000 official weeklong registrations and another 9,000 that secured day passes, but they were joined by thousands more who simply crashed the ride, which means there could have been more than 50,000 bike riders on the road to Davenport any day of the RAGBRAI. No matter what the number, I am dumbfounded that the world’s biggest recreational bike ride didn’t get any mention or coverage in the American bicycle industry consumer or trade press. If it did, I will be happy to be proven wrong.

July 24 “As Another Boom Wraps, CPSC Proposes Rules Update: Deadline is today to submit public comments online.” Bicycle Retailer and Industry News; Washington – “The last time the Consumer Product Safety Commission took an in-depth look at its bicycle safety regulations, it was the mid-1970s, and the industry was just emerging from that decade’s bike boom. The agency had only been launched in 1972.” “The CPSC’s 16 CFR Section 1512 came into effect on May 11, 1975, to address braking performance, structural integrity, frame and fork energy absorption characteristics, and seatpost and handlebar retention. Interestingly, bicycles were the first product the CPSC regulated after it became an actively funded federal agency. ISO 4210 – a standard created by the International Organization for Standardization – was created after the CPSC rules.” HPS Analysis: My business partner Mike Fritz and I were both quoted in this article that did not cover exactly what comments the CPSC wanted to receive from the public on or before July 24. The main subject was a petition from an individual on behalf of Woom, a DTC juvenile brand headquartered in Europe, that requested that the footbrake requirements in 16 CFR Section 1512 specifically for smaller sidewalk bicycles be revoked. In addition the CPSC asked for comments on the adequacy of requirements for bicycles in the commission’s rules, including electric bicycles. There were almost 300 written responses received by the commission from individuals, bicycle brands, component companies, PeopleForBikes (PFB), and the NBDA. There is no question that 16 CFR Section 1512 is old and outdated, and needs to be updated to cover the bicycle products of today, including electric bicycles. HPS agrees with the NBDA and PFB written submissions calling for CPSC to engage in rulemaking to adopt the latest edition of ISO 4210 including 4210-10 covering electric bicycles, and all or that portion required of UL 2849 to cover electric propulsion systems for electric bicycles including chargers and battery packs. And HPS also agrees with the NBDA and PFB in asking that the footbrake requirement be retained along with a new requirement that properly tested hand brakes also be allowed. This is the beginning of a very big and important undertaking for the American bicycle industry and business, and the United States Consumer Product Safety Commission. Buckle-up.

July 24 “Lyft CEO David Risher’s Efforts to Turn the Company Around: Cheaper Rides, Fewer Distractions.” Wall Street Journal: “New boss considers options for bike fleet, including a sale of the division or a partnership with an investor. Lyft is exploring strategic alternatives for its bike division, the latest in a series of moves by its new chief executive to turn around the struggling company. The company is looking to sell its fleet or forge a partnership with an investor that infuses cash into the division, according to people familiar with the matter. It wants the prospective buyer or investor to continue to list the two-wheelers on its app so riders don’t experience significant changes. The company bought a bike-rental operation in 2018, and the vehicles have been popular in several cities. New Yorkers took more than 114,000 rides a day in June through Lyft-owned Citi Bikes. But maintaining the fleet is an expensive logistical undertaking, and a distraction from the company’s core business, the people said. Lyft doesn’t own the cars used by the drivers.” “Since taking the reins as Lyft’s CEO three months ago, David Risher has cut hundreds of jobs, introduced new features for riders and drivers, and maintained that employees return to the office. Risher inherited Lyft at the same time the ride-sharing company was struggling with eroding market share, a sliding stock price, and low employee morale. HPS Analysis: As previously reported, bikeshare has been resurging in many large American cities since the end of the pandemic, but as this article reports, has run into financial problems that center on the cost to providers like Lyft maintaining a fleet of pedal and electric bicycles, docking stations. and the back-room systems required to run bikeshare systems for municipalities. The fault is with the business model not bikeshare as a service to the public, so it is up to the providers like Lyft (who happens to be the nation’s largest with 80 percent share), and the cities served, to get the economics of the business model worked out.

July 25 “U.S. Consumer Confidence Hits Two-Year High; Recession Fears Linger.” Reuters: Washington - “U.S. consumer confidence increased to a two-year high in July amid a persistently tight labor market and receding inflation, bolstering the economy’s prospects in the near term. But the economy is not out of the woods, with the survey from the Conference Board on July 25 offering mixed signals. Consumers remain fearful of a recession over the next year following hefty interest rate hikes from the Federal Reserve. While more consumers planned to buy a motor vehicle or house in the next six months, fewer anticipated purchasing major household appliances like refrigerators and washing machines. Consumers also continued to report that they intended to spend less on discretionary services, including travel, recreation, and gambling. They, however, expected to increase spending on healthcare, as well as streaming services from home.” HPS Analysis: The demand side remains confusing, with relatively high consumer confidence, a persistently tight labor market and receding inflation. The American bicycle business continues to experience receding demand that has not been strong enough, despite price reductions and discounts, to reduce the Bullwhip Effect inventory glut, including bicycles, e-bikes and accessories that is clogging up the supply side. Unfortunately, there is no longer an exclusive U.S. supply-side trade organization, as exists in other industries, that can meet, discuss, and act on supply-side solutions under the watchful eye of retained council.

July 29 “Fed Raises Rates Again.” The New York Times: “Federal Reserve officials raised interest rates to their highest level in 22 years, continuing their 16-month campaign to wrestle inflation lower by cooling the American economy. Officials pushed rates to a range of 5.25 to 5.5 percent, their highest level since 2001, while leaving the door open to further rate increases in the statement announcing their unanimous decision. Jerome H. Powell, the Fed chair, explained the move in a news conference, but offered few hints about how the central bank was thinking about its next steps. HPS Analysis: The American economy is amazingly resilient, defying conventional wisdom as consumer demand continues to drive it forward. You can almost see the image of the collective business community cringing and closing its eyes when the Federal Reserve raises rates like it did on July 29 to the highest level in 22 years. And yet within a week employment rates and new job creation are reported at either acceptable or better-than-expected levels, and consumers continue to buy both goods and services, although shifting what and how to suit their wants and needs. More economists are signing on to the notion of a soft landing for the overall economy, avoiding a recession. There are some, including HPS, who opine that the economy is on a razor's edge, and the next three to four months will tell the tale as to whether the country slips into a recession or not. Stay tuned.

July 27 “Shimano Sees Big Opportunities to Enhance Market Potential.” Bike europe: Osaka, Japan – “Shimano regards 2023 as an ‘in-between year’ as Marc van Rooij, president Shimano Europe Group, explained at Eurobike. This is reflected in the financial results for the first half of 2023. The Japanese manufacturer reports a net sales decrease in bicycle components of 17.7 to percent JPY 204,986 million (€1.3 billion) year-on-year, and operating income decreased 39.5 percent to 42,093 million yen (€270 million). Shimano mainly attributes the slowdown in sales to the prolonged turmoil in Ukraine, interest rate hikes by the central banks of various countries to tame inflation, financial uncertainty in the U.S., and other factors exerting downward pressure on the global economy. In Europe, consumer confidence has started to pick up at a low level only, reports Shimano.” “For the short-term Shimano is less positive. ‘While market inventories remain at a high level, retail sales got off to a slow start due to unfavorable weather conditions in the European market in early spring. This is expected to cause a delay in the recovery of demand for our products in the second half of the year. Moreover, production cutbacks at factories are making it difficult for us to absorb the rise in the manufacturing cost ratio. Also for the North American market, Shimano reports weak retail sales of completed bicycles, and market inventories remain at a consistently high level. Meanwhile, Shimano is also facing the depreciation of Asian currencies caused by the ongoing U.S. dollar’s appreciation.” HPS Analysis: I am not sure what leadership role Shimano takes in Europe, but the fact that the company has a president of its Europe Group makes it clear how the North American market and the U.S. are thought of. I mean no disrespect to the good people running Shimano U.S.A., but the world’s largest bicycle component manufacturer and brand seems to leave the U.S. market to the tender mercy of the multinational bicycle brands and our inclusive trade association. Shimano is a great company with a strong cultural and family tie to the global bicycle industry and business, and I am proud to have been a friend to the second generation of Shimano brothers. With that said, I am looking forward to Shimano taking a more active leadership role in the American market, including being more transparent about lead times and product availability, both past and present.

July 27 “Industry asks CPSC for mandatory battery regulations.” Bicycle Retailer and Industry News: Bethesda, Md. – Mandatory federal regulations will be necessary to curb the growing fire danger from lithium-ion batteries, industry representatives said at a Consumer Product Safety Commission public hearing July 27. The nearly four-hour hearing consisted of three panels of industry, independent standards groups, and consumer safety advocates. ‘It’s not lost on me that this broad group of experts, including industry, and voluntary standards bodies, are all calling on us to implement a mandatory standard,’ said Commissioner Richard L. Trumka Jr.’ “In closing remarks, chairman Hoehn-Saric said the hearing convinced him that current voluntary standards are inadequate. He said the CPSC is working to strengthen those standards. He also said he was impressed by testimony asking for mandatory regulations. ‘Almost everybody who has come to testify before us has expressed support for mandatory standards for batteries and electrical systems for mobility devices. And such a standard would definitely make things easier for CPSC to engage in enforcement and provide a baseline safety for consumers out there.’” HPS Analysis: Chairman Hoehn-Saric went on to say that unfortunately the process for CPSC developing mandatory regulations can be “burdensome and slow,” and that the first line of defense needs to be the micromobility device manufactures and importers, as well as the retailers and online marketplaces that are selling these products to consumers. The CPSC chairman is correct in pointing out that it is the responsibility of the manufacturers and importers to test and certify their bicycle and e-bike products as meeting applicable standards and regulations. For bicycle products sold to U.S. consumers, HPS recommends certifying compliance with the mandatory 16 CFR 1512, and voluntarily to ISO 4210. For e-bike products sold to U.S. consumers, HPS further recommends certifying compliance with ISO 4210 through 4210-10 and UL 2849. We also recommend the American bicycle industry association initiate a safety & standards subcommittee to develop policies and compliance protocols for members.

July 31 “Walmart Expands Refurbished Goods Program with ‘Like New’ Items.” Chain Store Age: “Walmart is taking its used goods offerings up a notch to offer items ‘like newbut without new prices.’ The retail giant is expanding its Walmart Restored program which features refurbished tech items and appliances, with a new ‘Premium’ tier. Items that fall under the Restored Premium category are like new, showing no signs of cosmetic damage, and come with a one-year warranty and 30-day (or more) free returns, according to Walmart.” “The refurbished goods are featured in a dedicated ‘Walmart Restored’ section on the chain’s website, and carry the same designation. The items, from brands such as Apple, HP, Samsung, and KitchenAid, also pop up in search and will be available in select Walmart stores starting in the fall.” HPS Analysis: It appears that Walmart, the largest U.S. retailer and seller of bicycles, has fully embraced the Circular Economy with the expanded Restored program to now include premium products. HPS will watch closely for e-bikes to be included in the Restored program, including how lithium-ion batteries and chargers are presented and explained to consumers. Overall, bike shops should have a definite edge when it comes to previously-owned bicycles and e-bikes, and at 50 percent or higher gross margins, we encourage bike shops to embrace their own local version of a Previously Owned or Restored merchandise program.

August 1 “Americans for Free Trade: Clock is Ticking on China Tariff Exclusions Renewal.” Sourcing Journal: “The U.S. Trade Representative (USTR) is running down the clock on a decision regarding the continuation of China tariff exclusions, and a coalition comprised of dozens of trade groups is urging Ambassador Katherine Tai to address the issue promptly. Formed in 2018, Americans for Free Trade includes about 170 associations that represent brands, retailers, manufacturers, farmers, technology firms, energy companies, and other supply chain stakeholders. The collective on July 27 released an open letter to Ambassador Tai asking that she address the forthcoming expiration of tariff exclusions, along with subsequent COVID exclusions on Sept. 30, preferably by opting for their continuation. “In the last five years, American importers, including members of our coalition, have paid more than $183 billion in Section 301 tariffs on products imported from China.” “The product exclusions granted to date have provided limited relief for some companies over this time.” HPS Analysis: The American bicycle business has almost forgotten the Section 301 punitive tariffs in the amount of 25 percent that was added on top of the regular tariffs on all bicycle-related products imported from China, including e-bikes that had previously been subject to zero tariff. The Section 301 punitive tariff on Chinese imports has been suspended (as in not collected), but has not been eliminated and therefore hangs over the heads of virtually all importers of goods from China. The original Section 301 punitive tariff was imposed by the Trump administration, which issued the original exclusions, or suspension of collection. The Biden administration continued the exclusions and has not suspended the additional 25 percent duty, but also has not eliminated the Section 301 punitive tariffs because the have said they want to keep them as a bargaining chip with the Chinese trade negotiators. Given the current relations between the U.S. and PRC, further trade negotiations are a very remote possibility, and eliminating the Section 301 punitive tariffs would allow supply chain planning without the threat of importers having to pay an additional 25 percent to U.S. Customs, which would be added to product costs and inflation and eventually be paid by American consumers.

Contact Jay Townley: jay@humanpoweredsolutions.com.