THE HPS NOVEMBER LETTER: THE EYE OF A HURRICANE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Contact Jay Townley: jay@humanpoweredsolutions.com