THE HPS DECEMBER LETTER: E-BIKE NEWS, MARKET TRENDS, DEFLATION

11-3-23: “Maersk Cuts 3,500 Jobs, Reports Net Income Down 94.5%.” Sourcing Journal: “Global container shipping titan A.P. Moller-Maersk is cutting its workforce by another 3,500 employees, with up to 2,500 of those in the coming months and the remaining 1,000 cuts extending into 2024. The cuts are part of a 10,000-employee layoff that started earlier this year to get headcount down to 100,000.” “The cuts at Maersk come as the shipping line announced third-quarter earnings. Sales in the period plummeted 46.9 percent to $12.1 billion from $22.8 billion a year ago. However, net income fell 94.5 percent to $489 million, down from the $8.8 billion generated in the year-ago period when ocean carriers were making record profits amid tight capacity and astronomical freight rates.” HPS Analysis: Ocean carriers have gone from feasting to famine in one year. Rates per 40-foot container peaked in early 2022, as did landed costs and pricing downstream to the consumer. In the 4^th quarter of 2023, the question is whether the much lower ocean and domestic freight costs have been passed along in the reduced price of goods to retailers and consumers?

11-3-23: “Fox Factory to Buy Baseball-Softball Brand Marucci for $572 Million.” Bicycle Retailer and Industry News:  “Fox Factory is striking out in a new direction with the acquisition of Marucci Sports, a baseball and softball equipment brand. Marucci also owns Lizard Skins, which started as a bar tape company in Utah 30 years ago and has found new growth selling grip tape for bats and racquets.” “Fox also announced a sharp decline in sales in its bicycle-related businesses in the most recent quarter, which it blames on high inventory in the channel. Sales in the division were forecast to hit a ‘low water mark’ in the third quarter, but the results were $25 million lower than the company expected.” HPS Analysis: You have to read between the lines and also understand that there are two different “Fox” businesses. In this case, Fox Factory has experienced a decline in its bicycle-related businesses, and it is taking its cash to make an acquisition in the baseball and softball equipment business. What will happen to the financially challenged bicycle-related businesses remains to be seen.

11-3-23: “HLC Experiences Layoffs, Will Close Texas, Pennsylvania DC’s.” Bicycle Retailer and Industry News: “HLC had a round of layoffs that included some of its e-commerce business solutions team, while sources told BRAIN the South Carolina-based distributor will close its Texas and Pennsylvania distribution centers.” In September 2022, private equity firm MiddleGround Capital acquired HLC. HPS Analysis:  HPS ranks HLC as the number two independent bicycle business wholesaler to the IBD channel in North America. Number one, QBP, had previously announced layoffs. Now HLC, which was acquired by a venture capital firm in 2022 at the cresting of the pandemic-driven bicycle business surge, has announced layoffs and contraction in the face of unfavorable market conditions.   

11-4-23: “Honda Shows Off Its First Electric Bicycle.” electrek: “Honda is taking a page out of just about every other major automotive manufacturer’s playbook by debuting its first electric bicycle, the Honda e-MTB Concept. The bike was just shown off at the Japan Mobility Show in Tokyo, where it joined several other futuristic and/or brand-widening debuts from other leading Japanese motorcycle companies and automakers." HPS Analysis: There is nothing unusual about a major automobile brand like Honda showing a “concept” e-bike at the fall mobility and automotive shows, never to be heard or seen again because they were just for show. What is unusual about the Honda e-MTB Concept is that the brand may actually be serious about going into production and entering the market. Rather than a design concept that can’t actually be produced, the e-MTB Concept is well-specified with name-brand, mainstream components, and could be produced by any number of quality OEMs for delivery into the 2024 marketplace. Distribution and marketing are just two of the remaining big issues, but Honda is well positioned if it decides to take the next steps.

11-6-23: “WeWork Files for Bankruptcy Amid Glut of Empty Offices.” The New York Times: “WeWork, the real estate company that offered start-ups and individuals sleek quarters to pursue their entrepreneurial dreams, filed for bankruptcy in the United States on November 6 after years of struggling to find its footing.” “WeWork listed 660 locations in 37 countries. Monday’s actions will not affect WeWork franchises outside the United States and Canada.” HPS Analysis: The bankruptcy of WeWork happened relatively quietly, even though it was the largest U.S. company to go bust since the global financial crisis. There was no major reaction by financial institutions or the government. Business and commerce just jogged along as if nothing much had gone down. To quote John Authers, a senior editor for markets and Bloomberg Opinion columnist, “Companies are going broke gradually, not suddenly. Like a U.S. recession or China’s post-Covid rebound, a wave of corporate defaults was anticipated this year but didn’t happen. That doesn’t mean it won’t.

11-6-23: “Analog Vs. Electric – Is This a Real Fight or a Discussion?” BikeMag: “Although we are on the same side of the fence regarding transportation, this discussion can still ruffle a lot of feathers. Can’t we all just get along? A fascinating debate has been growing over the last several years: the rhythmic hum of the analog bike chain versus the electrifying buzz of the e-bike revolution. As a member of the electric commuter squad who has spent his whole life as an analog rider, let’s pedal this discussion and dissect the merits of sticking to the classic pedal power or embracing the new wave of electrified cycling.” HPS Analysis: Bruno Long, the author, is pointing out an internal conflict that the bicycle industry in America doesn’t want to acknowledge:  the conflict between the hard-core analog bicycle aficionados, new e-bike riders, and the analog converts to e-bikes like the author. This most often manifests itself in communities where the hard-core analog bikers fight against allowing young e-bikers to ride on community bikeways and bike paths. The bicycling movement, with the goal of getting more butts on bikes, will be much better off if we can all just get along.

11-8-23: “Why Shein Isn’t Sweating De Minimis Reform.” Sourcing Journal: “Peter Pernot-Day is Head of Strategic Communication at Shein, and he was interviewed by Sourcing Journal. Shein has recently made significant investments in its U.S. supply chain despite the “…increasing weight of congressional scrutiny over Shein’s potential ties to forced labor in China’s Xinjiang Uyghur Autonomous Region, as well as its use of the de minimis provision in customs law to purportedly skirt duties, taxes or fees to the U.S. government, as well as any additional oversight.” “Our competitiveness comes from the fact that we have extremely low inventory waste, in many cases below one percent, and this almost sell-through-like nature of our business, Pernot-Day said. It’s technology enablement, it’s the use of machine learning, and very efficient production capabilities. If de minimis was to one day go away, Shein will still be able to compete on price, he said.” HPS Analysis: While Shein has been singled out as the single largest abuser of the de minimis exception, and its largest beneficiary, this article makes it clear that Shein has used its wealth and its ability to change its operations over time to arrive at a point where it is no longer dependent on the de minimis rule to underpin its U.S. business. While HPS agrees with the vast majority of what has been said about how bad de minimis is, and the very real safety hazard it has facilitated relative to lithium-ion batteries, it may be time to move the argument away from Shein and focus on other abusers, and excluding e-bikes and lithium-ion batteries from inclusion in treatment under the de minimis exception.

11-9-23: “Human Powered Solutions Chief Technology Officer Mike Fritz Has Been Accepted As A Member of UL Technical Committee 1487 on Battery Storage and Containment Standards.” Human Powered Solutions Press Release: “UL Standards & Engagement confirmed that the chair of the newly formed TC1487 approved Fritz’s membership application to the technical committee that will be developing and writing a test standard for lithium-ion battery storage and containment. HPS Analysis: Lithium-ion battery storage and containment has quickly grown as a vitally important subject for bike shops, wholesalers, and multiple occupancy buildings. New York City has recently promulgated a city ordinance that has established the laws and regulations that bike shops must now follow to store and charge e-bikes and lithium-ion batteries. The city of San Francisco is now considering a similar ordinance. Both and probably all future municipal ordinances provide cabinets to store and charge lithium-ion batteries for e-bikes and other micromobility devices. However, there are currently no safety standards that such cabinets must be tested and certified to a standard. That is what TC1487 has been convened to develop and publish. Mike Fritz, as a member, will represent the perspective of bike shops and the American bicycle industry.

11-9-23: “Rad Power Bikes Is Shutting Down Its New York Store In Latest Belt-tightening.” electrek: “Rad Power Bikes, a leading U.S.-based electric bicycle retailer, has just announced that it is closing its New York City retail store. The company didn’t give an exact date for the closure, but confirmed yesterday that the Brooklyn-based Rad store would be sunsetting. The retail location has operated for over a year and was part of Rad’s expansion into brick-and-mortar stores. That strategy sought to expand Rad’s U.S. retail presence to provide prospective customers with local shopping, servicing, and test ride opportunities. It was seen as a power move that smaller brands wouldn’t be able to match, helping Rad maintain an edge over the wave of low-cost yet lower-quality brands entering the U.S. market. Other Rad Power retail locations have opened in Seattle, Denver, Salt Lake City, St. Petersburg, Berkeley, Santa Barbara, Huntington Beach, and San Diego, according to GeekWire.” HPS Analysis: Rad Power Bikes is rated by electrek as the largest D2C e-bike retailer, with over 600,000 owner-riders since the pandemic started in March 2020. Rad has become a member of PeopleForBikes (PFB), and its founder and CEO served on the PFB board of directors. Over the last three years, Rad Power Bikes has been the subject of a wrongful death lawsuit and several other product liability-related litigations. The company, which at one time had a valuation over $1 billion, has recently announced layoffs and the shutting down of its European operations effective the end of this year. Belt tightening continues as the largest of the new wave of D2C e-bike retailers struggles, with the rest of the American bicycle business, with a slowing in consumer demand.

11-10-23: “Ringing in the Holiday Season with Consumer Sentiment At A 6-Month Low.” Marketplace: “Americans are still feeling pretty grumpy about the economy, according to the latest consumer survey from the University of Michigan. Sentiment dropped for the fourth straight month in November to a new six-month low, which could spell trouble for the all-important holiday shopping season. But as we’ve talked about before, consumers’ feelings and how they spend haven’t always lined up in this weird post-lockdown economy.” HPS Analysis: This is one of the great conundrums of both the economy and the bicycle market in the U.S.. The American consumer has continued to spend in the face of inflation, but not on bicycles. This is the subject of a number of articles and analyses this month, and hopefully will be the subject of a much-needed consumer research study that the NBDA has been soliciting brands and suppliers for sponsorship. So far HPS understands that the supply side has informed the NBDA that it cannot afford the sponsorship cost. Go figure. The NBDA is offering an answer to one of the most important questions the supply side needs to get to the future. Now the same companies that made a pile of cash during the great pandemic demand surge say they cannot afford it?

11-10-23: “Bike Shop Brands Are Finally Giving E-bike Riders What They Want: Throttles.” electrek: “To grossly oversimplify the e-bike market in the U.S., there are two types of electric bikes: those with hand throttles and those without. Traditionally higher-end bike shop brands have long eschewed throttle-enabled electric bikes, opting instead for pedal assist designs that only provide helping motor power when the rider also pedals. On the other hand, direct-to-consumer (D2C) e-bike companies have long embraced throttle e-bikes. As D2C brands scoop up more of the growing market, traditional bicycle brands are starting to take note.” HPS Analysis: This is one of the most interesting facts to come out of the NBDA 2021-2022 consumer research. A large percentage of e-bike riders, mostly women, said they wanted a throttle on their next e-bike. At least three of the Big Four have figured this out, but instead of adding throttles to their top-tier brands, they have added them to their secondary offerings. Trek now has a moped-style model with a throttle in its Electra line. Specialized has a moped-style model with a throttle in its Globe line. Giant has a moped-style model with a throttle in its Momentum line. HPS has also noted that the secondary brand offerings also are more affordably priced at around $2,000 MSRP, and are available either D2C or direct with store pick-up or delivery. This is also a very clear sign that the American bicycle market has shifted appreciably from the beginning of the pandemic to the end of 2023. It is no longer your father’s bike business.

11-10-23: “Round of Applause for Amazon, Who Is No Longer Selling Illegal E-Bike Batteries to New Yorkers. Finally.” Bicycling Magazine: “In a significant step forward for fire safety in New York City, Amazon is now at least partially in compliance with new city laws banning the sale of uncertified e-bike batteries. E-bike safety continues to be a serious issue in New York City, where thousands of delivery workers rely on the vehicles each day for work. Earlier this year, New York City passed Local Law 39, which makes it illegal for anyone to sell batteries to New Yorkers that don’t meet certain safety standards.” HPS Analysis: HPS agrees that this is a big step in the right direction. With this said, Amazon, Walmart, and all of the D2C retailers reaching into New York City and beyond need to more aggressively require their e-bike and lithium-ion products and their third-party sellers to test, certify and list to UL 2849 and UL 2271 ASAP.

11-13-23: “Vosper: Top-ten Bike Brands Have Shifted Significantly Since 2010.” Bicycle Retailer and Industry News: “Make no mistake: when it comes to bikes, we are still very much a dealer-driven industry. Absent pure D2C labels like Canyon, the enormous majority of both brand prestige and sales dollars for most bike companies comes down to the strength of their dealer networks.” “Gain more dealers over time, your brand strengthens. Lose them, and you weaken. All of which makes the size of a brand’s dealer network one good indicator of its overall health.” “Christopher Georger’s company, Georger Data Services, keeps track of those indicators.” HPS Analysis: Rick Vosper has done his usual great job of researching and explaining the status of the bike shop market segment in the U.S. Rick reached out to Georger Data Services. Between them they have discovered and disclosed that the “Top-ten bike brands have shifted significantly since 2010.” HPS agrees! However, we have real concern that the U.S. bicycle industry is no longer “dealer-driven.” There is no question that bike shops and specialty bicycle retailers are an important segment, but the rise of D2C and the e-bike product segment have created profound changes in the U.S. bicycle industry and market construct that defuse and remix market segments. While still very much a work in process, HPS hopes to bring more clarity to its findings in the coming months. Meanwhile – good job Rick.

11-13-23: “Bad Consumer Sentiment Is Not Surprising.” Financial Times Unhedged: “And sentiment is not getting any better even as the inflation rate grinds down and markets stage a recovery. The preliminary November reading for the University of Michigan consumer sentiment survey was 60.4, the lowest since May and consistent with the miserable sideways trend that extends back almost two years. At Unhedged we don’t find this surprising at all. Prices are up almost 20 percent since the pandemic began. The price of food is up 24 percent, energy 37 percent. That this should make the world feel malign and unpredictable is only natural. It doesn’t matter that wages have, on average, kept pace. If I get a raise, I earned it; it is not a mere symptom of a strong national output. If the price of food is spiraling upwards, that’s a bad economy, or the government’s fault. Nor does it matter that the rate of inflation has fallen. People don’t see the rate of change on the side of a gallon of milk. They see a price that is vastly different from what it once was. Even so, one might ask why sentiment has not improved even as arguably the most important price of all – petrol – has come down in the past six weeks. That can be explained by the fact that while consumer sentiment can fall quickly, it is slow to recover. It is like a personal reputation: built slowly, gone in an instant.” HPS Analysis: Sentiment and spending do not have to travel together. We will visit this inconsistency several times through this month’s articles because the fact that consumer sentiment about the economy is inconsistent with consumer spending is an important factor going forward.

11-13-23: New Partnership Aims to Encourage U.S. E-bike Manufacturing.” Bicycle Retailer and Industry News: “The co-founders of Propel Bikes and Vela Bikes announced November 13 the creation of Bloom, a vertical integration partner for light electric vehicles, with its first manufacturing location in the Motor City. Leading Bloom will be Propel’s Chris Nolte and Vela’s Justin Kosmides, who will collaborate with micromobility strategic partners to provide domestic contract manufacturing, assembly, delivery and servicing. Propel operates three e-bike retail stores, located in New York, Delaware and California. Vela is an e-bike brand that began in Brazil and relocated to Brooklyn, New York.” HPS Analysis: Bloom's partnership with Newlab in Detroit’s Michigan Central innovation district will offer “flexible, specialized manufacturing capabilities and world-class prototyping equipment.” This is according to the founders. However, we caution that efficient and profitable domestic U.S. bicycle/e-bike manufacturing is not easy to scale up to consistently deliver quality products. All Bloom has to do is go down the block and visit Detroit Bicycle, or maybe they already have.

11-13-23: “Anger Is What’s Driving the U.S. Economy.” Bloomberg Opinion: “A deep-seated resentment about a ‘rigged’ system has been simmering since long before the pandemic and continues to affect consumer attitudes. As it turns out, the big economic story of 2023 is not a recession, as many had predicted. It’s the disconnect between consumer sentiment and behavior. Higher than normal inflation over the past two years is an obvious reason that people would be down about the economy. The puzzle is why people are still behaving as if their economic situation is good. Inflation-adjusted consumer spending is way up, not only above 2019 levels, but above the pre-pandemic trend. In fact, it’s largely the reason that U.S. economic growth is above expectations. And yet consumer sentiment is at levels typically seen only in a recession. All of which raises the question: What’s going on? HPS Analysis: Part of the question is why is the gap between consumer attitudes and action in spending so large. Betsey Stevenson, Ph.D., the author of this Bloomberg Opinion piece, is a professor of public policy and economics at the University of Michigan. She opines that “Much of the economic anger expressed in the polls may be less about current economic conditions and more about the economy the U.S. has built over the past 40 years: one of high and rising inequality, with greater economic fragility due to higher income volatility and a reduced safety net. A deep-seated anger about how the economy is ‘rigged’ has been simmering since long before the pandemic. This anger, mixed with the real pain of inflation and the frustrations borne out of cognitive bias and partisan politics, has created a toxic stew. The result is that, at a moment when America should be celebrating an economy that has outperformed both expectations and its international competition, people are gloomy and anxious. Like a dysfunctional family, we are heading into a holiday season overflowing not with joy but with resentment.”

11-13-23: “Three Economic Risks Facing America in 2024.” The Economist: “America’s economy in 2023 provided a lesson in humility for forecasters. Before the year began almost all predicted that it was for sluggish growth at best, and a recession at worst. The logic was simple: beating inflation was bound to be painful. Instead, America powered ahead at an annualized pace of roughly 2 percent growth, even as inflation receded. This has persuaded many analysts to ditch their gloom. Their median forecast heading into 2024 is that America will avert a recession and get price pressures under control. This would qualify as a ‘soft landing’ after the inflationary scare of recent years. But, given how wrong many were in 2023, it is worth asking if the same is possible in 2024. Three dangers stand out. First, there is always a delay between when central banks raise interest rates and when the economy feels the effects. In 2023 consumers and companies had savings that limited their need for financing. In 2024 they will have thinner buffers, thus increasing their exposure to higher rates. Second, even though the Federal Reserve may have finished raising interest rates, real rates will become progressively more restrictive as inflation falls. Finally, cracks are showing. Unemployment, though still low, is ticking up. Once an economic slowdown gets under way, it risks feeding off itself.” HPS Analysis: There are always risks. Lots of things were supposed to happen this year but didn’t. The strangest non-event from the HPS perspective has been the anticipated wave of company and corporate defaults that were anticipated during the last quarter of this year. That doesn’t mean they aren’t coming. The three dangers referenced above support our concern that companies and corporations, large and small in the global bicycle industry, are for the most part going broke gradually and will take their time, either solving their financial problems through downsizing, mergers, acquisition, refinancing, or not.

11-14-23: “Why Businesses Are Pulling Billions in Profits from China.” BBC News Business: “Foreign businesses have been pulling money out of China at a faster rate than they have been putting it in, official data shows. The country’s slowing economy, low interest rates, and a geopolitical tussle with the U.S., have sparked doubt about its economic potential. All eyes will be on a crucial meeting between Chinese leader Xi Jinping and U.S. President Joe Biden this week. But businesses appear to be already erring on the side of caution. HPS Analysis: Taiwanese business interests own or control over 70 percent of the Chinese export business to Western countries and markets. Given the geopolitical tensions between Taiwan and the PRC, Taiwanese companies started taking their profits and some of their investments out of China starting, HPS understands, in 2022. Obviously, much bigger global businesses are now engaged in “pulling billions in profits from China.” This is part of the reason President Xi Jinping agreed to meet with President Biden in San Francisco in November. However, there is no indication that making multinational businesses confident and comfortable investing and keeping profits in China didn’t come up, and has not yet been addressed despite the best efforts of the U.S. secretaries of Commerce and Treasury. As far as HPS knows, Taiwanese profits from the Chinese export bicycle business remain out of the PRC.

11-14-23: “Taller Cars and Trucks Are More Dangerous for Pedestrians, According to Crash Data.” National Public Radio News: “American cars and trucks keep getting bigger, and new research suggests that additional height comes at a steep cost to safety. Vehicles with higher front ends and blunt profiles are 45 percent more likely to cause fatalities in crashes with pedestrians than smaller cars and trucks, according to new research published November 14 by the Insurance Institute for Highway Safety.” HPS Analysis: While American cars, vans and pick-up trucks have become safer for drivers and passengers, they have become much more dangerous to pedestrians and bicycle riders. The League of American Bicyclists (LAB) has launched a campaign to put pressure on the National Highway Safety Administration (NHTSA) to write rules and regulations to protect and make it safer for pedestrians and bicyclists on American roads. The rest of the bicycle business and community needs to get on board with this LAB initiative as soon as possible, because HPS believes this is one of the issues that has contributed to the recent decline in consumer demand for bicycles.

11-14-23: “U.S. Inflation Eases as Lower Gas Prices Offset Rent Rise.” BBC News Business: “A drop in petrol prices last month helped to drive U.S. inflation to the lowest rate since July. Prices increased at a rate of 3.2 percent over the 12 months to October, the Labor Department said. That was down from 3.7 percent a month earlier. Housing costs continued to climb, but overall price pressures were milder than analysts had expected, suggesting the country’s fight against inflation may nearly be over. From September to October, the price index, which measures prices of a basket of items, was unchanged. Stripping out food and energy prices, which tend to fluctuate and mask wider trends, prices rose by 0.2 percent, easing from a month earlier.” HPS Analysis: Conventional wisdom says that gas prices at the pump are a good indicator of when consumers will buy bicycles. However, post-pandemic there has been a definite disconnect between the retail price of a gallon of gas and both the purchase of bicycles and consumer sentiment. Overall, the drop in gas prices has been highly noticeable across the country during the last quarter of the year, and it has fallen in line with the time-worn conventional wisdom that holds that consumers don’t rush to buy bicycles when gas prices go down.  

11-15-23: “U.K. Bike Industry Bodies Issue E-bike Battery Guidance as New Safety Bill is Proposed.” Bike Europe: “An increase in e-bike battery fires in the U.K. has prompted a call for new legislation to mandate the safety of e-bike batteries including third-party approval. In response, two cycling industry trade bodies in the U.K. have joined forces to issue guidance sheets for the industry and called for stricter enforcement of product safety for products supplied to the U.K.” HPS Analysis: The Bicycle Association (BAGB) and the Association of Cycle Traders (ACT), have issued a joint response to the legislation proposed by Electrical Safety First (ESF) on e-bike fire safety. The new legislative proposal would require immediate mandatory third-party approval of e-bikes and battery packs, among other aspects. The NBDA has brought this initiative in the U.K. to the attention of PeopleForBikes (PFB), and offered to cooperate in a joint industry campaign to issue e-bike battery guidance to the American public.

11-15-23: “Target Earnings Smash Expectations but Sales Fall as Consumers Delay Spending.” Chain Store Age CSA: “Target Corp. reported third-quarter earnings and sales that easily topped Street estimates as strength in beauty and other ‘frequency’ categories helped offset ongoing weakness in discretionary spending. On the company earnings call, chairman and CEO Brian Cornell said that while consumers are still spending, pressures like higher interest rates, the resumption of student loan repayments, increased credit card debt and reduced savings have left them with less discretionary income, forcing them to make trade-offs in their family budgets.” HPS Analysis:  Target is the second largest mass merchant retailer of bicycles in the U.S. Target’s net income “surged” 36 percent while sales decreased 4.3 percent and same-store sales fell 4.9 percent. Digital sales declined by 6 percent. The number of transactions was down 4.1 percent and the average transaction amount was down 0.8 percent. For the fourth quarter, Target expects same-store sales to decline to the mid-single-digit percentage range.

11-16-23: “Walmart Sinks on Cautious Consumer Outlook, Late-October Dip.” Bloomberg Markets: “Walmart Inc’s stock fell the most in more than a year as the retailer struck a concerned tone on the outlook for U.S. shoppers after signs of weakness in the second half of October. There was a ‘sharper falloff’ in sales during the last two weeks of the fiscal third quarter, which ended Oct. 31, said Chief Financial Officer John David Rainey. While the exact cause is hard to identify, higher interest rates, dwindling savings and student loan repayments are weighing on demand, he said. November is off to a good start so far, thanks in part to promotions and holiday shopping. We are more cautious on the consumer than we were 90 days ago at this time, Rainey said.” HPS Analysis: Walmart is the largest retailer of bicycles in the U.S.  While its stock fell in late October, Walmart’s U.S. sales rose 4.9 percent during the three months ending in late October, while Target and Home Depot reported sales declines.

11-16-23: “Five Things We Learned from the Biden-Xi Meeting.” BBC News: “While officials tried to keep expectations low before the meeting between Joe Biden and Xi Jinping on Wednesday, the encounter resulted in agreements on several key issues.” “Here are five things we learned from their California talks:”

1. There was common ground on climate.
2. They agreed to tackle fentanyl trafficking.
3. After a tense period, military communication will resume.
4. Talks will continue.
5. Pandas as “envoys of friendship.”

HPS Analysis: The fact that there were five things from the Biden-Xi meeting that the BBC learned is significant in and of itself. However, easing restrictions on foreign investments and businesses in China was not discussed and was left unaddressed. We will have to wait and see if there is any progress in business relationships going forward. But for now, no change.

11-16-23: “National Bicycle Dealers Association Retailer Summit to be Held in Bentonville, Arkansas.” NBDA Press Release – Irvine, CA: “The National Bicycle Dealers Association (NBDA) is pleased to announce the second annual Retailer Summit, to be held in Bentonville, Arkansas on May 22 and 23, 2024. The event will take place at the 21C Museum Hotel Bentonville and is expected to attract retailers from across the country. The Summit ties in with the Bentonville Bike Fest, a three-day festival featuring over 120 brands in expo, races, and consumer events for a dynamic, multi-day industry gathering in the mountain biking capital of the world.” HPS Analysis: This is excellent news from the NBDA. The second annual Retailer Summit at the beginning of the 2024 high-selling season will bring together some of the best minds in the bicycle business to discuss the future and what it holds for the evolving American market and business. HPS is a sponsor and is looking forward to attending and actively participating in this landmark event.

11-16-23: “Walmart CEO Says Shoppers Could See Falling Prices in Coming Months.” Bloomberg: “The head of the world’s largest retailer just used the D word on an earnings call: deflation. ‘In the US, we may be managing through a period of deflation in the months to come,’ Walmart Inc. Chief Executive Officer Doug McMillon told analysts on an earnings call November 16. Granted, prices of Walmart’s U.S. groceries and general merchandise are higher than a year ago, and sharply up on a two-year basis. But McMillon said the increases are slowing and could even begin to reverse. “If that happens, Walmart shoppers could start to see deflation – or a decrease in prices – in dry groceries and consumables in the coming months,” he said. Dry groceries are items such as canned goods and pasta, while consumables refers to day-to-day products such as toothpaste. General merchandise prices “came down a little more aggressively in the last few weeks or months, he added.” HPS Analysis: This may be the most significant pronouncement this year. The CEO of the largest retailer in the U.S. has cautioned that the country is headed into deflation and a decrease in retail prices. Retail prices for bicycles have roughly doubled since the pandemic started, and over the four quarters of 2023, have been pounded down by discounts and price reductions to move a glut of excess inventory. Deflation doesn’t mean retail prices for bicycles and related products will not go back up as the market begins to stabilize, but it does mean that retail prices will be affected by declining costs in the supply chain, and retail prices will settle into new, lower MSRPs.

11-16-23: “Walking has Plummeted Across America.” AXIOS: “There’s been a staggering decline in the number of trips Americans take by putting one foot in front of the other, per a new report. Why it matters: Walking is good for us. That’s true both on an individual level (thanks to the many health benefits it confers) and in the big-picture climate change sense (given that it’s the OG form of zero-emissions travel). In every metro and state that StreetLight analyzed, walking trips declined over the three-year period by at least 20 percent per the report. The rate of decline slowed from -16 percent between 2019 and 2020 and -19 percent between 2020 and 2021, to -6 percent between 2021 and 2022. But that’s still a significant overall drop, from about 120 million trips in 2019 to fewer than 80 million in 2022. HPS Analysis: According to StreetLight, who conducted the study, “It’s clear that the pandemic had an “obvious impact” but beyond that, the group isn’t sure what’s keeping Americans off their feet. Active transportation – that is, walking and biking – accounted for just 10 percent of overall trips in 2022, down from 14 percent in 2019. Driving, however, is only four percent below 2019 levels, yet another sign that America is a country of car lovers. Walking is so fundamental. How can Americans not walk? But the data reveal that over the three years from 2020, 2021 and 2022, walking declined by at least 20 percent. Bicycle riding participation didn’t decline, but it was only up a couple of percentage points, and consumer purchases of new bicycles declined from 2021 to the present. This is yet another inconsistency in post-pandemic consumer behavior.

11-17-23: “Retailer Supply Chain Costs Receding.” The Wall Street Journal Logistics Report: “Lower supply chain costs for retailers may be reaching store shelves. Some merchants say inflation has cooled in many categories, and the WSJ’s Sarah Nassauer and Suzanne Kapner report that retail giant Walmart has seen prices for nonfood items come down more aggressively in recent weeks. Higher prices have helped prop up sales revenue for many retailers as consumers have pared some of their discretionary spending. Walmart saw its U.S. comparable-store sales rise 4.9 percent in the three months ended Oct. 27. Now, Walmart CEO Doug McMillion says the company would need to further reduce expenses as prices fall further. Cost savings are already coursing through shipping operations. Diesel prices are down nearly 34 cents a gallon in the past two months. The Cass Freight Index measure for freight rates in the U.S. domestic markets is down 15.2 percent since January and the Drewry World Container Index is off 39 percent since last December.” HPS Analysis: If higher prices have been propping up sales revenue at America’s bike shops, that is about to end. Lower supply chain costs are flowing through the channels of trade to product prices, reducing gross sales and net revenue as unit volume declines.

11-20-23: “National Bicycle Dealers Association Establishes Bicycle Industry Retailer & Supplier Best Practices Panel.” Bicycle Retailer and Industry News: “The National Bicycle Dealers Association (NBDA) is proud to announce the formation of the Bicycle Industry Retailer & Supplier Best Practices Panel, a collaborative effort bringing together top retailers and suppliers in the bicycle industry. This initiative aims to formulate best practices that contribute to the positive financial health of both suppliers and retailers on a global scale. Scheduled to convene for its inaugural meeting on January 16, 2024, the panel will address a wide array of critical topics integral to the success of the bicycle industry. Key areas of focus include supplier health, retailer health, D2C & e-commerce, human resources, ridership numbers, marketing cycling in general, and the impact of the change in consumer spending habits.” HPS Analysis: A forum to objectively discuss bicycle industry retailer and supplier business practices is long overdue and congratulations to the National Bicycle Dealers Association (NBDA) for launching the Bicycle Industry Retailer & Supplier Best Practices Panel. HPS is looking forward to participating in the inaugural virtual meeting of the Panel on January 16, 2024.

11-20-23: “Taiwan’s Top 3 Face Further Sales and Profit Slumps in Q3 Results.” Bike europe/Jo Beckindorff: “Taiwan’s top three bicycle and e-bike producers, Giant Manufacturing Company Limited (Giant Group), Merida Industry Co., Ltd. and Ideal Bike Corporation, have presented their Q3 financial results. All three are mainly affected by the sales and profit slumps oF the valuable western market. In the long term, and due to the rising awareness of bicycles and e-bikes as an urban mobility solution, the trio forecasts a bright future. However, at the present time there are some hurdles to face, primarily the continued high inventory level within all local sales networks.” HPS Analysis: All of Taiwan’s “top 3” are public corporations traded on the Taipei stock exchange. Giant Group net profit 3-months year to date was 44.6 percent lower than the same period a year ago, Merida’s pre-tax profit was 25.5 percent lower, and Ideal posted a net loss for the period of €4.25 million. All three pointed to continued high inventory levels within all local sales networks, along with reduced demand, for-profit slumps. Without having higher retail prices to prop up sales and facing higher interest rates on borrowings, the Taiwanese “Top 3” faces a challenging 2024.

11-21-23: “The Two Biggest Problems With Electric Bikes Aren’t Even About E-bikes.” electrek: “The rise of electric bicycles is leading to a critical shift in urban transportation, bringing with it the potential for cleaner cities, reduced traffic congestion, and a boost to riders’ physical and mental health. However, there are still two significant barriers preventing many from adopting this green mode of transportation. The strange thing though is that neither of the two biggest problems with e-bikes are even about e-bikes themselves.” The two biggest problems are identified as:

• The deadly risk of cycling on roads
• The lurking threat of bike theft

HPS Analysis: HPS has referenced the increasing road accident, injury and fatality data as one of the reasons we believe demand for new bicycles has declined during 2023 and will continue into 2024. Last month we mentioned safety as a key issue that the American bicycle industry must address across the board and as quickly as possible in order to win back consumer confidence in bicycling as a solution.

11-22-23: “Harley-Davidson’s E-bike Company Sold Off in Surprise Deal, Planning U.S. Production.” electrek: “Serial 1, the premium electric bicycle brand originally started by Harley-Davidson, announced today that it has been acquired by a Florida-based manufacturer of light electric vehicles. The shake-up lays the groundwork for Serial 1 e-bikes to be produced in the US, according to a joint statement. HPS Analysis: Reshoring Serial 1 e-bike production in the U.S. is a good thing if it can be accomplished in a consistent and profitable way. The bigger surprise is Harley-Davidson divesting of its e-bike business now, at the end of 2023. We don’t know the details of the purchase price or the terms of the deal, or what has been committed to related to manufacturing, distribution or marketing, in a less-than-robust market.

11-27-23: “Retailers Lean on Tight Inventories.” The Wall Street Journal Logistics Report: “Retailers believe they’ve finally got inventories in the right place after several years of pandemic-driven volatility sent stockpiles and profit margins on a roller-coaster. Merchants this year are heading into their crucial holiday sales period with warehouses no longer overstuffed with mismatched merchandise, and store shelves lined up for steady seasonal demand. The WSJ Logistics Report’s Liz Young writes retailers ranging from Walmart and Target to more specialized sellers like Best Buy and Dick’s Sporting Goods, have pared back their inventories while trying to focus their supply chains more tightly on products that shoppers want. Forecasting fast-changing consumer demand was a major challenge for retailers during the pandemic. This year’s fourth quarter marks a test of new forecasting efforts, and of a disciplined focus on profit margins rather than top-line revenue. Supply-chain flexibility is a major focus this year, including an effort to keep inventory “fresh and clean.”HPS Analysis: We have reported the recent Q3 revenue and earnings from America’s top retailers and most have acknowledged their getting inventories under control and streamlined to better meet consumer demand during the critical year-end shopping season. New-found profitability is based in large part on new forecasting systems that rely more on AI than previous systems. HPS is concerned that little or nothing has been heard about new forecasting, ordering or inventory management systems within the American bicycle business, and we are concerned that the required investments are not being made, or will be made too late to help make necessary corrections.

12-3-23: “The Impact of Healing Supply Chains Is Reaching Deeper Into Consumer Markets.” The Wall Street Journal Logistics Report: “After a historic run-up in inflation, Americans are now starting to see deflation in some goods categories, and economists say goods prices likely have further to fall. The WSJ’s David Harrison reports that prices for durable goods have fallen on an annual basis for five straight months, and were down 2.6 percent in October from their peak in September 2022. That’s a sharp reversal from last year, when product shortages, snarled supply chains and surging consumer demand sent prices soaring. Durable goods inflation peaked at a 47-year high of 10.7 percent in February 2022. One report shows that supply disruptions such as shipping backups accounted for roughly half of the run-up in inflation in 2021 and 2022. The White House estimates that better-functioning supply chains accentuated by weaker demand account for roughly 80 percent of the fall in inflation since 2022.” HPS Analysis: There is the D word again, deflation, and it’s happening in some durable goods and in a growing number of supply chains. The chart below tracks the durable goods pricing against services and the personal expenditures price index from 2016 to the present. Bicycle retail prices, like Icarus, may have flown too close to the sun, and now they have fallen back to earth.