TECH COMES TO ROADS, A MIXED PICTURE ON JOBS, AND NEW IMPORT RULES

09-03-24: “DOT calls for wireless vehicle tech on national highways, most intersections by 2037.” AUTOMOTIVE DIVE: “The Transportation Department seeks connected communications between vehicles, cyclists, pedestrians and infrastructure.The federal government and numerous industry stakeholders want vehicle-to-everything technology to increasingly become part of the country’s national highways, intersections and vehicles to improve safety. Known as V2X, the digital communication could help prevent crashes, optimize system performance, improve transportation efficiency, and improve roadway condition awareness of issues such as weather and work zones, according to a plan summary. ‘We firmly believe that we cannot get to zero fatalities in this country without V2X technology,’ said King Gee, director of safety and mobility for the American Association of State Highway and Transportation Officials, at a panel presentation Aug. 16. His remarks referenced a Department of Transportation vision to avoid traffic deaths altogether. A draft version of the plan released last October called for more aggressive timelines, but the final version allowed for slower goals such as:

• Having 40 percent of intersections nationwide that are V2X enabled before 2032 and 75 percent by 2037.
• Deploying the tech across 20 percent of national highways by 2029 and 50 percent before 2032, completing that rollout by 2037.
• Getting more than two heavy/commercial vehicle models to have the necessary GHz spectrum to communicate on the wireless system by 2032; that reach is targeted for over a dozen such models prior to 2037.

“Passenger vehicles are also in the mix, but their reach under the plan appeared more narrow than heavy-duty and commercial vehicles. For the plan’s final target of 20 vehicles able to communicate in the proper GHz spectrum, most are for heavy-duty and commercial vehicles. But stakeholders suggested the technology and plan could evolve and scale. Hilary Cain, SVP of policy for the industry group Alliance for Automotive Innovation, said the auto industry has been calling on the plan for years. ‘We are hopeful that this ... action by DOT will then spur the remaining pieces of the puzzle that need to come into place from some of our federal partners, including those at the Federal Communications Commission,’ she said. Georgia and Texas transportation departments have already committed to deploying connectivity infrastructure throughout their states. An I-80 corridor effort from California to New Jersey, led by the Nevada Department of Transportation, is also piloting next-generation applications, Gee said. “The Federal Highway Administration also announced in June nearly $60 million in grants to areas across the U.S. to advance V2X infrastructure, affecting Maricopa County, Arizona; U.S. Route 60 in Arizona; College Station, Texas; the Houston area; Utah; I-70 in Colorado from Denver to Utah; Denver; I-25 in Colorado; and more.” HPS Analysis: V2X technology was introduced to the American bicycle industry in 2021, and last year a European-led initiative attempted to establish a new association built around educating the industry about this technology that has been incorporated into passenger cars, vans and trucks in Europe for almost a decade. Demonstrations of the technology as applied to passenger cars and bicycles has been demonstrated at the Bicycle Leadership Conferences produced by PeopleForBikes in 2022 and 2023, but didn’t seem to gain much traction. This latest initiative by the U.S. Department of Transportation is going to save the lives of pedestrians and bicyclists as well as vehicle drivers and passengers. It also represents an opportunity for bicycle and e-bike brands and accessory brands to both incorporate and promote this life-saving technology that is one important step to both making cycling safer and also a promotable attribute to attract more consumers to all forms of cycling. While it is true that DOT and the government are going to have to figure out how to pay for the infrastructure costs, the automobile, van and truck manufacturers can implement V2X quickly at a predictably affordable price to consumers and commercial businesses, because V2X is already installed and fully integrated in Europe by government mandate, and is easily implemented in the U.S. Folding in and including bicycles and e-bikes is also easy and enhances the overall utility and adoption of all forms of micromobility because it is safer.

09-03-24: “California bill that redefines Class 1 and 3 electric bikes closer to passage.” Bicycle Retailer and Industry News: A California bill that will more specifically define what is (and is not) an electric bike is closer to becoming law in California. The bill's supporters say it will address concerns about electric two-wheeled vehicles with throttles in addition to establishing e-mobility device and battery testing standards. The state Senate passed SB 1271 last week, advancing it to Gov. Gavin Newsom for his signature or veto. If the bill becomes state law, California's definition of Class 1 and 3 electric bikes would include the phrase "is not capable of exclusively propelling the bicycle." This would mean that Class 1 (20 mph max assist) and Class 3 (28 mph max assist) e-bikes with both throttle and pedal-assist would no longer be within the definition of ‘electric bicycle.’ Federal regulations generally define e-bikes as having operable pedals with a maximum motor power of 750 watts and top speed on motor power alone of 20 mph. Some manufacturers offer models with both throttle- and pedal-assist features that can function as more than one of the three classes originally created by PeopleForBikes and adopted in 43 states. SB 1271 does not change the Class 2 definition, and electric bikes that have only a throttle-actuated motor providing assistance until the bike reaches 20 mph would still be labeled as such. The existing definition would also allow a Class 2 electric bike to have pedal-assist up to 20 mph, but it would need to be labeled and sold as a "Class 2" electric bike because of the throttle. PeopleForBikes, which has worked on behalf of the industry in the writing and amending of the bill, opposed altering the class definition. The group said the legislation could help the industry by addressing what it calls out-of-class electric vehicles that can exceed 20 mph solely on motor power. Another new provision specifically bans the advertising, sale, or offer for sale of a vehicle that can exceed 20 mph on motor power alone as an electric bicycle. Bill amendments that PeopleForBikes successfully advocated for include:

• Adding EN 15194 as an acceptable testing standard for e-bikes and their batteries, along with UL 2849.
• More broadly defining "accredited laboratory" to include ISO-17025 certified labs.
• Removing "continuous rated power" as an added limitation to the current 750-watt standard used in federal law and most other states.
• Adding a "startup" or "walk" mode to Class 1 and 3 e-bike definitions.
• Avoiding a last-second proposal to require color-coded class labels placed on the left side of the head tube.

HPS Analysis: Since this article was written and posted, this package of legislation has been signed into law in the state of California. While a step in the right direction, HPS cautions, as it has previously, that this legislation is the result of active lobbying by the bicycle industry to have implement what is good for some of their members but not necessarily retailers or the consuming public. Making the European EN 15194 standard for e-bikes equal to UL 2849 allows e-bikes tested to a standard for 250 watt electric propulsion systems with max speeds of 15.5 mph to be equal to an e-bike testing standard for 750 watt systems with a max speed of 20 mph totally ignores the fact that European standards are not recognized under U.S. law and creates potential and serious issues for brands, distributors and retailers in future product liability litigation, among other potential conflicts. Broadly defining "accredited laboratory" to include ISO-17025 certified labs is also, in our opinion, problematic in that it is the less expensive expedient for manufacturers and brands to the highest level of safety, and more expensive alternative of all e-bike testing and certification being conducted by a Nationally Recognized Testing Laboratory or N.R.T.L. certified by O.S.H.A. Why? Because it has already been proven that some Chinese e-bike brands and their electrical system component suppliers will change specifications without notification, changing the electrical system to one that was not tested or certified and which could be a potential safety problem. In some cases the Chinese e-bike brands just plain cheat, and lower their cost by changing to lower quality components after testing and certification has been documented. N.R.T.L.’s are required by O.S.H.A. to conduct no less than four unannounced inspections of each of the electrical component manufacturer’s facilities during the 12 months after testing has been conducted to make sure the component’s being supplied are the same as those that were originally tested as a part of the certification process. Accredited laboratories have no such requirement as a part of their ISO 17025 certification. HPS maintains that requiring testing and certification by a N.R.T.L., while more expensive for the e-bike manufacturers and brands, provides the highest level of product safety under the current challenges of the integrity of the supply channel.   

09-04-24: “China is looking to automate its way out of a manufacturing malaise.” The Wall Steet Journal Logistics Report: “The country’s robot-makers could be the biggest beneficiaries. Chinese factories are turning to robots to offset rising labor costs and an aging population. The WSJ’s Jacky Wong writes in a Heard on the Street column that industrial robots are becoming increasingly common on the country’s factory floors and that Chinese automation companies are grabbing a larger share of that business. China installed more than half of all industrial robots globally in 2022, according to the International Federation of Robotics. In the first half of this year, Chinese producers such as Shenzhen Inovance Technology and Estun Automation held more than half of the industrial robot market in the country, according to research firm MIR Databank, up from about 36 percent in 2022. Chinese companies in particular have rapidly gained share in collaborative robots designed to work alongside humans.” HPS Analysis: When the American bicycle industry first embraced globalization in the 1970s, it was low-cost labor in Asia that made the concept so attractive. First in Taiwan, and in the 1980’s China, as the American bicycle industry was seeking the combination of low-cost labor and manufacturing skills that in combination with an efficient supply and logistics chain created a profit margin that was not then possible by manufacturing in the U.S.  Automation and robotics has been introduced over the years as the OEMs and the component manufacturers have strived to stay competitive as low-cost labor became available elsewhere in Asia. As automation and robotics continued to grow as a substitute or replacement for low-cost labor, the overall manufacturing expertise of Taiwanese and Chinese OEMs and component manufacturers became the competitive advantage. It is no surprise that China is turning to industrial robotics to replace labor, low cost or otherwise, to propel its manufacturing expertise to keep it competitive as the manufacturing plant for the world as long as that opportunity lasts, because the rest of the industrialized nations, including the U.S., are also turning to automation and specifically robotics to supplement and replace and aging and shrinking labor force.

09-04-24: Dick’s Sporting Goods earnings smash estimates, expanding Field House concepts.” Chain Store Age CSA: “At the end of the quarter, Dick’s operated a total of 861 stores under a variety of banners. Dick’s Sporting Goods reported a strong second quarter with earnings, sales and comps that topped Wall Street estimates amid growth in transactions and average ticket.” “The company's future includes the expansion of its experiential Dick's House of Sport format, which recently opened its 15th location. Five more are set to open by the end of the year.” “The retailer is also revamping 50,000-sq.-ft. namesake stores to its next-generation Dick's format, which it refers to internally as its "field house" concept. It unveiled four field house locations during the quarter, giving it a total of 17.  It plans to open nine more locations this year.” “Dick's net income rose to $362 million, or $4.37 a share, in the quarter ended Aug. 3, blowing past analysts’ estimates of $3.86 per share and up from $244 million, or $2.82 a share, in the year-ago period.” “Sales rose 7.8 percent to $3.47 billion, topping estimates of $3.44 billion. Comparable sales increased 4.5 percent, also more than expected.” “For the full year, Dick’s now expects earnings of $13.55 to $13.90 a share, up from its previous guidance of $13.35 to $13.75 a share. It maintained its sales guidance of $13.1 billion to $13.2 billion, but raised its growth outlook for comparable sales for growth between 2.5 percent and 3.5 percent, up from previous guidance of two percent to three percent.” HPS Analysis: Dick’s Sporting Goods is the largest of the Full Line Sporting Goods channel of trade retailers, and accordingly the largest bicycle retailer in this channel. The Full Line Sporting Goods channel has been and continues to be the “middle” market channel, between Specialty Retail and the Mass Merchant channels of trade. Direct to Consumer has greatly expanded as a channel of trade in the U.S. and the global market as measured in dollars. That said, Dick’s Sporting Goods also represents a bright spot in the overall sporting goods segment, which appears to be a mixed bag as far as sales and revenue go. Most of the channel of trade has experienced difficulty while Dick’s Sporting Goods at a projected $3.5 billion in retail sales this year is also projecting an increase in earnings. While we have no specific data, HPS is assuming that Dick’s with 861 store locations, has also increased its sales of bicycles. 

09-06-24: “The latest jobs data provides a really confusing picture. Here are four things to know.” National Public Radio npr: “The latest monthly report on the U.S. jobs market had been eagerly anticipated as a key gut check on the health of the economy. Unfortunately, it delivered a mixed picture that doesn't offer clear conclusions about where things stand. Overall, the data out on Friday suggests that hiring has slowed from earlier this year, but not as sharply as some had feared a month ago. It's a somewhat cloudy combination that policymakers at the Federal Reserve will need to sort through as they decide how aggressively to cut interest rates later this month. Here are four takeaways from the jobs numbers for August. The job market looks stronger in August than the month before: U.S. employers added 142,000 jobs in August — a marked increase from the 89,000 jobs created in the previous month. Meanwhile, the unemployment rate dipped to 4.2 percent. That was a relief after the rate had unexpectedly jumped to 4.3 percent in July, sparking fears about the labor market and the broader economy. Much of the increase in July's unemployment rate was the result of temporary layoffs, and many of those people went back to work in August. Hiring last month was concentrated in hospitality (34,000 jobs), health care (31,000 jobs) and construction (34,000 jobs), while factories and retailers cut jobs. But the job market looks weaker in August than earlier this year: While employers added more jobs in August than they did in July, the overall pace of hiring has been slowing down. Last month's job gains were about 30 percent below the average of the previous twelve months. What's more, job gains for June and July were revised down by a total of 86,000 jobs.That's consistent with other reports, including one showing fewer job openings by employers in July. And while the unemployment rate dipped in August, it's still up half a percentage point from the beginning of the year. Stock markets dropped as investors took the glass half-empty stance, especially after employers created fewer jobs than economists had expected in August. Wages are rising faster than prices: A slowing labor market compared to earlier this year may not be encouraging news for job seekers, but for people currently employed there was good news: Average wages in August were up 3.8 percent from a year ago. Wage gains have been outpacing inflation for over a year now, and that trend likely continued last month. (August inflation figures will be released next week.) That means workers' real buying power is increasing, helping to offset the big price hikes of previous years. No clear signal for the Federal Reserve: Unfortunately for policy makers, Friday's mixed labor report doesn't provide clear signals for how to proceed. The Fed has clearly indicated it plans to cut interest rates when policymakers gather on Sept. 17-18, and the central bank has been keeping a close eye on the job market as it weighs how much to actually cut them. But Friday's report doesn't provide too much clarity. The dip in the unemployment rate suggests that the central bank can move slowly, trimming interest rates by a modest 0.25 percentage points. But the downward revision in job growth in June and July might suggest more aggressive action — perhaps a half-point rate cut. That's the challenge with being "data dependent," as Fed policymakers like to describe themselves. Sometimes the data point in different directions.” HPS Analysis: This is, in our opinion, a particularly well researched and crafted article highlighting and explaining the somewhat confusing picture presented by the U.S. labor market on the verge of the Fed making a decision about the prime rate, which we know was raised by a half-point, or 50 basis points, about 12 days after this article was published. What HPS found interesting was the conclusion that the Fed is challenged by being “data dependent” because sometimes “the data point in different directions.” This is true and HPS has been urging the American bicycle industry and business to become more “data dependent,” realizing that we need to start with good data that in turn is analyzed and expertly interpreted. That is exactly what the Fed does, and it is no mistake that the Fed itself and its deliberations and decisions are completely separated from the legislative and executive branches of the federal government. The Fed needs to gather good data, the best available, and analyze it and subject it to expert interpretation, that is totally independent from politics and politicians, including business and finance, and is not subject to lobbying. So to should it be for the bicycle industry.

09-13-24: “NBDA releases 2024 Cost of Doing Business Study for specialty bicycle retailers.” Bicycle Retailer and Industry News: “The National Bicycle Dealers Association (NBDA) is proud to announce the release of its highly anticipated 2024 Cost of Doing Business Study, a comprehensive report that provides an in-depth look at the financial and operational data from hundreds of specialty bicycle retailers across North America. The report includes detailed insights into critical business metrics, such as margins, operating expenses, payroll, employee benefits, online sales, click-and-collect services, community served, net profit, and inventory turn. It is designed to provide retailers with a clear understanding of their profitability and productivity, as well as how they compare to their peers in the industry. Heather Mason, NBDA president, emphasized the importance of this report, stating, ‘This report is invaluable not only to retailers but to the entire industry. What we learn from this data can help both retailers and suppliers make key decisions that shape the future of specialty bicycle retail. With operating expenses rising and net profits shrinking, understanding what it costs to run a bicycle business today is essential. By working together and using this data, we have the potential to identify opportunities for higher margins and long-term strategies that ensure profitability and success for specialty bicycle retailers.’The 2024 Cost of Doing Business Study serves as a vital resource for retailers to evaluate their own financial performance, pinpoint strengths and weaknesses, and identify opportunities for improvement. Retailers can compare their figures with industry benchmarks based on revenue, store type, geographic region, and high-profit firms. The ability to spot significant performance differences is crucial in guiding business improvement and profitability. Key highlights of the report include:

• Operating expense breakdowns and how they affect net profit.
• Data on emerging trends like online sales and click-and-collect services.
• Metrics on employee compensation, benefits, and how they contribute to overall business success.
• Comparative insights for single and multi-store operators across different regions.

Pricing and Availability:

• The report is available to NBDA Members for $99 (member login required for discounted pricing).
• Non-members can purchase the report for $399.
• Retailers who submitted data for the study will receive the report directly from Industry Insights.

Conducted in early 2024, this study is the most up-to-date financial performance data available for specialty bicycle retailers. It is designed to help retailers gain a competitive edge by understanding industry norms and how their business stacks up. Purchase the report, via this direct link.  For more information about the National Bicycle Dealers Association and its initiatives, visit www.nbda.com. HPS Analysis: It is no real mystery that the $300 difference between the non-member purchase price of $399 and the member purchase price of $99 is just below the cost of a one-year membership in the NBDA. This is a significant research report that provides operating guidance for individual bike shops to shape business planning and day-to-day operations as they are entering what HPS believes will be one of the most challenging nine-months ever faced by the bike shop channel of trade in the U.S. NBDA has presented a webinar for all bike shops, whether a member or not, going over some of the most important highlights of the 2024 Cost of Doing Business Study and there is another one scheduled November 20 at 2:00 p.m. Eastern. Go to www.nbda.com to register.

09-13-24: “Biden administration proposes new import threshold rules.” Bicycle Retailer and Industry News: “The Biden administration Friday said it will propose new trade rules under executive authority to stop the abuse of the de minimis threshold that can allow imports — including e-bikes and lithium-ion batteries — to circumvent safety standards. The proposal of new rules includes allowing the Consumer Product Safety Commission to propose requiring importers of consumer products to file Certificates of Compliance electronically with the commission and U.S. Customs and Border Protection at the time of entry, including for de minimis shipments. The $800 import threshold allows direct-to-consumer retailers, particularly from China, to sell e-bikes and lithium-ion batteries without Certificates of Compliance. They can be sold well below market cost because no duties, federal, state, or local taxes are paid. Those products also can enter the U.S. market bypassing CPSC regulations because off-shore retailers are out of reach of the U.S. government and legal system. Further, de minimis shipments enter the U.S. with less information than other imports and are not subject to duties and taxes. Targeting unsafe products: ‘This regulation would strengthen CBP's and CPSC's ability to target and block unsafe products from entering the U.S. market and would help prevent foreign companies from using the de minimis exemption to circumvent consumer protection testing and certification requirements,’ the administration said in a statement. To reduce the de minimis import volumes, the administration intends to propose new rulemaking that would exclude all shipments containing products covered by tariffs imposed under Sections 301 or 201 of the Trade Act of 1974, or Section 232 of the Trade Expansion Act of 1962. Chinese-made e-bikes, carbon frames, and juvenile bikes fall under Section 301. In May, the Biden administration ended what some called a "tariff holiday" for importers of those products, which had been subject to a 25 percent Section 301 tariff imposed by the Trump administration but were excluded from the program. Section 301 tariffs currently cover about 40 percent of U.S. imports.” HPS Analysis: The de minimis exception to U.S. customs law and regulation is facing growing opposition in the Biden administration as well as the U.S. Congress. While the new proposed import threshold rules by the administration are a big step in the right direction, as this article states, more definitive action is required by the Congress to put an end to this loophole in Customs policy and procedure that is undercutting public safety and adding to the misinformation about good quality and safe e-bikes and lithium-ion batteries. We urge all of our subscribers to contact their members of Congress with the message that you, as a constituent, are asking for the de minimis exception to be eliminated as soon as possible.

09-13-24: “16,500 fatbikes seized in the Netherlands due to non-compliance with type approval. Fatbikes which do not comply with the type approval are easy to order online in China.” BIKE europe: “In a large scale operation to halt the influx of fatbikes that do not meet the legal requirements of an e-bike or a moped, the Dutch authorities seized a total of 16,500 fatbikes. The Human Environment and Transport Inspectorate reports the fatbikes are in fact illegal mopeds and originate from several Chinese manufacturers. The unapproved mopeds with the styling of a fatbike, were or were supposedly offered for sale as e-bike. However they did not comply with the type approval regulations for a moped. Last July already 3,500 fatbikes were seized after the Dutch authorities imposed a €15,000 penalty on 9 'fat bikes' sellers late 2023. They all offered fatbikes which were not street legal. These fatbikes usually go faster than 25 km/h or than can be done easily by changing the settings on the display. Other models have a power output of more than 250 Watts and can be driven with a throttle. If that’s the case the fatbike needs to comply with the same regulations as a moped which means at least a European type approval. In the Netherlands riding these bikes also requires a license plate, third-party insurance, helmet and driving license. The seizure is part of the investigation the Human Environment and Transport Inspectorate has been conducting since July. They halted the import into the port of Rotterdam, while another 1,000 unapproved mopeds were find in a distribution centre of a Dutch supplier. According to the Dutch inspectorate distributing non-compliance e-bikes is responsibility of the industry. ‘Manufacturers, importers and sellers must ensure that the vehicles comply with the legal regulations before they are sold,’ the inspectorate wrote in a statement. ‘You can’t expect young people and their parents to see the difference between an regular e-bike and an illegal one. It is up to the industry to prevent them from buying a cheating e-bike.’ The inspectorate also sees a growing number of cheaper, unsafe and unapproved mopeds on offer in the Netherlands. ‘It is import that these illegal mopeds disappear from our streets as quickly as possible. And that starts by putting a stop to their sale via official trade channels.’ Fatbikes cause a lot of nuisance and lead to a sharp increase in the number of traffic accidents in the Netherlands. The fatbikes are very popular among young people and relatively cheap to get. It makes fatbikes a day-to-day topic in the Dutch media as they cause a lot of nuisance and lead to a sharp increase in the number of traffic accidents.” HPS Analysis: The Netherlands is not Europe and certainly not the largest bicycle-e-bike country market. But it is an influential market. Seizing 16,500 “fatbikes” is a big deal, and the fine and bad PR is even bigger. The brand isn’t identified but the type of e-bike is clear, and all the reasons why the Netherlands wantst “these illegal mopeds [to] disappear from our streets as quickly as possible.”  According to the Dutch non-compliant e-bikes are the responsibility of the industry. “Manufacturers, importers and sellers must ensure that the vehicles comply with the legal regulations before they are sold.” This is the kind of responsibility that the U.S. government should express in this country and that the bicycle industry should indorse and promote. Meanwhile it is clear that the so called Class 3 and Out of Class e-bikes that the American industry is now lobbying for as a new Class 4 are not going to be well received in EU markets.

09-18-24: “Key takeaways from Fed decision to cut rate by half point.” Bloomberg: “Here are key takeaways from the Federal Reserve's interest-rate decision on Wednesday:

• Federal Open Market Committee votes 11 to 1 to lower benchmark rate by 50 basis points to target range of 4.75 percent-5.0 percent, the first rate cut in more than four years.
• Fed Governor Michelle Bowman votes against decision in favor of a smaller, quarter-point cut, the first such dissent since June 2022 and the first time a Fed governor has dissented since September 2005.
• “Dot plot” of rate projections shows the median official expected to lower rates by a percentage point by year-end, implying two more quarter-point cuts or one larger, half-point cut; nine of 19 officials penciled in 75 basis points of cuts or less.
• Median rate forecast for 2025 falls to 3.4 percent from 4.1 percent in June, implying four additional quarter- point moves next year.
• Statement adds language to say the committee is “strongly committed to supporting maximum employment” in addition to returning inflation to its 2 percent goal.
• Statement says that “in considering additional adjustments” to rates, officials will assess incoming data, evolving outlook and balance of risks.
• Fed tweaks language to note job gains “have slowed,” says inflation “has made further progress toward the committee's two percent objective but remains somewhat elevated.”
• Statement says committee has gained greater confidence that inflation is moving sustainably toward two percent goal.
• Statement notes that risks to achieving employment and inflation goals “are roughly in balance.”

HPS Analysis: It has been a long and difficult four-year journey, but the Fed’s two percent objective for inflation while avoiding a recession seems to now be within reach. A so called “soft-landing” is also a more distinct possibility, although still not guaranteed. While the prime rate was reduced it will take time, perhaps weeks, before interest rates on loans and borrowing are reduced by regional and local banks and credit card companies. This means small businesses like bike shops and the consumers shopping for bicycles will have to wait a little more before they see and feel the positive impact of the Fed’s rate cut in the form of a lower cost of money and credit card interest rates. However, this is definitely a positive step for the U.S. economy and the consumer market including bike shops just before the Halloween-Thanksgiving-Christmas fourth-quarter shopping season.

09-19-24: “Merida buys shares in German distributor for $19 million” Bicycle Retailer and Industry News: “Taiwan bike maker Merida Industry Co. Ltd. has acquired an additional 39 percent stake in Merida & Centurion Germany GmbH from its founder, Wolfgang Renner, for 17.3 million euros ($19.05 million). Merida already owned a 51 percent share in the distributor. Merida & Centurion has been the long-time distributor of Merida-branded bikes in Germany. The company also develops and distributes Centurion bikes, once a major brand in the U.S. While Centurion was launched in the U.S. in the 1960s by Western States Import Co. (WSI), Renner has been associated with Centurion since 1976, first as its German importer. His company acquired the Centurion brand from WSI in 1990, after WSI consolidated its brands to focus on Diamondback. In a filing with the Taiwan stock exchange, Merida said it was acquiring the shares from Renner because he is approaching retirement age. Renner was inducted into the Mountain Bike Hall of Fame in Fairfax, California, in 2017 for his efforts in establishing mountain biking in Germany as a journalist and businessman.” “Merida, founded in 1972, has manufactured at least some Centurion models for decades. Merida also owns a majority share in Japan's Miyata bike brand and at one time owned a 49 percent share in Specialized Bicycle Components. That share has been reduced to 35 percent according to exchange filings.” “As for Merida, the company had sales last year of NT$27.261 billion ($844 million at August 2024 exchange rate), down 36 percent from its outlier results in 2022 but in line with its pre-pandemic annual revenue figures. In 2024 so far, revenue through July was NT$18.5 billion, down less than 1 percent from the same period in 2023. The trend at mid-year was more positive, however, with June and July sales up 49 percent and 18 percent from the same months in 2023, respectively.” HPS Analysis: Merida has a distribution system in Europe for its brand and, as this article details, recently acquired complete ownership of its German distributor. While the Merida brand is not sold in North America, it is a major OEM for Specialized, and this article confirms a 35 percent ownership of Specialized Bicycle Components and majority ownership of Japanese brand Miyata. As the second largest Taiwanese brand and OEM Merida, a publicly traded company, has the capital, or access to the capital, to acquire its distribution partners, in this case in the largest consumer market in Europe for US$19 million dollars. We do not know if Merida had to make this acquisition as a defensive move, or the facts are those sited in this article. In either case the global bicycle industry is going through a period of consolidation and M&A that enhance and spread the influence of some of the legacy players and bring new owners and money in from outside what has been the traditional industry ecosystem, all of which is going to shake things up going forward.

09-19-24: “Bankruptcy court approves Giant Group’s purchase of Stages.” Bicycle Retailer and Industry News: “Giant Group, through its SPIA Cycling subsidiary, has acquired Stages Cycling from Foundation Fitness for $20.1 million. A U.S. bankruptcy judge has approved a purchase agreement, which had been opposed by some creditors and an inventor who is in a patent dispute with Stages.  Foundation and associated companies including Stages filed for bankruptcy in Nebraska in June. The Chapter 11 case was later moved to Denver's U.S. Bankruptcy Court. Giant Group, which has manufactured various products for Stages and Foundation for years, has agreed to drop its suit filed in Oregon, which alleges the brand owes it more than $14 million in unpaid invoices. The court-approved asset purchase agreement includes Giant Group’s move to dismiss the Oregon case; it also includes paying a total of $500,000 from the purchase proceeds to the Norwegian software companies TekSport AS and VismoX AS. Giant Group said it had acquired Stages' intellectual property, manufacturing facilities, product lines, and limited inventory. 'We are thrilled to integrate Stages Cycling’s assets into our organization,’ Donald Yu, the president of SPIA Cycling Inc. said in a press release from Giant Group. ‘This acquisition aligns with our strategic goals and enhances our capabilities in both indoor and outdoor cycling. We are committed to leveraging these assets to drive innovation and deliver greater value to our customers and stakeholders.’ The company said the acquisition will support its ‘vision to create a comprehensive indoor/outdoor cycling ecosystem, enhance its cycling data capabilities, and enter the commercial fitness market, where it has a 30-year history of manufacturing for other brands. SPIA Cycling Inc. plans to swiftly integrate the Stages Cycling assets into its operations.’ Paddy Murray, VP of Global Sales and Marketing of SPIA Cycling Inc., said, ‘We’re thrilled about the opportunities this acquisition presents and the benefits it will bring to Stages Cycling’s dedicated customers. Our priority is to ensure a seamless transition while revitalizing the Stages brand to address both current and future customer needs.’ Giant had made a stalking horse offer to buy the assets ahead of a bankruptcy auction, but when no other bidders appeared, the court approved its offer on Friday.” HPS Analysis: This is a US$20.1 million dollar acquisition by Giant Group in the fitness business, buying Stages out of bankruptcy, which may seem odd by some who aren’t familiar with Giant’s long history as a fitness equipment manufacturer. While the Giant brand in North America hasn’t established itself in the fitness equipment market, it is a major OEM for fitness equipment brands in the rest of the world, including Stages in the U.S. As the article reports, Giant “…has a 30-year history of manufacturing for other brands” that goes back to Schwinn shutting down its Chicago manufacturing and moving production to Giant in the early 1980s, including the AirDyne which was the first dual action exerciser, and was gaining significant market share in the U.S. market. Part of Giant's commitment to the move Schwinn made in the early ‘80’s was the building of a manufacturing facility dedicated to exercise equipment that was complete in six months from start to finish. Buying Stages out of bankruptcy is both a defensive move to maintain a customer, and an offensive move to expand both fitness equipment manufacturing and the acquisition of an established fitness and power-measurement brand. The number one publicly traded Taiwanese bicycle manufacturer is flexing its financial muscle on the global stage.

09-20-24: “Trek sells BCycle to Bicycle Transit System” Bicycle Retailer and Industry News: “Trek Bicycle has agreed to sell its BCycle share bike business to Bicycle Transit Systems, which operates share bike systems in several major cities, including Los Angeles, Philadelphia and Las Vegas. The acquisition is expected to be completed next month. In addition to operating systems in major cities BTS also provides a customer service center for an additional 24 U.S. cities.Trek made a strategic investment in BTS in 2016. BTS will take over 10 share systems from BCycle, including systems in Santa Barbara and Santa Cruz, California; Madison, Wisconsin; and Boulder, Colorado. And BTS will handle bikes, docking stations, and software support for 15 other communities, including Indianapolis, Salt Lake City, Cincinnati, and Milwaukee. ‘ With greater flexibility and oversight of end-to-end services, we can design real-time solutions to the pressing equity, safety, and climate challenges cities face today,’ said Bicycle Transit Systems' founder and chair, Alison Cohen. ‘The bottom line is, this will allow us to better meet our core mission as a company — to deliver the best customer experience possible for riders and advance bike share as a mobility option in the cities we serve.’ BCycle's executive director, Brian Conger, will join the BTS leadership team as Chief Business Officer. Trek President John Burke said, ‘Since 2008, BCycle has helped millions replace car trips with the climate-friendlier option of bikes ... We're excited for Bicycle Transit Systems to take this mission even further as they continue to grow and make meaningful change for the benefit of our planet and future.’ “ HPS Analysis: The “…benefit our planet and future” PR is great copy, but the reality this is the sale of what appears to be a relatively valuable asset to a business partner. While the terms and purchase price are not disclosed, John Burke said in March this year that he was going to cut spending by 10 percent and “right size” Trek. Given the recent resurgence of bicycle ride-share in ridership and revenue, HPS is assuming BCycle represented a profitable, or at least potentially profitable business asset that was not part of the core Trek business that could be packaged and sold to contribute to the right-sizing initiative started in March. This can be seen as a defensive move that doesn’t have an impact on Trek’s core bicycle brand business.

09-20-24: Gocycle CEO: "We had to turn to crowdfunding to reboot our company." BIKE europe: “Award-winning e-bike brand Gocycle has started a crowdfunding campaign to launch its new range of urban folding bikes. Founder and CEO of Gocycle owner Karbon Kinetics Ltd Richard Thorpe explains why he turned to this tentative way of funding, having founded the company already in 2002. ‘Institutional capital has fled most industries including bike companies, as well as small innovators like Gocycle.’ Gocycle designer and founder Richard Thorpe said: ‘Since 2020, the bike industry has been in turmoil and early 2024, we also had to wave the white flag and restructure to realign our company for the market recovery, which most in our industry expect will start in 2025.’ On top of the pandemic related challenges, UK based Gocycle was also facing a lot of Brexit related problems with EU export customers. In 2021 the company opened a Netherlands-based subsidiary for its EU customers. ‘My experience with private equity is that many got burned with the hardware businesses during the pandemic and they are very nervous about the bike market,’ says Richard Thorpe in response to questions from Bike Europe. ‘It will come back, but the financial news is just so negative when anyone looks at what is happening. So, I think they are waiting for clear signs that things are actually improving. And the high-profile venture capital backed ventures like Rad Power, VanMoof, and Cowboy don’t fill investors with confidence either as well all have learned in the past year. Private equities told us to come back in a few years when the market is more stable. We are in a niche market that is not yet mainstream. Private equities tend to struggle with what a compact wheel format means, it’s perceived as very challenging. However, I believe folding and compact wheel bikes will see faster growth than traditional e-bikes when the market re-balances.’ Following a successful internal restructuring after the challenging recent economic conditions faced by the bike industry, Gocycle has launched the equity-based crowdfunding campaign also to recapitalise the company.” “Gocycle also plans to engage in other crowdsourcing platforms to promote and launch some of its new 2025 and 2026 model ranges using Kickstarter.” “In the coming weeks, Gocycle will post a series of videos on Youtube explaining what happened to the company during the pandemic and its aftermath.” HPS Analysis: Crowdfunding was a shadowy vehicle for raising investment funding that was virtually unheard of in the traditional American bicycle business pre-pandemic, and was only known in the outer ring of new start-ups. It was favored by many of the early home-grown e-bike brands that could not or simply did not want to go through the effort or jump through the hoops to find and attract more traditional sources of funding including venture capital, private equity, and angel investors. While Gocycle is a UK-based brand and the crowdfunding scene is slightly different in North America, the insights the Gocycle founder and CEO brings to the current post pandemic situation whereby: “Institutional capital has fled most industries including bike companies, as well as small innovators like Gocycle.” He also rightly observes that: “Since 2020, the bike industry has been in turmoil and early 2024, we also had to wave the white flag and restructure to realign our company for the market recovery, which most in our industry expect will start in 2025.” HPS wishes Gocycle every success with its crowdfunding initiative to recapitalize its company.

09-24-24: “Xi’s economic adrenaline shot is only buying China a little time.” Bloomberg News: “First he took a sip of tea to gather his composure. Then Chinese central banker Pan Gongsheng unleashed one of the country’s most daring policy campaigns in decades. In what amounts to a massive adrenaline shot for an economy on the cusp of a deflationary spiral, the governor of the People’s Bank of China and other top financial officials unveiled a series of easing measures that market watchers had wanted for weeks at a rare, high-level press conference on Tuesday in Beijing. They include interest rate cuts, more cash for banks, bigger incentives to buy homes and plans to consider a stock stabilization fund. Markets on the mainland and in Hong Kong soared, with the CSI 300 Index, a benchmark of onshore Chinese stocks, posting its biggest gain since July 2020. U.S. equity futures advanced and European stocks climbed on the back of sectors with heavy exposure to China, including manufacturers of automobiles and luxury goods. The market reaction to the policy blitz suggests that Pan, a technocrat who spent time at Harvard and Cambridge, has bought the Chinese economy some precious time. Yet economists believe this is just a down payment if President Xi Jinping is going to pull the roughly $18 trillion economy out of a protracted slump marked by a property market blowout, consumer price weakness and rising global trade tensions.” “Tuesday’s briefing, hastily arranged only 48 hours earlier, came after weeks of growing anxiety among top leaders in Xi’s government, according to people familiar with the situation. Senior policy makers held several unscheduled closed-door meetings to discuss the economy, as it became increasingly clear that this year’s growth target was slipping out of reach, the people added. Of particular concern were warnings from officials in at least one major coastal province, an important contributor to growth, that it would struggle to hit the gross domestic product target, one of the people said. The swift turnaround from top Communist Party leaders came as a surprise to many officials, who had waited for months to hear any feedback on policy proposals they had drawn up to revive the economy. Last week they suddenly received requests for more information, forcing some to pull all-nighters ahead of Tuesday’s briefing, according to regulatory officials who asked not to be identified discussing private matters. The work appeared to pay off. Pan and other officials have changed the narrative around China’s economy for the moment. That’s a big shift: In recent weeks, banks from Goldman Sachs Group Inc. to UBS Group AG cut their forecasts for China’s economic growth following a slew of bad data that raised alarms about falling prices. Bloomberg Economics and others now expect the government to hit Xi’s goal of expanding GDP by “around five percent” this year. But most economists also agree that more is needed to avoid entrenched Japan-style deflation. The big missing piece remains a coherent strategy to get China’s 1.4 billion people to ramp up spending.” HPS Analysis: By now it should be apparent that the multinational brands underpinning the global bicycle ecosystem are dependent on the Chinese mid to upper end bicycle and e-bike market to provide the positive sales and revenue, need to offset the stagnant bicycle markets in Europe and North America. Public companies like Giant Group, Shimano and Merida all point to the rising road market in China as one of the bright spots in their 2024 quarterly financials. If the Chinese bicycle market faulters, so does the global bicycle industry ecosystem. President Xi has made it clear that he will not support a consumer-based Chinese economy, so robust industrial, manufacturing, housing and export are what the central planners are counting on and are stimulating. However, the question of whether the moves taken to stimulate the Chinese economy will be enough is still unanswered and the PRC is simultaneously clamping down on foreign consulting firms, banks and investment firms and making it difficult for them to do business in China, further encouraging the outflow of foreign capital that is needed to achieve recovery and the goals set for the Chinese economy. We will have to wait for the last quarter and year-end financials from the bicycle industry multinationals, but the overall financial and consumer market viability of the Chinese consumer market, including the bicycle market the last half of 2024, is shaky at best.   

09-26-24: “The Pro’s Closet will close in October.” Bicycle Retailer and Industry News: “The Pro’s Closet — which started out of its founder’s VW bus, evolved into an eBay store, and became a used bike and component e-commerce giant, will close in October after 18 years. TPC issued a short news release Thursday announcing the decision. Like a lot of companies in the industry, TPC has struggled since the post-COVID bike boom. Last year, it had two rounds of layoffs, and recently has been offering huge discounts on its website, which now has a “Going Out of Business Sale” announcement on the homepage, with 75 percent off sitewide. ‘This has been an extraordinary chapter in the world of cycling, and we’re incredibly grateful to everyone who has been a part of it,’ said CEO Jonathan Czaja.” “TPC said since its founding, it has helped over 160,000 customers find their perfect ride and have sold more than 46,000 bikes.” “Founder Nick Martin stepped down as CEO in October 2020 and was succeeded by board member John Levisay, who left the company in March 2023. Paul Calandrella, formerly TPC's vice president of strategic initiatives, was named general manager and in charge of day-to-day operations. Czaja then succeeded Calandrella. Before the layoffs and frequent leadership changes in the past few years, TPC enjoyed only success in the market obtaining new and pre-owned bikes and accessories from manufacturers, retailers, and individuals. In May 2021, economic conditions were considerably brighter, with TPC announcing it raised an additional $40 million in Series B funding that would be used to grow its workforce, along with fulfilling other goals. That announcement followed TPC reporting the doubling of first-quarter sales year-over-year. It reported then that revenue more than quintupled in the previous two years. In January 2021, TPC moved from its 24,000-square-foot Boulder, Colorado, location to the 137,000-square-foot Louisville facility. The TPC Louisville Company Store was added, touting itself as "The Metro Area's Largest Bike Store" with a collection of new and certified pre-owned bikes, parts, apparel, and accessories totaling about 3,000 bikes and 7,000 to 8,000 parts and accessory SKUs.” HPS Analysis: The sudden financial collapse of The Pro’s Closet came as a surprise to HPS. This pioneer in the Circular Economy entry into the bicycle industry was emulated over the 18 years since its founding and similar commercial ventures have succeeded TPC in the U.S. and global bicycle markets. We don’t know enough about either the business model or the financials to clearly understand what happened, other than the disruptions caused by the global pandemic took its toll. Sadly, the lyrics of one of my favorite Queen songs comes to mind: “… and another one bites the dust!”

09-30-24: “Ford most at risk from China exposure among 250 American firms.” Bloomberg: “As the U.S. and China square off over everything from tech to military might, Ford Motor Co. has emerged as the American firm most at risk from its exposure to the world’s No. 2 economy, according to Strategy Risks, beating the likes of Apple Inc. and Tesla Inc. Ford ranked first among 250 of the largest listed U.S. companies with an overall exposure score of 69 out of 100, according to the latest index published by the New York-based consulting firm that helps companies mitigate their exposure to China. Apple and air conditioner maker Carrier Global Corp. tied a joint second with a score of 65 each, while Tesla and Coca-Cola Co. were a joint third with a rating of 63. Cummins Inc., Honeywell International Inc., RTX Corp., Walt Disney Co. and Caterpillar Inc. rounded out the top 10. Ford’s exposure increased by 20 points from 2022, with its current score standing at more than double the average rating of 34, according to Strategy Risks. The rankings took into account the companies’ revenue in China, partnerships with Chinese companies and the state, risks related to labor and human rights and supply chains, and also the lack of disclosure of their own assessment of risks in that geography. Ford declined to comment specifically on the rankings, citing lack of details.” “Ford, the second-largest U.S. automaker, is the co-owner of at least seven state-controlled joint ventures in China and has at least four state influenced JVs as of December 2023, according to Strategy Risks. Ford says it has three JVs in China. The index is not measuring ‘China presence’ or ‘China market share,’ but is measuring ‘China exposure’ and how entangled Ford is with China, and how exposed it is to China risks, Strategy Risks said. American companies with a presence in China in general face heightened risks amid rising tensions between the world’s two largest economies. Increasingly frayed ties between the two countries over matters from trade to geopolitics could drive prices of goods higher, as Washington tries to cut China off from tech and pharmaceutical supply chains. At the same time, Beijing could retaliate with tit-for-tat actions targeting American businesses.” HPS Analysis: As this article reports, there are 250 of the largest listed U.S. companies currently doing business in China. According to Strategy Risks, Ford Motor Company has “…emerged as the American firm most at risk from its exposure to the world’s No. 2 economy.” You can read about the criteria employed by the consulting firm in reaching its conclusions, and the fact remains that over the last several year the risk of continuing to do business inside the PRC has increased almost exponentially. While HPS couldn’t find out if any American-based bicycle industry companies are on the list, HPS raises the question of the strategic risk each of the Western companies, listed or privately held, faces currently by doing business in China, and what is the level of risk going forward?

10-03-24: “Port union agrees to suspend strike.” The New York Times: “The International Longshoremen’s Association agreed on Thursday to suspend a strike that closed down major ports on the East and Gulf Coasts. The move followed an improved wage offer from port employers. The strike, which the dockworkers’ union began on Tuesday, threatened to weigh on the economy five weeks before national elections. Employers, represented by the United States Maritime Alliance, have offered to increase wages by 62 percent over the course of a new six-year contract, according to a person familiar with negotiations who did not want to be identified because the talks were continuing. That increase is lower than what the union had initially asked for, but much higher than the alliance’s earlier offer. In a statement, the union said that it had reached “a tentative agreement on wages” and that its 45,000 members would go back to work, with the current contract extended until Jan. 15. The union said it was returning to the bargaining table ‘to negotiate all other outstanding issues.’ The alliance did not immediately issue a statement of its own. The agreement came after the White House pressed both sides to reach a deal. The wage increase is a clear victory for the I.L.A. and its combative president, Harold J. Daggett, a 78-year-old, third-generation dockworker who has led the union since 2011. A 62 percent increase would raise the top longshoremen’s wage to just over $63 per hour at the end of a new six-year contract, from today’s $39 per hour. And at $63 an hour, the wages of East and Gulf Coast longshoremen would slightly exceed those that will be earned by West Coast longshoremen, who belong to a different union, at the end of their contract in 2027. In the resumed talks, the issue of how much automation can occur at the ports could divide the sides. Many businesses, expecting the strike, accelerated imports through the ports ahead of the strike. But a long strike could have led to shortages and it was already beginning to cause congestion in supply chains. Perishable goods were particularly at risk from a strike.” HPS Analysis: The longshoremen’s strike effecting all of the U.S. Gulf and East Coast ports lasted three days, thanks in large part to the Biden Administration stepping in and mediating a settlement on wages and getting the union to agree to push negotiations on automation out to January 2025. Many business, including, some in the bicycle business, accelerated imports or moved entries to the West Coast ports that are not and will not be affected. Either way these businesses were disrupted, although nowhere as much as they would have been if the strike had been long lasting into the holiday season. The Biden Administration saw to it that the economy dodged a potentially catastrophic strike that would have added to the financial disruptions to business and to the consumer, and avoided adding a contentious labor issue to the national election campaign. This is also kicking the can down the road, and whoever is President in January is going to have to deal with the very real threat of a longshoremen’s strike over the automation of Gulf and East Coast Port infrastructure.

Contact Jay Townley: jay@humanpoweredsolutions.com.