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Surveyed retailers say this past year was one of the worst ever when corrected for inflation

Published December 28, 2023
Resilient retailers soldier on into 2024.

A version of this story ran in the December issue of BRAIN.

Our industry is awash in bad news. As we publish this in December, and Christmas layaways already a distant memory, it's certain that 2023 will turn out to be the worst sales year this century when corrected for inflation.

The pandemic's whiplash effect was clearly demonstrated by our retailer e-mail survey of the Georger Data Services list. When asked, "What were the best and worst quarters of the pandemic?", Q2 and Q3 of 2020 garnered 52% of the "best" votes, while Q4 of 2022, Q1 and Q3 of 2023 "won" with the same 52% total as the worst quarters.

The current year was clearly a drop-off from 2022. Sixty-eight percent of shops reported sales somewhat or much lower than the first 10 months of 2022, with a scant 15% reporting increased sales.

Expectations for 2024 were less grim. About an equal numbers of shops projected decreased to increased sales, 27% to 25% respectively, with 48% of shops expecting "about the same" sales as 2023.

When asked what factors are driving their future outlooks, all three top answers were negative. Direct-to-consumer bike sales were named as a negative by 69% of shops, increased cost of doing business by 52% and decreasing margins called out by 47%, respectively.

And yet, when asked about their overall outlook for their shops' futures, a surprising 74% reported somewhere between a neutral and very positive outlook. Is this hopeful optimism or a realistic assessment? Time will tell.

One benefit of Christopher Georger's shop list of about 6,500 doors is that it allows us to quote a new crop of retailers each time we do a survey. Here are thoughts from four new voices, along with a perspective from a Big BRAIN 10 retailer.

Robert Garrison, Garrison's Cyclery, Yorklyn, Del.

Garrison's best quarter was Q3 of 2021. "We were deemed essential in April of 2020 and it was full throttle until the winter of 2021," he said. "We saw a steady increase in both sales and service for 18-plus months. And then, it was like somebody flipped a switch and shut off the customer flow for all things bicycle in early summer of 2022."

2023 has represented a slight recovery for Garrison: "We're up dollar-wise over 2022 but tanking on the profit margin because every manufacturer is cutting any and all profits out of their goods ... it's a race to the bottom. Hopefully we can get the margins back up to where they need to be before things get any worse."

He is slightly pessimistic about his future, with DTC sales a huge factor: "We can't be the service department for the competition. ... And if the brands we've cultivated in our area over the last 15 years want to sell consumer direct, they're going to have some frustrated customers because there isn't much their local IBD will do for them."

Ezra Hozinsky, Green Machine Cycles, Chicago

Hozinsky is a bit of an outlier in his survey results. Green Machine's best quarter was Q2 of 2023, a peak shared with a scant 4% of responding shops. Hozinsky is somewhat pessimistic about his future, saying the biggest threat is the challenge of hiring and training staff.

"Agility in the market, mechanical competence, product understanding, and meeting the core needs of the immediate community seem to be the issues defining survival or failure," Hozinsky said. "Beyond cheap e-bikes, there aren't any compelling cycling trends in this region to engage new or lapsed cyclists, or to re-energize those with flat interest.

"It seems like cycling is getting hyper-localized," he noted. "One neighborhood might experience dramatic interest of one type or another, while other areas feel like cycling wastelands. So I'm not sure how studying industry-wide trends will contribute to the planning and success of small independent shops that often survive on their idiosyncrasies."

Clint Morgan, Boone Cycles, St. Charles, Iowa

Morgan called "increased demand for e-bikes" the most significant factor in his future. Third quarter of 2023 was his best quarter of the pandemic, with 2023 sales "much higher" than 2022 and 2024 sales predicted to be level with 2023. "Aggressive bike-manufacturer sales and a fear of everything returning to full retail pricing for next year spurred consumer demand at a time when supply was unlimited," he told us.

He's "somewhat optimistic" about his future: "New model year releases gave bike manufacturers a brief but false perception that they wouldn't need to run discount sales to compete with the oversaturated used market — or at least ease their recently inflated retail prices for the new model year. Wrong! Another tell-tale sign the industry is largely populated by cycling enthusiasts more so than professional business people."

Ben Madary, CycleWorks, Clute, Texas

Madary's best quarter, Q2 of 2020, dovetailed with the survey results. "After Q3 of 2020, business dropped off and we returned to a 2017 sales trajectory. The second quarter of 2023 was a new low for us, the first under-$100K quarter since we opened the shop seven years ago."

"Right now we're not looking too bad; we're $55K ahead of 2022," Madary said. "We're looking for stability in the coming year. I'd like to see similar sales to 2023, somewhere between 2-4% growth would be acceptable."

"We've had a hard seven years of business," Madary concluded. "Our first two years of exponential growth followed by the COVID years of famine and ever-increasing business expenses. We just moved into a more economical location and are optimistic that the lower overhead will lead us into the future of success. We've learned a lot of hard lessons but are on a good trajectory now."

Noel Kegel, Wheel & Sprocket, Milwaukee

We close with last words from a perennial Big BRAIN 10 retailer, Wheel & Sprocket, with 11 stores in Wisconsin and Illinois. The business most associated with the late Chris Kegel is now led by three of his children, Amelia, Tessa, and Noel.

"Our 2023 sales are down 16% from 2022, and our margin dollars are down 24%," Noel Kegel said. "Declining margins have been a perennial issue, and one all retailers grapple with. With that context, the discounting that has been necessary to clear inventory this year has had an acute and severe negative effect ...

"It highlights how unsustainable margins were to begin with. These declining margin dollars are the biggest threat the business faces. We do anticipate 2024 sales to be about the same as 2023, yet we're very optimistic about the store's future.

"With the advocacy of many voices over many years, we're seeing more investment in bike infrastructure and more safe places to ride," he continued. "Inattentive driving and increasing danger of roadways in recent years are forcing cities to put a lot of attention on road safety.

"There are quick, tactical measures being implemented in many areas, and physically separated solutions are being planned and engineered into complete road reconstruction projects (which are slower to implement given longer planning cycles and higher costs).

"Large brands and distributors increasingly acknowledge the importance of local retailers. DTC and online channels are here to stay, but some of the luster has worn off and brands are at least signaling greater interest and cooperation in IBD and brick-and-mortar stores.

"Perhaps we all were a little overly optimistic in the midst of the pandemic to assume that at least some of the increased demand would 'stick' as new entrants to the bike market discovered they loved it and would continue. The challenge is timing, and knowing where exactly we all are in the cycle.

"While there may be some 'stickiness,' we aren't really seeing it yet. The bigger point is that we are generally on a 4-5% annual growth rate over the last 20 years, even factoring in the boom and bust of the pandemic years.

"From data I've seen, inventory was heavy at retail and wholesale levels a year ago. Currently, retail inventories are normal or even leaner than normal, while wholesale inventories are still higher. I believe that wholesale inventories will normalize in 2024, setting up 2025 and beyond for more stable conditions — hence my optimism," Kegel concluded.

Topics associated with this article: From the Magazine

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