“Right now we're either closing in on, or are right on top of, one of the greatest potential inflection points our industry will ever face.” That’s Mike Jacoubowsky talking. In addition to a half-century in this business, he’s an NBDA board member and partner in the Chain Reaction Bicycle Shop in Redwood City, California. Jacoubowsky is talking about the current state of the bicycle industry.
And I think he’s right.
In business terms, an inflection point is when significant change occurs. And that’s certainly happening. But here’s another way to look at our increasingly chaotic industry.
An engineer will tell you that a change in the position of an object can be defined as velocity. A change in velocity, either positive or negative, is known as acceleration. And changes in acceleration, well, those are called jerks. You can figure out your own punchline here.
To expand on what Jacoubowsky says, what we have coming up after the inflection points is going to be a series of jerks. The industry is changing, fast. And not only that, so is the rate of change itself. And even that rate is changing, too.
This is not business as usual, although in some of the lulls it may seem like it. This is business as it is right now and business as it probably won’t be tomorrow, or again anytime soon.
Last month, I wrote about three vectors that I thought were driving the inflection: flat to declining ridership, product oversupply, and the possible coming recession. This month, I want to identify two of the likely results.
#1 Retailer churn: getting out (hopefully) while the getting is good
Historically, we’ve seen the number of U.S. retailers remain fairly constant at about 7,000 storefronts, according to both Georger Data Services count of bike brands’ dealer lists and QBP’s own dealer list as of a few years ago. We lose about 400 storefronts per year and pick up about the same number of new businesses, giving the retail side of the industry a net churn rate of not quite six percent. We’ve also seen retailers selling their businesses to Trek, Specialized or Pon, or simply shutting down entirely, for a couple of years now. But the trend seems to be accelerating, partly because there’s a whole generation of dealers reaching retirement age and partly because there’s never been a better time to get out.
As I write this, the East Coasters bike shop of Roanoke and Blacksburg, Virginia, and the American Cycle & Fitness chain, with eight locations in the greater Detroit area, have both announced they’ve been purchased by Trek. Other business owners are just ready to call it quits, like legendary retailers Mark Mattei of Chicago's Cycle Smithy and Cupertino Bike Shop’s Vance Sprock, who are clearing out inventory and getting ready to shutter their doors forever. (Editor's note: Watch for a story about Sprock in the September issue of BRAIN).
That’s 11 successful business locations in about a week, in addition to shops which we just haven’t heard of closing, or sales to Specialized or Pon, who prefer to keep these things on the down-low. What’s less clear, in the cases of Mattei and Sprock, is whether new retailers will spring up to replace them or if the number of dealers in those fertile markets will be allowed to dwindle.
For what it’s worth, my money is on the churn rate increasing (acceleration) and the rate of acceleration changing over time (jerk). One month it may be a relatively few shops closing down or being sold or being started, a few months later it might be a lot. What the net effect on the retailer population will be is anybody’s guess.
I also expect we’ll see an increased rate of suppliers going out of business, or changing ownership, or having their brands acquired by other entities, both inside the cycling industry and out.
#2: (Almost) everything’s on sale, (almost) all the time
There is a tsunami of excess inventory pouring into the channel and no drain large enough to it all through the pipeline.
“A year ago, everyone was touting a backorder system for aftermarket products. This was going to be the best thing since sliced bread. It looks like a lot of mold has grown on that loaf since then.” That’s independent rep Herb Hart talking. Hart works in the New York metro area, and he sees an oversupply wave looming.
So what happened? Tons of orders went into the system with an unknown ETA, Hart says. Distributors reacted to the demand and ordered from their manufacturers; they, in turn, ordered from their raw material suppliers. And now there is a tsunami of excess inventory pouring into the channel and no drain large enough to pull it all through the pipeline.
After two years of retailers not being able to get the products they need, the supply tables are rapidly turning. For sure, there are some categories where supply is still scarce, such as bikes over $1,000 retail and premium-priced e-bikes, not to mention high-end parts from SRAM and mid-to-high-end from Shimano. But suppliers and retailers are already overstocked with inventory in other areas. And too much inventory leads to sales promotions to try stimulating consumer demand with lower prices.
On the mass market side of the business where the bike racks had been mostly empty since 2020, Walmart is now offering discounts of up to 25% on anything with two wheels — e-bikes, mountain bikes, kid’s bikes, you name it. And many traditional bike shops are already starting to offer strong discounts on current-year products, trying to reduce inventory while sales demand is still strong and backordered product continues to make its way to dealers.
Look for this trend to continue for the foreseeable future, and for progressively deeper discounts (acceleration) to try motivating increasingly jaded consumers as supply continues to exceed demand in many segments. Meanwhile, businesses will struggle to pull ever-changing categories of product at ever-changing levels of discount (jerk) through the pipeline.
Whether supplier-side or retail, successful business owners can take market changes in stride. What drives them nuts is chaos, where what’s happening is difficult or impossible to predict. And that’s exactly what we’re going to get in the coming months.
So who are the winners and losers in the coming bedlam? Large operations with deep pockets may be able to create a buffer between themselves and an ever-changing market. But sheer monetary assets can only take you so far. The real winners will be the most agile ones. The ability to respond and take advantage of sudden and drastic shifts in market conditions will be critical, and that’s true of both retailers and suppliers.
The inflection point has arrived. Now it’s time to prepare for the coming jerks.
