Boom and bust in the bike industry
by John Neugent
Tech articles | Commentary articles |
John Neugent probably knows more about bicycle wheels than anyone else alive. Maybe more about bikes as well. He's spent his life in the bike business, at every level. He now owns Neugent Cycling, a firm devoted to delivering world-class equipment at the lowest possible price. If you are in the market for a set of wheels, please, check out John's site. He really knows his stuff. —Chairman Bill
Author John Neugent
Les Woodland's book Tour de France: The Inside Story - Making the World's Greatest Bicycle Race is available in print, Kindle eBook and audiobook versions. To get your copy, just click on the Amazon link on the right.
John Neugent writes:
I got into the bike industry in 1973 by joining Scott Johnson in his bike shop. A group of our friends wanted to by some bikes and they reasoned that if they could get about 10 people together they could buy them wholesale. The speed at which they got 10 people together made them think it could be a good idea to open a bike shop. That’s exactly what Scott did. So he rented half of the shop space I was in. At the time I was running a leather store.
The bike boom of the late ‘60s and early ‘70s made lots of bike shop owners rich. You could sell bikes as fast as you could get them. I joined his shop and shut down the leather store. He needed help and I needed money. We bought out the other bike shop in town in July 1974. Until that time we were working long hours and were always struggling to keep up with the business. I was the one who went to the other shop location to get it ready as we intended to merge our business at that location.
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The first couple of days almost no one came in the shop. I was happy because I didn’t want the distraction of customers. After about a week of this I knew something was wrong. The boom had ended.
About five years later, I worked for a bicycle components wholesaler who said their 1975 business was off 40% from 1974. The boom was over. Everyone in the industry was saddled with huge inventory. No one was buying bikes. It had stopped on a dime.
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We are going through the same thing now, which was actually very easy to predict because the cause of this mini boom was clear – Covid. Lead time to get components for Taiwan and China went from 60 days to over two years. Many large bike shops saw the writing on the wall and sold out. The perfect time to sell is when you have had a very profitable two years and know that it’s going to come crashing down.
The main component manufacturers like Shimano and Sram knew it and refused to expand their factories, thus the long lead times. Anyone with any experience could see that sales that were actually generated did not justify those long lead times.
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When you have a boom and customers scramble to buy bikes, if one shop doesn’t have what they want they will call more shops. If you have one customer who calls five shops, five shops think they lost the sale so the perceived demand is much larger than it really is. Incidentally, the same thing happens when there is no boom but when a brand sells out of a popular item. All the distributors and retailers get an inflated view of the lost sales.
And now we’re going through a period of excess inventory. Brands are changing sales policies to increase sales by discounting and selling direct to consumers. One of the worst feelings in the world is buying a bike that retails for $800 which costs about $480 only to have the brand first load the shop up and then to reduce the suggested retail price to $600. The double whammy has major implications for bike shops because profit margins like that are not sustainable. So my advice is to support the retailers you like doing business with.
They may well need it.
John Neugent was one of the first to establish the making of quality hand-built wheels in Taiwan around the turn of the century. He now owns Neugent Cycling, a firm devoted to delivering world-class equipment at the lowest possible price.