The biking industry is still grappling with high inventory levels due to over-purchasing during the pandemic's unexpected demand surge. We can now conclude that this boom was not sustainable. The industry need to de-stock, rationalize more and lay the foundation to win the market in 2025.
1 DEMAND
- After the initial market slowdown in the first months of the Covid pandemic in 2020, the demand for bicycles surged as people looked for outdoor activities.
- However, high sales levels in 20/22 have proven to be a result of market acceleration rather than creation of a new market, effectively shifting future sales in time, with single-digit retention of new cyclists.
- As the travelling and tourism were back, in 23/24 industry bounced back to 18/19 sales levels with a single-digit CAGR on top (in units), which led to overstocking. Value growth is delivered by higher ASP (e-bikes).
- Problems were further amplified by sales agents' incentive structures, which sometimes rewarded for inventory placed at retail outlets rather than actual sales.
- Q1'24 was challenging for the industry throughout the value chain, with leading global component manufacturers and brands reporting up to 20% y-o-y sales decline. Smaller players in the European market facing exits and insolvencies.
- China is currently considered the only market with growth. Having strong distribution capabilities into China is considered a clear benefit.
2 INVENTORY MANAGEMENT
- As overstocking remains a major operational issue in 2024 and interest rates are high, brands need a rigorous and effective inventory clean-up plan (starting with accurate inventory audit and where the items are located).
- Overstocking exacerbated by price drops on bikes, hurting margins and brand's perceived value. Strategic pricing and promotional tactics need refinement.
- A sales push during the summer season of 2024, including marketing and promotions, sales training for retailers, and regular inventory reviews, will be instrumental.
- To achieve inventory clean-up, brands need to ensure transparency over (i) their own stock (in own and 3PL w/h), (ii) open committed POs with suppliers and (iii) remaining bikes in the sales channels. The sales plan to be converted into SKU-level inventory consumption plan. Late spring orders (May, June) should be adjusted based on early season sales data or additional orders for fast-moving items.
- Ageing stock is an area of challenge. Being a couple of seasons old, some components (including degrading batteries) need to be marked down and also re-considered for later potential guarantee claims.
3 CHANGES IN INDUSTRY
- At the start of the pandemic, manufacturers faced severe delays, affecting the availability of essential components and inflating costs as brands were trying to match supply with fluctuating demand.
- Supply chain disruptions and bottlenecks have initially shifted the balance of power in the industry towards (Asian) suppliers, who required higher prices and orders to be covered by guarantees or letters of credit. This balance has shifted again towards the brands as the suppliers have to cope with lower demand for parts. Some suppliers are struggling as a result.
- In the relationship of retail with brands, push model shifted more towards pull model, as retailer are getting more market power and don't take the inventory risk (price and financing).
- Even for the largest brands, retailers are taking more of the lead in ordering bikes based on expected or even actual consumer demand, rather than reacting to the brands' channel push.
- Tendency towards pay-per-use in major cities, requiring different bike types.
4 OUTLOOK: READINESS FOR 2025
- Brands need to ensure they are operationally and financially ready for the 2025 season. Realistic sales forecasts and scenario analysis are essential.
- Businesses should aim to align inventory with real-time demand signals, employing enhanced data analysis and forecasting techniques.
- To recover from margin loss due to excessive discounting, it is essential to improve the product mix while considering the constrained spending power of consumers. Brands will face further price competition and need to improve efficiency and/or focus on brand value/attractiveness.
- Mid-year industry trade should help to validate the product range and sales mix for the next year. Marketing strategy to be adjusted accordingly.
- Pre-orders / booking production slots should likely stay conservative.
- Improved coordination across the supply chain can help align inventory levels with actual market demand and avoid distress of important suppliers.
- With contracting sales projections, recalibration of operating models is essential. This includes rightsizing and optimizing operational overheads such as warehousing costs and SG&A.
Originally published 04 June 2024
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