Editor's note: Phil Latz is an Australian bicycle industry reporter, publisher of Latz Report and Micromobility Report, covering both the Australian and New Zealand markets. He shared his forecast for the bicycle supply chain in 2021, and he believes that most of the knowledge he learned in Australia still applies to North America. 

If you own or work in a bike shop, I strongly recommend that you read this article. It may not be pleasant to read, but I hope it will help you through 2021... at least a bit better than those resellers who don’t read it.

As Australia's only professional bicycle trade media person, I find myself in a unique and superior position. First of all, because I am neutral like Switzerland, I have the opportunity to talk to every wholesaler and retailer, not just importers or distributors of certain brands.

Secondly, I am grateful that members of the bicycle industry have been generously investing their time and candidly comment, because I understand that any information that is not shared publicly will remain in this way.

Due to the COVID-19 travel restrictions finally lifted, I was able to take a few road trips recently and meet face-to-face with most major bicycle and P&A wholesalers.

Summarize their hours of comments into one paragraph: "If you think there will be tight supply in the second half of 2020, then you haven't seen anything! 2021 will be even tighter, possibly a whole year."

I will first detail how key industry members came to this conclusion. Finally, I will suggest that you can take some steps to help your store through another challenging year.

As we all know, our collective bicycle industry COVID-19 story so far is that after some initial uncertainty, demand for our products took off in March and kept running at full speed, at least for most dealers until June or Around July. Then the combination of winter and supply constraints began to be affected and the situation stabilized, but still much higher than the altitude we usually fly every month.

This leads to the first problem in 2021. In fact, the wholesaler usually holds all the reserve inventory that the retailer can order on demand is sold out. On my road trip, I walked through the empty aisles of warehouses that can usually hold 10,000 bicycles instead of a few hundred. A company reports an inventory of 107 bicycles, which is usually 18,000 bicycles. The other smaller warehouses are completely empty, and the next two to three shipments have been fully pre-sold.

They use different distribution systems, but in any case, every wholesaler is rationing bicycles, and those bicycles that land can go in and out without even leaving the loading dock.

Most bicycles arrive in Australia in 40-foot "high cube" containers. The transportation cost of each container has skyrocketed. According to the wholesalers I interviewed and their specific contract conditions, the typical increase is between 300% and 400%, from the usual $1,200 to the current $4,800.

After the peak summer season, this number should decline, but there are also major disturbances caused by waterfront disputes, COVID-19-related fumigation issues, and the escalating trade war with China that exacerbates the backlog of empty containers waiting to return to China. other problems.

So next time you hear one of your suppliers talk about shipping issues and delays, they will not make up!

Shimano is the most talked about. It is by far the largest parts manufacturer in the world. Several bicycle brands told me that they must order Shimano parts 400 days in advance. It's been more than 13 months!

But it's not just Shimano. Obviously, Velo saddles, which are the market leader in saddles and are mainly manufactured for many other brands, are quoted with a lead time of 480 days. This has been more than 15 months. In other words, order now and deliver in March or April 2022.

Given that Shimano is far behind, some bicycle brands choose to specify components from second- or third-tier manufacturers in order to minimize delays. But because these companies are much smaller, "Shimano overflow" accounts for only a few percent of other orders, and their delivery time has been extended.

Most bicycle wholesalers I have spoken to have already completed their orders for the 2022 model year (mainly for production in the second half of 2021), and some have already had to commit to production in early 2022. They are told that there will be no chance to increase orders in the future, so they have to make and live based on very long-term forward-looking estimates.

It's not just the increase in demand that is causing problems for the factory. Bicycles have a complex supply chain, with up to 50 different component lines on each specification sheet, defining components that may come from several different countries/regions, such as China or Taiwan, before the final bicycle assembly.

If any of these components cannot be provided on time, the bicycle will not be manufactured. Therefore, the strength of production depends on the weakest link in the chain.

When you visit a bicycle factory in China or Taiwan, you will notice large, fairly basic multi-storey apartment buildings, usually located on or near the factory site. These are the homes of "guest workers." As far as Taiwan is concerned, they are mainly from low-wage countries such as Indonesia, the Philippines, Thailand, and Vietnam. In China, they usually come from poorer inland provinces.

The report estimates that the number of guest workers living in Taiwan alone is usually between 700,000 and 800,000. COVID-19-related travel restrictions have caused multiple logistical problems for guest workers, leading to labor shortages and disruptions.

Another consequence of the supply shortage is that you can expect bicycle prices to increase. In fact, some suppliers have announced price increases.

The boom in bicycle demand is not just an Australian phenomenon. According to extensive data that I will not detail here, if any, the demand growth in the United Kingdom, Europe and the United States is even greater.

Given that these markets are much larger and more important to the global bicycle industry than Australia and New Zealand, production competition, especially during the period from April to June, is always at its peak in the northern hemisphere and may be very fierce.

Although it is difficult to predict with certainty, before the end of the northern hemisphere summer, our market is likely to experience a supply drought.

Of course, if consumer demand for bicycles declines and the boom suddenly turns into depression, one of the legitimate concerns of Australian wholesalers and retailers may be an oversupply of inventory.

Inevitably, just like toilet paper and hand sanitizer, no matter how high the demand is, the bicycle supply will eventually catch up, and the famine will become an oversupply.

But because global wholesale and retail inventories are so depleted, I don't think this will happen before 2022.

First, it takes a long time to refill all vacant or under-stocked wholesale warehouses and retail stores around the world.

Then, even if the situation does return to normal, I believe that, at least for Australia and New Zealand, this will be a new normal, with a higher baseline level of demand. There are many reasons for this situation, but I think the three most important reasons are as follows:

Improvements in sales-inducing technology for the products we sell are advancing in many categories, from helmets to indoor trainers.

But the elephant in the room is an electric bicycle, whether it is a high-performance electric mountain bike, electric road, commuter, leisure, or other subcategories.

The sales of electric bicycles in Australia, as measured by the sharing of sales data by wholesalers, have just achieved rapid growth for the fourth consecutive year.

Initially this was a small base number, but now this number is becoming more and more important. Sales in the 2019/20 fiscal year were 48,000 units, an increase of nearly 50% from the 32,500 units in 2018/19.

An increase of 50% this fiscal year is very likely, and even conservatively estimated, sales in 2020/21 will reach 72,000 vehicles. With an average retail price of US$3,000 (this is my conservative estimate because no data on sales prices have been collected), this means that for a product category that barely existed in Australia five years ago, the annual retail sales for this fiscal year is 216 million US dollars and only prepared for further development and growth.

In the final analysis, the bicycle shortage we are currently seeing is due to a surge in demand. This increased demand can be traced to two main groups: First, existing cyclists upgrade their equipment. Second, a newcomer to our market.

Once life returns to normal, a large percentage of these newcomers are likely to throw their new bicycles behind the shed or storage room. But many of them will love their unexpected riding experience and want to keep going.

Every dealer knows that frequent cyclists will at least wear out, need parts and repairs. But many of them also decided to upgrade after a year or so, resulting in continued demand for new bicycles.

As far as these thousands of new cyclists caused by the new crown virus are concerned, the subsequent upgrade of bicycle sales will be a new demand that would not have occurred, but this will continue to have a ripple effect in 2020 and even 2021 and beyond.

Our Australian federal government may be lagging behind, but since the outbreak of COVID-19, most state and local governments have been accelerating funding for bicycle infrastructure.

It's not just pop-up bike lanes and other commuting infrastructure. Every million dollars allocated to new mountain bike parks or rail trails will also generate more demand for bicycles and equipment. These projects are usually funded by the tourism budget. The sector has been severely affected by COVID-19, and governments at all levels are keen to stimulate it to come back to life.

Once these projects are funded and completed, the sales revenue of the bicycle industry will continue year after year, so the one-time recovery plan funds will bring continuous benefits to our market.

If you are a bike shop without bicycles, then you are like a bar without beer!

It’s a good thing to talk about alternative revenue streams, and I’m going to do it, but most importantly, for most bicycle shops, bicycle sales will always be the largest revenue category.

This is not a time to be polite, "after you, sir!" behavior.

I recently visited a store that has plenty of stock and more stocks in the back' but I visited other stores that should take this opportunity to paint the walls and upgrade the carpet, because there must be no bicycles to stop them!

Why is there such a contrast between stores?

Well-stocked stores have been vying for every bike they can get. They have been asking for help, using their past relationships with suppliers, paying upfront, and even accepting sizes, models, and brands that they would not normally buy, so they can sell something today and most importantly tomorrow.

They also tend to be stores with various brands.

If supplies become tighter next year, I think even these well-stocked stores may be out of stock, especially if the five to ten stores around them start to be out of stock first. It is inevitable that there will be words like: "Joe's bike shop still has some bicycles!" This is almost like a scene in "Mad Max", because the supply is very tight, people spare no effort to sniff the oil stocks.

I may be wrong. If so, it's definitely not the first time, and I really hope I was wrong this time. But I am worried that some stores will close in 2021 because they do not have enough stock to sell.

If you are already a retailer with a shortage of bicycles, what is the difference between surviving and closing in 2021?

I suggest three main factors:

First, if the supply does tighten further as expected, how quickly and effectively you can reduce overhead costs to match the reduction in sales due to supply constraints.

Second, how do you manage your cash flow, especially the cash windfall you may receive during the epidemic when sales increase and supply is still available.

Third, what alternative income streams you can grow from the current level or create from scratch.

None of these sources of income can match your usual vehicle sales scale, but every bit will help.

Some of the possibilities for building alternatives include the most obvious ones, such as increasing your workshop repairs and P&A sales...recognizing that some P&A lines are also in short supply.

But now is a good time to think outside the box. Maybe you can sell second-hand bicycles, rent bicycles, organize guided tours or other cycling activities, spinning classes, and start a bicycle fitness service. Maybe you can add an auxiliary product line. Especially in rural towns, there are many bicycle shops selling everything from lawn mowers to toys or sporting goods.

All in all, I hope that my forecast is wrong and that inventory supply will improve rapidly in 2021. But everything I have seen and heard in recent months and weeks shows that this is not the case.

I suggest that you should seriously think about and plan your strategy now. If the stocks become more tense in early 2021, what will you do...and then stay in this state for several months, maybe even the whole year.

Read the 2021 sales training guide

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