<b>USA 2008:</b> Bike Market Not Immune to Recession
It started in the US with the bankruptcy of Lehmann Brothers, one of the country’s biggest banks. And it looks as if the United States is being hit the hardest by the global economic recession. What about the effect on the US bike market? This market report presents the facts and figures on the US market in 2008 while the panel looks at the huge impact of the recession on US bike imports during the first quarter of 2009. Those dark clouds were already apparent during the last quarter of 2008.
WASHINGTON, US – It started in the US with the bankruptcy of Lehmann Brothers, one of the country’s biggest banks. And it looks as if the United States is being hit the hardest by the global economic recession. What about the effect on the US bike market?
This market report presents the facts and figures on the US market in 2008 while the panel looks at the huge impact of the recession on US bike imports during the first quarter of 2009. Those dark clouds were already apparent during the last quarter of 2008.
USA: Bicycles Sold (in millions)
Source: NBDA & Gluskin Townley Group
Like many other countries, it is said in the US that the bicycle business is recession proof! However, a look at history proves otherwise.
In the early seventies the US enjoyed a real bike boom with the ten-speed trend pushing sales to over 15 million units. But with a recession hitting the country in 1975, sales dropped to 7.3 million units a 48% drop in one year. In the years thereafter consumers again started buying more bikes but with the next economic downturn taking place in the early eighties bikes sales again suffered, dropping to a low of 6.8 million units in 1981. The next recession in 1990-1991 didn´t impact the US bike market at all as sales grew in each of the two years of this recessionary period. But that wasn´t the case with the first downturn in the 21st century. In 2001 sales of 20 inch and over bikes declined to 11.3 million bicycle units, 18.9% down on their 2000 level.
In a study performed by the Gluskin Townley Group consultancy for the US National Bicycle Dealer Association NBDA, consultant and bike industry expert Jay Townley concludes that "There are two factors that have driven bicycle sales from suppliers to retailers down over the last 43 years: high US unemployment over eight percent as was the case in 1975 and 1982, and high inventory of bicycles held by retailers and suppliers, as was the case in 2001 when unemployment peaked at 4.7%.
High inventory also contributed to the drop in market consumption in 1975 and 1982. Just how recession resistant is the US bicycle business? An interesting question and one that no one knows the answer to today. As with most things, we will have to wait to see what history tells us about a year from now. What we do know is…2008 will indeed be a year that everyone will remember!"
Value and units
In dollar terms the sale of new bikes as well as bike products including apparel only dropped slightly in 2008 compared to 2007. Total sales stood, according to the statistics gathered by the National Sporting Goods Association (NSGA), at USD5.952 billion, down 2% from 2007. By category, cycling wear was down from the previous year, cycling footwear was up and bicycles & suppliers were down. Over the nine years from 2000 to 2008, total retail dollars increased by $119.1 million or 2%.
That small increase turns negative if the rate of inflation in that nine year period is taken into account, along with other economic indicators like the growth in Gross Disposable Product (GDP) over this same period.
In terms of units, the US market consumption is estimated at 18.6 million bicycles in 2008, an increase of 1.9% from 2007. It is estimated that 346,348 more bicycles, of all types and wheel sizes, were sold in 2008 compared to 2007.
The 18.6 million units include all the juvenile, kid and toy bikes with wheel sized of 19 inches or less. It is estimated that in 2008 5,095,446 19-inch wheel and smaller bicycles were imported.
The 1.9% sales increase in 2008 over 2007 is, when viewed from the perspective of the last ten years, just below the average of 18.7 million units and ranked as the fourth best out of the last ten years in overall market consumption. During that decade the highs were 2002 at 19.7 million units and 2005 at 19.8 million units. The lows over the last seven years were 2006 at 18.3 million units and 2007 at 18.2 million units. All this means that bike sales in the US remained flat for the past seven years.
In his study for the NBDA Townley concludes "2008 is within the historical boundaries of the last decade, but the economy will most likely intervene going forward. It is highly probable that 2009 will be a down year for the overall U.S. bicycle market in terms of apparent consumption, and very likely that the down turn will be somewhere close to what actually happened during the last recession, in 2001." As noted above, during that year sales dropped 18.9%.
Almost all bikes sold in the US are imported. 2008 imports stood at 18,579,786 bicycles of all wheel sizes, an increase by 346,348 units or just under 2%. In terms of dollars an increase of 231 million in FOB value was registered in 2008 compared to 2007, a value increase of almost 22% and an average unit value increase of over USD 11, or 19%. Total FOB value is significantly over USD 1 billion for the third time in the last four years and represents an all time high for the total value of US bicycle imports at USD 1.3 billion.
A good portion of the 22% increase in the dollar value of the total imports is attributable to price increases from China, the primary source country for US bicycle imports.
20-inch wheel bicycles have the largest share, with 31% of total imports, followed by 26-inch wheel bicycles with a 28% share of the total for the year. Looking at the FOB value share for each product category, 26-inch wheel bicycles accounted for the largest single share of FOB value at 40% of the total, followed by 27-inch and 700c following with a 25% share of the total annual value of 2008 bicycle imports.
Starting in 2005 average unit values started to increase overall, and have continued to increase through 2008. Specifically, the increase in the average FOB value of 27-inch & 700c wheel bicycles continues to be the driver in this reversal, along with the increase in average value of the 26-inch wheel import category.
Almost all bikes imported come from China and Taiwan. They account for 99.5% of total annual US import units, about the same as the last three years. China is the primary source country for bicycles, making up 95% of total US import units.
US bicycle imports from Taiwan were up substantially in units, by over 21%. While bicycle units imported from Taiwan captured just 5% of total U.S. unit imports, the FOB value of USD 325 million captured 25% of the total FOB value of all US imports.
Parts, Accessories & Rubber:
During the course of 2008 bike shops reported increases, and in some cases dramatic increases, in service work and sales of parts, accessories and rubber as the result of more used bicycles being activated in the marketplace. This is demonstrated by the increase of 6.8 million more tubes, or a jump of 28%, followed by 1.4 million more tyres for an increase of 18% being imported in 2008 compared to the previous year. Townley says "Our analysis indicates these unusually large increases in imports of rubber, and the other items are an indication of the impact that the surge in used bicycles had on the 2008 bicycle market."
US bicycle exports increased again in 2008. In unit terms, exports increased by 1.7% to 359,027 units and in FOB dollar value they increased by USD 7.7 million dollars, or 6% to somewhat over USD 128 million. Taiwan is the most important customer for US bicycle exports due in large part to what the Taipei Chamber of Commerce says is the “…cycling craze (that) has swept Taiwan in recent years, changing not only habits of recreation and transportation but also consolidating the island’s status as the world’s center of high-end bicycle production.” During 2008, Taiwanese domestic consumption of bicycles shot up to an estimated 1 million units, including imports from China and the US.
Canada has remained number two export market for the last two years, after being the US largest export market for bicycles for over a decade. However, Canada received 29% of total export units from the US, and 34% of the total FOB value of US exports, with a high average unit value of USD420.32.
Channels of trade
A big majority of all bikes sold in the US are delivered through mass merchants. In 2007 their share of overall units had shifted down slightly to 73%, and in 2008 moved back up to 74%. In terms of value mass merchants score a 35% market share. Sporting goods retail chains have in 2008 a 6% share in units and 9% in value sales while IBDs score a 17% share in units and 50% in value.
The IBD retail channel shows an increase in estimated retail dollar share of the US market, and the channel’s average unit value hit a new high of USD500 in estimated retail dollars. The mass merchant channel of trade has been in somewhat of a transition over the last six years, from 2003 through 2008. This transition includes the introduction of higher priced ‘chopper’ style bicycles that increased average unit retail and overall market share in units and dollars. However, chopper sales have dropped off appreciably for both the suppliers and mass merchant retailers.
Townley says "The IBD channel´s increase in retail dollars is driven by the increase in sales of road 700c and mountain full suspension bikes at over USD1,000 retail. The road 700c surge receded in the bike shop channel in 2006, and actually declined a bit in 2007. However, hybrid 700c bicycles filled in the gap, although at lower retail price points. With this said, the specialty bicycle retail channel hit a new high for average unit value in 2008 of USD500."
Aftermarket sales, consisting of parts, accessories, rubber, clothing and shoes are an important part of the bicycle business. Sales in this segment are estimated at USD3.2 billion in 2008. Bike shops have the largest piece of this take with a 32% share while Mass Merchants come in second with 24%, Sporting goods chains are 3rd with 23% and DIY stores and others are 4th with an 18% share.
Townley notes in his report "There is intense competition in the mass merchant channel where companies like Pacific Cycle have established an aggressive licensing program for its trade names like Schwinn to other companies selling into the mass merchant channel, in addition to the acquisition during 2008 of one of the largest rack-jobbers of bicycle parts, accessories and rubber to the mass merchant channel of trade.
In the specialty bicycle retail channel companies like Trek, Specialized, Giant and Raleigh USA have continued expanding their parts, accessories, rubber and clothing programs to include their own private label merchandise as they actively seek additional sources of revenue and profitability. Included in the other channels of distribution for bicycles and bicycle aftermarket products are mail order retailers, Internet retailers and all other local and regional retailers of bicycles and related products, for example, hardware stores. This is a diverse group, and not really a clearly defined channel of trade, but a mixed bag that we need to pay close attention to as it evolves."
1st Quarter 09: US Imports Down Hard
According to the latest figures bicycle imports into the US during the first quarter of 2009 saw a dramatic drop of 30.8% compared to last year. In units, the US imported 1.1 million fewer bicycles so far this year. Remarkably, the average value increased by 37.2% in the same period. The average FOB value now stands at USD 96.60 against USD 70.41 in 2008.
The 27-inch and road-race segments are only ones that continue to grow. In the reported period sales in units went up by 16% in units and 28% in FOB dollar value during the first quarter of this year compared to the same period last year. However it is unclear if this category is growing in actual sales to the consumer or backing up in wholesale and retail inventories.
In the past eleven years US bicycle unit imports during the January-March period have never been so low. However, the FOB dollar value in the same period is the second highest in eleven years and the average FOB unit value is the highest over the past decade.
Generally the first quarter US bicycle imports represent an average of 20% of total annual imports each year. Accordingly, the first three months represent one-fifth of the year’s total units. The second quarter imports will be more important in determining the course of total US bicycle imports and market consumption in 2009.