The Covid bike bump was not a blip, Specialized’s Bob Margevicius has told industry leaders, it’s the reality into the future. But, he warned, there’s now so little inventory in the market that demand will continue to outstrip supply, leading to lost sales.
“If you believe this is a bubble, it will be a self-fulfilling prophecy, and you won’t have inventory as demand outpaces supply in the years ahead,” Margevicius told a 4 March seminar hosted in Taiwan by the organizers of trade show Taipei Cycle.
The annual expo is being held virtually this year, but the seminars were delivered in-person to a small audience.
Margevicius, Specialized’s Executive Vice President, told Asian industry leaders that they must “invest in additional capacity.”
“The spirit of the presentation was to convince component suppliers to scale-up locally or to establish another production footprint in another location, other than Taiwan or China,” Margevicius told me by email.
“We will only sell what we can make.”
Bike sales went bananas in 2020, with almost nothing left at retail by mid-summer. And with current lead times of up to 24 months, there has been little chance to resupply, a significant headache, said Margevicius, who was in Taiwan to stress upon his company’s suppliers that the Covid surge wasn’t a one-off. (California-headquartered Specialized is partly owned by bike maker Merida of Taiwan.)
“One of the reasons I’m here in Taiwan is to work with some of the component suppliers to try and service the demand and the current needs that are happening in the marketplace,” he said, adding that “component suppliers and the assemblers are struggling to deliver.”
He reminded his audience that bike sales in the U.S. and the EU had surged to 42 million last year, up from an expected 32 million. Because of supply snafus, he expected lower retail sales of 38 million bikes in the American and European markets in 2021, but were stock to be available, retailers could easily shift 52 million bikes, he said.
“It’s essential to increase capacity because whatever demand we don’t supply today is a lost sale.”
Factories must be expanded, he said.
“You need a sense of urgency — it’s critical to develop investment strategies that will enable the bike business to meet growing consumer needs now and in the future.”
He added: “There are billions of dollars in profits to be made by those who believe and invest in a healthier and a stronger business.”
Margevicius, who is also the vice-chair of the U.S. Bicycle Product Suppliers Association, said 2020 had been an “amazing year” but that Covid wasn’t the only factor in bicycling’s success. The desire for clean air, the threat of climate change, and chronic traffic congestion even were the world’s car fleet to be electrified overnight means that “people want bikes, and people are buying bikes.”
The pandemic, said Margevicius, “compressed years of projected growth into just a few months.”
But growth was always on the cards, he pointed out.
“Governments around the world realized [during the pandemic] that bicycles are essential — [the bicycle industry] is suddenly getting the respect and the recognition that we [deserve].”
He said those complaining about the building of protected cycleways are on the wrong side of history.
“You’re starting to see a lot of infrastructure built for bikes — countries like France are ripping out streets to put in protected bike lanes. Infrastructure gets people riding, and governments around the world are investing in ensuring safety [for bicyclists].”
Governments now recognize the benefits of bicycling for transportation, he said.
“People are using bikes for transportation, and that’s not going to change; that’s something that’s here to stay.”
But it’s critical that the bicycle industry steps up to the plate and invests in this future by massively increasing capacity, warned Margevicius.
“We started [in 2020] with about eight months’ worth of inventory. Then in March and April, we suddenly saw a surge, especially as governments identified the bicycle business as an essential business.”
By the summer, inventory levels dropped to historically low levels, said Margevicius.
“Everything that we were getting in immediately sold through.” But there’s now a severe order backlog.
“[The bike industry is] now placing orders 12 to 24 months in advance when historically we were placing orders with 45- and 60-day lead times,” said Margevicius.
“Lead times and demand continue to outstrip supply.”
Order now, and you might get the parts in a little under a year.
“A typical bicycle has 238 different components, so if one of them has a lead time of 300 days, that means everything has a lead time of 300 days,” griped the industry veteran.
Because of previous dips in the market, Asian component makers have been reluctant to invest in additional capacity, but that must change, said Margevicius.
Recent factory efficiency gains of up to 15% won’t cut out the slack, he added. The industry is forecast to increase by 43% by 2030, with especially strong growth in high-margin for e-bikes, said Margevicius.
“The industry is looking at significant gains in the years ahead. There’s a gold mine in the bike business, there really is,” he stressed, “but we have to invest in it.”