Bike bubble has popped, says industry analyst Rick Vosper

16th January 2022

The Spokesmen Cycling Podcast

EPISODE 291: Bike bubble has popped says industry analyst Rick Vosper

SPONSOR: Jenson USA

HOST: Carlton Reid

GUEST: Industry veteran Rick Vosper

TOPICS: Any bursting of the bike boom bubble will reverberate widely and could destabilise global bicycle advocacy efforts. This is therefore of potential concern to cyclists in general, argues bike industry veteran Rick Vosper.

LINKS:

Rick Vosper’s Bicycle Retailer articles.

Carlton Reid’s bike boom of the 1970s article on Forbes.com

TRANSCRIPT:

Carlton Reid 0:13
Welcome to Episode 291 of the Spokesmen cycling podcast. This show was engineered on Sunday 16th of January 2022.

David Bernstein 0:25
The Spokesmen cycling roundtable podcast is brought to you by Jenson USA. Jenson USA where you will find a great selection of products at unbeatable prices with unparalleled customer service. Check them out at Jensonusa.com/thespokesmen. Hey everybody, it’s David from the Fredcast. And of course, I’m one of the hosts and producers of The Spokesmen cycling roundtable podcast since 2006. For shownotes links and other information, check out our website at www.the-spokesman.com. And now, here’s my fellow host and producer Carlton Reid and the Spokesmen.

Carlton Reid 1:10
Thanks, David. On today’s show, I’m talking bike boom stuff with industry veteran and former specialised marketing director Rick Vosper, author of some outstanding analysis pieces on bicycleretailer.com. In this hour long show, we discuss whether the bubble has indeed popped. Yes, this is an inside baseball chat. In other words, a deep dive into what you might consider to be of abiding interest to industry types only. But as Rick explains, the bursting of the bike boom bubble, reverberates widely, and could even destabilise global bicycle advocacy efforts. This is therefore a potential concern to cyclists in general.

Rick, um, I know your industry background, your long industry background, and and that people who’ve listened to this or regular listeners to this show people who doesn’t disrobe before, probably know some of your background, because you’ve been on the show before and you’ve told people, but for new listeners, that people who don’t know who Rick Vosper is, and his illustrious background in the industry with a bunch of companies that everybody knows, can you give us a thumbnail sketch of where you’ve come from, in the industry, maybe where you are now even and that can be geographically to.

Rick Vosper 2:48
Industry wise, I’ve been in bikes since the summer of 1980. I was in and out. In addition to the bicycle industry, I’ve had a parallel career in advertising. But within the bike industry, I’ve been director of marketing for specialised bicycles and four cervello bikes and a couple of other smaller companies. Right now I’ve got a little consulting business I do that is almost entirely bike industry business. So companies come to me when they want to bring a brand to market or are having problems with a brand.

I can do that in my associates can do everything from writing ads to producing websites and so forth all the usual marketing kind of stuff.

Carlton Reid 3:29
And geographically, where are you?

Rick Vosper 3:36
South Arkansas. My wife has family here. So I was a California kid most of my life and I’ve moved around the country since chasing jobs. But we have a granddaughter here. And so that’s where we are.

Carlton Reid 3:49
Because that’s not like Waterloo, Wisconsin, or other places that are kind of out in the sticks but bike industry central, you’re not bike industry central there at all.

Rick Vosper 4:00
No, not hardly. We’re still two hours outside of Little Rock. And about four hours from Walmart land. Where all the bike development in Arkansas is happening.

Carlton Reid 4:12
And there’s tonnes of stuff happening there, isn’t there, actually with with Steuart Walton. How do you pronounce it? Is it just Stuart and it’s just a strange spelling, Steuart Walton?

Rick Vosper 4:23
I believe it’s just Stuart.

Carlton Reid 4:25
Now, one of the things you didn’t mention in your very brief thumbnail sketch of who you are, Rick was and what I want to talk to you about. And I’ve been a regular reader of yours for a long time. But you do these these fantastic articles.

In bicycleretailer, normally they’re quite long. The latest one is shorter than normal, I would say. But they’re just incredibly cerebral. You’re absolutely using your your background with the various companies and the various people you’ve you’ve dealt with in the industry. So you’re a real

You know, inside baseball,

kind of guy. And these articles are get a lot of traction on on certainly within the industry. And I’m sure because it’s a public facing site, then then people outside of the industry too. So the latest one, there are clearly many, many requests for articles on bicycleretailer, but the latest one really piqued my interest. Because bike boom stuff. And basically where you’re, you’re talking about potentially the end of the bike boom, which which is, which is I guess, you know, everything, you know, anything that goes up has got to come down, I guess. But is that the case? Right? Does it have to come down? Or do you think we’ve got another year two years of growth? What have we got?

Rick Vosper 5:46
Well, depends on who you ask. The nobody knows what’s going to happen because the market is being driven by COVID. And people who had not been cyclists previously, are flocking to bike shops in record numbers, and buying lots and lots of bikes. In fact, more bikes than the than the factory side of the industry can produce.

Carlton Reid 6:06
So who’s telling you it’s going to be the boom’s continuing? And who’s telling you?

It’s not you’d have to name names that have you don’t want to, but just maybe the types of people that kind of the sectors that are telling you.

Rick Vosper 6:19
There are there are two theories at work. The first is that what I talked to retailers and I, we have a whole closed Facebook page where we do nothing but talk about what’s going on in the industry, retailers are telling me that in fourth quarter of 2021, sales declined to the levels they were before COVID. So the 2018 2019 levels. The other theory is that the people who bought bikes in 2020, and 2021 are going to be back and they’re going to bring friends with them. And demand is going to continue to accelerate. I don’t happen to buy that theory.

Carlton Reid 7:00
But there is there is the potential there that because you were mentioning the the channel was was chosen many ways in that factories couldn’t produce, as you said, factories couldn’t produce enough bikes to meet the demand. So might there not just be that latent demand there that couldn’t

you couldn’t meet that demand during the pandemic, because you couldn’t get the stock now the stock is coming. You know, Wouldn’t that just be instantly sucked up by the people who wanted bites but couldn’t get them?

Rick Vosper 7:30
It certainly could. And that’s one of the variables we’re trying to look for. Right now, when people on the supplier side of the industry, look at their forecasts, they’re saying some of them are sitting senior executives at very large bike companies are telling me that by May of 2022, there should be inventory at suppliers. That’s an addition to the inventory at bike shops. So they’re forecasting May of 2022 supply will eventually catch up with demand.

Carlton Reid 8:02
Now before anybody I mean, people might have tuned into this and think, Ah, they’re just talking about industry so I’m gonna tune out again,

can like, express how this is actually potentially important for consumers too, because the more people who buy bikes and carry on buying bikes, touch wood, the whole

sector rises and that benefits everybody. So the more people bicycling, the more people getting on bikes is a good thing for everybody. So this is not just an inside baseball chat we’re having here. This is something that could impact everybody who gets on a bicycle either recreationally or transport. Would you say that’s a fair reflection of why people should be interested?

Rick Vosper 8:47
It absolutely is. More people on bikes make cycling better for everybody, including people that don’t ride bikes.

Carlton Reid 8:54
Yes. How so? Sell that one to me, Rick.

I’m a redneck, sell that one to me.

Rick Vosper 9:02
Like my neighbours, you’re saying?

The idea is the more people are buying more cycling culture flourishes. That has implications for how cities are built. It has implications for fitness levels, for anti obesity, and for all the things that your listeners know are great about bikes. And the more of it it is, the better it is for all of us. And even the people even your redneck motorists benefit, when there are fewer people in cars, they may still curse the bikes that in their opinion are blocking the roadway. But at the end of the day, there’s going to be less density of traffic and that’s better for the people in cars too.

Carlton Reid 9:50
I would I would tend to agree there. So then it’s that also means it’s a bad thing then potentially if the industry goes down, because there’s less less than

marketing dollars to be pumped into advocacy, or pounds or, or euros. You know, this is a global industry. So we need more bums on seats basically.

Rick Vosper 10:10
Yes, absolutely.

Carlton Reid 10:12
So going back and this is you said before you’re 1980. So this is clearly before your time, but you will absolutely know this because these are all, you know, industry tropes. So the last boom, the real big boom, and I’m not I’m not counting mountain bikes or BMX here, because they were big, but they weren’t as big as this. So the 1970s bike boom, you know, when it went from virtually nothing, just a few million to like 15 million bikes. So almost, within six months, it just went through the, through the roof. But that that did fizzle out, it did die. And so I wrote in a Forbes.com article, looking at

the lessons from that potential lessons that we could learn from today. However,

many of the companies that actually

came out of the bike boom, some of them weren’t founded, you know, to benefit from the boom. But they’re just people were turned on by bikes. And then some of those people actually found the companies that we basically dominate the industry now. So Specialized is a post bike, boom, 1974 ish company; Trek is pretty much a bike boom, they were there a little bit beforehand, but, you know, their growth was certainly the bike, boom, post bike, boom, kind of, you know, growth, and then Cannondale, and even you can Giant, you can say, because of, you know, King Liu, you know, had to, you know, stop his, his fish farm and go and do something else. So he came from the from the bike boom, too. So, do you think, if even if we do have, the bike trade does go down, we do have a dip, that there’s potentially some interesting things underneath the water that could be happening. So whenever you get more people into a sport, we’ve got an activity during the bike boom, that can actually refresh the gene pool in many respects. Do you see anything like that potentially happening?

Rick Vosper 12:10
Well, I think two things. The first is, I don’t see the the boom that we currently have been experiencing continuing into 2022.

What I’m saying is, there’s going to be a massive amount of inventory of dealers, shelves, and wholesalers by May. And there just aren’t the number of consumers demanding bikes that we’ve seen in the last couple of years. This puts us back into a scenario where there is more more inventory in the in the industry in the channel than cars, consumer demand will support. And that means dealers are going to be stuck with tonnes of inventory on hand, they’re going to have to discount it in order to bring it out. This is a nice thing for cyclists because they can get bikes for cheaper. But it’s a little hard on the mechanics of the industry.

Carlton Reid 13:00
So that’s always a difficult topic to talk about when it isn’t inside baseball chat. And we are revealing that there are probably going to price is also almost like a self fulfilling prophecy of you. If you then tell people that our prices are going to go down in three months, they may just hold off any bike purchase, they were gonna make, you know, now. So there’s always a danger of basically talking about this actually creates it.

Rick Vosper 13:30
It absolutely does. In fact, when we go back, let’s say 10 years,

where, right after the Great Recession worldwide, but particularly in the United States, we’ve been importing about 12 million units per year in bikes with wheel sizes, 20 inches and larger. And this does not include electric bikes, which have their own their own playpen. We’ve been importing about 12 million units to the United States per year.

And that has always been an oversupply historically, again in the last 10 years. And consumers have been trained to wait a couple of months and they know prices will go down now, in 2020 and 2021. That was not the case. It was if you want to buy come into the shop now and maybe you can get it

I’m forecasting an increase in supply that’s not matched by demand.

So to your question, yes. Consumers may choose to wait, but that isn’t anything they haven’t been trained to do by the industry going back to the to the Clinton administration.

Carlton Reid 14:42
Hmm, no, totally. So savvy consumers have tended to to wait because they know there’s going to be this this turnover where you’re going to get the discounts appearing at this time for next year bikes. Mm hmm. That’s not good.

So, I used to edit BikeBiz. So I founded it in fact. So I was incredibly connected to the industry at one point, I am absolutely no longer quite so connected but still very interested, of course. And then I see things that have really changed the industry, you know, really radically in the in those few years since I’ve been away and I’m one of the things that’s happened recently has been the entrance of Pon. And Pon has been steadily buying up companies over the last number of years. They’re basically a car retail company in Europe, and they’ve been buying all these bicycle brands. And tell us about their October I think, $800 million. So what do they do with that $800 million? And how important do you think it is that Pon is now really muscling in on the scene?

Rick Vosper 15:58
I think it is tremendously important and it’s one of the biggest changes in the industry in the last 15 or 20 years. We have a new player who has come out of basically nowhere and is now the largest supplier of bicycles in North America. Have bike shop level bikes, not like Kmart or Walmart level bikes. What Pon has done is was unexpected and it is absolutely game changing

to the extent where the new Pon lines which would be Cannondale

Cervello, Santa Cruz

Focus, GT. Yes.

Carlton Reid 16:44
Schwinn?

Rick Vosper 16:44
Schwinn is not part of the cycling group package. So it’s a different it’s a different division of Dorel, and only the brands in CSG, like sporting group division, or were sold to Pon.

Carlton Reid 17:01
So, the bike shop bikes basically not right, not the supermarket, right?

Rick Vosper 17:05
Right. Correct. So this makes Pon suddenly a 900-pound gorilla in the industry. They have the potential to displace Giant as the number three brand. If you consider the constellation of Pon brands, which in addition to the brands I name from the US they have an outstanding portfolio of European brands, including Focus, which is a soup to nuts, very high end, European brand that’s starting to get a little bit of traction in the United States, and Kalkhoff and others

specialise in the in the e-bike side of things.

Carlton Reid 17:45
Absolutely going vertical then are they going to go into really buying lots of bike shops, you know that the retirees the people who founded their bike shop in the bike boom of the mountain bike boom of the 1980s and now you’re looking to retire is it gonna be a whole slew of them bought up by Pon?

Rick Vosper 18:03
Not necessarily by pawn there are three bike companies actively buying up mic shops. And as you suggest, a lot of times the scenario is the owner got in in the 80s or 90s. They’re looking at retirement now. bike shops have historically been very hard to get value for when they’re sold to a new owner. But this will change now we have three companies, trek specialised and now pawn, who are competing to buy up key bike shops in major major market areas.

Trek, for instance, own somewhere between 100 and 200 bike shops in the USA just owns them outright. Mm. Specialized is playing catch up. Recently.

Recently, Trek has been buying up shops that were former Specialized dealers and turning them into Trek dealers.

So the objective is to own a bike shop in every key market in the United States. And depending on how you depending how you count it, there’s about 10 of these that include Northern California, Southern California, Colorado, Pacific Northwest and so forth.

But Pon is entered in Pon has the deepest pockets of in theory of any company in the industry. They can buy any bike shop they want. It’s just a question of how much they want to and what their strategic growth is.

You have to consider that with the Pon brands and let’s just use the American facing ones, which is Cervello, Santa Cruz, and now the Cannondale Sporting Group, Cannondale’s Cycling Sports Group, which is Cannondale and GT and so forth. All those brands have the same existential problem. They can’t get into enough good bike shops to give the brand’s traction in the market. So the solution is we’ll just buy the bike shop as well as you

as well as sending our sending our products to other bike shops.

Yeah, it’s gonna take a lot of shops to be purchased for Pon to achieve a significant market advantage over say Giant, which is currently the number three brand in the market. But their pockets are deep. They have shown the same pattern of behaviour in Europe, in the car hire market and as well as in the bicycle business.

Carlton Reid 20:28
Potentially Rick Sorry, sorry, I’m sorry, interrupting you. I’m gonna come with a question and just have to blurt out. Potentially this is a good thing for everybody.

Because the bike trade, the bike industry has been played for 120 years, and we were talking a long time of the route to market has mainly been through independently owned bike shops, but they’re atomized, you know, they do their own thing. They’re hard to control. They’re hard to professionalise, because they’re doing their own thing. Sometimes that has strengths. But that also has very, very obvious weaknesses. It’s like it’s a cottage industry kind of thing. But with Pon, and all of these other companies are presumably going to be trying to compete with Pon that potentially could have say three or four big groups who then own and probably professionalise bike shops. So wouldn’t that just be an overall good thing, er, for consumers?

Rick Vosper 21:34
It could be a good thing depending on what they do. On the other hand, there’s going to be less variety in the market. So you have to be like an automobile dealership in the United States, you go to the Ford dealer, you go to the Audi dealer, you go to Mercedes dealer, and you see that brands stuff. But consumers particularly in the United States are accustomed to having a choice of brands when they walk into a store. Now you have to, you have to ask the the analogy I always use is an English pubs.

Where you have tied houses that are beholden to a brewery that owns or is taken up a position with with the individual pubs, and then you have a few independent pubs, and more often necessary to create a healthy ecosystem.

In fact, in the in the UK, and now in the United States, you have the Campaign for Real Ale, supporting traditional independent pubs.

Because consumers like getting different kinds of beer, and in this case, different kinds of bikes. And healthy industry is one that has a whole bunch of involved and profitable players in it. That’s good for everybody.

Carlton Reid 22:48
But can you be can it be profitable if there are so many players so that’s probably one of the weaknesses of beer also, it’s very, very cheap to become a bike company even cheaper to become a bike shop but certainly cheap to become a bike company you just go to Taiwan you buy a bunch of your your bikes, you get the stickers put on, boom, you’re you’re you’re a bike brand. So because the entry level getting into the bike country is so cheap in comparative terms, just the same as you know, it’s very cheap to become a you know, a micro brewer and launch your brand that way into the beer market. But it then makes so many beers so many bicycle brands that nobody makes any money.

Rick Vosper 23:36
It’s absolutely true. In fact, the bicycle industry is now literally a college textbook example of an economic principle called …

Carlton Reid 23:47
Perfect competition.

Rick Vosper 23:49
Thank you. Thank you. I had a senior moment there and I appreciate you filling in for me.

Carlton Reid 23:54
I’ve done my research, Rick.

Rick Vosper 23:57
Hopefully you’ve been reading my articles on that.

Carlton Reid 23:59
I have. No, this this is my research. My research is reading your articles.

Rick Vosper 24:05
Well, thank you for that. That’s that’s very flattering. I know you’ve been in this business for almost as long as I have and …

Carlton Reid 24:11
Longer.

Rick Vosper 24:11
… I read all your stuff.

Even longer, huh?

Carlton Reid 24:16
No, no, I’m only kidding. 1980 beats me, I was I was at

1989 when I first kind of started writing about bicycles. So no, you beat me by nine years. I was only kidding.

So tell me about perfect competition, and beers and bicycles.

Rick Vosper 24:37
Bikes and beer go together like ham and eggs. They just do, don’t they?

But in a state of perfect competition, you have a whole bunch of players, none of which are strong enough to begin imposing pricing premiums on the market. And one reason for this is the barriers to entry as

point out are very low. It’s easy. We could we could have a bike company called Rick and Carlton’s Bikes, or Carlton and Rick’s Bikes in about six months.

If we hire the right people, we dump the right amount of money into it. And the cost to enter is

less than a million dollars to be an established bike brand. In fact,

some of the some of the Walmart folks have created their own bike brand.

Carlton Reid 25:27
Viathon.

Rick Vosper 25:32
Viathon, yes, it’s initial direct to consumer reach was not particularly good. And it’s now being sold through the Walmart website. And we’re talking bikes that are, you know, two or three thousand American dollars. They’re top quality stuff. They’re composite bikes that were designed by competent people in the industry.

It just remains to be seen how many people want to buy a $3,000 bike from Walmart. But the point is, the barriers to entry are low. That means that even if some players are squeezed out of the market go bankrupt and the brand ends, the brand could be resurrected by somebody else or another new brand can come in and begin making inroads in the market. The most significant example of this that I can think of in the last 20 years, has been the Electra line.

They began as an outlier selling very comfortable bikes to folks who are not traditional cyclists, they were extremely successful and trek eventually bought them and it’s now part of trucks light up. Hmm. That’s an example of how low barriers of entry makes it easy for new brands to come into the market.

Carlton Reid 26:44
So it’s good — I’m being devil’s advocate here on on all of these questions — so that’s good, that you’ve got, you know, lots and lots of brands, because that’s where you get innovation from, you know, marketing innovation, not not not not just

technology innovation. So it’s good to have loads of bike brand, do you think?

Rick Vosper 27:05
I think if there is a healthy number of bike brands in the market, where consumers are getting a lot of choice, innovation continues to be encouraged. And the companies are making enough money that they can continue to survive. I don’t know exactly what that number is. When we look at people who track bike brands and bike dealers, there are about 60 to 100 brands that are currently active in the US marketplace. 100 being even the smallest, smallest bike brands where you might have a handful of dealers in a local area. But 60 some is usually the number that we look at that your listeners would go, Oh, I’ve heard of that bike brand.

Carlton Reid 27:50
Mmm. See, in car terms, you know, you’d struggle to get many more than about 10. You know, you could you could keep going, you probably get up to 20 If you really, really struggled. But you’ve basically got maybe five of the ones that you use, you’d see on the roads constantly. Whereas, you know, bikes, if there are 60 to 70, perhaps even more bike brands, that’s too many bike brands. It’s too damn easy.

Rick Vosper 28:15
Well, too many for whom? Consumers, consumers ultimately decide which bike brands they want to buy.

And enough consumers we look at there are some relatively minor, just outstanding bike brands out there. And I’m sure you could name some of you think about it think about, think about Pivot or Factor.

Carlton Reid 28:39
Pivot pivot. Actually, if you’d asked me Pivot would have been the one i’d’ve plumped for there. Yes, I absolutely agree.

Rick Vosper 28:45
I was kind of chumming the waters because they are both very popular brands

that have very strong followings. They’re differentiated products. they market themselves intelligently and they make just outstanding bicycles.

Carlton Reid 29:00
Hmm.

And they also have founders who are still with the company who are notable founders.

Rick Vosper 29:11
Yes, these are people who are in the position that Trek, Specialized, Giant were in 30 years ago.

And they, they bring fresh blood into the market, they bring innovation and they bring customer choice. So consumers don’t have to get a Specialized, Trek, Giant or Cannondale bike.

Carlton Reid 29:34
And that’s something that’s attractive to lots of people. They don’t want to be seen on the top three, top four, they want something that’s a bit out there. Just because you know, you want to go on your cafe ride you want something to talk about, yeah?

Rick Vosper 29:48
That’s exactly it. And that’s part of the reason what we have perfect competition is it is easy for for new brands to establish themselves.

So what’s the downside of that?

What’s the downside of perfect competition?

The downside is nobody makes any money.

Carlton Reid 30:07
Yeah, sounds like the bike industry.

Rick Vosper 30:09
Yeah, pretty much. The famous saying, which I call Hendrix law, is the way to make a small fortune in the bike business is to start with a large one. Yeah, that’s almost universally true. But then this is an enthusiast category. And one of the things I love about bikes, as an industry is it’s full of people who really are passionate about bikes. If we were

no, I don’t know, computers or airlines are other examples of perfect competition, it wouldn’t be as much fun.

Yeah, you know, ultimately, at the end of the day, bikes are all about fun, both for the people who make them and for the people who ride them.

Carlton Reid 30:51
Maybe the analogy with beer is carrying on here, then, you know, because there’s lots of them. They probably don’t make much money individually. But they’re doing it because they’re enthusiasts and they like making beer and talking to other beer people probably. I mean, you could you could pretty much say that’s that’s the bike industry?

Rick Vosper 31:08
I have a little bit of experience with micro breweries. And I tell you, that is exactly right. You have the you have the two or three mass conglomerations of beer brands. And then you have dozens if not hundreds, or 1000s of small, let’s call them enthusiast brands, where people are just making beer because they really like beer. And fortunately for them, people like drinking beer.

And a lot of the people drinking beer are cyclists.

Carlton Reid 31:44
Yes. Now, we mentioned before, I mentioned before about founders of companies. And then you mentioned

Trek and Specialized

Trek isn’t owned by the founder of the company, but it’s in the same family. Erm, Specialized is still owned,

at least partially, so Meridaowns an unknown chunk of it, but most of it, but then then Mike Sinyard, who has owned it since he founded it in, was it 1974?

He owns it, but potentially, he will be out of that business sometime soon. Do you think …

Rick Vosper 32:28
Well, eventually, we’re all mortal.

Carlton Reid 32:30
Well do you think that company will radically change? Because Mike Sinyard has put an absolute stamp on that company in many different ways? You know, the way it operates, you know, legally and how it sue’s how many people so many other things that that’s that’s that’s a trademark Sinyard move, isn’t it? Do you think Specialized will be a completely different company, when somebody else takes charge and Sinyard is no longer in charge?

Rick Vosper 32:56
Well, I first my first job in the bike business was lifting boxes in a warehouse for young hippie named Mike Sinyard in in 1980, so Mike and I go way back. And he is absolutely the motivating motivating force in that company.

And when for whatever reasons, Mike is no longer there, it will de facto become a different company. There’s a culture of innovation there. That’s very strong. There’s a culture of marketing that’s very strong. And Mike is very deeply involved in in both the product and the marketing sides of the business.

Carlton Reid 33:32
And the people he tends to attract tend to be real hardcore riders and want to go out on that famous famous lunchtime ride with with with Mike there, too.

Rick Vosper 33:45
Yes, although

this is an enthusiast category bicycles are. And if you go to pretty much any bike company, they have a lunch ride, it’s serious throwdown time. And

Specialised, it’s just made more of an institution of it than some of the others. Hmm. I remember on the lunch ride, and one day they had a couple of professional road racers who were in town to visit the factory. And they went on, they went on the ride and when everybody got back, the professional cyclist says, do you guys always go that hard?

Probably said, ‘Yes, we do every day’. Good for you, you know.

There are a lot of alpha people on those rides.

Carlton Reid 34:40
Including Mike himself.

Rick Vosper 34:43
Mike himself does the ride, does finish this respectfully, respectably, and probably continue doing it until the day he can’t do it anymore.

Carlton Reid 34:55
So tying two things together here, in fact, three things: Mike Sinyard,

bicycle retail and Pon, you had this quite — it might not be incredibly hilarious to anybody outside the industry but to people in the industry this is this is — quite a funny thing happened if they if they want to nark Mike Sinyard that is in that Pon came and this is actually before it took over

CSG and that’s they bought Mike’s Bikes

which is a famous chain of 12 bike shops were famous of the one of the things it’s famous for is it’s being a Specialized retailer. So do you have any inside skinny on what happened there and how annoyed Mike might have been?

Rick Vosper 35:42
I do not. I wasn’t privy to the deal before it happened. I read about it in Bicycle Retailer like along with everyone else in the industry. But for sure, it was a major shock in Morgan Hill where Specialized has its headquarters

Now, Specialized

decided to immediately remove its line from the Mike’s chain;

Giant stepped in and is now sort of the caretaker brand for those 12 Mike’s stores

which, for those who don’t live in Northern California, has very professional highly respected very successful line of stores

they have — they being the spokespeople for Mike’s bikes and for Pon — have said no we have no we have no no intention of changing the bikes brands in the stolen bike stores. But I think you’ll have to put a little bit down to just public relations it’s impossible for me to believe that a brand decides upon would have purchased a chain of bike shops that don’t want to put Pon own bikes into those bike shops.

Carlton Reid 36:53
It’s also the way that Mike Sinyard reacted is also indicative of how

potentially dictatorial he is and how idiosyncratic he is in that any you know accountant run business would not have done what he did. You wouldn’t, you would just go ‘oh, that’s business’ and then you would just carry on selling them bikes. You wouldn’t remove your bikes from as you said an incredibly successful well respected bike chain would you?

Rick Vosper 37:26
I personally would not but I’m not Mike Sinyard, if you want to know Mike’s thinking about it I suggest you ask Mike

Carlton Reid 37:36
How very diplomatic of you.

Rick Vosper 37:39
But

you have to remember I’ve worked Mike on two different times and about 20 years apart. One is a kid lifting boxes in the warehouse and the other is his director of marketing globally.

Carlton Reid 37:54
But it’s very it was very Mike, wasn’t it, to do what he did? That is just, and who else in the industry would do that? If anybody described that and didn’t name any names and said, ‘right who did that?’ you’d go well Mike Sinyard in yet so he’s kind of famous for for taking things incredibly personally but that that I guess is just to bring it back to well let’s let’s look at the accentuate the positives here is that he’s incredibly passionate, and he’s so passionate, he probably is willing to lose a tonne of money just to, in a fit of pique.

Rick Vosper 38:29
Mike is a very passionate man and a very passionate cyclist.

Carlton Reid 38:33
And that comes through in the brand as well I guess. Okay, carrying on accentuating that positive so if if the leader is that passionate people who you know want to buy bikes and go what that must be an incredible bike brand because you’ve got this owner here who’s an absolute crazy fanatic on bikes.

Rick Vosper 38:50
And he hires people who share his passion.

Carlton Reid 38:54
Yeah, that was interesting to see that with with with Mike’s bikes and and the way that he kind of reacted to that that was that was something else wasn’t it? That was that was again that’s another indication of the bike industry is very different to normal corporate America, isn’t it?

Rick Vosper 39:10
It is.

Cycling is an enthusiast driven category and that’s true both on the supply side and the retail side and on the consumer side.

Carlton Reid 39:19
Getting back to the bike boom, almost sticking with with Specialized in many ways, and that is just an anecdote really is.

So the counsel, the Chief Counsel at Specialized and he does many other things that Specialized and I’m sure you know him very well. Margevicius. I don’t remember exactly when this was but it was probably at the height of the boom. When you could you travel again. During the pandemic, he was probably one of the first people out to Asia from the from the industry. I was really surprised to see him out there. But he was out there, basically browbeating

Asia and saying you’ve got to build more bike factories

We haven’t got enough capacity here. Now, I’m sure the Asian

bike factory owners would love to, to make more bikes for Specialized and for all sorts of different companies that all go roughly the same factories.

But it’s a quid pro quo. You can’t just an American executive can’t just come across and say just you know, instantly build more factories, because that then leaves them

in potential problems when there isn’t a boom in 2022. So do you know if

Margevicius he says but much of his his his demand for more bike factories did that did that pan out were more bike factories built magically by Asia?

Rick Vosper 40:46
in the sense of creating new foundries, footprints factory footprints, that takes years to develop them bring bring to reality, what is more simple is add another shift to production, or build another line on the factory floor. And I think Bob, who is another guy I’ve known for almost 40 years,

Bob was very effective in bringing that message to the to the factory owners, but it’s not as simple as just building another bike factory there’s two things involved here. The first is bicycles Yes, you can make another factory if you want to, to to build frames, but you still have to have the components and parts and and then equipment to be put onto all those bikes. So you can’t build a bike new bike factory and expect it to be in business very long. If you can’t get more components out of your model and the other component manufacturers you know Selle Italia make saddles on some very large percentage of bikes sold in United States. And if Ssell Italia doesn’t build a new factory, then, you know, Carlton and Rick’s new bike brand can’t have bikes made no matter how many new factories they build.

The other question is, how many bikes are enough. And as an industry side guy, I take the position that we have had too many bikes in the market for the last 10 years.

And absolute absolute boom in consumer demand, which you and I have already touched on in this conversation.

There. We don’t need that many bikes. We don’t even need as many bikes as we’ve historically been getting.

Carlton Reid 42:33
So the boom that we had during the pandemic is it was it it partly a boom

just because the industry has actually been quite, you know, selling relatively low number of bikes anyway. And so anything that that that hit that would make it into into a boom. But then that makes it kind of like an artificial boom. If you didn’t if you’re what you’re saying is what you’ve been making too many bikes anyway.

Rick Vosper 43:02
It’s a little more complicated than that. And you’ve twice used the phrase inside baseball to describe what I do in the industry. Well, we can we can really geek out on this as much as you want. One of the reasons there weren’t enough bikes in 2020. Well, the obvious one was there became a surge in demand as people wanted fun, outdoorsy recreational things they could do during the COVID. But the real reason was that 2019 was a record low level of imports to the bike industry. In fact, in 2019, were the fewest bikes imported since 1982.

To the bike industry, so at the end of 2019, suppliers had very little inventory on their shelves, dealers had very little inventory on their floors. And when COVID first hit, everyone was calling Asia trying to cancel orders for 2020. And it wasn’t until the dealer started calling up saying we’ve got people coming in here who want to buy bikes.

It wasn’t until that happened that the suppliers tried to turn things around. So one of the reasons 2020 demand looks so big is because the supply of bikes to fill that demand was so small.

Now consider

your consumer you want you want to buy a bike and let’s say you want to buy $1,000 mountain bike.

Well, you get on the phone you call the first shop in town. And they say we don’t have any mountain bikes. They say okay, and you call the next shop and the next shop and the next shop. So there’s this sort of phantom demand being built up. If the consumer calls 10 bike shops, the apparent demand for that $1,000 mountain bike is 10 times what it really is.

Then to make matters worse,

The dealer say, Okay, I’m going to order 50 bikes, or 100 bikes in the hopes of getting 10 or 20. Because the suppliers can’t fulfil. So I’m going to place really large orders and hope I’m going to get some significant fraction of that.

This is one reason well, where dealers are placing orders for bikes into 2023 and four components into 2024. One of the one of the questions is, we know there is some increase in demand for bikes. But how much is the real increasing consumers interested in purchasing? It may be distorted, you get this sort of Dutch tulip bulb speculation going on in the market.

Carlton Reid 45:44
Because we haven’t really in previous times, there’s been an awful lot of venture capital has flooded into the bike industry. That hasn’t been that much this time. It might be an indication that, you know, the the markets actually think yeah, that the boom isn’t genuinely there.

Rick Vosper 46:04
I don’t know that there is more VC money floating around the bike business than usual.

It’s,

it’s, it’s tough for a venture capital company to justify investing in bike brands with a relatively low return on investment, that those those brands actually get.

The typical VC attitude when you see new capital coming in and buying a bike brand, or buy a chain of bike stores or something is we’re gonna take this company and we’re gonna run it like a real business, and then profit. It’s sort of like the underpants gnomes theory of economics, where you just started up, you do it right, and then magically profit appears, and historically, it never has.

So we have, one of the reasons bike brands tend to tend to flip a lot is precisely that they if you go back to Schwinn in the mid 1990s,

where the company went bankrupt, and went through a whole series of owners over the next 10 or 11 years, before it ended up being a mass market brand, under the Dorel umbrella, which was the company that own Cannondale and GT, in addition to Schwinn.

So venture capitalists are only attracted to the bike industry that they think they can fundamentally change how it does business. And the laws of perfect competition just don’t work that way.

Carlton Reid 47:43
So I was going to I was going to try and interrupt you that I didn’t, I wanted you to carry on but I was going to say

is, is there any point at looking at the industry in 10 years hence, because so many things can change. But just just if you look at if you extrapolate from today, so you’ve got

you’ve got a whole bunch of bike brands, with the owners coming up to retirement name, no names, and you’ve got Pon coming in, which isn’t a VC funded business is in it for the long run, because it’s they’re run by some of them by buying through, yes. But they’re also you know, retail people, and then they they absolutely know this, this market, they’re not going to be burned, because they they know it’s a perfect competition area. But is there any point at looking just think what can what will happen in this industry in the next 10 years, because the internet hasn’t killed off, you know, that was it would have been sitting here 10 years ago, we’d probably start with the internet, it’s gonna kill the whole industry off, you know, won’t be any bike shops in 10 years. And lo and behold, there are bike shops, probably not that many different from from from just a few years ago. So but But what do you think? What do you think the industry, any of the trends that are happening now with the Pon’x of this world with and they’re going to be something significant in the next 10 years?

Rick Vosper 49:01
Well, there’s there’s a couple of questions in that, Carlton.

First is the question of what’s gonna go on with Pon. And if they continue what they’ve done in the automobile business and other businesses in Europe, yes, they’re going to make themselves into a major player. So that being will be a major shift that

the brand car right now, Cannondale is the number four brand. And with all the money and additional brands, it’s very likely that the Pon group of brands will displace Giant in the number three spot. To your larger question about will the industry fundamental change fundamentally change?

That’s a real good question. I spend a lot of time thinking about that and people pay me lots of money to think about it. But

what I see happening is, we may get a little stratification of bike brands, we already have Trek and Specialized at the top.

And maybe we have Trek, Specialized, Cannondaale. And perhaps Giant, although Giant hasn’t been willing to purchase bike shops, so that the top level of the bike industry in the US anyway, will be bike brands that also own retailers that are vertically integrated. And those will be the guys making lots and lots of sales, there’s nothing to suggest they will be making more profits on those sales.

except to the extent that you know, retail becomes a revenue stream where it kicks back to the company bottom line, instead of going to the independent retailer. But that’s, that’s not going to move the needle on the stock gonna change the EBITDA, or the earnings before interest, taxes, [depreciation, and amortization.]

It’s not going to change the EBITDA of the companies that much. It’s still a low margin game game, as long as it’s an enthusiast category with low barriers to entry and the other things as we’ve discussed, it’s going to be it’s going to continue to be a low margin game.

Carlton Reid 51:04
I thought you might have actually had at that point mentioned electric bikes, because we you mentioned them before, but then parked them to one side. So you almost say they’re almost a different category. They’re not they’re not bikes, they’re e-bikes. They’re they’re the you don’t you don’t mix the two together.

And I have actually asked this to Mike’ Sinyard in in the,

in the corporate meeting room at the HQ in Morgan Hill. I don’t think I’ve got an incredibly

brilliant answer at the time. But anyway,

companies like Specialized, and Cannondale and all the other brands, they’re making their money. Right now, all bike companies are making their money from from electric bikes and not from for want of a better phrase analogue bikes,

that that kind of suggests that you get the money is going to go where your development is going to go where the money is being made. So in the end of that 10 years, which I posited, there, might there not just be, you know, the enthusiasts so people who have listened to this podcast, probably who mostly pedal their bikes and don’t have pedal system, I’m not being too rude here. I’m sure lots of people have pedal assist bikes, including myself. But I’m just kind of generalising might not that fundamentally changed the industry in that you have the industry is an E bike industry. It’s no longer a bike industry and bikes and lock downs. Like you know, the standard pedal only bikes are actually this small niche, typewriter, kind of ownership it category, you know, everybody else has got PCs. Okay. There’s some people still typing on on typewriters, do you not see that changing in within the next 10 years?

Rick Vosper 52:52
What’s happening in E bikes, I’m glad you brought the topic up because they are their own world. So when we when we look at import figures of bikes, they don’t include e-bikes. And the reason for that is very arcane. It has to do with how the Department of Commerce tracks bicycle sales and E bikes sales. But what’s happened in E bikes in the last several years is you’ve begun to get the kind of market segmentation that we get with regular bikes only it’s exciting new category that more and more people are coming into. You have sort of three tiers of the bike business. The first is the ones that are sold exclusively on Amazon and they may be $1,500 or something, or $500. You have then the tear that is being sold Consumer Direct or through automobile sales, styled dealerships for companies like red power and Pedego. And then you have a bike sold in bike shops, which are usually starting at about $2,500 and going up from there, so the market is heavily segmented by price.

You are correct that E bikes are the only really fast growing major category within bicycles. The others are gravel bikes and cargo bikes. But the e-bikes eclipsed all of them. Every bike company wants to be in the e-bike business in a big way. The question is, how much market share will e-bikes ever get in comparison to pedal-only bikes? And nobody knows the answer that when we look in other markets, specifically in Asia and India, and Europe, they have all had a steadily growing adoption rate and then one year the thing just takes off and the business doubles or triples.

That may that may or may not happen. In the United States we can have a whole conversation about how the US market for e-bikes is fundamentally different than the European market. It was particularly on the Benelux countries, in Germany, less so the UK.

Carlton Reid 55:01
I mean 60% Now we’re now approaching 60% of the market in yes in Benelux Germany, Netherlands, where, you know, we are rapidly seeing traditional bikes, traditional pedalling bikes becoming a much, much smaller category. And that being the case, bike companies are making their money from electric bikes. And that’s what’s keeping an awful lot of bike companies afloat right now is electric bikes.

Rick Vosper 55:27
I’m not sure I completely agree, it’s certainly the most profitable segment.

For the bike companies.

Electric bikes are more expensive than pedal only bikes.

The margins are not particularly any better than they are for the pedal only

for the pedal-only segment, because there’s intense competition around the electric bike business too. And that’s keeping prices down. And what tends to happen is the prices are staying the same, but the quality of what goes on the bike or is getting better and better every year. So similar trajectory to standard bikes.

However, the question remains to be seen is will we win, and will we get that hockey stick curve with electric bikes in the United States, you’ll notice that the UK has been a little more resistant to electric bikes, they’re either far behind or they’re they’re charting their own path relative to the European, the EU nations.

Carlton Reid 56:30
Oh, very much so. But the potential is there. And you see this from like the, the kind of shops that actually sell electric bikes are often completely different to your standard bike shop, they are electric bike shops, they’re not bike shops, and they don’t sell anything. Whereas a bike shop might sell lots of traditional bikes, and electric bikes, you get these new category of retailer that really only sells

electric bikes. So there’s there’s this is the potential there for a bifurcation that the industry actually splits apart.

Rick Vosper 57:05
We have and I alluded to this earlier, where you have

you have two dominant bike brands at slightly lower price point to point, price points, Radpower and, and Pedego. Now Pedego, sells their bikes exclusively through Pedego dealers. So it’s a freestanding electric bike shop that only sells Pedego bikes, just like you go to your Audi dealer, your Ford dealer, your you know, Mercedes dealer, whatever.

And they’re being very successful with this model.

The there are also independent electric bike dealers, they may sell several brands of bikes of electric bikes, and they’re taking on the traditional bike shop and fighting it out with them for who the electric bikes go to. So yes, there’s a very real possibility that e-bikes will eventually split the industry. However, to date, they have not done so.

Carlton Reid 58:01
But it also that not only will they split the industry like that the companies themselves will be different. Potentially, the consumers are very different. And that’s that’s a potentially good thing in that you bring a whole bunch of brand new consumers in into cycling, even though it’s not actually cycling, it’s e-cycling?

Rick Vosper 58:20
Well, absolutely. As we said earlier, more people on bikes is good for everybody. It doesn’t matter whether those are skinny tyre bikes, fat tyre bikes, or electric bikes.

Carlton Reid 58:32
Because they need the same infrastructure. So yes, your bike paths in your city does not what people are on as long as they’re on bicycles that have to be pedalled in some way shape, or form, whether they’ve got a battery boost or not exactly correct. So that is potentially something that the industry will be very different in 10 years than just because of electrification. Quite apart from that all the things that are going on, you know, that maybe people don’t really see very much, you know, that the vertical integration of the industry.

Rick Vosper 59:07
So the there’s two things that work with electric bikes. The first is will they increase the increase the size of the market? Yes, absolutely. And the where the market share is which channel of distribution is going to evolve over the next 10 years. But at the same time, all those major bike brands are going to continue selling pedal only bikes, they’ll just add electric bikes to their to their quiver.

And if we, if we look among, in addition to very high end electric bikes from Europe, the best electric bikes, best in terms of highest price, best quality are all coming from the traditional bike brands right now.

Carlton Reid 59:47
I think that’s the question I was asking Mike actually, I was asking him how much of a bicycle company will Specialized be, you know, in that, you know, might it actually evolve in exac … as a historian

In exactly the way that car companies came about, so most, most car companies started life as bicycle companies. And when it became very apparent, early on early 1900s, that there’s much more money to be made in automobiles than it was in bicycles. All of these bicycle companies morphed into becoming car companies. So my question to Mike and also say, yes, my question to you, it was, well, aren’t all these specialists what we think it was bicycle companies now, in 10 years, they’re not going to be bicycle companies that are going to be motorised bicycle companies.

Rick Vosper 1:00:41
I’m not sure. I’m not sure that’s the case, particularly not in the United States. But for sure, they will be more electric more electric in their product offerings than they are now simply because the category is going to grow.

And that’s a positive thing is bringing cash into the industry is getting people on bikes who are not on bikes before everybody’s happy.

Unknown Speaker 1:01:05
Thanks to Rick Vosper there. And thanks also to you for listening to Episode 291 of the Spokesmen cycling podcast brought to you, as always, in association with Jenson USA. Watch out for the next episode popping up in your feed next month. But meanwhile, get out there and ride.

Transcribed by https://otter.ai