BLOOMINGTON, Minn. (BRAIN) — With a few exceptions, almost every bike retailer in the country has an account with Quality Bicycle Products, giving the Minnesota-based distributor a wide view of what's happening across the IBD nation. BRAIN spoke with QBP president Rich Tauer late last week to get his perspective of how the COVID-19 pandemic is affecting business.
This interview has been edited for length and clarity.
Rich, we've been asking a lot of suppliers for their view of what is happening in retail during the pandemic. Recently several have estimated that about 20% of shops are completely closed. What's your estimation?
For us two weeks ago, that 20% number would have been accurate. Today I don't think it is anymore. A few weeks ago retailers were still trying to figure out if they were deemed essential or not. A lot of retailers felt conflicted and some closed voluntarily while others stayed open and figured out how to do business in a new way. Then another set struggled with how they could do business in this new environment.
Over the past two weeks we and other companies have sent out information to retailers on how to work in this environment: so, what is the protocol when somebody brings in a bike, how to do service, how to deliver it and make sure there is safety all the way through. And how do you keep your store open without really being wide open, so switching to doing appointments and that kind of thing. So I think best practices are being figured out and that 20% number isn't accurate anymore.
My guess is less than 10% at this point.
Even if only 10% of shops are closed, that's still huge. On April 7 John Burke said he thought sales would be down at least 40% industry-wide in April and then about the same in May. What do you think?
From our perspective, we were experiencing some pretty significant drops in sales in March. Alarming. We were looking at those and wondering what the heck was going on out there.
But the end of March was where we bottomed out and then we've slowly been creeping back up. I mean it's still ugly numbers regardless, but it's less ugly than it was. I was certainly in the same camp that John was. But I've been pleasantly surprised that I was maybe a little more pessimistic than I needed to be. For us at least it hasn't been 40% in the last couple weeks.
Things change quickly.
They do. But the retailers that are figuring out how to operate are doing a pretty good business both with online sales and with sales by appointment only.
"I mean it's still ugly numbers regardless, but it's less ugly than it was."
It's not a normal Saturday where the shop is filled with people and people are headed to the register with armfuls of stuff, but it's meaningful enough to be sustainable.
We're fortunate to be considered an essential business and we have the opportunity to not only stay open but to service customers consistently and that's a valuable thing at this point for sure.
What types of products are selling well?
The story I've told is that on March 12 we were still selling lots of kevlar-beaded tires and on March 13 we started selling wire-beaded tires. People were still buying in the same categories as they were before but they were moving to less expensive options.
And that continued through the rest of March. It was only in the last week that we began to see a little bit of the mid-priced stuff start to kick back in. We think it's the stimulus dollars; there's nothing else to attribute it to.
But generally speaking it's value products. We continue to sell a ton of service and repair parts. There are a lot of people dusting off bikes that need service. We are selling lots of kids trailers and kids bikes. And oddly enough stationary trainer (sales) are high again.
And BMX was doing really well in general before this and is now doing better. For a lot of parents BMX is what they think of as a kids bike.
What's the state of your receivables, do you think there are a lot of dealers out there that won't be able to pay their bills?
That one is difficult to say. We of course have been in contact with every single one of them multiple times and trying to get a better sense of it. The stimulus dollars and the PPP and SBA loans are going to make a big difference for a lot of retailers.
So we have a fair amount of stuff that is normally due in April. And we are receiving dollars at this point so we are feeling pretty good. We have an expectation that we are going to have more problems in that area, but because those stimulus dollars are becoming available it might not be as great as we once thought.
And we are now offering more flexible terms to retailers, we waived some financial charges and that kind of thing. We have to recognize that this is a remarkable situation that we all find ourselves in and we want them to be successful and we want them to be around. So we can do a few things here and there that can help with that.
In early April you announced layoffs affecting 12% of your staff. With sales creeping back up will you be able to bring some people back?
We are looking a little bit further down the road for that. We never expected (sales) to hit a linear number and then just stay there — we expected it to be bumpy and it is. The layoffs had to do with the decline in sales, and we need to experience a little bit of consistency there.
Of course we'd love to be able to hire some people back.
In the distribution centers, it goes back to what we were just discussing about the cost of the products being sold. Each order has the same amount of lines, but there are fewer dollars. It still takes the same amount of people to process the orders regardless if the dollars are there. So what we are seeing now is we will probably be bringing back some of our DC staff certainly a lot sooner than we're bringing back the office staff. And then for the office staff, I want to see some consistency in our sales. I don't want to have a threat of this thing coming back hanging over our heads. .... I couldn't imagine a worse scenario than bringing people back and then having to let them go again.
I know you've seen some growth in your consumer-direct fulfillment program, have you moved more staff toward that program?
The number of retailers who have signed up for our program, what we call Retail Fulfillment Services, has almost tripled in four weeks. So, yes, we have a sales team that is normally in the field that can't travel and now is working to sell that service. Same thing with our inside sales: they have really pivoted to selling that service.
And then on the IT side, they have to work to get people signed up. We've streamlined that process quite a bit because of the pandemic. Once it's hooked up then it's just orders like any other orders so that part isn't an issue.
Right now the biggest issue is teaching retailers how to use the service effectively. Because they didn't have it or they weren't using it before and many of them are just not practiced at it.
... So we are moving resources toward helping retailers learn how to talk to their customers in this new environment. For some of them this is all a completely new experience.
It sounds like even if you've signed three times as many dealers to this program, it's not like you're seeing triple the sales through the program yet.
No we're not. But it goes back to developing a list of best practices for retailers to meet the needs of their local customers. That can be everything from making sure they have a website that is capable of completing a transaction to the ability to have a customer drop off their bike or set up an appointment to come in and buy something. And then everything in between. We're just trying to give retailers the tools so they can make decisions about what to do and then do it in the most effective way possible.
Some retailers are suspicious that direct fulfillment and allowing more online sales of the QBP bike brands is an end-run around IBDs. I'm sure you hear the same thing. How do you respond?
Our response is that we are doing this because retailers are asking for it. We didn't make it up. We had a number of retailers coming to us, saying, 'we can't deliver bikes, help us do it, change the policy and allow us to do these things.' There's going to be people that dislike any decision, there always are. But our goals have also been to help retailers be successful. Not one type of retailer, but all retailers. When something like this happens and there's an opportunity to meet consumers where they are, this is just an option to help retailers be successful. As long as we make sure MAP prices are held and people are doing it in a way that provides a good experience for the consumer I think it's exactly what needs to be done.
Do you see changing some of those policies back at some point, like the ability to sell the QBP bike brands online?
We put it out there with an end date on it. My answer is it's going to really depend on what we are experiencing and what retailers are experiencing after this is over.
We are in the midst of having people sheltering in place for four weeks, six weeks, eight weeks ... we are all developing a new set of habits when it comes to how we do our shopping. Those habits are not going to die quickly. It's not like this is going to be over and everyone is going to go back to exactly what we were doing prior to this.
What are you seeing now from your suppliers?
For the most part the suppliers are back up and running and wanting to start making and shipping stuff. We're the ones now saying, 'hold on we need to re-assess.' For the most part the product is available and flowing, that isn't the issue at all anymore. It's the demand side of the curve that we are looking at.
The mini bike booms that some people are talking about seem to be happening in three ways, depending on the area. There's an exercise and enthusiast boom, and a family and recreational boom, and then the bike transportation boom, which is mostly an urban phenomenon. Do you think the mini booms will continue after the pandemic?
Well I do think humans are creatures of habit and one of the benefits that our industry is experiencing right now is that we are one of the few sports that people can do. People can't go to health clubs, or do their kickboxing or whatever and they can't do it with others at the moment.
When this is all over some of them are going to go back to exactly what they were doing before. But a lot of them will stick to cycling because they really enjoyed it. That's one of the mini-booms that is happening. It's not like 75% of them are going to stick with it, but a good chunk of them will and that will be great for our sport.
Then on the family riding side of things, people are dusting off old bikes and getting out there on the paths and I think an aspect of that will continue forward as well. I think that's probably the weakest portion of it.
Then there's the transportation side of things. For some people the bike is now their only way to get to work other than walking and others are finding that riding to work is a great way to get some exercise. And I think the future of this depends a lot on our investments in infrastructure. Right now because there are so few people on the road driving cars, it feels pretty good being out there.
When we go back to having more cars on the road, that's when the concern is going to start to creep back in and that's when the infrastructure comes back into play. And that's where PeopleForBikes comes into play: because it seems likely that we are going to see some sort of infrastructure program that gets launched after all this. Making sure we have some federal dollars in there to make it safer for people to ride bikes is what will determine whether people feel safe riding and continue riding.
Overall I'm in full agreement about the opportunities that are ahead of us. We have customers that are being created by necessity this month and they are going to find cycling is a great form of exercise, and a great way to get groceries. And that's fantastic and we should be really excited about it. It's a really unique opportunity that this industry has.
Do you think it's time for the industry to put more emphasis on the transportation and utility and recreational part of the market, rather than the high-end enthusiast part of the market?
If we have a recession — and I think most of us believe we are going to have some form of a recession, the only question is how long it will last and how deep it is — the byproduct of recessions in the past has been what you described: much more family-oriented, more economical, more utilitarian. The focus does automatically shift there because that's where the new dollars are.
So yes I believe that is probably one of the outcomes. Whether we as an industry can actually embrace that and help keep that going, even when the high-end starts to come back, that's really the question mark. We've been down this path before and we've done the absolute opposite — we had the opportunity to really appeal to people who are not the super enthusiasts and yet we as an industry have moved back to the expensive stuff because that's the cool stuff.
Those of us who work in the industry can be a bit snobbish when it comes to this stuff. We need to be less snobbish and really be focused on more regular riders, because out of those regular riders are going to come the people who want to buy the more expensive stuff. But you have to get the regular riders and you have to keep them, because they grow up and they become the super fans and the super consumers.
Any final words for the industry?
It really pairs with what we were just talking about: I do believe we have brighter days and that there is an opportunity before us. I know it doesn't always feel like that in the moment. But it's clear to me there is an opportunity to come out of this crisis stronger than when we went in, as an industry.
That's exciting and as an industry I think we need to make sure we support those organizations that can help that continue. Whether that's PeopleForBikes or organizations like NICA, there are opportunities for us to help keep the momentum after this subsides. And we'd like to thank all the retailers for the opportunity to service them because without them we wouldn't have a place to sell anything.
