It’s that time of year again. Dealers and suppliers are trying to put together orders for the 2023 season, and discovering there’s nothing to base their sales estimates on. Here’s a sample conversation I’ve heard about from a number of different retail business owners:
Sales rep: Your sales were down in 2022. We’re going to have to kick you down a price level unless you’re willing to increase your order for 2023.
Retailer: If you’d actually shipped the bikes (or helmets or tires or whatever) we ordered, our sales would be fine and we wouldn’t be having this conversation.
As discussed before in this space, preseason orders for both bicycles and equipment serve three different functions. First, they help the supplier make estimates with its factories. Second, the preseason order transfers inventory risk from supplier to retailer, so if the product doesn’t sell, it’s the bike shop that’s left holding the bag. And third — and this is less often mentioned — the preseason commitment locks competing products off the shop floor by tying up the retailer’s open-to-buy dollars. If the dealer has already committed to product shipments throughout the season, there are simply fewer funds available to buy products from competing vendors.
But back to the imaginary conversation above. To paraphrase one dealer I spoke with, “With one of my vendors, not a single bike I ordered was available for shipment. How can they ask me to base a sales program on a historic quantity of zero?”
Regardless of who’s right, the larger point is that it’s folly to base 2023 estimates on sales performance that occurred during a time of unprecedented product shortages. As briefly mentioned in this series last month, neither dealers nor brands can rely on 2022 as a reasonable indicator of what sales are likely to be for 2023. And the same goes for 2021, 2020 and even, due to historically low inventory levels with suppliers, 2019. That means we have to go back five years to find a reasonable basis of comparison … and as every experienced businessperson in any part of the supply chain already knows, that’s a lifetime ago, historically speaking.
So what do we know about the upcoming 2023 season to help us base product estimates on? I’m glad you asked.
First, the good news
For all its starts and stops, the inventory picture is improving across more categories and looks to continue improving for 2023.
The single biggest piece of good news for 2023 is that a significant number of the new riders who came (or came back) to cycling during the tumultuous 2020–21 years seem to be sticking around in 2022, and it’s reasonable to hope they will stay with us in 2023 and beyond.
According to 2021 data just released from PeopleForBikes, ridership in almost all categories (BMX, Mountain/Unpaved, Road/Paved, and Group Stationary Cycling) were up versus historic norms. The only category where participation decreased was Individual Stationary Cycling (sorry, Peloton).
Even better, these new and returning riders often made their purchases during the height of the pandemic and may be ready to buy new bikes and equipment in 2023.
The next bright spot is that for all its starts and stops, the inventory picture really is getting better across more categories and looks to continue improving for 2023. That means that dealers ordering for preseason have a greater chance of actually getting some or all of their orders delivered on a timely basis.
Finally, two years of product shortages should have conditioned consumers to stop expecting discounts on every bike sold in-season. Or maybe that’s just wishful thinking on my part.
Now, the not-so-good news
I got an email from my local Trek dealer announcing discounts of up to 30% on selected models. They call it the “What’s In Stock” sale.
Even as availability improves, some models — especially high-end bikes with top-of-the-line equipment — will continue to be in short supply for 2023. The flip side, of course, is that dealers shouldn’t need to discount these models to make sales.
Other models are already in oversupply and already being marked down. I got an email from my local Trek dealer as I was writing this piece announcing discounts of up to 30% on selected models. They call it the “What’s In Stock” sale. Specialized and Giant have recently announced similar price reductions.
It’s a strong indicator of things to come. Discounts will continue, but only on individual models where suppliers and/or retailers have too much inventory, and we can expect this to go on as long as the overstock situation persists. Which is to say, for the foreseeable future.
At the same time, the rising specter of inflation will continue to drive prices up, compounded with the possibility of a recession as the government continues its attempts to curtail inflation. The result will be particularly noticeable in entry-level and mid-market bikes where a few dollars in price point can mean the difference between making a sale and a customer keeping the charge card in their pocket. From both vectors — inflation-driven price hikes and the possibility of an economic downturn — pressure to discount products to older/lower pricing levels will be strong, and this can be problematic in a time when dealer margins have already eroded across the board, as they have in the last five years.
The moral to this story is the same as it always is, only more so. When placing pre-season orders, sign up for only what you are confident you can sell. At the same time, product availability issues in 2020–22 means we’re increasingly coming into a buyer’s market as more inventory becomes available. Retailers will be likely to have more leverage with suppliers than at any time in the past five years, so don’t be afraid to hang tough in those negotiations.
