Big Increase for 2009 Bike Prices…Bad Idea!

Mass layoffs are spanning the corporate and non-corporate globe right now.  Last week it was announced that unemployment has leapt to 7.7%.  With new layoffs being announced almost hourly, unemployment claims are sure to top 10% by February….March at the latest.  Unemployment hasn’t been that high since the horrible economy of 70’s with high inflation and major energy shortages.  They were also above 10% during the major recession of 1980-82 when the Reagan economic team had to shock the economy out of the high inflation rut by reducing the amount of cash in circulation.  So, we have had 20+ years of easy breezy economic fun, but now it is time for the wheels to fall off. 
Wait a second!!!! What does this all have to do with bicycles?  Easy, the bicycle industry is in for it, and they don’t seem to notice the headwinds.  By my calculations and based on what I have read in bicycle trade magazines, bike prices are up about 10-20% for 2009.  Statements from the top screwballs in charge of the bike brands you love sound like this: 

“Energy prices are high, and that causes raw materials to cost more, making it harder for us to make money at current prices.” 

“It is costing us more to make bikes, and so we need to raise prices to stay viable.” 

“High gas prices are driving more people to use bicycles as transportation, which will help bicycle sales.  Even a bike that cost 20% more than it did in 2008 is still a good deal because it reduces need for expensive gasoline.”

I guess the owners, CEO’s, and brand managers of the bike industry never took an economics 101 class.  Here are 5 reasons why your favorite bicycle brand will sell less bicycles in 2009 than they did in 2008:   

1. Gas prices are dropping – this debunks the most oft used excuse by bike execs as to why a consumer that is strapped for cash will buy a bike that has a 10% inflated price.  In fact gas prices are down 55% since the peak 4 months ago.  Less costly gasoline is not going to help form a line at the local bike shop.
2. Basic Economics – Raising prices for a product reduces demand….this is true in good economies and even more so in bad economic times.  There are only a few exceptions to this rule, and believe me, bicycles are not one of them.
3.   No innovation – What has changed over the last few years in bicycles to make anyone go out and buy a new rig?  Not much.  Sure, there is now Campy 11, and a new bottom bracket standard every two years, but nothing else has changed.  Carbon is still the standard for a nice mass produced road bike, and manufacturers have a very difficult time selling customers on the fact that “this year’s carbon” is better than “last year’s carbon.”  Give me something new, that is worth buying, and I will be first in line.  For example, check out the S-Works version of the Specialized Tricross cyclocross bike.  The difference from 2008 to 2009 is almost 100% color change, and yet they expect me to pay them an additional $300 to reward them for not changing anything.  No thanks!  I think I will park that $$$ in the bank instead.
4. People have less money in the bank.  There are no more home equity loans because there is no more home equity, and if there is equity in your home, the bank is out of money, so too bad.  This has a major effect on expendable income, meaning less money to spend on bikes.  Also missing are signing bonuses at new jobs, or bonuses at your existing job, or maybe you are one of the millions in America that have received a pay cut in the last few months.  Whatever the reason, money isn’t exactly growing on my back yard palm tree right now.
5. Consumers aren’t stupid.  They will not pay more for an item that it is worth.  Go ahead and throw some excuses towards a potential buyer, like it costs us so much more to ship the bikes from Taiwan to the United States than it used to….and guess what?  The consumer doesn’t care.  Sounds like a bad cost structure problem to me.  Shouldn’t have banked on always having cheap equipment made on the other side of the world.  Maybe the smart thing to do would have been to build up carbon producing factories in the United States…I might actually pay an extra $300 for that Tricross if it were welded in America…..I’m just sayin!

Since the bike industry has made the mistake of producing bicycles that they think you will buy, even at higher prices, there will be left over inventory at the middle to end of 2009.  This will cause bike companies to reduce prices or offer rebates to the bike shops to sell certain models in order to clear up stock levels in time for 2010.  In years past, when a bicycle company made too many bikes, they would lower wholesale prices to the shops or offer rebates to the shop every time a bike was sold.  This discounting will be even bigger this time because the industry will not have free access to credit to build 2010 models because of the banking debacle.  The industry will have to clear out of 2009 stock right away in order even to afford a 2010 line.  All of this will bring on situations like we had in the good ole days when the “last year’s model deal” really was a deal.  If you can wait until September or later to buy a bike, you will find some smokin’ hot deals.  You can count on it…..unless the bike industry gets it’s collective head out of the sand and cuts prices along with producing less units. 

P.S.  The Lance comeback isn’t going to sell any additional high end road bikes this year.  That is a really bad reason to think you can pass a price increase on to a customer.

12 January 2009 | Industry News | Comments