99 Bikes: Potential Peloton Crash

99 Bikes

99 Bikes is one of Australia’s best know bicycle retailers. It’s part of the Flight Centre Travel Group (via 47% ownership through Flight Centre itself, 22% directly by Flight Centre CEO Graham Turner, and his son Matt owning 15% - Matt Turner chairs 99 Bikes parent company, Pedal Group).

99 Bikes already operates in Australia and New Zealand, and wants to be in 5 countries with 185 stores by 2035.

And why not? The Global bicycle market is predicted to grow to USD 228.90 Billion by 2030, with CAGR of 11%. The largest share of the market in 2022 was Asia-Pacific, so 99 Bikes’ expansion plans are on solid ground:

But, in the Financial Year 2023 Pedal Group (99 Bikes’ owner) posted a $12.9m loss!

99 Bikes loss was the result of an industry-wide supply chain problem of overstocking. Overstocking in 2022 and 2023 has been particularly painful in Australia, caused by 3 factors:

1. The Stackhat Effect:

In July 1990 bike helmets were made mandatory. Since then bike sales have been declining (from 1.65m daily trips in 1986 to 1.07m in 2019). There’s just something about putting on a helmet that puts people off cycling.

While there are many really great quality bikes manufactured in Australia, the majority of mass-produced bikes are imported from overseas. As cycling demand reduced over 20+ years the supply chain adapted to a steady state of slightly less numbers each year, offset by rising popularity of more expensive bikes through popularity of new segments such as mountain-bikes and e-bikes.

2. The COVID Impact

Covid supply-chain impacts hit the bike industry much the same as everybody else.

In early 2020 retailers, wholesales and importers scrambled to cancel orders because of the uncertainty created by lockdowns. Nobody wanted to be stuck with excess stock.

But then an unintended consequence arose from the combined effect of:

· Social distancing

· Working from home

· Lockdowns

It turns out that when people have more time on their hands, are encouraged to be in open spaces and need to stay within a bubble around their homes, they tend to exercise more. And cycling is a popular form of exercise – so demand for bikes soared!

But when factories have scaled down because of order cancellations (not to mention dealing with orders of their own) you need to wait for your bikes. 6-12 month wait times for certain models were not unusual – and people were willing to wait.

Bike sales soared – so much so that for the first time in over a decade, Adult bike sales outsold New car sales (by more than 12%)!

3. The Supply Chain Seesaw

Post-Covid saw another series of circumstances combine to cause the bicycle supply chain to seesaw dramatically in the opposite direction.

The first is that all those chunky backorders arrived, and not all of them were for high-end expensive bikes that had been partially or fully paid for. The majority were general stock bikes.

The second is that inflation pushed up material costs and freight costs peaked in early 2022, just in time to make those materials extra-expensive. The average FOB value per bike imported to Australia has increased substantially which is likely to double the retail price of some categories. Import values for spare parts have increased 30%-40% in most cases.

The consequence? Everybody in the bicycle supply chain ended up holding way too much stock.

Add in global inflation’s impact on consumer spending over 2022 and 2023 and it’s a recipe for disaster:

• Giant, the world’s biggest bike manufacturer, asked their suppliers for a 45 day payment extension in December 2022. This happened just after their revenue increased 14% year on year (and around Christmas, traditionally peak sales time for low- and medium- value bikes).

• 99 Bikes’ parent company Pedal Group posted their $12.9m loss for the financial year 2022/23

What to Expect? Heavy Discounting

Pre-Christmas purchasing for retail stores was locked in months ago, so importers and retailers will be overstocked. Discounting stock is the only way for the excess stock to be shifted. Importers have begun offering incentives for retailers to take on more stock since the beginning of 2023 – so the pain will end up being a bit more evenly distributed.

Specialist bike shops are either independently owned, franchised, or company owned. The Independents and Franchisees will now be negotiating heavily with importers to minimise their $ exposure by taking as much stock on consignment as possible. At the same time the importers will be pushing for stock to be sold at heavy discounts to reduce their own exposure moving into 2024.

Whether this will be a win for consumers remains to be seen – consumer sentiment has increased for October, but interest rates could put a dampener on this if there’s another rise before Christmas.

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