Ask the trade: Adapting business around a supply bottleneck

It’s fair to say the supply chain’s sudden acceleration of delivery has left suppliers and their retail accounts back in an all-too-familiar muddle. Could we have seen it coming and how can we now navigate a perfect storm where consumers are unwilling to splash out? We ask the trade…

What was your general feeling in 2020 as to how sustainable the demand boom was and in hindsight how close to the mark was your ordering strategy?

Len Simmons, Highway Cycles

As a newbie to the bike retail industry at the time it was thought provoking. To suddenly witness such a drastic uplift, it was my task to absorb the figures and try to comprehend how it measured with the medium and long-term patterns of the business.

As time went on we were continually encouraged to place forward orders with our main suppliers, which we did, but I had personally no insight where it would lead. I felt as though I sensed a boom-and-bust scenario quickly based on other businesses I’ve been involved in. Over the last six to nine months we have backed off forward ordering, though not to the point where stock is as low as pre-Covid levels. We are now maintaining good levels of stock and not yet seeing a massive downturn as we are aggressively trying to make the future happen by engaging new segments of the community in cycling that weren’t buying up to now. If you don’t make the future happen in your area you may suffer more.

Dylan Thomas, Poetry in Motion Cycles

I feel that going into 2020, before the Covid boom started I was very positive with a good strategy for the year. Then the boom happened and it became a case of doubling up on orders and trying to predict how big it was going to be. There were a few moments when we started to run very low on parts, but we have always worked closely with our main suppliers and they kept us in the loop for ordering times, so we managed it quite well.

There is a sense that optimism extrapolated up the supply chain. Do you think there was a sense of getting carried away on a spike after a few tough years into 2019?

Len Simmons, Highway Cycles

Again, it’s hard for me to say long-term, but everyone sure seemed caught with their trousers down on supply. In the end the component manufacturers rule the roost, so everyone had to adjust what they would like to supply based on availability upstream.

My feeling is that the distributor should hold the stock, that’s what they’re there for. From our point of view, the manufacturer and wholesaler did appear caught up in the rising wave and seized the opportunity. Now comes the adjustment. For most it’s now presented a cash flow issue, but I think it will wash through for most businesses.

Prior to this spike we did four or five stock turns a year, but currently we are looking to do three in the next twelve months.

Dylan Thomas, Poetry in Motion Cycles

The boom was never going to last, we knew that, so when we were getting to the end of 2020 we started to check what was happening elsewhere and in what areas we had seen the largest growth. Using that info and talking to bike shop owners, not just in York, but all over the country we could work out where the industry could be heading. There are a lot of shops out there that have massive amounts of stock at the moment, of course. Some shops that we supply have over 100% more stock than they would normally at this time of year. So, yes some have got carried away.

In your view, what needs to happen for the market to settle and in the meantime what do you expect to see?

Len Simmons, Highway Cycles

The key thing that needs to happen is for the doom and gloom in media to subside a little. I don’t think that we are getting a true representation of what’s going on in the economy as yet. The downturn is not yet happening to us in this business, at least. That said, I accept consumer sentiment will have an impact in the coming year as disposable incomes decline.

It’s likely that the weaker businesses will succumb to a lack of revenue. You must change what you’re doing to combat the footfall downturn, so for us that’s public events to reach new audiences. Previously you didn’t need to be so aggressive.

Dylan Thomas, Poetry in Motion Cycles

There are lots of things pushing and pulling the trade, but I think there are a few things that are starting to, or will be making it very hard, in the coming years. The first is Brexit. Some of the things we are selling in the UK are twice the price versus in the EU and I am hearing from bike shops that bikes (eBikes and also carbon road bikes) are coming in that were sold in Holland or France and then brought back into the UK saving the customer in some cases £1,000s of pounds.

So, the import duty for bicycles and bicycle parts really needs to be looked at if we are going to help transition people from making the small car journeys.

The second headwind is B2C (business to customer) trade, because the manufacturers and importers are trying to make that few extra percent on each sale. The fastest way they can do that is cutting out the independent bike dealer.

To summarise, in the next ten years there will be more and more workshop only shops selling only the basics (lights, locks etc), but solely focused on repairs. Then you will have a few of the massive bike shops that are selling all the bike brands.

How is demand in your area and what are customers most often talking about in relation to why they are or are not spending?

Len Simmons, Highway Cycles

Demand is similar to last year, but probably it increased on the mid-to-higher ticket items. Maybe that’s seasonal and entry-level will perform to Christmas. Presently, I would say we are split non-electric to electric at a ratio of 1.5 pedal powered to 1 electric sale. What we’ve seen recently is a big uptake in hardtail MTB, maybe again it’s a time of year thing as people look to navigate the mud.

I get the feeling that people are conscious of the uncertainty and where things will settle, so they’re holding off some purchasing decisions. For me, the media’s doom and gloom is putting people off, though undoubtedly it’s more difficult.

Finance is becoming more attractive on bigger ticket items; if customers can do £150 a month they’ll warm to buying and we’re seeing that convert. It’s intuitive to use finance products lately. We could push it more, so there’s a point-of-sale detail coming in soon.

Dylan Thomas, Poetry in Motion Cycles

The strange thing about Poetry in Motion Cycles is that when we opened we knew all the staff in all of the local shops, so we did not want to step on anyone’s toes. That meant we did almost no trade locally. To help us along we have always been focused on wheel building and supplying the trade with custom cut spokes and have built up a massive national reputation in the bike trade. We are even supplying some of the biggest bike companies in the UK.

Yet we are starting to get a feeling that general customers are pulling back on what they are spending their money on; that has only started to happen in the last few months. We feel that the trade is still up on 2019, but because 2020 to 2021 were massive years this now feels like a slump in trade.

How are you adapting your business to better cater for tighter consumer budgets?

Len Simmons, Highway Cycles

We have a plan for each eventuality that can adapt to whatever scenario plays out. If we see a 50% reduction in revenue, we know what we need to do ahead of time to react, rather than waiting for it to happen. This is monitored every day, the minute we hit thresholds we react.

Dylan Thomas, Poetry in Motion Cycles

We have a few things we are looking at the moment, but we are waiting to see what the winter holds before we start to try things out. PIM Cycles has been looking at the hours our staff are working and everything that comes with having staff in like the lighting, heating etc. Do we need to open on weekends or not? Are there other things we can offer customers? What discounts can we offer and when would be the best time to offer them?