Townley: How recent tax reforms in the USA look set to affect the bicycle business

Companies large and small in the American bicycle business should brace for Change, writes CI.N regular Jay Townley, here’s why…

The president of the United States has signed into law the largest reform to the countries tax code in the last 30 years. The new tax law slashes the corporate tax rate from 35 percent to 21 percent and for the larger domestic companies with offshore business the law includes changes in how income earned or kept offshore will be treated going forward.

Bicycle Retail

Possible Impact: Due to deep cuts for businesses and reductions for middle-class consumers, the tax bill would spur economic growth at a time when all retailers, including bike shops, could really use it.

But don’t misunderstand what’s happening. To say physical stores, including many bike shops, are struggling is an understatement, but at the same time consumers are spending like crazy.

Consumer confidence is the highest it has been in 17 years. Unemployment is low, and shoppers have more cash to buy stuff. Consumers have essentially recovered from the Great Recession, and then some.

The problem for retailers, including bike shops isn’t people’s willingness to spend – including spending the extra cash they receive as the result of the new tax law. It’s where they’re spending. After the Great Recession, spending started shifted online.

Getting that mix right, that is keeping the magic number of physical stores open while adopting the means to keep up with online demand, will be the key to survival. Hundreds of retailers are now suffering from having more stores than they needed and, in the case of many specialty bicycle retailers – not embracing and incorporating the mix of omni-channel and new-wave or third-wave business models.

Overhauling the tax code, with the priority on lowering the corporate tax rate, has been the retail industry’s biggest public policy push for years. Retail trade groups are eagerly heralding the new tax reform.

Retailers, including the National Retail Federation (NRF) have said the new tax law will cut taxes on middle-income consumers, freeing up more money to spend at retail businesses. However, Morgan Stanley issued a report earlier in December stating that, consumers are spending more on experiences than things, and there’s no guarantee any tax savings would go toward retail purchases.

So, in addition to where (in a physical store or online) Americans will spend any extra cash they receive as the result of the new tax law, retailers, including bike shops are competing with spending on experiences instead of gear!

Bicycle Business Supply Chain

Possible Impact: A cut in the corporate tax rate could increase cash flow, allowing more investment in technology, business expansion and new jobs along the American bicycle business supply chain.

For supply chain businesses (i.e. manufacturers, brands, wholesalers and importers), the tax bill appears to deliver. Increased cash flow from a lower tax rate could prompt the different modes of freight and to invest more in supply chain visibility tools, predictive analytics and supply chain alliances.

However, an analysis by Retail Dive advises that the new law will tax companies for making payments to foreign companies, which could hurt the global supply chain.

In this respect, the new tax law is a bit of a mixed bag for the import dependent American bicycle business. While the new tax law may spur expansion and job growth for big and small American businesses, the laws’ “America First” slant could pose serious difficulties for supply chain managers dealing with foreign suppliers and freight carriers.

The Retail Dive analysis also indicates – the new tax law has a high probability of disrupting supply chains like the bicycle business, affecting the flow of supplies and products and potentially making it more expensive for American companies to do business and trade with foreigners.

While it’s too soon to know whether the lower tax rate will compensate for that provision, supply chains, including the American bicycle business are in for a shakeup in 2018.

We advise all businesses to check with their tax advisors and ask for their opinion about how the new tax law will impact their business enterprises going forward.