INDUSTRY OPINIONS: Are distributors being priced out? - BikeBiz

INDUSTRY OPINIONS: Are distributors being priced out?

Following a summer where price hikes were impossible to absorb for the majority of complete bike importers, things look set to get even more difficult. Mark Sutton talks to UK distributors about worrying lead times and asks whether another batch of heavy increases is on the horizon…
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“There’s undoubtedly a tough year ahead from an importer’s perspective. While a dealer has delivery on a bike within days, we’ve ordered all our complete bike stock until next June.

Commodity prices are no longer a real reason for price rises, although the factories are still blaming increases on this. While they remain constantly volatile, the cost of raw metal, plastic and cardboard is actually now on a gradual decline.

Lead times on complete bikes, however, are the main problem facing us at present. The demand for bikes seems to outstrip the supply, meaning the industry faces a major production crisis. Demand is rising, yet the capacity to make the bikes has not matched this increase, especially for Europe.

We have now made all of our purchasing decisions long before we have had the chance to test the product and its potential. A shipment of bikes that initially looked highly sellable may show up, but by the time they arrive, 20 per cent has been added to each bike’s cost, making the package a lot less attractive. By that point we’d most likely have already been forced to order a second, third and fourth shipment. There is a danger of being left with major stock imbalances, because long lead times on orders creates huge risk of shortages of one model and excess of another.

“Price problems are only compounded by sterling’s recent massive depreciation against the dollar. The duty of 14 per cent on bicycles now seems entirely outdated on a product that improves health, environment, congestion and so on. And the anti-dumping duty of 45 per cent plus on China restricts a European company’s purchasing options and is creating further bottlenecks and price difficulties.

The good news is that we are selling record numbers of bikes, the bad news is that the factory gate prices are going up and the lead times are anywhere from 120 days to 365 days – and so it’s hard to ensure continuity of supply.”
Russell Merry, Managing Director, Hot Wheels

“We are concerned about the ever-increasing raw material costs, and the very recent exchange rate swings. We cannot avoid imposing some price rises when inbound costs are rising by up to 30 per cent.

The company increased prices on about 20 per cent of SKUs in May. Most increases were quite modest. This was predominately in response to the huge swings in the pound exchange rate against the Euro. It also reflected a small number of factory gate increases from the Far East.

However, in the background the raw material increases feeding into the factories in the Far East over the past six months have been horrendous. We heard stories of increases in excess of 30 per cent to the factories. Some of those appear to have passed straight through.

Every week we get advice about some factory gate price increase from Taiwan. One of our factories will even quote a new price each time we order.

Coupled with this, the pound has come under pressure against the USD, weakening significantly.

In the recent past, most of the factory gate price increases we have incurred have been absorbed by the offset of favourable exchange rates, while Sterling was so strong.

Very recently, the exchange rate 'cushion' that has protected us all from rising raw material and factory gate price increases have been dwindling away. If this continues, the combined factory gate increases and exchange rate issue will no doubt have a substantial impact on our costs.

Some suppliers have tied forward contracts for both products and also currency. But, somewhere down the line, the true costs will start to kick in. All products will undoubtedly re-align and become competitive with each other again in the market. It's just a matter of timing and at what level the prices stabilise.

 I doubt the credit crunch will have much effect on our industry. History tends to dictate that when things get tight, people start riding push bikes."
Lloyd Townsend, MD, Ison Distribution

“At Seventies we realise the importance of keeping certain retail price points for entry-level bikes, which is why we’ve worked closely with both Hoffman and Subrosa to ensure that we’ve got great bikes retailing around £220. We’ve also resisted the temptation to increase our prices in light of recent changes in the value of the US dollar. You will not see any of our complete bike prices increase prior to Christmas.

 We are always trying to get bikes on the shop floor earlier each year, but this seems to be getting harder and harder. For example, we have been waiting up to eight months for delivery of some models. Obviously this makes it really hard for us to predict how many bikes we'll need that far in advance. To customers of ours - please bear with us if we have sold out of some models. Consequently some models are selling out months in advance.

 Even in light of the price increases and late deliveries, we expect to be selling in excess of 50 per cent more of the 2009 ranges than the 2008 ranges. We feel the price and spec of all these ranges will continue to represent really good value for money in the current market. This, combined with the marketing, gives these bikes an advantage over a lot of the competition – something I feel has been reflected positively in our sales.
Stuart Dawkins, Managing Director, Seventies

“We are still waiting on prices for 2009. However, as manufacturing costs have increased, we expect a slight, but noticeable, increase to our pricing.

Due to the type of products that Riding High offers, we have not really noticed a significant change in sales as our customers will find a way of affording it.

We do realise that a lot of people are being cautious. However, we believe that this will die down after Christmas. I guess the key is to stay positive.”
Vicky Chen, Marketing Manager, Riding High UK

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