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Credit Crunch, Chapter 4. And some other things

- Stimulus: For the bike business, what will it mean? We’ve seen some chatter about using taxpayer lucre to build bike paths and other varieties of ‘alternative transportation’ infrastructure that, in theory, will have the long-term ripple effect of causing people to buy more bikes and lights and baskets and such. But I think I speak for most Americans in not caring much for 2011 at the moment. What I’m interested in is 2009. February, 2009 for that matter.

While the big banks are burdened with toxic assets on their balance sheets, the bike industry has two burdens of its own: Excess inventory and production capacity. Inventory overstock at both the retail and the wholesale level is severe. Retailers are overflowing with goods, so they have no interest in buying from their wholesale suppliers. And wholesalers are conflicted because they don’t know what’s worse -- dealers who won’t buy, or dealers who do buy but don’t pay. So, in turn, wholesalers are cutting back on their orders from manufacturers.

We can already see the bike industry headlines in 2011. Presuming some degree of economic recovery has occurred by then (attributable or not to the Obama stimulus), there’s no way that 2011′s downsized supply chain will keep up with an significant increase in demand. What manufacturer will have the courage in the next 18 months to say ‘The time is right. Amp up production!’ None of them. An increasingly crippled supply chain will ensure lukewarm bike industry revenues in the future no matter how brisk the recovery may be.

What are the industry headlines going into March 2009? I believe they’re twofold: (1) Suppliers are so overstocked that they’ll finally stop their annual ritual of meaninglessly altering their product line to create the illusion of a new model year. Every year the big boy bike manufacturers make color changes or name changes to their products with the simple goal of jamming new product down their dealers’ throats. What % of that change is true innovation? Very little. Since most suppliers are still bloated on 2009 inventory, they’re making the prudent decision to push it forward into 2010. For example, we’ve heard that 40% of Trek’s current bike skus will be identical for 2010. This is a cause for retailers to celebrate. For once, it’s a year where there’s no need to mark down perfectly good inventory simply to create room for ostensibly new product. For all of the perils of the economy, creating some sanity about ‘model years’ is a silver lining.

(2) As a means of arousing some semblance of excitement in the marketplace, you’ll see new-for-2010 product rolled out unusually early. This is best evidenced by the impending release of 2010 Shimano Ultegra SL 6700. It’s exactly what you’d expect: A plasticky version of Dura Ace 7900, with similar ergonomics and internal cable routing. We’ve heard some noise that the 6700 STI levers will actually be carbon fiber. We’ll believe that when we see it. In any event, the fact it’s being released in March is symptomatic of the fact that new model year releases for 2010 will be absurdly early. Expect to see ’10 6700-equipped bikes from the big manufacturers not too much past Sea Otter. If you’re a bike shop, here’s to hoping you don’t have too much Ultegra SL 6600 in stock -- either on bikes or on the shelves.

- The interesting thing about Ultegra 6700 is that we’ve heard varying estimates as to its price. Some sources have told us it’s no more expensive than 6600, in an effort by Shimano to win the battle of high-tech-on-a-medium-budget. But we’ve heard from elsewhere that it’s vastly more expensive than 6600. We just don’t know.

What we do know, though, is that the US Dollar is at a 6-week high against the Japanese Yen. We also know that US import prices dropped 1.1% in January, 2009, with the annualized decline in import prices hitting 12.5% -- a US record. It seems to defy economic gravity that we haven’t seen a drop in Shimano wholesale and retail prices yet. Current exchange rates are reason enough for it. And then the fact that demand is lukewarm for products like Dura Ace 7900 adds another compelling reason for a price drop. Shimano, there is no shame in it. The economic logic for a price decrease is inarguable. And it’s the most powerful weapon in your armory for boosting demand.

If you read the New York Times you now know that the new Shimano ‘electronic’ Di2 Dura Ace gruppo cost will be approx. $4,000. And even though Shimano has suggested to us that Di2 will be shippable by the end of March, they still haven’t released wholesale and retail pricing for it yet (which is why you still don’t see it on our site.) We wonder if some sort of realization about the state of the economy is giving Shimano pause as they prepare to set these prices. More than at any other point, this would be an appropriate time for a price drop on Dura Ace 7900 -- at the same time they make their first non-vague pronouncement about Di2 prices.

- Retail reality check time: a) REI lays off 61 HQ employees. 2008 sales were up 6.9% over 2007, but net income fell by 65%. Holy shit! REI is a widely-respected organization, but clearly they relied on massive markdowns to hit sales goals. My friends, that’s fiscal hari-kari.

b) Do you remember a couple of years back when Cynergy Cycles opened up in Santa Monica with a full-on west coast media blitz? Cynergy management defined their recipe for success as follows: “My partners and I quickly realized that you could assemble the best team in the best location, but ultimately for success you need to feature the best brand. We took a hard look at every brand in the industry and we could easily see that Specialized has the winning combination.’ And now, 3 years later, it appears that the book has closed on the Cynergy project. A local bike shop will take it over. Not sure if it’ll carry on as a Specialized concept store or not…Not that that detail matters. The bigger message is that the luxury economy -- once thought of as recession-proof -- is perhaps the most recession-susceptible of them all. Can anyone share more light on what went on down there? I was impressed by how Cynergy rolled out their shop in ’06. Seeing them hit the skids like this was a surprise.

- Making Michael Ball look like the epitome of restraint. And, by comparison, Michael Ball’s legal circus(es) are small potatoes compared to Allen Stanford’s.

- Love the photo, but let’s face the likely truth: The whole ‘Lance got his TT bike stolen’ drama was a hoax concocted by the Trek Marketing Dept. to steal Specialized’s media thunder after Fabian Cancellara won the Tour of California Prologue on a Specialized Transition. It’s a chapter right out of James Ellroy’s classic story ‘Dick Contino’s Blues’ where a 1950′s almost-star accordion player destroys his rep by dodging the Korean War draft and he plots to resurrect his stardom by arranging for his own violent kidnapping. Dirty cops. Peeping toms. Recreational cough syrup & panty sniffing. A noir classic. Props to Trek for trying to replicate the Ellroy magic.

- And speaking of Tour of California and media thunder, I’m about to ban velonews.com from my computer. Was there ever a time with their ‘tech’ section was something more than a dumping ground of blatant advertorials? What amuses me so about this page is the ‘boots on the ground’ feel of its title -- ‘Spotted at the Tour.’ Wouldn’t you expect some off-light, kinda-blurry spy photos? Like muddy bikes atop a team car? In a workstand? Apparel actually on-a-rider? Instead we get Photoshopped confections -- primped and evanescent like titties on a centerfold. It’s not tech. It’s disingenuous advertising that irritates cyclists more than it entices them: They don’t like being played for stupid. Advertising isn’t editorial content. And regurgitating press releases isn’t journalism.