BikeBiz Bicycle and cycling retail news
Founder and director of Criterium Cycles bike shop in Edinburgh, Richard Bowker CBE, outlines what bike shops could look forward to as we kick off the new year
When considering any economic forecast for the future, it’s prudent to remember that whatever we think will happen generally doesn’t happen at a precise level of detail.
Forecasting trends is a broad-brush exercise as any decent economist will admit. Having said that, if markets believe something will happen, that can often be the stimulus for something broadly along those lines to come to pass. Since there are several widely held economic predictions as we head into 2022, it helps to see what guidance they offer.
We all witnessed a demand-led bike boom during the various lockdowns coupled with supply side disruption across the sector. The Bicycle Association’s excellent analysis provides some clues as to the level of the demand.
In October 2021, the total value of the market was +20% compared to 2019 but -23% compared to 2020, suggesting that the market in 2020 was up some 40% compared to the previous year. The ‘boom’ appears to have flattened since (no surprise), but what can we look forward to in 2022?
Economy and Covid
The general view appears to be that we will see growth in UK GDP in 2022 of around 4-5%, falling back in 2023 to 2% or thereabouts. So, at a macro level, 2022 at least looks okay for the nation. Nevertheless, inflation is something to be wary of. The vast sums of money pumped into the economy during the pandemic coupled with serious global supply issues led the Bank of England’s (BoE) Monetary Policy Report to forecast a Consumer Price Index (CPI) of around 4.1% in November 2021 rising to a peak of 5% in April 2022. The BoE then expects the upward pressure on CPI inflation to relax over time due to supply disruption easing, global demand rebalancing and energy prices stabilising.
CPI inflation is then projected to fall back materially from the second half of this year. That’s good news for consumers and hopefully means that the purchase of discretionary goods such as bicycles remains affordable. 5% CPI is not necessarily bad news either for retailers holding significant inventory coming into 2022. Since that stock was purchased in 2021, there should be capacity to discount against rising 2022 prices and still deliver decent net margin.
So, in H1 2022, we may see retailers with large inventory discounting to turn it into cash and also a fair number of ‘almost new’ bikes, bought during lockdown but now the subject of buyer remorse, hitting the auction sites. Both factors could put pressure on smaller, traditional single store cycle retailers.
One thing that will continue to generate material volatility is Covid. Goldman Sachs has already cut its US GDP forecast by nearly 0.5% in 2022 thanks to the Omicron variant, despite the fact that there are limited data points at the moment to say what the impact is likely to be. Suppliers are already suggesting Covid could continue to disrupt supply chains well into 2022 and 2023 so don’t expect the problems we have all seen in 2020 and 2021 to ease up any time soon. Forward ordering with the balance sheet to fund inventory purchases looks like being the new normal, at least for now.
Omnichannel and personalised service
Covid has certainly accelerated a shift to online sales. According to EConsultancy, a digital marketing consultancy, a report by Eversheds Sutherland suggests online sales of clothing rocketed by £2.7 billion during the pandemic, whilst total sales fell by £9.6 billion. As a result, they say the dramatic shift to e-commerce in this category means online clothes shopping could overtake in-store purchases as soon as 2022, ahead of previous expectations that it would happen in 2025, making Britain the first European nation where the majority of clothing is bought from online sources.
Cycle retailing has also seen a shift to an omnichannel strategy with some retailers seeking to differentiate themselves further with highly personalised service offerings. For example, at Criterium Cycles, we have implemented a popular personal home delivery service using our own vans with our own staff, free for any bike £1,500 or more. Bike shops that do not offer a digital store that looks and feels like their bricks and mortar store and with a seamless service offering may find themselves under increasing pressure from those that do.
Consolidation
Does this point to further consolidation in 2022? Frasers Group acquired Evans in 2018 and we have recently seen JD Sports Plc acquiring first Wheelbase then Leisure Lakes, to add to the specialist cycle retailing business of Alpine Bikes it already owned through Tiso Outdoor. Nevertheless, it is still possible for smaller retailers to innovate and disrupt markets without the need for massive scale so it will be interesting to see if the consolidation theme continues in 2022 and what it means for the hundreds of small cycle retailers in the UK. What is clear though is that smaller retailers will have to adapt to changing consumer demands to thrive.
E-bike popularity
One strong trend that is surely set to continue is the continued rise in e-bike popularity. According to the Bicycle Association, e-bike volume remains strong, up +59% vs 2019 but crucially up +37% vs 2020. E-bikes are especially popular with those concerned about climate change generally and looking to switch to a more sustainable mode of transport.
It is vital that the cycle sector as a whole (retailers and suppliers) continue to lobby hard through trade associations and any channel possible for local authorities and governments, devolved or otherwise, to maintain their commitment to invest in cycle friendly infrastructure. The Spaces for People initiative in Scotland offered funding and support to make it safer for people who chose to walk or cycle for essential trips and exercise during the Covid-19 pandemic. Sadly, in Edinburgh at least, most of those temporary measures are now being removed yet it is vital to build, not remove, cycle friendly infrastructure if we are genuinely serious about delivering a net zero carbon agenda.
Return to normality
Last year was remarkable for cycle retailers and 2022 looks set to be similarly so, but with key differences. We should see a gradual return to normality (with inevitable bumps along the way) with the lockdown fuelled demand increase for bikes settling down. But that is not a reason to be downhearted.
Cycling can maintain its role as a leading contributor to achieving a net zero carbon strategy and e-bikes will continue to grow in popularity.
However, consumers are becoming far more demanding in terms of service and a personalised approach. An omnichannel approach is increasingly the norm so smaller retailers must learn to adapt and innovate – otherwise the excitement generated by the last 18 months could start to disappear for some.
