Why Are Bike Prices Going Up? And Up? 21

Racks at bike shops are empty and the trails are full. 12-speed chains have practically become a form of currency. While many riders say they aren't having a problem finding parts, it is with the qualifier that the parts they do find aren't the exact parts they want. This means they're having problems finding parts. Riders once lived with the expectation of walking into a local shop and buying the bike they want. If it wasn't on the floor, they'd place an order, and the bike would show up within a week or two. If a rider wanted to order a bike online, some models may have been out of stock, but there was usually a relevant choice available. These days, the online shelves all say "out of stock" or "back order," and the wait-time at a brick and mortar store is generally multiple months at best. Furthermore, bike prices are going up. We've experienced multiple instances this year of Vital MTB having bikes on-hand for tests and reviews. During our test periods, the bike prices increased in just a few weeks during our testing. What is going on?

Many of us know the answer — bike sales skyrocketed thanks to Covid, and the means of producing bikes have run into a number of issues — also thanks to Covid. Mountain biking is part of a global economy and therefore, the full answer is much more complicated than this. What started as a look at why bike prices are increasing revealed the details of an interwoven industrial landscape that shed light on more than just high prices and conspiracy theories of brands charging more out of pure greed.

Vital reached out to a number of bike and component brands to find out what was driving the increase in bike prices. We wanted to get the full story from the brands themselves. Transition Bikes, Devinci Cycles, Marin Bikes, and FSA were able to share just what they were seeing on their end and how this may play out for a consumer who just wants to ride.

Marin

Has Marin had to increase prices on all bikes or were just key models affected?

We raised prices across the board on March 1st, on average right around 8%. 

What areas impacted your margins the most? Cost of goods, labor, shipping? Feel free to break out each of these segments, or add to the list.

Doing so was really a factor of many things, with freight costs being one of the top drivers. Ocean freight is costing us four to five times more per container than it did pre-pandemic, and FedEx and our LTL carrier also had dramatic price increases for domestic shipping. FedEx doesn’t really like shipping large items like bikes, as they take up so much space in their trucks and vans - space that can be used to transport, say, 30 e-commerce shipments. Beyond that, the cost of raw materials has increased, driving up the costs of the steel and aluminum tubing we buy, the rubber and oil used in the components, and the like. Currency fluctuations have also not been in our favor. Finally, due to some components scarcity, in some cases, we have had to make substitutions in our spec, and the new parts may cost us more than the ones that we had previously been using.

Does Marin foresee this lasting beyond 2021, or are brands anticipating things to "normalize" by next year? (We realize this is only speculation)

We don’t see prices retreating or “normalizing" anytime in the near future, but we hope that all the factors that led us and other brands to increase prices over the last few months have somewhat stabilized, this may just be the “new normal.”

I saw one supplier estimate an 800-day lead time recently, which would have put delivery in mid-summer 2023!

Does Transition foresee this lasting beyond 2021, or are brands anticipating things to "normalize" by next year? (We realize this is only speculation)

It's really hard to see what will happen in the future. The entire economy is in a new place and this issue isn't unique to the bike industry. You can see the parallels in other outdoor sports, in home building materials, and in all sorts of consumer goods. People are just buying more stuff on average and that is impacting material and labor costs for everything. The NTD/USD exchange rates have been trending slightly back up recently, but they are still well below the historical averages, and it doesn't sound like the US dollar is likely to get substantially stronger any time on the immediate horizon. Due to the production capacity issues, lead times have exploded from around a 90-day average to well over a year on average. Our perception has shifted from seeing a 60-day lead time as good, to thinking that anything less than a year is good. I saw one supplier estimate an 800-day lead time recently, which would have put delivery in mid-summer 2023! Considering we were already being forced to plan our purchases for everything customers will buy in 2022, and the factories are struggling to get that stuff produced fast enough, I don't think you will see any substantial change in the origin costs until at least some time in 2023 at the absolute soonest. There is a slight chance you could see some improvement in the strength of the US dollar, but that would be about the only way I would foresee our purchase prices coming down in the next two years, and I don't think that change would be substantial on its own.

I think the bigger concern is with the long-term health of the industry. Everyone is increasing their production numbers tremendously right now and demand is through the roof at the moment, but no one is really sure how long this bike boom will last, and if the demand will stay anywhere near this level. If brands, distributors, and dealers end up with too much product in stock or in production they might have to put things on closeout sales to move things faster, and it could drive down retail prices across the industry. That might seem great to the end-user in the short term, but that race to the bottom isn't sustainable. If that happens, some companies and bike shops are going to end up going out of business as a result. As an industry, we are producing more parts and bikes than ever right now, and at much higher costs per unit. If the retail prices did drop back down quickly, it would probably be for the wrong reasons, and it won't be good for the long-term health of the bicycle industry. We just hope that things can stabilize, and if everything calms down a bit, hopefully, prices can drop gradually without a giant crash.

How might this affect forecasting?

I don't think the changes in our costs or retail prices have any direct impact on our forecasting. Forecasting right now is harder than ever due to insane lead times and really high demand. It's all related, but I don't think the costs and prices directly impact the forecasting.

To the scope by which you are able to speak, what has been the impact on new/forthcoming models. (feel free to skip this one if you want)

This is basically the same thing as the forecasting issue. The lead times have made some of this really complicated, and in some cases we are placing orders for new parts from suppliers without actually knowing the price we will pay for them, or even seeing anything more than a rendering or prototype. We will have an opportunity to cancel our order if the price won't work for us, but we aren't likely to have the time to get something else on time if we wait to cancel the order. So I guess in that sense, it does mean we are having to create broader cost estimates for future products, but that is more of a lead time issue than a cost issue. No matter how you look at it, developing and getting new products to market right now is harder than ever.

Devinci Cycles

Has Devinci had to increase prices on all bikes or were just key segments affected?

Yes, all models were impacted equally. The rise in cost we have experienced is across the board so it impacts all our different product lines.

On average, by how much did prices increase?

Approximately by 7%.

What areas impacted your margins the most? Cost of goods, labor, shipping? Feel free to break out each of these segments, or add to the list.

Shipping is the most crucial one, not only for the parts that are coming to our Canadian factory, but there is also the increased cost of getting the bikes to our dealers. So this clearly had the largest impact.

The second largest one is the cost of goods. Our vendors and suppliers have also made price increase, ranging anywhere from 4% to 14%. This goes beyond just the typical parts that make our build kits. For example, our cardboard box provider went up by more than 12% so these have a massive impact on product cost. Despite all the efforts to absorb these significant new costs, it became clear that we needed to raise prices.

Does Devinci foresee this lasting beyond 2021, or are brands anticipating things to "normalize" by next year? (We realize this is only speculation)

If the pressure of the demand keeps increasing or remaining this high, with a supply that is still very limited, we would be surprised that this normalizes in the next year. The other major factors relate to the increased shipping cost, so as long as these remain high (or might increase more?) it becomes difficult to see it getting significantly better in the short term.

How might this affect forecasting?

At the moment demand is so high that the price increase does not affect our forecasting. The main limiter to our forecasting is how much we can produce. We are selling out of every product at a rate we have never experienced before (or dreamed of). Of course, we are working as hard as we can to keep the price in check and offer great value to our customers. We simply have to adapt to the situation and find win/win solutions for everyone: Devinci, our dealer network, and the end consumers.

Devinci has a North American production facility for alloy. Do the events of the last 12 months potentially have you considering domestic carbon production?

Not knowing when this will stop, and suspecting that when it will, it will be pretty instantaneous, it is very difficult to justify this kind of investment. However, this is a great opportunity to double-down our efforts on our successful aluminum bike production. We recently launched two new budget-friendly mountain bikes completely Made in Canada (Marshall and Kobain) to go alongside many proven aluminum platforms such as the Spartan, Wilson, our eMTB, and more. For us, it’s more about making the right bike in the right factory to make the best product possible. The current setup we have is very aligned with our objectives, and believe me, we are plenty busy with our aluminum bike production at this time.

FSA

Has FSA had to increase prices on all parts or were just key models affected?

Unfortunately, yes. Our business, like everyone’s, suffered from sudden and uncontrollable increases in supply chain costs due to the pandemic. By the end of 2020 we were no longer able to absorb these costs and, for the first time in several years, we needed to adjust our pricing.

On average, by how much did prices increase?

5%

What areas impacted your margins the most? Cost of goods, labor, shipping? Feel free to break out each of these segments, or add to the list.

All of these and more impacted not just us but the overall bike industry and most industries in general. Raw material costs increased substantially in 2020 (for example, aluminum prices have gone up ~60% in the last 12 months); labor rates likewise increased as factory capacity was pushed beyond expectations; freight costs and availability further compounded costs with rising fuel prices, container prices and availability, and even costs of local transport; exchange rates were also not favorable and had a negative impact on our business operations.

Does FSA foresee this lasting beyond 2021, or are brands anticipating things to normalize by next year? (We realize this is only speculation)

Generally, we anticipate current areas that impacted the global market will continue to do so into 2022. As such, we likewise foresee the costs of doing business will continue at current rates.

How might this affect forecasting?

In order to ensure delivery under the current lead times and price structures, many bike brands and distributors have already placed orders through 2021 and well into 2022 (some beyond that). Our forecasting has followed a similar pattern.

To the scope by which you are able to speak, what has been the impact on new/forthcoming products?

We have been and continue to push on new development as we plan for the future.

Where are we now?

For some riders, all of this is little more than an interesting story. There are plenty of mountain bikers who bought their bikes early or who waited their *two weeks* and now have that dreamy new ride. With brands showing an expectation of continued sales, it may be that the majority of riders are not being discouraged by the lead times or the higher price. Still, there are even more riders that are holding on to the bike they have as they let this all play out.

Are you among those watching this all play out, popcorn in hand? Or are you on a 12-month wait list for a new bike? We would love to hear your stories in the comments. We realize this issue is far beyond our little sport (anybody want to buy a used 2x4 stud for $6?), so feel free to share that stuff, too.