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.”
It’s uncharted territory for this industry, but we’re all doing our best to deliver bikes as promised and not to overextend ourselves.
How might this affect forecasting?
Regarding forecasting, our factory has been running at full capacity for around a year now, and it's just a matter of allocating what they can provide us to ensure that Marin dealers across the globe can get as many bikes as possible. It’s uncharted territory for this industry, but we’re all doing our best to deliver bikes as promised and not to overextend ourselves.
To the scope by which you are able to speak, what has been the impact on new/forthcoming products?
Regarding forthcoming models, many of the key component suppliers have delayed new product introductions as they don’t want to disrupt their own supply chains since every part the companies are making is sold immediately. For instance, the drivetrain makers can’t currently fill up their warehouses while their factories undergo a changeover to make a new group, so they are mostly soldiering on with existing parts. It’s not the worst thing in the world, as bike parts are so good overall these days, but you may see less innovation until supply can catch up with demand. Because of this, many of the models in our 2021 lineup will carry forward into 2022. If the parts are going to be the same, there’s not much reason for us to disrupt our factory and supply of bikes.
Transition Bikes
Has Transition had to increase prices on all bikes or were just key models affected?
Our retail price increases are a direct response to increased costs for production and import. Our costs have gone up on everything; the exact amount varies from item to item, but across the board, all of our costs have gone up. We determine the retail prices for everything we produce individually, and we don't have a flat profit margin. We also deal with a blended margin of direct sales, dealer sales, and distributor sales. Since our profit margin varies from case to case, we have had room to absorb the higher costs on some things more than others. I would say that our costs have generally increased by about the same amount across the board, but our ability to absorb the costs is different depending on the item, and there have been some outliers where our costs have gone up more than average.
On average, by how much did prices increase?
I would start off by mentioning that we have been seeing a gradual increase in our costs for quite some time; for at least the last year. The different factors that contribute to our higher costs have kicked in at different times. Some have happened gradually and others have hit us overnight. I know it's a shock for someone to see the price of a bike they have had on back-order for months go up in price, but the same thing is happening to us. We are seeing our price go up on components we ordered months ago starting on X delivery date with little or no advanced notice. We understand how frustrating that is, and that is why we waited as long as we could to update our prices. That is also a big part of why we don't take full payment in advance or even a down payment. Everything is subject to changes that we can't foresee, especially with the longer lead times we are all dealing with.
There are roughly 50-70 different individual line items quoted in US Dollars, New Taiwan Dollars (NTD), Euros (EUR), or Japanese Yen (JPY) that all add up to the final bike price.
Generally speaking, I would estimate that our cost increases have been around 7% on average. However, our purchase price changes constantly with the exchange rates anyway. The Sentinel someone bought a few months ago cost us a different amount than the Sentinel someone bought yesterday based on the exchange rate alone. The price we pay for one of our complete bikes boxed up and ready to ship from the assembly factory is made up of a bunch of different individual costs. There are roughly 50-70 different individual line items quoted in US Dollars, New Taiwan Dollars (NTD), Euros (EUR), or Japanese Yen (JPY) that all add up to the final bike price. Everything is converted to NTD for the complete bike price quote from the assembly factory. Those USD, EUR, and JPY costs change with the exchange rates the assembly factory sees at the time they take delivery of the parts. That final invoice is then converted from NTD to USD for payment at the current exchange rate for whatever point in time the bike leaves the assembly factory. Then at that point shipping costs, duties, and potentially tariffs are all added. So the price increases we are talking about are sort of an average change based on an average price. Nothing about it is exact, and our final USD cost for a bike is never fixed. We have always made an effort to sell our bikes at a fair price and to offer the best value we can. With that in mind, we only increased our retail prices by around the same amount we have been seeing the costs increase. So on average, that was around 7%. We tried to hold out as long as we could before we increased prices, but it got to a point where we had to make the change.
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.
The biggest contributor has been the combined raw material cost and labor cost. Our factories are seeing increased labor costs, they are needing to buy more equipment, expand their facilities, and they are paying more for raw materials. The same thing is happening for the brands that we buy components from as well as the assembly factory that turns those individual things into the complete bike. In the same way that we raised our prices based on higher costs, our suppliers have needed to raise their prices to us based on their higher costs. There isn't someone out there collecting giant piles of cash; everyone involved in the production of a bicycle from start to finish is just passing along higher costs and trying to maintain the profit they need to stay in business and develop cool new things for us to buy in the future.
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.
6/17/2021 3:33pm
View replies to: Why Are Bike Prices Going Up? And Up?
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