If you read up on Youngone, they are partial owners of Scott. There is more in the background to the loan than what the headline appears...
If you read up on Youngone, they are partial owners of Scott. There is more in the background to the loan than what the headline appears to be saying. Paging Jeff to the white courtesy telephone to break the business side of this one down... @jeff.brines
Sorry - missed this! Thx for the tag. While its impossible for me to know exactly what is going on, here is what appears to be happening...
1) As pointed out elsewhere, Yougone has a majority stake in Scott Sports. Its important to note their stake is large, which gives Youngone more incentive to help.
2) Youngone is publicly traded in S. Korea, making disclosures of this sort mandatory.
3) Of course no bank would give Scott a loan on these terms. In fact, the interest rate is closer to the 1 year treasury rate than what a business like Scott would otherwise borrow at (which would be an order of magnitude higher to justify the level of risk). I'd bet the only real loan Scott could get would be in the private credit market where it would need to be securitized against some kind of asset and only at about 60% of whatever that assets (or those assets) real world market value is. Not only would the interest rate be double digits (likely) but this would limit the amount they could borrow significantly.
This is all about extending Scott a lifeline to get the train back on the tracks by the proverbial "dad" in the room. What is clear about Scott (and has been clear for eons) is they need someone to come in and figure out what is really making money and what is dead weight. Good CFOing or consulting work will be required. Their net margins are lower than their cost of capital, which does not work.
Tl;dr - Youngone is saving the company. If they weren't owned primarily buy a well capitalized Asian company, Scott Sports would be filing for bankruptcy.
EDIT: If anyone is reading this from Scott ping me, I have time to help
trash them.
Happens in lots of industries. The only issue is that the brands incredibly foolishly sunk too much into inventory. Normally you just absorb the...
trash them.
Happens in lots of industries. The only issue is that the brands incredibly foolishly sunk too much into inventory. Normally you just absorb the loss of a bad year from profit of the good years (21 & 22) but the issue is the losses from 23 eclipse any profit from 21 and 22 combined.
The finance teams just totally cocked it up, and nobody questioned the fact that MTB (and bikes overall) hasn't actually exploded in terms of usage, people just bought new bikes, but they aren't going to buy new bikes every 2 years lol.
Three points I'm compelled to make here...
1) I don't disagree that when you factor in all your SG&A plus what certain brands were doing on a COGS basis to rush product to market that a 3 year snapshot of most companies will look upside down. I wouldn't put this squarely on the shoulders of "those in finance" however. Nobody has a crystal ball and lots of very smart people really did think COVID was going to create long lasting changes as to "how we all hang out". (not true - obviously). I'm not trying to save face for these people, I'm just saying "madness of crowds" is a real thing and crystal balls in short supply.
2) Everyone who needed a bike did indeed buy a bike. Unlike the 2015-2020 era, where every 18 months something amazeballs would come out you were super tempted to buy based on the performance gains, that is no longer true. If you are a casual mountain biker, your COVID bike is every bit as capable as whatever XYZ brand is putting out there. This plateau of technology makes this problem extra bad. Add to this the fact we are no longer in ZIRP, govt not handing out checks superfluously and certain industries more affluent bike riders work in (tech/finance) have been ravaged by layoffs and its extra bad.
3) HOWEVER, based on what I just said, a 2 year old bike on the showroom has a lot more "performance value" than it otherwise would have 10 years ago. This doesn't mean you'll get MSRP if you are a dealer, but it does mean you can probably sell it at cost less 10%. Not ideal, but not a total write off, either.
Things do appear they'll get worse before they get better. That said, there is still a very solid core to the sport, and the fittest will absolutely survive. Its still a hell of a time to be a bike rider and the sport is in zero danger of "going away".
If anyone wants the playbook as to how to do things in 2024, look no further than Neko. He's keeping everything incredibly lean, and running his company like a business, realizing there is no free money. Its very pragmatic, very "unsexy" and very smart.
Funny how the "Tony Ellsworth Designed Bike Owners Group" showed up in my FB feed. Those who are curious about the current state of the brand will find some info there.
If you read up on Youngone, they are partial owners of Scott. There is more in the background to the loan than what the headline appears...
If you read up on Youngone, they are partial owners of Scott. There is more in the background to the loan than what the headline appears to be saying. Paging Jeff to the white courtesy telephone to break the business side of this one down... @jeff.brines
Sorry - missed this! Thx for the tag. While its impossible for me to know exactly what is going on, here is what appears to be...
Sorry - missed this! Thx for the tag. While its impossible for me to know exactly what is going on, here is what appears to be happening...
1) As pointed out elsewhere, Yougone has a majority stake in Scott Sports. Its important to note their stake is large, which gives Youngone more incentive to help.
2) Youngone is publicly traded in S. Korea, making disclosures of this sort mandatory.
3) Of course no bank would give Scott a loan on these terms. In fact, the interest rate is closer to the 1 year treasury rate than what a business like Scott would otherwise borrow at (which would be an order of magnitude higher to justify the level of risk). I'd bet the only real loan Scott could get would be in the private credit market where it would need to be securitized against some kind of asset and only at about 60% of whatever that assets (or those assets) real world market value is. Not only would the interest rate be double digits (likely) but this would limit the amount they could borrow significantly.
This is all about extending Scott a lifeline to get the train back on the tracks by the proverbial "dad" in the room. What is clear about Scott (and has been clear for eons) is they need someone to come in and figure out what is really making money and what is dead weight. Good CFOing or consulting work will be required. Their net margins are lower than their cost of capital, which does not work.
Tl;dr - Youngone is saving the company. If they weren't owned primarily buy a well capitalized Asian company, Scott Sports would be filing for bankruptcy.
EDIT: If anyone is reading this from Scott ping me, I have time to help
"Taiwanese bicycling mega-brand Giant Group reported a significant drop in year-over-year sales for 2023.
With 2023 sales of NT$76.95 billion in 2023—or about $2.43 billion USD at the time of this writing—Giant Group was down 16.4 percent from the full-year sales totals of 2022. The company reports its earnings in its local currency, Taiwan New Dollars.
The group suffered a dismal fourth quarter, with a massive November 2023 sales drop-off of 28.1 percent. December rebounded slightly, with a drop-off of nearly 26 percent from the previous year. Overall, the group saw an overall decline of 39.9 percent in the year’s fourth quarter from 2022, owing in large part to a reduction in orders from OEM customers."
"'Instead of long-term orders, orders are almost exclusively placed spontaneously. As a result, it is currently no longer possible to plan ahead to meet demand at two parallel production sites.
'Schwalbe is therefore positioning itself for the future in the best possible way and is pooling its strengths in Vietnam. Enormous investments have been made there in recent years. With new factory buildings and machinery, the site offers state-of-the-art tire and tube production. In addition, Schwalbe customers can be supplied directly from there with a product mix perfectly tailored to their individual requirements,' the company said."
Meanwhile, here's a projection of 2024 bike sales in the USA:
It looks like the cycling industry is projecting 2024 to be marginally better than 2023 in the US but still below pre-pandemic sales numbers. Does anyone have any insight if the sales projection for Europe and/or the rest of the world in 2024 follows a similar trajectory?
Meanwhile, here's a projection of 2024 bike sales in the USA:
[img]https://www.bicycleretailer.com/sites/default/files/content/240105_consumer_sales_2015-2024.png_.png[/img]
It looks like the cycling industry is projecting 2024 to be marginally better...
Meanwhile, here's a projection of 2024 bike sales in the USA:
It looks like the cycling industry is projecting 2024 to be marginally better than 2023 in the US but still below pre-pandemic sales numbers. Does anyone have any insight if the sales projection for Europe and/or the rest of the world in 2024 follows a similar trajectory?
From a source at Trek, China is literally carrying their entire bike sales (trek have a substantial amount of apparel and parts via bontrager etc) in 23 and projected to continue in 24 (which is surprising seeing the large Chinese downturn overall). It's just such an enormous market for them it is saving them from making layoffs across each region.
@jeff.brines I totally agree with all 3 points you made.
My only concern is, moving forward I'd wager the majority of research and frame/package development will be on e-bikes, and normal bikes will continually slide down the list outside of niche brands.
The german sales figures for e-bike vs bikes (MTB's for both) is crazy. Its only going to continue
Meanwhile, here's a projection of 2024 bike sales in the USA:
[img]https://www.bicycleretailer.com/sites/default/files/content/240105_consumer_sales_2015-2024.png_.png[/img]
It looks like the cycling industry is projecting 2024 to be marginally better...
Meanwhile, here's a projection of 2024 bike sales in the USA:
It looks like the cycling industry is projecting 2024 to be marginally better than 2023 in the US but still below pre-pandemic sales numbers. Does anyone have any insight if the sales projection for Europe and/or the rest of the world in 2024 follows a similar trajectory?
From a source at Trek, China is literally carrying their entire bike sales (trek have a substantial amount of apparel and parts via bontrager etc) in...
From a source at Trek, China is literally carrying their entire bike sales (trek have a substantial amount of apparel and parts via bontrager etc) in 23 and projected to continue in 24 (which is surprising seeing the large Chinese downturn overall). It's just such an enormous market for them it is saving them from making layoffs across each region.
@jeff.brines I totally agree with all 3 points you made.
My only concern is, moving forward I'd wager the majority of research and frame/package development will be on e-bikes, and normal bikes will continually slide down the list outside of niche brands.
The german sales figures for e-bike vs bikes (MTB's for both) is crazy. Its only going to continue
Honestly, for some brands that might be the thing that thins the herds. You'll have a couple of big brands with lines of both Electric and naturally aspirated bikes and the rest can split it. The nicer regular bikes brands that are currently keeping their heads above water because they have a real product in that category and the brands that transition over to E-bikes as their bread and butter and leave the regular bikes to the brands that are actually pushing for them. If half the brands pushing out both bikes just picked a team there would be more bread in their respective baskets then there is now.
Sorry - missed this! Thx for the tag. While its impossible for me to know exactly what is going on, here is what appears to be...
Sorry - missed this! Thx for the tag. While its impossible for me to know exactly what is going on, here is what appears to be happening...
1) As pointed out elsewhere, Yougone has a majority stake in Scott Sports. Its important to note their stake is large, which gives Youngone more incentive to help.
2) Youngone is publicly traded in S. Korea, making disclosures of this sort mandatory.
3) Of course no bank would give Scott a loan on these terms. In fact, the interest rate is closer to the 1 year treasury rate than what a business like Scott would otherwise borrow at (which would be an order of magnitude higher to justify the level of risk). I'd bet the only real loan Scott could get would be in the private credit market where it would need to be securitized against some kind of asset and only at about 60% of whatever that assets (or those assets) real world market value is. Not only would the interest rate be double digits (likely) but this would limit the amount they could borrow significantly.
This is all about extending Scott a lifeline to get the train back on the tracks by the proverbial "dad" in the room. What is clear about Scott (and has been clear for eons) is they need someone to come in and figure out what is really making money and what is dead weight. Good CFOing or consulting work will be required. Their net margins are lower than their cost of capital, which does not work.
Tl;dr - Youngone is saving the company. If they weren't owned primarily buy a well capitalized Asian company, Scott Sports would be filing for bankruptcy.
EDIT: If anyone is reading this from Scott ping me, I have time to help
You are obviously well-educated on the subject, do you have any book recommendations for me to educate myself?
I would be highly appreciative of any recommendations,
Thank you for taking the time out of your day.
You are obviously well-educated on the subject, do you have any book recommendations for me to educate myself?
I would be highly appreciative of any recommendations, ...
You are obviously well-educated on the subject, do you have any book recommendations for me to educate myself?
I would be highly appreciative of any recommendations,
Thank you for taking the time out of your day.
TBH, I can't point at one or two books that really shaped the way I think about financial markets, economics, behavioral finance, capital allocation etc. A lot of this comes from staring at financial news for the better over a decade, building content for a very discerning group of people "on wall st" and figuring out the right products to built to get this information to them as fast and accurately as possible. This forces you to figure out pieces of the puzzle, as eye glazingly boring as it may be.
If I were trying to learn as much about this as fast as possible, I'd give Kyla Scanlon https://kylascanlon.com/ a follow. She's great (and a bike rider). She breaks down complex economics into very easy to digest bits. Separately, if you are looking for books to read that don't put you to sleep, anything Michael Lewis would be where I'd point you. He's a master story teller about all things finance/markets and you'll learn a thing or three along the way.
You are obviously well-educated on the subject, do you have any book recommendations for me to educate myself?
I would be highly appreciative of any recommendations, ...
You are obviously well-educated on the subject, do you have any book recommendations for me to educate myself?
I would be highly appreciative of any recommendations,
Thank you for taking the time out of your day.
TBH, I can't point at one or two books that really shaped the way I think about financial markets, economics, behavioral finance, capital allocation etc. A...
TBH, I can't point at one or two books that really shaped the way I think about financial markets, economics, behavioral finance, capital allocation etc. A lot of this comes from staring at financial news for the better over a decade, building content for a very discerning group of people "on wall st" and figuring out the right products to built to get this information to them as fast and accurately as possible. This forces you to figure out pieces of the puzzle, as eye glazingly boring as it may be.
If I were trying to learn as much about this as fast as possible, I'd give Kyla Scanlon https://kylascanlon.com/ a follow. She's great (and a bike rider). She breaks down complex economics into very easy to digest bits. Separately, if you are looking for books to read that don't put you to sleep, anything Michael Lewis would be where I'd point you. He's a master story teller about all things finance/markets and you'll learn a thing or three along the way.
Hello Jeff
Thank you so much for taking the time out of your day to respond. I truly appreciate it very much. I think what you are doing sounds very interesting thank you so much for pointing me in the direction of Kyla Scanlon, and Michael Lewis. I am looking at them now and I am excited to delve into it. Thank you so much for the information. The best of luck with what you are doing.
Just FYI - Someone who I will not name reached out to me from Scott suggesting the net margin numbers I was using are not correct. I'm going off a press release, so I'm not correcting anything I wrote until I see a correction elsewhere or similar. That said, I just wanted to be transparent here in the case someone is reading this stuff who actually makes decisions/cares/etc.
Remember when everyone was criticizing Shimano during the pandemic when it was impossible to get their product but they refused to ramp up production? Whos laughing now haha
I saw a video on GMBN that one of the big bike companies is sitting on a billion pounds of unsold stock. (It was hinted in the comments that it was Trek. If that is true that does not sound to great
Now with Dak on Mondraker, I want to know what Mondraker's current ownership structure is. Their HQ is next level so they have to have some type of big backer and they are huge in Spain. How are they capitalized to weather the current storm while also entering the US market?
I saw a video on GMBN that one of the big bike companies is sitting on a billion pounds of unsold stock. (It was hinted in...
I saw a video on GMBN that one of the big bike companies is sitting on a billion pounds of unsold stock. (It was hinted in the comments that it was Trek. If that is true that does not sound to great
I don’t know if Trek is sitting on that much inventory, but I will say my wife has a friend who just bought a model year ‘22 Trek hybrid bike that was readily available to be special ordered from a local dealer. I don’t know of many big brands who are still housing MY22 bikes in corporate owned warehouses waiting for them to be bought.
Regarding the whole "Bike companies sitting on inventory" theme that seems fairly prevalent right now: At what point does someone in the supply chain start to force their hand? I've heard stories of shipping containers of brand-new bikes sitting in ports because a particular brand either can't pay the factory or can't pay for transport. Do factories start "cutting off" manufacturing of bikes/components of brands that can't pay? Do they shift, stop making bicycles, and start making Stanley Tumblers? Do raw material suppliers stop allocating product to bicycle manufacturing facilities because they aren't being paid, or fear not being paid in the future?
The Homer Simpson part of my brain says to flood the market with all the old inventory at hugely discounted prices (more than we currently see) just to get rid of the old inventory, generate some cash flow, pay vendors whatever you can and hopefully live to fight another day.
But the downsides to this would be:
-Devaluing your brand/image/product for years to come
-Pulling future sales into the present (much like what happened during Covid)
-Resetting people's price expectations (especially newer riders) which could kill sales on future models
-Could hurt LBS's relationships with their big brands
On the flip side, could they possibly destroy them and take huge write-downs? This could potentially get rid of "old" models making new models more "desirable."
Regarding the whole "Bike companies sitting on inventory" theme that seems fairly prevalent right now: At what point does someone in the supply chain start to...
Regarding the whole "Bike companies sitting on inventory" theme that seems fairly prevalent right now: At what point does someone in the supply chain start to force their hand? I've heard stories of shipping containers of brand-new bikes sitting in ports because a particular brand either can't pay the factory or can't pay for transport. Do factories start "cutting off" manufacturing of bikes/components of brands that can't pay? Do they shift, stop making bicycles, and start making Stanley Tumblers? Do raw material suppliers stop allocating product to bicycle manufacturing facilities because they aren't being paid, or fear not being paid in the future?
The Homer Simpson part of my brain says to flood the market with all the old inventory at hugely discounted prices (more than we currently see) just to get rid of the old inventory, generate some cash flow, pay vendors whatever you can and hopefully live to fight another day.
But the downsides to this would be:
-Devaluing your brand/image/product for years to come
-Pulling future sales into the present (much like what happened during Covid)
-Resetting people's price expectations (especially newer riders) which could kill sales on future models
-Could hurt LBS's relationships with their big brands
On the flip side, could they possibly destroy them and take huge write-downs? This could potentially get rid of "old" models making new models more "desirable."
Yeah, all of that is going on, the supply chain is in convulsions. Just look at Giant's financials as they're a major manufacturer for other brands. It'll take another couple years of bullwhip effect for the bike industry to normalize. Well at least normalize by bike standards, it's always been a very cyclical segment. (badabum... but also serious)
We're working through a period of oversupply and diminished demand. Next up comes a rebound to pre-covid levels of demand with undersupply due to brands being both gun shy and capital constrained.
Mondraker might be playing this brilliantly. If (and a big if) they made smart decisions in the last few years and they're well capitalized, it's a perfect time to expand while the competition is weakened. Buy (expand into N America) when there's blood in the water and everyone else is scared.
Regarding the whole "Bike companies sitting on inventory" theme that seems fairly prevalent right now: At what point does someone in the supply chain start to...
Regarding the whole "Bike companies sitting on inventory" theme that seems fairly prevalent right now: At what point does someone in the supply chain start to force their hand? I've heard stories of shipping containers of brand-new bikes sitting in ports because a particular brand either can't pay the factory or can't pay for transport. Do factories start "cutting off" manufacturing of bikes/components of brands that can't pay? Do they shift, stop making bicycles, and start making Stanley Tumblers? Do raw material suppliers stop allocating product to bicycle manufacturing facilities because they aren't being paid, or fear not being paid in the future?
The Homer Simpson part of my brain says to flood the market with all the old inventory at hugely discounted prices (more than we currently see) just to get rid of the old inventory, generate some cash flow, pay vendors whatever you can and hopefully live to fight another day.
But the downsides to this would be:
-Devaluing your brand/image/product for years to come
-Pulling future sales into the present (much like what happened during Covid)
-Resetting people's price expectations (especially newer riders) which could kill sales on future models
-Could hurt LBS's relationships with their big brands
On the flip side, could they possibly destroy them and take huge write-downs? This could potentially get rid of "old" models making new models more "desirable."
If you watch this video at the 5:20 Odd mark they mention a big brand sitting on a Billion pounds of stock. That is crazy, I had no idea the big brands were actually big enough to have a Billion pounds in the first place. What is the value of a brand like Trek or Specialized? https://www.youtube.com/watch?v=P70kZAhN11M&t=432s
Regarding the whole "Bike companies sitting on inventory" theme that seems fairly prevalent right now: At what point does someone in the supply chain start to...
Regarding the whole "Bike companies sitting on inventory" theme that seems fairly prevalent right now: At what point does someone in the supply chain start to force their hand? I've heard stories of shipping containers of brand-new bikes sitting in ports because a particular brand either can't pay the factory or can't pay for transport. Do factories start "cutting off" manufacturing of bikes/components of brands that can't pay? Do they shift, stop making bicycles, and start making Stanley Tumblers? Do raw material suppliers stop allocating product to bicycle manufacturing facilities because they aren't being paid, or fear not being paid in the future?
The Homer Simpson part of my brain says to flood the market with all the old inventory at hugely discounted prices (more than we currently see) just to get rid of the old inventory, generate some cash flow, pay vendors whatever you can and hopefully live to fight another day.
But the downsides to this would be:
-Devaluing your brand/image/product for years to come
-Pulling future sales into the present (much like what happened during Covid)
-Resetting people's price expectations (especially newer riders) which could kill sales on future models
-Could hurt LBS's relationships with their big brands
On the flip side, could they possibly destroy them and take huge write-downs? This could potentially get rid of "old" models making new models more "desirable."
If you watch this video at the 5:20 Odd mark they mention a big brand sitting on a Billion pounds of stock. That is crazy, I...
If you watch this video at the 5:20 Odd mark they mention a big brand sitting on a Billion pounds of stock. That is crazy, I had no idea the big brands were actually big enough to have a Billion pounds in the first place. What is the value of a brand like Trek or Specialized? https://www.youtube.com/watch?v=P70kZAhN11M&t=432s
Trek is reported to do more than a billion a year in sales pre-pandemic (https://www.inc.com/christine-lagorio/trek-bicycles-private-titans.html). So if they’ve got 12+ months of stock on hand, that’s easily a billion. Likely it’s a lot more once you include stock in dealer showrooms.
Now with Dak on Mondraker, I want to know what Mondraker's current ownership structure is. Their HQ is next level so they have to have some...
Now with Dak on Mondraker, I want to know what Mondraker's current ownership structure is. Their HQ is next level so they have to have some type of big backer and they are huge in Spain. How are they capitalized to weather the current storm while also entering the US market?
Who's got sources/info?
*I have only done 5 minutes of googling
I never understood the market of Mondraker. Back in the day when i do believe Barel and Rojo were on Mondraker (around 2008-2012) they went big in easter Europe and everyone was riding their DH bike. Same with French bikepark resorts and fleets of Mondraker DH bikes. But those days are gone and I can’t remember what was the last time to see any Mondraker on trail, whenever back in Europe or here in the US (CA, WA).
If you look for their business info, you have to search for Blue Factory Team s.l.u., not Mondraker.
According to some online resources they did 86M revenue in 2022 with 7.5M in profits (9% margin).
Now with Dak on Mondraker, I want to know what Mondraker's current ownership structure is. Their HQ is next level so they have to have some...
Now with Dak on Mondraker, I want to know what Mondraker's current ownership structure is. Their HQ is next level so they have to have some type of big backer and they are huge in Spain. How are they capitalized to weather the current storm while also entering the US market?
I never understood the market of Mondraker. Back in the day when i do believe Barel and Rojo were on Mondraker (around 2008-2012) they went big...
I never understood the market of Mondraker. Back in the day when i do believe Barel and Rojo were on Mondraker (around 2008-2012) they went big in easter Europe and everyone was riding their DH bike. Same with French bikepark resorts and fleets of Mondraker DH bikes. But those days are gone and I can’t remember what was the last time to see any Mondraker on trail, whenever back in Europe or here in the US (CA, WA).
If you look for their business info, you have to search for Blue Factory Team s.l.u., not Mondraker.
According to some online resources they did 86M revenue in 2022 with 7.5M in profits (9% margin).
Thanks, did some searching and nothing else good found. Let's see what comes up
I never understood the market of Mondraker. Back in the day when i do believe Barel and Rojo were on Mondraker (around 2008-2012) they went big...
I never understood the market of Mondraker. Back in the day when i do believe Barel and Rojo were on Mondraker (around 2008-2012) they went big in easter Europe and everyone was riding their DH bike. Same with French bikepark resorts and fleets of Mondraker DH bikes. But those days are gone and I can’t remember what was the last time to see any Mondraker on trail, whenever back in Europe or here in the US (CA, WA).
If you look for their business info, you have to search for Blue Factory Team s.l.u., not Mondraker.
According to some online resources they did 86M revenue in 2022 with 7.5M in profits (9% margin).
9-10% net profit after all costs/expenses is not unheard of for sustainable businesses. 7.5 million is a pretty good profit. And it also means they are operating in the black. I recently saw an article talk about Rapha, and they have finished the last 7 years of business in the red.
Demo bikes at bike parks is generally a marketing play with minimal profit but high yield on visibility return.
Given the challenges many brands are seeing, expanding to a new market is a way to drive new revenue. Right now expanding into another challenged market is a questionable choice but likely something that has been in the works for some time
Mondraker trail and enduro bikes were still very popular around my area in France until a few years ago, most people I know have been buying e-bikes recently and Mondraker were quite late/uncompetitive, although their current range looks good.
Full confession, I have nowhere near the knowledge of @jeff.brines on a subject like this, but I can't get the notion of inventory destruction out of my head. The Almighty Algorithm must be in my brain because I got pushed a post on Instagram about this very topic in a different industry: https://www.cbr.com/funko-destroy-inventory-2022-profit-loss/
The only first hand experience I have with similar inventory issues is in Construction/Building materials. I own a small custom homebuilding company and have experienced the incredible highs and lows of market fluctuations over the last 3 years. I realize it's not an Apples-Apples comparison to Bikes because a lot of what I deal with are commodities.
When the Pandemic first started I had several clients under contract for house builds, I used to be able to get proposals from contractors/suppliers that were good for anywhere from 30 days to 6 months. When the supply chain got constrained I was lucky to get proposals good for 7 days, some contractors said I had 24 hours to accept the proposal. On one house the price of loose lumber, just 2x's, sheathing hardware, etc. shot up $42,000 in less than 2 weeks. I had to go back to the client and ask them to split the difference or I would have to give them their deposit back and cancel the contract. I made about 20% of my normal net profit on that project. It was more about saving face, helping out the client, and keeping my company's reputation in good standing. I had several houses built during the pandemic where my lumber supplier forced me to get the material delivered to a job site earlier than I needed it because they were burning through material so quickly that despite them having the inventory sitting in their yard, I wasn't getting the material at the rate they bought it for, I would get charged their "replacement cost."
When things started to normalize, the Replacement cost would work in my favor. I would often order my lumber to be delivered several weeks after getting the proposal, my sales rep would reprice the package the day it was leaving the yard and I would save a few thousand dollars. This creates a scenario where contractors wait as long as possible to order which results in excess inventory at the lumber yards which ripples back to the mills. If the mills have nowhere to store excess material they slash prices to clear the yard and/or slow production. These companies can temporarily flood the market to burn through excess inventory because they are dealing in commodities, a 2x4 is a 2x4 is a 2x4. So they don't need to deal with the long-term ramifications of future price sensitivity or customer sentiment.
So back to bikes... What are these companies left to do? I started thinking about what some clothing companies do, ship their old/unsold inventory to 3rd world countries and take a write-down. Could bike companies send a bunch of bikes to Africa and give them to an NGO to distribute? Has there ever been a similar instance in the bike industry with this amount of excess inventory? Is there precedent in the industry for taking huge write-downs?
On the other site, there is an article updating Orange Bikes situation:
"Orange Bikes looks to have stopped trading as administrators look for a quick sale...
On the other site, there is an article updating Orange Bikes situation:
"Orange Bikes looks to have stopped trading as administrators look for a quick sale of the business and its assets."
What does this mean? Is it the same as bankruptcy in the USA? If so, what level?
Pretty much: "Administration occurs when a business can no longer meet its debt obligations. A licensed insolvency practitioner is appointed to either restructure the business and come to an arrangement with creditors or to sell off assets, pay off creditors and liquidate the business."
Full confession, I have nowhere near the knowledge of @jeff.brines on a subject like this, but I can't get the notion of inventory destruction out of...
Full confession, I have nowhere near the knowledge of @jeff.brines on a subject like this, but I can't get the notion of inventory destruction out of my head. The Almighty Algorithm must be in my brain because I got pushed a post on Instagram about this very topic in a different industry: https://www.cbr.com/funko-destroy-inventory-2022-profit-loss/
The only first hand experience I have with similar inventory issues is in Construction/Building materials. I own a small custom homebuilding company and have experienced the incredible highs and lows of market fluctuations over the last 3 years. I realize it's not an Apples-Apples comparison to Bikes because a lot of what I deal with are commodities.
When the Pandemic first started I had several clients under contract for house builds, I used to be able to get proposals from contractors/suppliers that were good for anywhere from 30 days to 6 months. When the supply chain got constrained I was lucky to get proposals good for 7 days, some contractors said I had 24 hours to accept the proposal. On one house the price of loose lumber, just 2x's, sheathing hardware, etc. shot up $42,000 in less than 2 weeks. I had to go back to the client and ask them to split the difference or I would have to give them their deposit back and cancel the contract. I made about 20% of my normal net profit on that project. It was more about saving face, helping out the client, and keeping my company's reputation in good standing. I had several houses built during the pandemic where my lumber supplier forced me to get the material delivered to a job site earlier than I needed it because they were burning through material so quickly that despite them having the inventory sitting in their yard, I wasn't getting the material at the rate they bought it for, I would get charged their "replacement cost."
When things started to normalize, the Replacement cost would work in my favor. I would often order my lumber to be delivered several weeks after getting the proposal, my sales rep would reprice the package the day it was leaving the yard and I would save a few thousand dollars. This creates a scenario where contractors wait as long as possible to order which results in excess inventory at the lumber yards which ripples back to the mills. If the mills have nowhere to store excess material they slash prices to clear the yard and/or slow production. These companies can temporarily flood the market to burn through excess inventory because they are dealing in commodities, a 2x4 is a 2x4 is a 2x4. So they don't need to deal with the long-term ramifications of future price sensitivity or customer sentiment.
So back to bikes... What are these companies left to do? I started thinking about what some clothing companies do, ship their old/unsold inventory to 3rd world countries and take a write-down. Could bike companies send a bunch of bikes to Africa and give them to an NGO to distribute? Has there ever been a similar instance in the bike industry with this amount of excess inventory? Is there precedent in the industry for taking huge write-downs?
I've heard from someone that would know that one of the big players has/had so much helmet inventory that they were just crushing them as it was financially better than paying to store them. I've also heard multiple stories of companies that have more inventory on-hand than they have ever sold in a year (even more than the highest point of the Covid bike boom). I agree that it is disheartening and I wish they would give away the product to those that need it and throw a little marketing budget in to do some good story telling with it. I would hope/imagine that would help the brand's reputation for a long time.
not a shutdown but certainly a shakeup..... Joe Graney outed as Santa Cruz CEO
Oof.
This could be the beginning of the end for Santa Cruz being know as “core” company. They were already losing that foot hold, but man, Pon is making quick work to potentially dissolve this brand into mediocrity.
Sorry - missed this! Thx for the tag. While its impossible for me to know exactly what is going on, here is what appears to be happening...
1) As pointed out elsewhere, Yougone has a majority stake in Scott Sports. Its important to note their stake is large, which gives Youngone more incentive to help.
2) Youngone is publicly traded in S. Korea, making disclosures of this sort mandatory.
3) Of course no bank would give Scott a loan on these terms. In fact, the interest rate is closer to the 1 year treasury rate than what a business like Scott would otherwise borrow at (which would be an order of magnitude higher to justify the level of risk). I'd bet the only real loan Scott could get would be in the private credit market where it would need to be securitized against some kind of asset and only at about 60% of whatever that assets (or those assets) real world market value is. Not only would the interest rate be double digits (likely) but this would limit the amount they could borrow significantly.
This is all about extending Scott a lifeline to get the train back on the tracks by the proverbial "dad" in the room. What is clear about Scott (and has been clear for eons) is they need someone to come in and figure out what is really making money and what is dead weight. Good CFOing or consulting work will be required. Their net margins are lower than their cost of capital, which does not work.
Tl;dr - Youngone is saving the company. If they weren't owned primarily buy a well capitalized Asian company, Scott Sports would be filing for bankruptcy.
EDIT: If anyone is reading this from Scott ping me, I have time to help
Three points I'm compelled to make here...
1) I don't disagree that when you factor in all your SG&A plus what certain brands were doing on a COGS basis to rush product to market that a 3 year snapshot of most companies will look upside down. I wouldn't put this squarely on the shoulders of "those in finance" however. Nobody has a crystal ball and lots of very smart people really did think COVID was going to create long lasting changes as to "how we all hang out". (not true - obviously). I'm not trying to save face for these people, I'm just saying "madness of crowds" is a real thing and crystal balls in short supply.
2) Everyone who needed a bike did indeed buy a bike. Unlike the 2015-2020 era, where every 18 months something amazeballs would come out you were super tempted to buy based on the performance gains, that is no longer true. If you are a casual mountain biker, your COVID bike is every bit as capable as whatever XYZ brand is putting out there. This plateau of technology makes this problem extra bad. Add to this the fact we are no longer in ZIRP, govt not handing out checks superfluously and certain industries more affluent bike riders work in (tech/finance) have been ravaged by layoffs and its extra bad.
3) HOWEVER, based on what I just said, a 2 year old bike on the showroom has a lot more "performance value" than it otherwise would have 10 years ago. This doesn't mean you'll get MSRP if you are a dealer, but it does mean you can probably sell it at cost less 10%. Not ideal, but not a total write off, either.
Things do appear they'll get worse before they get better. That said, there is still a very solid core to the sport, and the fittest will absolutely survive. Its still a hell of a time to be a bike rider and the sport is in zero danger of "going away".
If anyone wants the playbook as to how to do things in 2024, look no further than Neko. He's keeping everything incredibly lean, and running his company like a business, realizing there is no free money. Its very pragmatic, very "unsexy" and very smart.
Funny how the "Tony Ellsworth Designed Bike Owners Group" showed up in my FB feed. Those who are curious about the current state of the brand will find some info there.
This is the breakdown we needed, thanks Jeff.
And in other news:
Giant Just Suffered a Massive Sales Slump—but the World's Biggest Bicycle Brand Should Rebound
"Taiwanese bicycling mega-brand Giant Group reported a significant drop in year-over-year sales for 2023.
With 2023 sales of NT$76.95 billion in 2023—or about $2.43 billion USD at the time of this writing—Giant Group was down 16.4 percent from the full-year sales totals of 2022. The company reports its earnings in its local currency, Taiwan New Dollars.
The group suffered a dismal fourth quarter, with a massive November 2023 sales drop-off of 28.1 percent. December rebounded slightly, with a drop-off of nearly 26 percent from the previous year. Overall, the group saw an overall decline of 39.9 percent in the year’s fourth quarter from 2022, owing in large part to a reduction in orders from OEM customers."
Schwalbe, citing a 'tense situation' in industry, consolidates production in Vietnam
"'Instead of long-term orders, orders are almost exclusively placed spontaneously. As a result, it is currently no longer possible to plan ahead to meet demand at two parallel production sites.
'Schwalbe is therefore positioning itself for the future in the best possible way and is pooling its strengths in Vietnam. Enormous investments have been made there in recent years. With new factory buildings and machinery, the site offers state-of-the-art tire and tube production. In addition, Schwalbe customers can be supplied directly from there with a product mix perfectly tailored to their individual requirements,' the company said."
Meanwhile, here's a projection of 2024 bike sales in the USA:
It looks like the cycling industry is projecting 2024 to be marginally better than 2023 in the US but still below pre-pandemic sales numbers. Does anyone have any insight if the sales projection for Europe and/or the rest of the world in 2024 follows a similar trajectory?
From a source at Trek, China is literally carrying their entire bike sales (trek have a substantial amount of apparel and parts via bontrager etc) in 23 and projected to continue in 24 (which is surprising seeing the large Chinese downturn overall). It's just such an enormous market for them it is saving them from making layoffs across each region.
@jeff.brines I totally agree with all 3 points you made.
My only concern is, moving forward I'd wager the majority of research and frame/package development will be on e-bikes, and normal bikes will continually slide down the list outside of niche brands.
The german sales figures for e-bike vs bikes (MTB's for both) is crazy. Its only going to continue
Honestly, for some brands that might be the thing that thins the herds. You'll have a couple of big brands with lines of both Electric and naturally aspirated bikes and the rest can split it. The nicer regular bikes brands that are currently keeping their heads above water because they have a real product in that category and the brands that transition over to E-bikes as their bread and butter and leave the regular bikes to the brands that are actually pushing for them. If half the brands pushing out both bikes just picked a team there would be more bread in their respective baskets then there is now.
You are obviously well-educated on the subject, do you have any book recommendations for me to educate myself?
I would be highly appreciative of any recommendations,
Thank you for taking the time out of your day.
TBH, I can't point at one or two books that really shaped the way I think about financial markets, economics, behavioral finance, capital allocation etc. A lot of this comes from staring at financial news for the better over a decade, building content for a very discerning group of people "on wall st" and figuring out the right products to built to get this information to them as fast and accurately as possible. This forces you to figure out pieces of the puzzle, as eye glazingly boring as it may be.
If I were trying to learn as much about this as fast as possible, I'd give Kyla Scanlon https://kylascanlon.com/ a follow. She's great (and a bike rider). She breaks down complex economics into very easy to digest bits. Separately, if you are looking for books to read that don't put you to sleep, anything Michael Lewis would be where I'd point you. He's a master story teller about all things finance/markets and you'll learn a thing or three along the way.
Hello Jeff
Thank you so much for taking the time out of your day to respond. I truly appreciate it very much. I think what you are doing sounds very interesting thank you so much for pointing me in the direction of Kyla Scanlon, and Michael Lewis. I am looking at them now and I am excited to delve into it. Thank you so much for the information. The best of luck with what you are doing.
Just FYI - Someone who I will not name reached out to me from Scott suggesting the net margin numbers I was using are not correct. I'm going off a press release, so I'm not correcting anything I wrote until I see a correction elsewhere or similar. That said, I just wanted to be transparent here in the case someone is reading this stuff who actually makes decisions/cares/etc.
Remember when everyone was criticizing Shimano during the pandemic when it was impossible to get their product but they refused to ramp up production? Whos laughing now haha
I saw a video on GMBN that one of the big bike companies is sitting on a billion pounds of unsold stock. (It was hinted in the comments that it was Trek. If that is true that does not sound to great
Now with Dak on Mondraker, I want to know what Mondraker's current ownership structure is. Their HQ is next level so they have to have some type of big backer and they are huge in Spain. How are they capitalized to weather the current storm while also entering the US market?
Who's got sources/info?
*I have only done 5 minutes of googling
I don’t know if Trek is sitting on that much inventory, but I will say my wife has a friend who just bought a model year ‘22 Trek hybrid bike that was readily available to be special ordered from a local dealer. I don’t know of many big brands who are still housing MY22 bikes in corporate owned warehouses waiting for them to be bought.
Regarding the whole "Bike companies sitting on inventory" theme that seems fairly prevalent right now: At what point does someone in the supply chain start to force their hand? I've heard stories of shipping containers of brand-new bikes sitting in ports because a particular brand either can't pay the factory or can't pay for transport. Do factories start "cutting off" manufacturing of bikes/components of brands that can't pay? Do they shift, stop making bicycles, and start making Stanley Tumblers? Do raw material suppliers stop allocating product to bicycle manufacturing facilities because they aren't being paid, or fear not being paid in the future?
The Homer Simpson part of my brain says to flood the market with all the old inventory at hugely discounted prices (more than we currently see) just to get rid of the old inventory, generate some cash flow, pay vendors whatever you can and hopefully live to fight another day.
But the downsides to this would be:
-Devaluing your brand/image/product for years to come
-Pulling future sales into the present (much like what happened during Covid)
-Resetting people's price expectations (especially newer riders) which could kill sales on future models
-Could hurt LBS's relationships with their big brands
On the flip side, could they possibly destroy them and take huge write-downs? This could potentially get rid of "old" models making new models more "desirable."
Yeah, all of that is going on, the supply chain is in convulsions. Just look at Giant's financials as they're a major manufacturer for other brands. It'll take another couple years of bullwhip effect for the bike industry to normalize. Well at least normalize by bike standards, it's always been a very cyclical segment. (badabum... but also serious)
We're working through a period of oversupply and diminished demand. Next up comes a rebound to pre-covid levels of demand with undersupply due to brands being both gun shy and capital constrained.
Mondraker might be playing this brilliantly. If (and a big if) they made smart decisions in the last few years and they're well capitalized, it's a perfect time to expand while the competition is weakened. Buy (expand into N America) when there's blood in the water and everyone else is scared.
If you watch this video at the 5:20 Odd mark they mention a big brand sitting on a Billion pounds of stock. That is crazy, I had no idea the big brands were actually big enough to have a Billion pounds in the first place. What is the value of a brand like Trek or Specialized? https://www.youtube.com/watch?v=P70kZAhN11M&t=432s
Trek is reported to do more than a billion a year in sales pre-pandemic (https://www.inc.com/christine-lagorio/trek-bicycles-private-titans.html). So if they’ve got 12+ months of stock on hand, that’s easily a billion. Likely it’s a lot more once you include stock in dealer showrooms.
I never understood the market of Mondraker. Back in the day when i do believe Barel and Rojo were on Mondraker (around 2008-2012) they went big in easter Europe and everyone was riding their DH bike. Same with French bikepark resorts and fleets of Mondraker DH bikes. But those days are gone and I can’t remember what was the last time to see any Mondraker on trail, whenever back in Europe or here in the US (CA, WA).
If you look for their business info, you have to search for Blue Factory Team s.l.u., not Mondraker.
According to some online resources they did 86M revenue in 2022 with 7.5M in profits (9% margin).
Thanks, did some searching and nothing else good found. Let's see what comes up
9-10% net profit after all costs/expenses is not unheard of for sustainable businesses. 7.5 million is a pretty good profit. And it also means they are operating in the black. I recently saw an article talk about Rapha, and they have finished the last 7 years of business in the red.
Demo bikes at bike parks is generally a marketing play with minimal profit but high yield on visibility return.
Given the challenges many brands are seeing, expanding to a new market is a way to drive new revenue. Right now expanding into another challenged market is a questionable choice but likely something that has been in the works for some time
Mondraker trail and enduro bikes were still very popular around my area in France until a few years ago, most people I know have been buying e-bikes recently and Mondraker were quite late/uncompetitive, although their current range looks good.
Full confession, I have nowhere near the knowledge of @jeff.brines on a subject like this, but I can't get the notion of inventory destruction out of my head. The Almighty Algorithm must be in my brain because I got pushed a post on Instagram about this very topic in a different industry: https://www.cbr.com/funko-destroy-inventory-2022-profit-loss/
The only first hand experience I have with similar inventory issues is in Construction/Building materials. I own a small custom homebuilding company and have experienced the incredible highs and lows of market fluctuations over the last 3 years. I realize it's not an Apples-Apples comparison to Bikes because a lot of what I deal with are commodities.
When the Pandemic first started I had several clients under contract for house builds, I used to be able to get proposals from contractors/suppliers that were good for anywhere from 30 days to 6 months. When the supply chain got constrained I was lucky to get proposals good for 7 days, some contractors said I had 24 hours to accept the proposal. On one house the price of loose lumber, just 2x's, sheathing hardware, etc. shot up $42,000 in less than 2 weeks. I had to go back to the client and ask them to split the difference or I would have to give them their deposit back and cancel the contract. I made about 20% of my normal net profit on that project. It was more about saving face, helping out the client, and keeping my company's reputation in good standing. I had several houses built during the pandemic where my lumber supplier forced me to get the material delivered to a job site earlier than I needed it because they were burning through material so quickly that despite them having the inventory sitting in their yard, I wasn't getting the material at the rate they bought it for, I would get charged their "replacement cost."
When things started to normalize, the Replacement cost would work in my favor. I would often order my lumber to be delivered several weeks after getting the proposal, my sales rep would reprice the package the day it was leaving the yard and I would save a few thousand dollars. This creates a scenario where contractors wait as long as possible to order which results in excess inventory at the lumber yards which ripples back to the mills. If the mills have nowhere to store excess material they slash prices to clear the yard and/or slow production. These companies can temporarily flood the market to burn through excess inventory because they are dealing in commodities, a 2x4 is a 2x4 is a 2x4. So they don't need to deal with the long-term ramifications of future price sensitivity or customer sentiment.
So back to bikes... What are these companies left to do? I started thinking about what some clothing companies do, ship their old/unsold inventory to 3rd world countries and take a write-down. Could bike companies send a bunch of bikes to Africa and give them to an NGO to distribute? Has there ever been a similar instance in the bike industry with this amount of excess inventory? Is there precedent in the industry for taking huge write-downs?
On the other site, there is an article updating Orange Bikes situation:
"Orange Bikes looks to have stopped trading as administrators look for a quick sale of the business and its assets."
What does this mean? Is it the same as bankruptcy in the USA? If so, what level?
Pretty much: "Administration occurs when a business can no longer meet its debt obligations. A licensed insolvency practitioner is appointed to either restructure the business and come to an arrangement with creditors or to sell off assets, pay off creditors and liquidate the business."
I've heard from someone that would know that one of the big players has/had so much helmet inventory that they were just crushing them as it was financially better than paying to store them. I've also heard multiple stories of companies that have more inventory on-hand than they have ever sold in a year (even more than the highest point of the Covid bike boom). I agree that it is disheartening and I wish they would give away the product to those that need it and throw a little marketing budget in to do some good story telling with it. I would hope/imagine that would help the brand's reputation for a long time.
not a shutdown but certainly a shakeup..... Joe Graney outed as Santa Cruz CEO
Oof.
This could be the beginning of the end for Santa Cruz being know as “core” company. They were already losing that foot hold, but man, Pon is making quick work to potentially dissolve this brand into mediocrity.
Post a reply to: Will more companies be shutting down in the next 12-24 months?