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To Supply Chain, Or Not To Supply Chain — Inventory management doesn’t get enough love, or at least it hadn’t until recently.
We’ve been talking about supply chain problems so much since the beginning of the pandemic that many Monday morning logistics experts have a lot to say of late.
The big retailers have deep pockets and can afford long payrolls of really smart people to manage their inventory. You need a PhD from MIT with a focus on operations research to manage your just-in-time inventory system? That’s 250k per year well spent.
And they don’t just have one person facilitating logistics management at the corporate level; they have an entire team of people making pretty good money by anyone’s standards, who make sure things run smoothly.
And they still get it wrong.
We’ve already seen some downward sales revisions because the froth amongst consumers has shifted away from goods towards experiences. We’ve heard from Target and Walmart, among other big names, that their inventories got a little bit too deep, and it’s time for more than one fire sale.
In 2020, going to the gym became an impossibility for just about everyone in America. With the exception of basically just Florida, lockdowns forced us to find other ways to recreate.
Enter the bicycle craze.
Some of you probably even participated in it, waiting literally months for your bike to arrive from some distant factory shipped to your local bike shop so that you can have it assembled safely and according to the manufacturer’s torque specifications.
This is a relatively common story from the last two years. It took about forever to get the bike you wanted in your size in your area, and that generated a tad bit of artificial demand. Anyone who thought, “gee, maybe I might want a bike,” ended up buying one.
Bike shops enjoyed this overzealous consumer, and they doubled down on it, ordering an insane amount of bikes to keep in inventory. After all, demand is through the roof. This couldn’t possibly come off the rails, right?
Well, a dangerous saying is, “Well, it’s different this time,” and that’s kind of what bike shops thought. The prediction industry-wide was that consumers would keep buying f*cking bikes.
These shops experienced literal lines out the door (wearing masks outside, no less) when merch arrived at their shops.
Lately, the music has stopped, and abruptly so. Some shops have loads of bikes that they can’t sell, all because the market is saturated and gyms are back open. The consumer environment has changed.
The talent pool to staff bike shops, particularly ones that do maintenance and tune-ups, is also not what it used to be.
Margins on low-end and entry-level bicycles aren’t as exorbitant as you’d think, clocking in somewhere around 20-30%. This is actually less than margins in traditional brick-and-mortar retail. At those margins, you have to sell a lot of $750 bikes to pay the $25 an hour that it costs for an entry-level bike tech for a year.
For those of you who still ride those pandemic peddling machines, if you need service, it’s going to be another couple of weeks, most likely, before you can get your bike back from the shop.
High-end bikes are still tough to come by; I haven’t seen much pre-C19 data, but I’m pretty sure that those of you looking to spend $7k and beyond on a bicycle have always had trouble finding the bike you want in the color you want with the groupset you want.
For smaller shops, poor inventory management might force business owners to permanently close their doors. For others, it looks like it’s time to work on supply chain resiliency while fighting for their lives for the next couple of years.
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