Tuesday, October 7, 2008

Bike industry prices on the rise...

I've been meaning to write something on this for quite a while. Way back in spring there was a lot of "the sky is falling" kind of web banter. Get a bike now, or else... Prices are going to go up. Well, it's happened. They're up. Quite frankly, I don't know why it's taken so long.

For more than a decade I spent a lot of time sitting in meetings with parts vendors in Taiwan negotiating prices. A lot of the time, I didn't even have to negotiate. They just offered me lower prices each year. Of course, one has to push for even lower prices. But, just the fact that every year parts prices fell always made me wonder.

I always felt like there had to be a happy medium where everyone came out on top. The parts vendor made money. The factory who assembled the bike made money. The bike company who's logo is on the frame made money. The bike shop who sold the bike made money. And the person who finally bought the bike felt good about their purchase and got a good deal. Sounds reasonable, right?

My goal as a product manager was to make this scenario possible. I like to think I was fair with parts vendors and, much to the chagrin of former bosses, probably left a few dollars on the table. But I felt good about it. I know some bike companies that beat up on vendors for lower and lower pricing until the vendor was a bloody pulp (figuratively) or the vendor agreed to such a low price just to get the business of Famous Brand X that every part they made was a losing proposition and after a year were forced to close their doors. Not a very healthy scenario for anyone.

So what ended up happening in the bike industry is the bike companies had a fight to the bottom of the price barrel. Every year, the goal was better spec and lower prices. Every year bikes got better. Every year prices fell. When I first started buying aluminum hardtail frames for mountain bikes, the prices were in the $50-$60 range. You can now buy an aluminum hardtail frame, made in China, for under $20. Everything went down: brakes, hubs, seats, stems, handlebars, rims, cranks... And everything worked better too.

Now, because raw material prices are on a big rise, the prices of bikes is going up. I've got a bike in stock that I sold for $450 as a 2008 model year bike. The exact bike now sells for $545 - and it's still a great bike for the price. When I sold this bike for $450, several people who bought it commented "$450, is that all?" The way I see it, the price of a bike (and parts) is going up to where it should be.

There are some things that seem to continually fall in price due to technological improvements and the fact that they are likely assembled by robot (digital cameras and other electronics). But I was always left meetings shaking my head at my wonderment of how much the prices kept getting lower. Now it's possible that the vendors were making money hand over fist and had a lot of room to grant lower prices and there's likely some truth in that. Even with the price increases, buyers will still get a heck of a lot of bike for their money.

(What's playing: Uncle Tupelo Before I Break)

1 comment:

Guitar Ted said...

Well, I wish the retail customers at our shop would think, "Gee, that's all?" You are pretty lucky in that respect!

Certainly, the higher prices we are seeing already are not hindering sales yet......yet!

What happens in the next few months may change all of that, if what you hear and read is to be believed.

Time will tell.