“Price hikes” and “Internet vs brick and mortar”

I’m certain that Bicycle Retailer did not do this on purpose, but two articles in their most recent publication (taken together) should give pause to just about anyone in the bicycle industry today. The two articles were both published in the “business” section of the paper and were titled “Suppliers Hike Bike Prices as Dollar Plunges” and “Internet vs. Brick & Mortar“.  Taken separately neither is particularly earth-shattering, but when you piece them together they start to paint a picture of the future of bicycle commerce in this country.

The first, “Suppliers Hike Bike Prices as Dollar Plunges” is a nondescript story about general price hikes in the industry, and lays much of the blame on the fact that the US Dollar has declined in value against many of the major currencies of bicycle-producing countries.  This story could have been written about any major industry in the world right now, substituting cars, food, oil, electronics, etc in exchange for bicycles.  Cars in particular are a great example:  the Dollar has fallen ~30% against the Yen over the past 4 years, meaning any car that is built in Japan and shipped into the US has risen in price.

The second, “Internet vs. Brick & Mortar” discusses the impact that internet sales (“unfair pricing”) have had on the industry, and how stores and certain manufactures are trying to level the playing field.  This is not necessarily a new story either, since mail-order companies have been around even since the internet was still just bulletin boards.

To get a full picture as to exactly how these two stories are related, let’s take a step back and look at the pure economics of the situation.  A company can not raise prices beyond what the consumer is willing to pay.  Even if a company’s costs rise, if the consumer is not willing to pay the additional amount, that company can’t raise its prices, or at least not enough to cover the increase in costs.  Here is a Reuters news article talking about food producers having to deal with higher commodity costs and not being able to pass those costs on to the end consumer:

Soaring commodity costs are forcing big food groups to push up their own prices and slash internal costs, as they battle to keep their growth targets on track.

But any attempts to push up prices could be undermined as cash-strapped consumers in Europe and North America scan promotions and the blandishments of cheaper brands, while emerging markets slow as competition intensifies.

In short, if a food company is trying to raise its prices beyond what the consumer is willing to pay, that consumer will switch to a store-brand product, or will only shop for items on sale, which ultimately reduces the sales revenue of the company.

The exact same process is occurring in the bicycle industry.  Faced with higher commodity costs and a falling dollar, manufacturers’ profits are shrinking, and so they are trying to raise prices to recoup those lost profits.  Higher prices will only encourage more producers to come to market with a streamlined distribution plan, whether it is shops themselves offering “house branded” merchandise or manufacturers like Stray Cat Bicycles that are set up to sell bicycles direct to the consumer.

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One Response to “Price hikes” and “Internet vs brick and mortar”

  1. Pingback: Price increases hit low-end bikes (not ours) | Stray Cat Bicycles

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