Price Points by Omnia Retail

“Those who’ve recently ordered pre-assembled bikes from industry giants like Specialized, Canyon, Trek and many others may still be waiting another year to receive their bike.” At the annual Eurobike conference where...

“Those who’ve recently ordered pre-assembled bikes from industry giants like Specialized, Canyon, Trek and many others may still be waiting another year to receive their bike.” At the annual Eurobike conference where cycling industry leaders from around the world gather to talk all things cycling, a common topic was rife among the experts: More than two years into the pandemic, the global components shortage has left bike retailers without the ability to sell complete bikes. Stemming from this, other issues like factory closures and disruptions as well as the unprecedented spike in bike orders during the height of the coronavirus pandemic have contributed to the supply chain challenges. No other period than the last two years has the industry been met with such overwhelming demand. Since 2020, as people around the world were told they’d need to be staying indoors due to strict lockdown laws, sudden thoughts of how that’ll affect their fitness or boredom levels arose. However, the demand for bikes and accessories was met with a gigantic red stop sign. Governments across Europe and Asia, where bike components are primarily manufactured and more importantly shipped from, reluctantly had to make the call for factory closures. As Mike Sinyard put it, founder of Specialized bikes, 99% of a bike can be complete, but if one small part is missing, the bike cannot be shipped. This has resulted in a backlog so long, it could take 12-24 months for a customer to receive their bike order. Expected growth rate of 8.2% per year globally from 2022 to 2030 Despite the delays customers are experiencing in receiving their bikes, the industry is projected to continue growing at a growth rate of 8.2% per year globally from 2022 to 2030. In the US, expected growth will follow a similar trend. How does this affect the likes of Specialized’s new pre-assembled bikes range for home delivery? As of February 2022, Specialized launched two new ways that customers can purchase bikes: Firstly, the Ship to Home program allows people to order a pre-assembled bike and have it delivered to their homes. Secondly, a Specialized Delivery program lets customers purchase a bike off the website and a local Specialized retailer delivers it to their door and gives you technical support in setting your bike up. Both of these shopping options require the bikes to be fully assembled, needing every last nut and bolt for completion. Specialized’s Vice President, Robert Margevicius said in March of last year that although they have experienced a 35% surge in bike orders, lead times have been exacerbated from 30-60 to 300-400 days for certain parts like the wheels, suspension and contact points. If sales are not made on the spot then customers will more than likely get impatient and cancel their order. So, with this in mind, any excitement within cycling companies that may have experienced a large spike in orders, may need to be heeded if customers can so easily back out due to delays. Even electric bikes, or e-bikes, are not immune to the component shortage. Claire Fleischer, CEO of Bosch e-bikes, said in September 2021 that they “have had a hard time since last year to handle the shortages” and that they “expect these to increase even more in the next 12 to 18 months”. On the manufacturer’s side, frustration is also felt One may ask, why don’t manufacturers simply make more parts to expedite the problem? However, this doesn’t solve the other issues along the supply chain route. Japanese manufacturer Shimano, who owns 70% of the market across key components, has factories in Malaysia, China and Singapore which were hit with lockdown measures in 2020 and 2021. However, that isn’t the only speed bump in the supply chain. The rising cost of shipping containers and their scarce availability are causing delays too. Container turn-around times from Europe to Asia are slow due to port congestion in Europe and the US, which is the conclusion of research organisation Fraunhofer Center for Maritime Logistics and Services (CML) who began studying supply chain issues in 2020 with Container XChange when Covid-19 arrived. Containers are spending more than 50 days in the ports of UAE countries, the UK and the US, which delays the containers getting back to Asia to collect more bike parts. In comparison, containers are spending only five days in Chinese ports. Because of this, planning has become nightmarish for bike brands and container companies are taking advantage of the pandemonium by increasing their prices. If companies don’t order a container and a ship in advance, more delays are expected. On the costs side of things, the price of containers increased almost nine times from 2019 to 2022. In July 2019, one 40 ft (12.2 metres) shipping container cost just over $1,000. In July 2021, the same container costs over $9,000, a cost that will eventually be passed on to the consumer. Alternative solutions have been used, including air freight, but at a greater expense. With the recent Russia-Ukraine conflict and sanctions placed on Russia by the US, UK, EU and some Asian countries, one would question if this already-strained solution is even an option. Russian aircrafts that move cargo from Asia to Europe have had to halt operations due to the closing of Europe’s airspace to all Russian aircrafts. EU air freight companies like Finnair are also suffering, saying moving cargo between Asia and Europe is much more difficult and expensive when having to move around Russia. Other air freight companies who can fly in European airspace are now more in demand and have increased their charges. Rail may no longer be a safe or trustworthy alternative as cargo travelling from Asia to Europe largely goes through Russia. Alternatively, Russia may cease train operations altogether. Some positive trends to look forward to One-size-fits-all bikes are making a comeback Before the Covid-19 supply chain issues caused customers to have to choose their second, third or fourth bike choices - or none at all - bike riders could choose between specialised bikes for road, mountains, long-distance or ride trails. Now, bike brands are creating do-it-all bikes for multiple terrains so that you can get the most out of your bike. An increased interest in e-bikes More and more bikers or people new to biking are choosing electric bikes to train on or commute with. They’re becoming more affordable, and advances in output, battery life and speed are improving. E-bike sales are growing at such a pace that they may outpace sales for standard bikes in the next year or two. Talk to one of our consultants about dynamic pricing. Contact us What’s in store for 2022 and beyond? According to bike manufacturers and retailers alike, supply chain issues and extended lead times on bike purchases are expected to continue until the end of 2022, if not into mid 2023. Charlie Revard, co-owner of The Bike Line in the US says that although they have been able to produce hybrids and entry-level bikes for casual biking, their high-end bikes are still sitting without a few components due to supply chain shortages. In fact, a customer wanting a mid-range mountain bike from The Bike Line is going to have to wait until June 2023 to receive it. As we speak, the aforementioned shipping delays and container scarcity means assembled and ready-to-use bikes are either simply sitting on the ocean waiting to be unloaded or haven’t even reached the container stage yet as their shortage remains an issue. SRAM, a US bike components company based in Chicago, say that they are “producing more product than ever before, but shipping containers are scarce everywhere.” In addition, Michael Zellmann, who is SRAM’s spokesperson, said that not even hiring 500 more employees and spending millions on more equipment has curtailed the bike shortage problem. He added that their factories are working “beyond 100-percent capacity”. In the meantime, bike riders are going to have to continue using their old bike while they wait for their order but be hyper vigilant about preventative maintenance. Or, riders who want high-end bikes may have to lower their expectations and opt for an entry-level or mid-range bike. Riders also have the options of e-bikes, hybrids or even buying second hand. Online retailers should be vigilant on their stock-based pricing strategies, while brick-and-mortar stores should possibly focus on marketing bike maintenance and servicing to keep people moving through their store. At the end of the day, this is going to be won on the climb.

How has the coronavirus permanently changed retail? In this webinar, Omnia Retail’s Founder and CEO Sander Roose uses data to show what’s happened across the market and where we’re headed in the future. Based on this...

How has the coronavirus permanently changed retail? In this webinar, Omnia Retail’s Founder and CEO Sander Roose uses data to show what’s happened across the market and where we’re headed in the future. Based on this market analysis of 2020, Sander explores: How consumer behavior changed during the corona pandemic How retailers have responded What the world of retail will look like at this time next year How your business can respond with commercial strategies This recording is approximately 50 minutes. No time to watch? No worries. You can download: PDF version of the slides Get the key takeaways from the presentation Listen to a conversation with Sander about the webinar on Spotify.

The impact of COVID-19 on business is still largely unknown. The situation across countries continues to change almost daily. But one thing is clear: the new coronavirus will have both short- and long-term influences on...

The impact of COVID-19 on business is still largely unknown. The situation across countries continues to change almost daily. But one thing is clear: the new coronavirus will have both short- and long-term influences on retail (and the broader world). We wanted to go through some of the latest research and break down what these changes might be. But before we launch into the business of this, I want to take a moment to recognize how serious this virus is. Regardless of where you are, our hearts at Omnia go out to you, your family, and your loved ones. To those of you whose family members are helping fight this virus, please give them a warm “thank you” from me personally. To those whose family members are sick, we are sending you all of our strength. There’s no way to extract the human element of this, but it’s worth taking a step back and evaluating what this outbreak means for retail as a whole. In this post I’ll give my perspective. How has the novel coronavirus affected retail? In a recent briefing from Bain & Company, analysts broke down the coming storm into three different phases: Phase 1: Consumers begin to stock up on essentials Phase 2: Governments take restrictive actions Phase 3: Recovery While there is no way to know if this is the exact path the virus will take, it seems like a logical trajectory. Bain created this analysis based on what happened to China, the first country hit by the coronavirus. It’s an interesting framework to evaluate what is happening in the rest of the world at the moment. Phase 1: Consumers stock up In Phase 1 of the coronavirus outbreak, the virus is present but doesn’t have high visibility. Consumers know the virus is coming though and will stock up on key essentials. In much of the west, we’ve already passed Phase 1. If you’ve been in a supermarket in the past few days, you’ve probably seen the evidence yourself. Phase 1 will put the heaviest strain on supermarkets and health retailers as people panic-buy basic supplies. This has actually drastically increase sales performances at different supermarket chains. The demand will initially occur in physical locations, but over time will transition to the online world. Bain noted that, “[a]s the crisis grew, 80% of Chinese consumers expressed a preference for online grocery.” Conversely, during Phase 1, non-food retail will take an economic hit as consumers restrict discretionary spending. Chinese luxury retailers expect a 60%-95% decline in sales in sales during the lockdown period compared to the previous year. We can expect the same to happen in western countries as well. Phase 2: Government regulations During Phase 2, governments across the world will step in and impose harsher regulations meant to mitigate the disastrous effects of the new coronavirus. As governments steps in, retail will take hits in several key areas: Closed brick and mortars Whether self-imposed or government-mandated, many brick and mortar retail locations will close to prevent the spread of COVID-19. Some of the bigger brands and retailers to do this include Apple, Nike, Lululemon, Levi’s, and Patagonia, and de Bijenkorf. If they don’t shut down completely, many stores are restricting their operating hours. Some 24-hour Walmart locations will limit hours to 6 a.m. to 11 p.m., for example. These restrictions (especially for bigger box stores like Walmart) are intended to help the store stay clean and sanitized and allow employees to restock shelves. Disrupted supply chains Remember how Bain said more than 80% of Chinese consumers said online was their preferred method for buying groceries as the crisis grew more serious? Well, only half of those people could purchase groceries online because of a lack of supply. Supply chain will be a huge challenge for most companies that sell online. Regulations that restrict regular travel or shipping networks will create “logistical bottlenecks” that retailers need to overcome. Additionally, loss of labor will have a huge influence on supply chain. In China, production and distribution centers slowed down because of forced extended holidays for workers or quarantined employees. Since many retailers use just-in-time manufacturing models, a broken or weakened supply chain could dramatically affect stock levels. Supply chains are at a great risk, and this pandemic will be a test of supply chain resiliency. This will force retailers in the front end (their shops) to quickly adjust to these back-end (supply chain) interruptions. Phase 2 doesn’t mean doom and gloom for retailers: coronavirus and e-commerce During Phase 2, retailers will be under increased pressure. And with physical stores closed, the economic impact of the COVID-19 virus could be huge. But, retailers may not experience plummet as they would have in previous pandemics. Today’s global marketplace exists both online and offline and total consumer demand will remain constant, at least in most categories. And while offline channels may struggle during this pandemic, online sales may skyrocket to replace the offline component. In the short term, there will be a huge surge in the number of online orders. This is already happening. There is already evidence of this trend. Insights platform Contentsquare analyzed more than 1,400 websites, 1.8 billion user sessions, and 50 million transactions in the UK. Found that online grocery purchases grew by 20% while shoppers spent 26% more time on grocery websites. This trend isn’t limited to grocery stores alone. The same study found that sales of underwear, lingerie, and sex toys rose (by as much as 35%). In the Netherlands, retailer Coolblue had to “reinvent itself” overnight to handle the increased number of online orders. Some of the more popular products they’re selling include articles to work from home (computer monitors and webcams) and household items (notably freezers). The company has customer service working “en masse” from home and is still operating delivery services. Amazon also announced this Monday that they were going to hire 100,000 additional workers to help fill the increased number of online orders. The impact of the COVID-19 virus and the move to e-commerce will vary by category. Some retailers will face a slower transition; for others the transition could be fast. All have to be very adaptive to the new situation and continuously reassess their strategies and operations to assure their long term success. Mid-term, and in a more negative COVID-19 scenario, all retailers may become online pure players. While we don’t know what the coming months will bring, if physical store closures last, many retailers will be forced to accelerate digitally. Without the luxury of leaning on a large bulk of online revenue, shops will need to invest heavily in the proper tools to compete in an online-only marketplace — one that is fast paced, dynamic, and price-transparent. Longer term, I think that the forced accelerated habit change caused by coronavirus will simply change how consumers shop. And that is perhaps the more interesting aspect to consider as we think about the recovery phase. Phase 3: Recovery The COVID-19 virus will undoubtedly change the world, and it will be a long time before we can return to “business as usual.” And the reality is that we may need to confront a new “normal” after all of this is over. My opinion is that in the short term, there will be a big surge in e-commerce traffic (during Phase 2). That extreme surge won't last, but it will accelerate a long-lasting habit change towards online shopping in many categories. As consumers grow more accustomed to buying online, the role of e-commerce will grow. After this crisis is over — when stores can reopen their physical doors — I expect that e-commerce will occupy a new level of importance. While consumers will return to regular brick-and mortar shopping, the balance between e-commerce and brick-and-mortar may remain forever changed. How retailers and brands can prepare and cope The COVID-19 virus is here, and retailers and brands need to get creative in how to manage the coming months. Protect people Above all, retailers and brands need to create policies that protect people. As a sector that has many embedded points of human contact, the safety of employees, customers, and anyone else on the supply chain is of the utmost importance. If possible, encourage employees to work from home. If employees have functions that simply cannot be done from home, consider implementing a “red team, blue team” approach. With this approach, teams should split in two (a red team and a blue team) that operate on segregated schedules. If someone on one team gets sick, the other team will still be able to function. Protecting people goes beyond employees. It also includes protecting the public at large. Price gouging during this emergency is simply unethical, whether it is intentional or unintentional. The practice also stains the name of our industry. To all retailers out there reading this, no matter which pricing software you use I encourage you to cap all prices at the Recommended Selling Price. Optimize distribution networks In the coming months, supply chains will likely be the greatest obstacle for retailers. The demands of each supply chain will vary enormously depending on category. Bain & Company has several actionable checklists for the following categories: Fresh produce Packaged food and household essentials Seasonal non-food categories Continuous replenishment products Consider stock levels As supply chains come under pressure, retailers need to pay more attention to stock levels when they manage prices. If you’re running out of product, you might as well maximize your margins or revert to the recommended retail price. But again, this goes without saying, do not price gouge. Remember this is an emergency, and as an extremely visible face of the crisis, your brand could face backlash. Omnia customers already have the ability to add stock levels into their pricing strategies. If you use a different pricing tool, you might want to ask your software provider how to incorporate stock into your strategy. Because of the combination of increased price fluctuations and the need to constantly adjust pricing based on stock, we expect that automated pricing will be more important than ever. Without it, companies will struggle to keep up with the market and increase their risk of insult pricing. Final thoughts As we move forward and adopt a new way of working, we’ll continually provide updates on the industry, our work, and more. So while the times are changing, the good news is you don’t have to navigate those changes alone. There’s no way to be certain about what the future holds. But I am confident that one outcome of this pandemic will be a growth in the importance of e-commerce. No matter what though, as retailers and brands we need to remember the human element of our work. We should do everything we can to prevent the spread of this disease.