The unfortunate struggles of Kona Bicycles have many contributing factors. One of which is the bull whip affect of the pandemic. This does not uniquely impact Kona, and is a macro economic trend that is hitting bicycle brands around the world. As of today, our count of bicycle and frame brands with landed inventory in the United States, stands at 954.
25 Brands have closed or left the US so far in 2024
This has exceeded the 24 we counted for all of 2023. From an economic perspective, this is not too surprising. As inventory piled up first in retail, causing cash flow issues, retailers naturally adjusted their behavior, accepting fewer shipments. That pushed the bottleneck farther up the supply chain to brands, and eventually manufacturers. Each of these supply stages has led to cash flow challenges, and the current market environment.
The percentage of brands who left the US market in 2023 at ~2.5% is a reasonable count given the significant expansion of brands who have entered the US in recent years, particularly with electric bikes. However, as we look forward to the 2024 season, it will be much more telling if 7%+ close this year.
Some will be dramatic, and some will be quiet
The news of Kona’s demise came as a shock to the industry only because of how quickly they turned around from planning to be at Sea Otter to shutting down the company all together. Other examples of dramatic shutdowns are Nukeproof and Vitus, whose parent company collapsed after funding evaporated overnight. Vanmoof, the DTC ebike brand is planning to re-enter the US at some staged after going bankrupt last year.
Many other brands have quietly turned off their websites, or listed all inventory as Sold Out. For a DTC only brand, this is a as good as shutting down since that is their only revenue stream. Some of these sites may continue to appear open, acting only as zombie sites with no real sales volume. The ultra low cost to host a website these days makes it easy to overlook those recurring charges.
Is DTC to blame?
One trend you might pick up on is that all of these brands have some DTC component. In fact, none of the brands we have identified leaving the US market were IBD only brands. All of them sold through DTC. Does that mean that DTC will inevitably end in failure? Certainly not.
If we think about the steps approaching a brands closing, the most prominent challenge is limited revenue constricting cash flow. The natural thing to do is to look for more sources of revenue, and enabling DTC purchasing on the website is a very easy and low cost step to entice more buyers. Depending on the circumstances and timing, it is possible that this leads to enough cash flow to float the business for some time. Realistically, without a strong community engagement and DTC marketing, it is unlikely to make enough of a difference.
What is ahead of us now?
This article has highlighted some of the negative results so far in 2024. The reality is that 2024 is likely to be uncomfortable for many without bolstered finances. Hopefully those who have made it through the winter will have a strong season, allowing them to survive into a potentially more normal 2025 season. The challenge is that the discounting for the past 15 months has likely pulled forward a lot of buyers who would have delayed until the 2024 season. Unless these are replaced by yet more future buyers, we may see more muted sales volume. The long running decline in bike unit sales volumes in many western countries is likely a consequence of strong sales performance and the reliability of the products. If these bikes keep working well, then the consumer inventory may be sufficient to support a large portion of the bicycle riding population.
Consumers are the ones who benefit in the short term from all this competition. After years of increased prices, we are seeing MSRPs fall. In addition, the lower prices and aggressive marketing appears to helped keep participation up at similar levels with the past few years. The mid to long term picture of cycling in America is strong. When we look back a decade from now, the brand mix will have changed just as it did in nearly every decade before.