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Thanks for putting out the podcast! I'm excited to give it a listen bit by bit over the next few days.
Cool timing, too, because I just listened to a podcast yesterday that talks (briefly) about the financial side of a smaller bike company so that got me super curious about the industry as a whole ("hole?") and how financial folk think about at this stuff.
On the Bikes or Death podcast, Tim Krueger - CEO of Esker Cycles and former Product Manager at Salsa Cycles - talked about a million things including Esker's financial situation after the last 5 years of bike industry boom and bust.
In short: they're doing well and can easily point to the reasons why.
That entire Bikes or Death podcast episode was really good, though. I definitely think it's worth the listen!
Sounds like I've got some listening to do soon...
Its a little bit comical to see the results of the Gas Gas buy a dirt bike get a free e bike promotion. That has the same feeling as the Kona buy one get one deal. When you are giving something away you are solely trying to get it out of inventory and cut your losses before sending it to the dump or a mass auction for pennies on the dollar.
Also funny how when you make totally junk e bikes no one takes them seriously.
That's actually super interesting, I hadn't seen that yet. On the surface it does feel like Kona, but really they could be creating a new customer in a parallel market segment. Tradition motorsport customers could be E-curious but need a nudge to try it out. Kona was all about burning inventory, but Gas Gas could be part blowing out inventory and part investment in future market share.
More likely the sinking-rubber-raft than trying out the market. Plenty of MX shops already have had e-bike offerings alongside their respective motorcycle brands.
In my area MX shops started selling eMTBs during Covid and I guess it was working out at some level considering the very high demand.
All my local MX shops selling ebikes are now stuck with them, some of the GasGas bikes are up to 60% off still not moving that much and the new MXC/ECC models are already on sale.
Dealers are in for some fun times trying to move that GasGas/Husqvarna inventory.
It would seem to make more sense to just offer a bit more customization on KTM's alone. Even just different color plastics, bar heights, or swapping spring rates to match the rider's weight or preference.
Ha. I also missed this. The irony is e-bikes are absolutely crushing PMG (parent). They contributed negative (~EUR100M)EBITDA last reporting period (if memory serves) while their motorcycle units were actually net positive on an EBITDA basis.
I have no idea what they'll do with the e-bike unit, but they either need to completely retool on the product management front (I'm available - lol), divest in the unit or flat liquidate and shut it down. Selling subpar bikes into a highly discerning market isn't going to work, clearly.
I can't help but comment on this one because there are a lot of ways to make the dirt bike buying experience better, but the fact is when we go buy a dirt bike for ~$10K we are getting a lot of product for the money. The business needs to be hyper efficient or they lose their already thin margin. This is exactly my argument as to why GasGas/Husky is a net headwind. Its adding to an already complicated supply chain with little outside of brand equity to show for it.
If a company were to add customization, which others have tried (Beta), I'm not convinced the juice is worth the squeeze. You'd have to bring in a master of supply chain management to pull it off in a way that adds value to the customer without lead times getting crazy or sku bloat crushing margin.
Handelbars and suspension springs are cheap and frankly, this is the idea of the dealer. They get you totally dialed. This is where they are supposed to make their margin. The machine is ridable out of the crate, but its dialed with a good shop employee/owner working their magic for your needs and body geometry.
Its a bit old school, but it works really well in my experience and again, its super impressive how much technology you are buying for $10K when you walk out of a shop with a new dirt bike.
Good podcast Jeff and Spomer, something a little different aka why we are on vital.
Jeff- you start a thread on bike companies closing, but got a stealth mode bike component company coming…playing the game! In a good way. Can’t wait to see what you got cooking.
If your digging into these financials, keep us update as you go as I find this stuff fascinating.
a note on discounts from Deviate via their newsletter this morning
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Dear Clan Member,
Ben here - one of the co-founders of Deviate Cycles.
I don’t often get involved in these newsletters anymore, but I thought this was a particularly interesting time for Deviate and all of our loyal customers (or just followers) deserved a bit of a personal update - something I’m aiming to do more in the future.
Sometimes the day to day running of Deviate gets in the way of the thing I like most about this job - and that is engaging with our customers, either through email, phone or going out for a good old fashioned bike ride! Nowadays it’s going to have to take the form of a newsletter to our Clan members - but as I’m sure some of you have experienced if you contact us, I am still often the one to answer the phone or reply to your messages.
The days of driving around the UK in a battered old van demoing the Guide are luckily behind me - that was hard work and in hindsight that gearbox driven beast was a hard sell!! Although we failed to convince any significant number of you that gearboxes were the future - that really did put Deviate on the map. It was certainly an interesting bike and there is not one regret at Deviate that we chose to do something so different as our first bike.
Deviate has moved on and is now one of the best known UK high end bicycle brands. I am so proud of our team for all the hard work they have put in over the last few years. I also owe our customers a big thank you - without your loyal support we would certainly not be here!
It has been an incredibly tough couple of years for the bike industry as a whole and for Deviate by extension. The market is heavily discounted and the reality is when you take 30%, 40% or even 50% off a bike there simply is nothing in it for anyone.
The blame for this situation squarely falls in the hands of the biggest brands who projected Covid level demand forward into these years - a demand that was exaggerated by undersupply due to factory closures. Although there is some blame on the factories themselves who told these brands that if they didn’t place big orders they would be at the back of a very long queue. It really was a vicious circle - but entirely predictable in hindsight. Every business in the industry is now suffering the consequences of these actions today and there are certain brands out there who held meaningful reputations as non-discount brands and are now selling stock at outrageous discounts and in my view will never regain that reputation.
The consumer is then caught in the middle. We all love a bargain - but the second-hand market has been completely crushed by these discounts so selling on your bike after a couple of years is now largely pointless.
Ultimately, I firmly believe it is good for everyone - including consumers - if high end brands exist to drive the sport forward with R&D and unique designs. Those brands, us included, cannot compete against the world's biggest brands selling their wares below cost price. It’s hard enough to compete when these brands actually need to make a profit.
Anyway, moving on from my rants…(although I hope for those of you who are outside of the bike industry that it is an interesting perspective!).
The reality is these discounts cannot continue forever and all of us at Deviate and across the industry are all hoping that things will settle down into 2025 and that’s where we have lots of exciting news.
Towards the end of the conversation, it was insightful to note that there are companies who are content at running lean and not getting out over their skis when it comes to growing their business. I think about what Neko and co are doing with their Frameworks project and following a "drop" model sounds like a sensible way to manage working capital and grow in an organic and predictable way.
Makes me wonder what the typical MOQ is from one of the primary frame manufacturers from Taiwan (a la Genios) and if it's a low enough order quantity to encourage a "leaner" company to operate under a similar model.
I am surprised to see that the MTB industry is on par with the golf industry, no pun intended. I feel like golf has much greater mass apeal and has seemingly incredible amounts of outside industry sponsorship within the sport so it's a surprise to me that the industry size is similar.
Some really good posts here the last 12 hours. I'm sick AF, which will make my already rambly writing even worse, but being I have some time I wanted to reply...
@Mwood - Thx for the kind words. I'll be sure to keep posting as news trickles in that is material. As to the component company, you are likely to hear more on it in the next ~3 weeks. We're aiming for a "soft launch" right before Thanksgiving. I want to reiterate, its very much on the "small" side of things to start, with much bigger ambitions. We hope people like our flagship product, which we believe offers a lot of value for what it does.
@sspomer - Interesting update. This is one of the only times I can remember a privately held company saying the quiet part outload. He brings up some interesting points, especially around how competitive the queuing within the supply chain really was around COVID. What I feel he misses is just how challenging it is to have 20/20 vision when things are that turbulent and "off script". Regardless, I compltely agree that the big brands can't operate at margins that are below their WACC (weighted average cost of capital) which I feel they've likely flirted with the last few quarters. If Deviate can hang on for one more season, greener pastures are likely ahead.
@jalopyj - I completely agree and was surprised myself. I love golf, and am fairly certain the sport is bigger than mountain biking when you add up everything that goes into the sport. The big thing missing from the reported golf number is green's fees, travel, resort type amenities and (probably) softgoods. I'd wager these are the big revenue generators for the sport. Also, a quick google search suggests ~26M people played golf in the US in 2022 whereas 9M people "rode their bike on unpaved surfaces" in the US. I can't find global numbers for MTB. This sounds a bit more realistic.
HH everyone!
My guess is off-road cycling absolutely eclipses golf in the rest of the world. Tons of recreational cyclists in Continental Europe for example that ride FSRs vs. golfers. Heck, I don't think I've ever seen a golf course in Germany, France, or Italy.
Regarding the golf comparison, to Jeff's point, there's likely a lot not considered in that number that's ancillary to clubs. But even more meaningfully, considered the price of a new mountainbike vs new set of clubs. No different than the magnitudes of order greater pricing we see in auto vs cycling like Jeff noted in the pod.
Really good job with that episode guys, enjoyed it.
golf in germany is an absolute expensive posh sport, space is rare and expensive and thats why there are only so little golf courses
I used to dive into participation numbers back when I was running Evergreen MTB Alliance (long time ago, so take this for what it's worth). The problem with MTB numbers was that they often classified a whole whack of not-actually-MTBing as our sport. Think hybrid bikes with sorta fat tires, Walmart/Costco "mountain bikes", people who rode a rail trail once, etc. You really need to look at the source data closely to have any idea WTF they're actually reporting.
In today's market I'd bet my rear rotor that shitty, not suitable for trail, e-"MTBs" are skewing the numbers heavily. You know the ones; the RAD bike with 4" floaty tires that people use to cruise bike paths or commute (always seeming to get flats).
Golf is easier to define, much less of a spectrum.
Golf is in decline, at least in the USA, and MTB is on the rise, but I'd still be shocked if participation #s and total $$ for actual MTBing are even close to that of golf.
Fox reported earnings today. I just pulled up the report but a few things stand out right away...
Bikes: On a sales basis, the Specialty Sports Group (Bike) was up 108% y/y to a total of $150M on the quarter. That's a lot of forks, shocks and seatposts, eh? As to what this signals, I can't quiet say as of yet. It certainly would appear to be a good thing, but I want to read a bit more and listen to what management has to say before I really comment as to the sentiment of the release.
Overall: Other segments were down y/y. I don't have access to my old StreetAccount subscription so I can't tell you what the street was looking for with respect to any of the numbers, but considering the stock is off over 6% in post market trading and was off 2% over the course of the day, the company didn't hit the mark. On that note, the stock is off about 45% YTD vs the S&P 500 which is up 22%
More: I bet the conference call has some good tidbits. Until I can read a transcript, I'm probably going to skip listening but if anyone wants to nerd (way) out here you go. They'll ask you for some information when you try and listen, but its public for all.
„In today's market I'd bet my rear rotor that shitty, not suitable for trail, e-"MTBs" are skewing the numbers heavily.“
I can confirm this, at least in Europe. Anytime I drive on one of the roads towards tourist destinations between Germany and Italy the vast majority of bikes on the cars are Cubes and KTMs with the occasional Trek Rail or Husqvarna. Usually 150-160mm of travel, fully kitted out with racks, fenders and enough lamps to light up a small town. That’s what the sales person told them they need, and then it only gets ridden on bike paths and the occasional fire road.
Sometimes you see dad bikers riding the flow trails at bike parks with them, but very few people in my local bike community below 40-50 actually ride an ebike.
Is that just Fox or are they lumping Marzocchi, Race Face and Easton into that number too? Is there another brand under the bike umbrella that I'm forgetting?
The group also own Ride Concept shoes now.
Interesting read by Deviate and I understand they wish for discounts to stop as soon as 2025, but is that even possible ?
I get it that other premium brands like Santa Cruz and Forbidden are doing massive sales since 2 years are hurting them, but is this going to stop into 2025 really ?
The used market is flooded and there's so many almost new bikes that it must interfere with the new market more than ever. The inventory of previous model year bikes must be so high that it'll carry on well into 2025.
Then you have your average smart buyer that is now used to see X premium brand discounted 20-30% since 2 years, how will that buyer justify forking out full MSRP for the same bike in 2025 ? Buying at full MSRP right now is crazy, you're hit with a 50% penatly just by walking it out the door...MSRP and market value is truly messed up right now.
It also includes Marucci (baseball/softball) along with Lizard Skins and Oury.
What I see a lot of in the US, and what I think @JVP is referring to, are bikes like this absolute monstrosity. The bikes you're describing could reasonably be considered "real" mountain bikes, while the below is, well, I'm not really sure what it is.
I think it's very unlikely that the discounting will stop any time soon. There's going to be a hangover to this as well with people delaying purchasing a new bike at full pop because of years of deep discounts. Unless you're buying an e-bike with a significantly better motor or battery, the differences between each successive generation of a mountain bike is narrower and narrower. Take the newest Hightower or Sentinel as examples: they're both great bikes, but if you own the previous generation and it's not entirely clapped out, what's the incentive to upgrade at MSRP?
It's going to be a great time to be a buyer in the used market for a while yet.
Correct. I should have been more clear.
SSG: Fox, Marzocchi, Easton, RaceFace, Ride Concepts, Marucci and Lizard Skins. They lump Lizard Skins in with the Marucci side. Here is a quick graph showing the breakdown year over year. This was from a presentation back in April (I think).
I do wish we had a further breakdown of sales - Fox vs Easton vs RF etc. but oh well. Not really that important.
Unrelated, look who is cited in their presentation. Kinda cool!
A handful of notes on industry data
This keeps coming up, and for good reason, so I wanted to give a little more context and color around the industry data I cited in my presentation. In short, this data is incredibly messy and not to be relied upon in any sort of social studies project, business school presentation or internal pitch at whatever company you work at. I think I put the above disclosure on the slide, but you guys are doing a good job articulating the various ways it may be misleading. There are a few things I want to note here...
Primarily Private: The industry is comprised mostly of private companies upstream all the way down to the retailer. This makes it incredibly difficult to aggregate sales data of any kind.
Niche: Mountain bikes are a niche within a niche that has little interest from "big money". There simply isn't a lot of incentive to do these highly challenging deep dives into the state of the industry when the sport is pretty far from what most investors, founders and capital allocators are interested in. To add, a lot of this becomes academic and not all that important when deciding what kind of company you are going to build. IE - I don't really care if the mountain bike industry is a $4B or $14B market, I'm still going to start the company I am aiming to start.
Participation: Unlike almost every other sport, mountain biking has no hard lined way to track participation. Golf has greens fees and memberships, (alpine) skiing has lift tickets and passes, ball sports have team sign ups. Mountain biking requires you to tell nobody when you go ride a trail, making it really hard to track how many people ride and how often they ride. To add, even if we did have a way to track participation, what do we do with it? Do we count someone as a mountain biker if they ride off road once a year? Does a gravel bike path count? How about a trail I could comfortably ride my gravel bike? It gets super messy, super fast.
Equipment: As many have demonstrated, there are a number of flavors of "mountain bikes" we wouldn't really consider to be a mountain bike the way we see mountain biking, but get lumped into the equation.
In short I'm sure the numbers floating around out there includes a lot of riffraff and stuff we wouldn't consider to be "core" to the sport. However, I do know with confidence the sport is actually larger than I used to think it is. Fox alone doing over $500M per year tells me "yup, sales are well into the billions for the entirety of mountain biking". The sport is healthy, and more on par with other larger sports like skiing, and yes - even golf.
On that note, I did a little more homework there. I found a few datapoints that suggest golf is a $70-80B/year industry when you count everything; softgoods, equipment, greens fees, memberships, golf tourism, pro golf, media rights etc. Callaway, the largest club manufacturer, reports equipment sales of around $1.3-1.4B/year. While I can't find a mountain bike number that is "all in" I'd be willing to put it north of $10B and south of $20B. Maybe even higher. Thinking we're even 20% (or even 10%) the size of a sport that has been around for hundreds of years and known throughout the mainstream community is pretty impressive, at least to me.
TL;DR - mountain biking is plenty big enough even when you don't count the riffraff, its not going anywhere, and it has solidified its place as a "real" sport. But we all knew that
It is important to note that demand during Covid should be thought of pull forward and not regular organic growth that then disappeared. What I mean by that is these are people that at some point would have bought a bike to try it out but it might have been 2-5 years farther out. Instead all of that demand (and now turnover/selling) was brought into an 18 month period.
Where almost every company made a mistake was believing that every one of those people would be stoked on riding and become seriously invested in the sport. There was also market distortion based on government direct payments to consumers which lead to people buying more expensive bikes than they would have in the absence of those payments. So now all the people that would have been buying a bike for the first time in 2024 or 2025 already has one. Also impactful is that the percentage of people that then sell those bikes has been pulled forward in a similar fashion.
Regarding discounts, what we are seeing right now from the big players like Specialized is not discounting. Instead their margins are normalizing back to pre Covid levels. Perfect example is the previous gen SJ Evo. When released the Expert model was ~$4700. During Covid this jumped to ~$6500 based on high demand and low supply. When the market normalized they slowly reduced pricing showing it as a one time discount back down to the $4700 range. Looking at this from the other side, they NEVER had to discount the original intended sales price of the bike. Instead they were able to get much larger margins for a set period of time.
I bet the golf numbers don't include the cost of your local country club membership.
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