Bicycle prices in US reflect inflationary pressures in broader economy

Washington

CUSTOMERS crowding into US bicycle shops are often walking out empty-handed - or if they are lucky, with a bike whose price has repeatedly gone up since last year. Looking for a Santa Cruz Hightower C R, a full-suspension carbon mountain bike? It will cost US$4,749, up 10 per cent from earlier this year. But with stocks depleted, buyers probably will be told to wait for the next model, due out this summer, at a higher price.

A hobby that is enjoying a new wave of popularity illustrates the inflationary pressures rippling through the wider US economy - and bringing political risks for President Joe Biden - amid supply bottlenecks and worldwide surges in demand.

Like their peers in many other industries, bike companies are passing along higher costs driven by rising raw-material prices, strained factories and overloaded delivery chains. They have been able to do that without damping customer demand. And executives foresee more price increases, with supply expected to remain tight and demand elevated till at least next year.

"The only way things would go down is if there's a glut of supply," said Joe Graney, chief executive officer of California-based Santa Cruz Bicycles. "That doesn't seem like it's going to be an issue."

Prices for all kinds of products, from lumber to diapers, have been climbing this year. The headline measure of consumer prices rose 4.2 per cent in the 12 months to April, the most since 2008. The numbers for May are due to be published on Thursday.

The Biden administration and the Fed say inflation will likely ease later this year. In the bike industry, though, many expect increases to last longer than that. If that turns out to be the case more broadly for prices across the economy, it could trigger voter discontent as Mr Biden's Democrats prepare to defend their narrow control of the House and Senate in next year's midterm elections. Republicans blame Mr Biden's stimulus spending for stirring up inflation.

Americans went on a bike-buying binge at the start of the Covid-19 lockdown, to get exercise, avoid public transportation or entertain kids stuck at home. Now, savings during lockdown - when many people cancelled vacations and avoided eating out - as well as Covid-19 relief cheques are propping up demand, according to retailers and bike companies.

They cite other factors too. Some of today's customers want to ride with friends who purchased bikes during the pandemic. And cities are becoming more bike-friendly. Many localities that closed off streets and added bike lanes during the pandemic have kept those changes in place.

The resulting demand is showing up everywhere from big-box retailers like Walmart Inc - where many lower-range models are sold - to specialised stores.

Bicycle sales are up 77 per cent in the year till March to US$6.7 billion, according to research firm NPD Group, while the average amount paid for a bike rose 27 per cent - partly due to price hikes and partly because depleted stocks pushed customers to choose more expensive models.

"We've got another surge coming in," said David Conte, chief operating officer of Conte's Bike Shop, which has 15 stores from Washington, DC to Florida. "We're almost getting a double whammy here. We can't meet demand." He added he has been receiving less than half of the bikes he ordered. Even so, he is in a better position than many smaller retailers whose racks are empty.

The supply problems faced by bike companies have pre-pandemic roots. Towards the end of 2019, major brands held off placing orders from China, where most bikes and parts are made, to await an exemption on 25 per cent tariffs imposed by the Trump administration, said Jay Townley, a former bike company executive who now works at consultancy Human Powered Solutions.

The exemption came through, and bike companies placed their orders in early 2020 when Chinese factories were closed for Chinese New Year, he said. But then Covid-19 hit, and the factories remained shuttered.

Now they are running full tilt and reluctant to expand capacity, likely because of concern over how long increased demand will last, Mr Townley said.

Meanwhile, the tariff exemption for bikes has expired, and there is no indication it will be renewed. And the price for shipping a container from China to the US West Coast has been hovering near record highs for several months. Many of these added expenses are set to remain, with high shipping prices getting sealed into contracts for the next year. BLOOMBERG