Smithers MINNEAPOLIS

Price Increase

From Masiguy:

Over the past few months, the bike industry has seen the “perfect storm” of circumstances hit it (like much of the rest of the economy); a slumping US and global economy, a massive increase in manufacturing costs, a dramatic jump in labor costs in both Taiwan and China, a sharp drop in the value of the US dollar and an increase in value of nearly every other global currency. The Taiwanese dollar, the NT, has gone from a little over $34NT/ $1US to just barely over $30NT/ $1US in just over 3 years. That may not seem like much, but it adds up quickly and doesn’t even take into consideration any of the cost increases- that is just a loss in currency value. When you add in the cost increases for the actual products, it can become significant very quickly.

By some estimates, the cost of steel alone is going up as much as 65%!…Carbon is going up. Anything petroleum-based is going up- like the materials used to make handlebar tapes and saddles. These costs are increasing leadtimes significantly as well, since many vendors are now unwilling or unable to spend the money to stock vast quantities of materials. This means that they need to order more often to meet their demands, but at least they don’t have their capital resources tied up in raw materials.

In China, recent laws there are forcing a much needed increase in wages being paid to factory workers- as well as limiting the amount of overtime a worker can work. These are good changes, but they mean an increase in costs just the same. In Taiwan, there is a massive shortage of qualified skilled labor. The bike industry was once one of the best paying in Taiwan, but the rise in power of the tech industries there has drawn in a lot of the once strong work force in the bike industry. So now wages have gone up to compete for and retain good labor. It’s a good time to be a factory worker in both China and Taiwan… or at least a better time.

The overwhelming majority of my companies products are manufactured in western Europe. We are dealing with an already expensive labor force plus the added cost of working with high price materials like composites and titanium. Add to that the collapse of the dollar versus the euro:



and the end result is that we are looking at price increases of up to 15% within the next few weeks.

One advantage that my company has is that we have been focusing on the high end of the retail bicycle market for many years and, typically, that aspect of the market does not tend to compress as much as the rest of the market does during an economic downturn. Generally the rich keep spending their money while the rest may cut back.

It will be interesting, and more than a little nerve wracking, to see if the same scenario plays out once we make our price increases.

If I ask you for a job next year I guess you will know how things went for me.