Retaliatory Consumption is Here! As Lockdowns Ease, This MIT Product is Spinning Away
 
Jun 13, 2020
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Bikes are so in demand since COVID-19 lockdowns were instituted across North America and Europe that they are out of stock at shops, with lines forming even before stores open, and governments not only encouraging cycling, but offering stipends towards bike purchases. And the stock prices of Taiwan’s two major bike manufacturing brands have more than doubled over the past two months. What can we make of this steep drop and rebound?

The first half of 2020 saw a dramatic drop in consumer spending and a sluggish economy against the background of the coronavirus pandemic. As the world anticipates a wave of “retaliatory consumption”, which products will claim a front-row seat? The first answer that comes to mind is very likely “bicycles”.

This is a rebound that was never anticipated in the first quarter. First quarter revenues for Taiwan’s two mammoth makers of complete bike kits, Giant and Merida, were slammed by lockdowns across Europe and North America, putting them in the red. However, with limited opening of North American cities since May, as well as the reopening of commercial channels, the first thing some people are doing is heading to the bike shop to purchase a bicycle.

The crush on bikes has caused shortages at numerous shops. “Bicycles have now become the new toilet paper.” Taking the example of a Giant dealer in Sydney, Australia, a report in The Guardian described the shop clerk’s greatest fear not as a poor economy or employee layoffs, but a long line of customers outside the shop’s doors and no inventory in the warehouse available to sell.

And it’s not just in Sydney; the supply of bicycles in major U.S. and Chinese cities cannot keep up with the demand, especially for entry-level commuter models.

Disturbance in the Bike Force? Hot Sales Likely to Continue

“In the wake of the pandemic, everyone is commuting by bicycle,” observes Wen-chin Chen, a non-technology industry analyst at Credit Suisse Securities. And bicycles are not just being used for commuting; many countries have permitted outdoor exercise during lockdowns, especially encouraging people to go out cycling.

In the United States, even during local lockdowns, many states considered bike shops “essential businesses”, allowing continued operation. In Italy, hit hard by the pandemic, the government got out its wallet to encourage citizens to ride bicycles, offering a 500-euro subsidy (around NT$17,000) towards new bike purchases.

A bike for every person has become the best form of recreation while maintaining social distance. And the trend could be more than just a flash in the pan.

“If commuter bikes sell well, we can infer that these consumers had no bicycles at home, and only bought a new one due to the pandemic,” notes Chen. This means an increase in the bicycle penetration rate, offering the sport of cycling observable commercial opportunities.

“When everybody has a bicycle, it’s easier to gather a bunch of friends to join them on a ride. So the question is, will this lead to a demand for bike upgrades over the next two or three years?”

Giant, Merida Stock Prices Rebound from Cellar

Since hitting low points in late March, Taiwan’s twin pillars of bicycle manufacturing, Giant and Merida, have seen stock prices double.

Giant notes that, in the wake of reopening, retail channels in North American, European and South Korean markets have seen shortages of basic models, and that it has stepped up production capacity in response.

According to reports, most of the inventory in European channels was stocked late last year, and major wholesalers are still working through inventory despite the sharp increase in demand.

Apart from entry-level bicycles, e-bikes also have a chance to stage a major breakthrough. Giant relates that low-cost basic transportation electric bicycles priced at around US$1,000 are a hot item across the U.S. and European markets.

According to statistics from the Taiwan Bicycle Association, e-bike exports from Taiwan between January and April were up by more than 30 percent over the same period last year, matched by sales revenue growth of over 23 percent. Export volume to Europe and North America in particular saw over 80 percent growth.

“Overall, the penetration of e-bikes in Europe is only 10 percent, with some countries like the Netherlands up to 30 percent,” observes Wen-chin Chen. Clearly, the European electric bike market has considerable room for growth in the future.

Are e-Bikes the Next Big Thing?

After the pandemic, these battery-assisted e-bikes, which take less effort to ride and do not require a license, will be even better positioned to become the new darlings of urban commuting.

A 2019 Deloitte research report noted that the cardiovascular fitness barrier for e-bikes is low, making them suitable for a broader age range than bicycles. What is more, as the sweat rate is typically only one-third that of regular bicycles due to the motorized assistance, a change of clothes and a shower is not needed after a ride, making it especially suitable for commuting.

Shorter commute distances have also helped raise the deployment ratio of e-bikes. Deloitte further noted that in 2017, 60-percent of all trips made by Americans were less than 10 kilometers (one way), with nearly one-half coming under five kilometers.

Mass transit passenger numbers in cities have decreased in the wake of the pandemic, while private vehicle traffic has increased. Meanwhile, metropolitan areas are busy repairing and expanding bike lanes. This shows that, at an average speed of around 20 km/hr, e-bikes are not necessarily slower than driving a car. There is a good chance that they will be able to accommodate most commuting needs.

By Ching Fang Wu