Elorie  0:00  
Everyone, whether you were a bike shop owner or a sandwich shop, your first reaction was, holy smokes, I'm gonna have to close my business.

Tae - QBP  0:09  
In the weeks leading up to COVID closures, we actually had a dumpster catch fire inside of our primary warehouse. So we started COVID off with a literal dumpster fire wasn't

tyler jordan  0:21  
that long before all of a sudden, we started seeing more demand again, and people started to realise that, hey, I can riding a bike or something I can still can do. There

rob gitelis  0:27  
was a time where I was speaking to our SRAM rep, and he told me we have $2 billion of open orders. And I'm like, you can't possibly believe those are real orders. Either.

Josh Poertner  0:36  
Every existing bicycle owner has to buy another one in the next five years, or the entire third world has to walk into the playing field and start buying high end bicycles. There's just no way like it just breaks. It breaks simple math.

wade wallace  0:58  
Hello, listeners. This is Wade Wallace from escape collective. In this four part series, I wanted to explore the events that took place that led the bike industry to the troubling point of that now, I spoke to over a dozen industry professionals from all over the supply chain from well run bike shops to forecasting analysts, distributors, the biggest brands in the world and manufacturers. It's well known that the bicycle industry went through an unprecedented boom during the pandemic from 2020 to 2022. During this period, travel came to a standstill. Gyms closed, social distancing became a thing. And the bike was the perfect anecdote to that the economy was propped up by governments and remained healthy, and people still had disposable income that they wanted to spend. This caught the bike industry off guard. And why wouldn't it the industry had never experienced something like this before, and relies on slow predictable growth, and often trying to sell more bikes to the same people each year. With the exception of V bikes. Jump ahead to 2024 and the bike industry is in strife. The World opened back up again in late 2022 And people have resumed life as they knew it. New demand has come to an abrupt halt. New entrants into the bicycle market have not stayed as the industry had hoped. We're seeing massive inventory overruns at bike shops. Big brands are taken on extra warehousing space. businesses such as Niner orange wiggle chain reaction have gone into bankruptcy. Otherwise profitable big brands have taken on debt to keep afloat. There are brands out there who are doing well, but they're the exception rather than the norm. In general, though, I don't think many would disagree that the situation in major cycling markets aside from China is pretty dire. This is the first episode of four, we're going to bring you on a journey through the COVID feast, the storm clouds the famine, and now lessons learned in hindsight. In this episode entitled The feast, we speak to a bike shop owner, a demand forecasting analyst for distributor direct to consumer CEOs and a manufacturer to see what they experienced. I was surprised by their candour. It's clearly a stressful time for nearly everyone. And there were many emotionally charged discussions. People from big brands I spoke to asked to keep their names out of this as they were not authorised to speak to me, but clearly had much to wanted to say on this topic. I've paraphrases conversations to preserve the identity of those people so they don't lose their jobs over this. Ellery Slater along with her husband owned a bike shop in Boulder, Colorado called sports garage. It's one of the top independent bike shops in America of its kind. I've been there. And I know for many past conversations with Ellery that she's a top operator and a good business person. Ellery was also the brand manager for pivot mountain bikes during the pandemic, and saw firsthand the reckless abandon that guidance, some of the bike brands during these initial stages of the boot,

Elorie  3:57  
everyone. Whether you were a bike shop owner or a sandwich shop, your first reaction was Holy smokes, I'm gonna have to close my business. Initially, the conversation around the pandemic, and the public the public was going to need to do it preceded any one area saying hey, bike shops are essential businesses of the transportation grid. Right? So in March of 2020, we were preparing to close our doors for an indefinite amount of time, while carefully listening to the state dialogue about exemptions for essential businesses. And in Colorado in addition to places like grocery stores and other places, drugstores and things like that, that were deemed essential. In the state of Colorado, bicycle shops were deemed essential businesses as a part of the transportation category and And at that point in time, when we learned that we would be keeping our doors open. It was cautious optimism,

wade wallace  5:08  
what started to result with regards to how business went with, you know, being able to keep your doors open and the lock downs that started to happen and people's response to, you know, outdoor activity. And how did that start affecting business.

Elorie  5:24  
It wasn't as though overnight, this switch flipped, and all of a sudden, phones start ringing off the hook. I mean, the cautious optimism phase was like it grew for a while, when things did start to break loose, the first thing that we saw was people calling around looking for a bike. And it's kind of summer started. And initially, those phone calls were for bikes that were $1,500 or less. So initially, when we noticed the first influx is when we were like, wow, this is really weird. Like, we have a lot of people calling and asking for bikes that are $1,500 or less. Clearly these people did not, they didn't have a context for bikes, or they maybe would have looked through our brand selection. And they would have been like, well don't call that shop, right? They, you know, they, they just have high end mountain bikes. And you had nothing for them by the sounds nothing, but we were happy, we would like send them out, we would be like, well, you can call these guys, these guys. And these guys, then we noticed that about 30 days into that, then people were asking for like 2500 ollar bikes. And then eventually that met price became 3500. All breaks. So what we observed was mostly those people who were looking for bikes and that were new to cycling, you know, we're thinking about like, target market, what should we do? Should we change our product mix? Like what you know, like, how do we get through this? Like, should we respond to this first wave, you know, we're having our own internal dialogue? Do we have the right product mix, do we not? But then we noticed that people tapped out 3500, right? Like if you were a person who you were looking for a bike, not because you're a cyclist, but because you're like, my family's bored, and it's the pandemic and we feel like we need to go outside because you know what, we aren't Susie's not playing soccer. You know, Johnny's not going to the rock climbing gym anymore. Mom can't go to yoga, we can't go to our club, like, let's get some bikes. So we really differentiated what we observed was that we really differentiated the buyer who was new to the sport from the buyer, who was maybe reengaging, or just kind of going to be doing more of it during the pandemic, right, because that was one of their only options.

wade wallace  7:37  
And were you still getting queries for the $7,000, carbon fibre Yeti or whatever? Yeah. And those were those were still selling, right? Oh, yeah.

Elorie  7:45  
I mean, our regular client base was still buying bikes, those purchases in the high end, those were people who were already enthusiast of the sport or active in the sport. And they, for example, had to cancel their European vacation. Right. So now all of a sudden, they can't go to Europe, they're not going to go on a Caribbean cruise. So they're going to take that disposable income, that recreational income that was already allocated, and they redirected it towards upgrading or outdoor equipment.

Let's talk about that windfall. Let's stay in 2020 and talk about the word windfall. And let's think about those people that are calling and saying, I'm looking for about $1,500 or less, I largely feel that as things progressed, we saw that actually bike shops, there were two types of independent bicycle dealers that experienced a windfall. One was a business owner who had been a bit asleep at the wheel, and he had a lot of data to inventory, that maybe you know, how many bike shops have you walked into where there's the racket back, and there's a bike, there's a road bike, and it's been marked down two or three times, right, because it's a couple of seasons old. There was a windfall for those IBD owners, they sold through all of their ageing inventory. On the other end, you had the most sophisticated dealers who maybe had high inventory turns, they had no ageing inventory, they were probably top performing dealers, for their largest vendors, or their sexiest vendors or their key partners. And if you were at the top of the food chain as a dealer, meaning you had ranked somewhere in the top 10 You were a priority to the manufacturer. So you want to keep nobody knows how long it's gonna last. No vendor wants to make their top 10 dealers mad. So when things started to constrain, if you were a high performing dealer, you did get some favours and when you got bikes, that

wade wallace  9:51  
from where you sit one of the high performing dealers, were you thinking at the time like, this is incredible. This is like we've never experienced anything like So where were you just You said, I think cautiously optimistic was that the the lasting view that you took? Or was there ever a time where you're like, This just is awesome. And let's not let your guard down, but be comfortable with the situation.

Elorie  10:16  
It wasn't like we were like, We are rolling in the dough, we're just showing up opening the shop, like swinging carbon all day and closing the doors like, it was not like that. We had four guys, four guys on our team would set their alarm every single morning, they each had a segregated list of parts we needed for our service department for repairs that they needed within the next 48 to 72 hours, even though we couldn't finish any repairs in that amount of time, because of parts availability, right. And each of them, they would break up the list, they would set their alarm at six o'clock in the morning, because they knew that the order window when you could put items in a cart and checkout at QTP opened at like 6:30am Mountain Standard Time. And it was a race to see how many of the parts they could get in their inbox and push by now, before every other bicycle dealer in United States did the exact same thing. Every single morning. So this

wade wallace  11:12  
was now your problem. Yeah, this was now your problem. Bikes are going out the window. But this was your problem. And there's a convenient saying the good problem to have was that didn't feel like a good problem to have. Well,

Elorie  11:24  
I mean, initially, manufacturers were delivering bikes. Right? And then things kind of started to pile up because they weren't getting their bikes. Remember the Port of Long Beach? And remember, we used to see the aerial view of how backed up it was, you know, or there were countries where factories would close. So there was a point in time where, you know, all we heard from our manufacturers was, well, our shipments are delayed. We're waiting for that to come. At the end of the day, did we make more money for a couple of years? Yes, we made a lot more money for a couple of years. But I would say on an hourly basis, we paid ourselves the same. Alright, then what 30% more effort to make every one of those dollars. What we started to do was we said, ship us whatever you had, ship us every part you've got, we will fill the gaps. We took many, many bikes with no wheels. And we figured out the wheel thing ourself. Actually, what we would do is we would unbox everything, right? We'd hang frames on the wall parts everywhere else, and then we would build a bike. And so yeah, wow, we did a lot of like creative things, I think to get the bike built. But the real heroes of all of that. And I cannot underestimate I cannot under underestimate this effort to any high performing bike shop is going to know this. It's the staff that spent the time on the phone with the customers trying to help them understand what was happening. Part of this landscape, the COVID landscape, especially in late 2021 was sold products that a customer was waiting for.

wade wallace  13:09  
bike shops or ground zero for all the signals that came through for this increased demand. All of those phone calls that were coming through ultimately led to an over indexing and forecasting back to the supply chain. Pay attention to this because we'll come back to it later. On the other end of the supply chain, I had a very hard time getting someone to speak to for manufacturing. Most have NDA signed with big brands and don't want to get themselves into trouble. However, I was able to speak to someone who is on the ground in Taiwan, where much of the bike industry's manufacturing takes place. His name is Rob TELUS, and he owns factor bikes. For 20 years, Rob used to own the manufacturing facilities who made brands like cervello focused Santa Cruz components for ZIP envy and Bontrager rod knows this landscape well, and well now he only manufactures frames and components for factory bikes and black ink. He's still very well connected to this part of the industry, and saw firsthand what his colleagues experienced.

rob gitelis  14:07  
When the pandemic was just starting, at least becoming publicly known, was right about Chinese new year it was during Chinese New Year and I just remember sitting at home, here in Taiwan, looking at this kind of unfold on TV and in the local newspaper, I'm like, This is gonna be a problem. We could tell it was very quickly escalating to the point where at the last day of Chinese New Year, that was when the government basically didn't reopen. And this is really the really important time to hire people. Because normally you hire people on a one year contract. It starts right after Chinese New Year and it runs to the following Chinese New Year. And that's kind of the hiring window and if you miss that window of hiring people, those people will go work in another factory if they're already your trade workers or you know, move to another industry or decide to stay you know, in Their countryside at home. But it's incredibly difficult to hire in China after Chinese New Year. And I think that's, that's all of Southeast Asia, it's not just China. And

wade wallace  15:10  
what was the feeling in your gut and maybe the sentiment with other people in the industry? In terms of like, what was? What was this going to look like for business?

rob gitelis  15:20  
I think, you know, in the first days, we didn't know. But very quickly, the bicycle companies all started telling the factories don't ship what you've already made. And we're going to greatly reduce our purchase orders. So then all of the factories responded by, okay, we need to cut capacity. So if we were planning on building 10,000 frames a month, now, it's going to be 5000 frames a month, that we now need to staff based on that number, which was a lot lower. And so the factories basically, you know, didn't take back all the workers that they had, like, you know, like go or they didn't renew contracts. At the same time, a lot of factories had a lot of products leading to Chinese New Year, you always build a lot of product. And now the customers are saying, we can accept it now became a cash flow issue at the factory side, because they've obviously paid all the workers paid all the material and done all the work. But the brand is now saying, We can't take it at the moment, you

wade wallace  16:26  
say that everyone reduced capacity, hunker down, and then and then what happened?

rob gitelis  16:33  
The polar opposite. So then we enter, you know, the throes of the global pandemic, and all of a sudden cycling becomes the great saviour. And every everybody in their brother now needs a new bike. Every brand is now scrambling, pushing their factories pushing Shimano push, and SRAM, we need product, we need product. And all of these factories are all in this state of, you know, life support. And now all of a sudden, they're being asked to weigh over produce product that they just there was just no no chance that this was going to happen. The big boys used their financial clout to really push down a lot of the smaller players. You know, specialised was here in Taiwan with bags of money, going to different suppliers, securing their positions in line, willing to overpay to make sure that they didn't miss on this opportunity. What was happening, some smaller brands were getting pushed down. Maybe you had an order in with your, your supplier for, you know, three 400, Shalonda, Deray spikes, all of a sudden your dairies disappeared. And, you know, some of the house got delivery of that somebody who was willing to pay more, or was a more important customer of that factory.

wade wallace  17:48  
What about to scale beyond capacity? Was Was that being asked of?

rob gitelis  17:54  
Oh, absolutely, absolutely. Every everybody was throwing out these crazy numbers, and they were insisting that you could do it. And they were asking people, you know, to step up and invest, you know, to build more production lines to hire more people. And you know, but all of the risk was at the factory side, some factories, were willing to take the risk. Others were not, you know, obviously, group sets became a huge issue as well, right. And so, it used to always be that the frame was the longest lead time item. But now all of a sudden group sets became a year of lead time. And so it then became, again, this super difficult balancing act for the assembly factories, because there was this mismatch of lead times, you know, everybody understood what the lead times were, you know, before the pandemic and you knew, Okay, I ordered my friends on this day I would or my group sets on this day, my wheel sets, and then it all comes in, and then we assemble it and we would all ships out. Assembly factories were having to rent 510 15 additional warehouses outside because it became this huge mismatch of timings. Of all of a sudden the framers here with the group said is still four months away, and DTS asking, Hey, we need to ship your wheels. Oh, sorry, can you hold this because I know that DT had four or five additional warehouses they needed to rent. I know Velo saddles had, I think, again, five 610 warehouses they needed to rent to rent that they never needed before, not because they were making too much they were almost making the same amount of product as they had always been. But just because the normal cycle was you made it you shipped it, you made it you shipped it now, it's like you made it and then you are hoping that the other parts were ready so that the assembly factory could build it, and they could ship it

wade wallace  19:42  
with groupsets. I don't know if you can speak to this at all. I've heard Shimano have a hard policy of 5% growth year on year they won't go above that and, and they were very disciplined in in that approach through the pandemic. Is that an SRAM, I suppose did go and create more capacity so that they could manufacture more? Is that your understanding? Or

rob gitelis  20:06  
that's that's all true? Yeah, I would say that Shimano almost no standstill, not just because of the pandemic, but yeah, they were just unwilling to accept, you know, all of these crazy orders that were coming. They were unwilling to build the additional capacity. There was a time where I was speaking to our Schramm rep. And he told me, we have $2 billion of open orders. And I'm like, you can't possibly believe those are real orders. And he's like, no, no, those are, because there was so much what I call phantom ordering going on, during this time as well, of people were so scared, I'm not going to get my product. So they place more orders I'm not gonna get they place, more orders, more orders, more orders, far more than the actual demand. So and the problem is shrim was telling you if you want to, if you want your stuff, you got to get it in your order now for two years from now. And you're like, how do I plan for two years from now? I can't plan you know what I'm going to have for dinner tonight. And you're telling me, I gotta tell you how many bikes, I need it. So two years from now, it just became this impossible thing. And so everybody just just started just throwing darts at the board, just okay, here's an order for 10,000 group sets, you know, while skip the estimate in two years, and so it just became this self fulfilling prophecy of just as over demand, created by this euphoria that people just thought it was never going to end.

wade wallace  21:35  
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Tae - QBP  22:11  
We were actually extremely distracted. Because in the weeks leading up to COVID closures we actually had a dumpster catch fire inside of our primary warehouse. If we

wade wallace  22:23  
look at the distributors perspective, the largest in America is quality bicycle products or QB P Hu services about 5000 bike shops around the country. I spoke to TJ Wang, who was a forecasting analyst for Q BP during the time of the pandemic, to understand what he experienced being in the middle of the supply chain between the bike shops and the brands themselves.

Tae - QBP  22:45  
So we started COVID off with a literal dumpster fire is shut down operations out of our primary shipping facility for almost a week. I think we had a significant amount of inventory gets destroyed from smoke damage. So once the COVID closures started taking place, there was definitely a sense of like, whoa, one two punch. What does this mean? And then you can easily google it for yourself. But there was a significant amount of backlash because QTP let go of when a sales around 100 employees over zoom meetings. I think it was early April, our sales just flatlined. Overnight, it was the end of the bicycle retail world as far as we are concerned.

wade wallace  23:38  
When did it start becoming apparent that it's not all doom and gloom and that the actual industry was about to experience a windfall.

Tae - QBP  23:46  
From pretty much the moment it started to ramp back up until late 2021. It was 5060 hour weeks. If it wasn't like analytical requests, you know, what is selling? That was one of the first things it was it was a major analysis of, of what categories were moving early in the pandemic and which ones weren't. And it was really obvious that by before that summer was even over, that the online retailers effectively never shut down and they were hoovering up more of the Gucci stuff, carbon, right? Garmin head units, the wheels, fancy tires, and and to the degree that the normal brick and mortar shops were doing business, it was a lot more everyday type of product.

wade wallace  24:45  
And what were the challenges at that point with keeping up with this unexpected demand? What did you have to do to manage that?

Tae - QBP  24:53  
This is something you don't want to quote me on but my recollection is at least $1 million. Pio got cancelled. if not more, and we we burned a lot of bridges in those early few weeks, because the rate at which sales has slowed down. I think leadership's approach was just we can't take on any of this product that we promised. We had let go of all those employees. They were they were really just buttoning up expecting an extended drought. Right. And so chill, stopping any of that product from landing that we we could have done we did not and, and as a result of that, when things started ramping back up by by late spring, early summer, it had put us at the back of the line, as it were, in a lot of cases, a lot of our orders had already been reassigned to other people who had not cancelled them. Yeah, that was a that was a nasty shock. There was a lot of product that had extended delays as a result of that. A year 18 months before we got that back in stock.

wade wallace  26:04  
I heard a lot of this, you know, CheMin O's or whatever, saying it's, it's 400 days lead time for this crank set, or whatever it might be. How did you deal with getting some of those? Or did you just forego the sales? In queues case?

Tae - QBP  26:19  
We had enough weight, I think, to kind of push our way around the line, our sales pitch is the product will get to you on time quickly, and we always have it in stock. And for 20 odd years, that was enough to get us to the top of the to the top of the pile. Yeah. So you know, we were we were getting a hold of what we could. But I mean, the reality was, at that point, they were already shipping off what they had anticipated. They're probably going to sell for the year. They're probably already talking about what we're going to do next year. I think, again, you've probably heard but Shimano, Shimano made almost no attempt to increase their production lines with any kind of investment, think they like did some extra staffing or something.

wade wallace  27:12  
Were things in the warehouse getting really lean at this time. And were you constantly out of product? Or how was that cash going? Yep.

Tae - QBP  27:22  
We are currently out of stock. The volume was so high, we had the column what we call the fire squad, which is when they asked him office staff to help pick orders. While it was blatantly obvious that more and more units in the warehouse were empty and staying empty. That ended up creating other issues. I think 2020 or there abouts, we were scheduling a complete overhaul to our website. And, and so features like backorder had not been implemented yet. We did not have the ability to you know, show only in stock items. So retailers were two straight years yelling at us, we need back orders. And we need to be able to filter out out of stock product. We ended up re diverting a lot or resources to band aiding those features onto the website over the course of the pandemic, just in time for sales to fall back off, again.

wade wallace  28:29  
was first party data issue for you actually understanding what was happening? How much was being sold through? Or did you even care about that at the time

Tae - QBP  28:41  
prior to COVID. And after COVID? I would say that was more of a concern during the peak years of COVID. We were so far below what we wanted to produce that knowing what the retailers are selling on a bike perspective really didn't matter because we wouldn't be able to to deliver anything near what we wanted to deliver. Right. We were still pretty confident through most of COVID. Like that, if we were having inventory issues, everyone else was also having inventory issues. Our Pio cancellations aside. Yeah, right. Like, because we start ramping up for the season late in the winter, December, January, February, you know products coming in hot and heavy, so it's not like we had empty shelves to start. They just they got empty pretty fast. Yeah. For warehouses relative to everyone else's, we probably held strongly longer than our competition.

wade wallace  29:46  
Small upstarts are perhaps the most sensitive to the effects of the COVID Boom, no slack in the supply chain, limited with cash and up against the larger brands to secure their place in production. Next, I want you to meet Tyler Jordan, Tyler is the co founder and CEO of the Canadian apparel brand seven mesh. He's not cut from the same cloth as many upstart apparel brands, though, his previous career was the CEO of outdoor apparel giant arcteryx. Seven mesh is a business designed around wholesale, that means selling to retailers and distributors, they have their own direct consumer EUCOM site. But that's not how the business was set up to succeed. Here's what Tyler and seven mesh went through at the start of the pandemic, from the perspective of an apparel brand.

tyler jordan  30:34  
The amazing thing about it, I think, from a human experience, point of view was how fast everything happened, just by total coincidence, we had quite a major product launch for that spring. So we had launched kind of a random collection, it was very significant for us, dealers had booked it very strongly. And so we're really confident heading into 2020. And we had about two thirds of those orders shipped to our dealers. And we're just, you know, launching the collection and getting things going. And the impact of the pandemic was that, like, essentially, all of our dealers started phoning and emailing, immediately saying, Cancel all my orders, or put them on hold, don't shoot me anything else. I can't pay for what you shipped me, you know, for I don't want to repeat what you shipped me, I might have sent some stuff back. And it was across the board. At the same time, we saw our EECOM demand on our website pretty much go to zero. Overnight, there was a brief period of time where it didn't improve. And I sat down with our founders. And I was like, Guys, this could be it. Like we're, we're a young startup brand. And it's like it's you know, if this demand evaporates, like what do we do now. But what we quickly saw was, you know, it wasn't that long before, all of a sudden, we started seeing more demand again, and people started to realise that, hey, I can, riding a bike is something I could still can do. And then our business accelerated from there.

wade wallace  31:51  
And so what did you do with the windfall? How did you respond to the windfall, I suppose with the demand that just quickly came after

tyler jordan  31:58  
there were some aspects of the pandemic boom, that were fun. And it was a terrible time in terms of worrying about what was happening to people and the impacts that had on economies and our cultures, and, you know, our communities and our loved ones. And I don't mean to take away from that at all, you know, we were micro small business, fighting to find his place in the world. And we ended up getting discovered by a lot of cyclists. And so our, our business acceleration during the pandemic wasn't so much from new riders coming into the sport, it was from passionate cyclists, or somewhat passionate cyclists that we're doing it more and we're doubling down on their activity, and we're really getting into it. And so that was incredibly valuable for us as a as a very small business. And so there was some fun in that we're, you know, that growth was good for us, because we built inventory, because of our big product launch, we were able to take advantage the demand, and sell a bit more than we otherwise would have. So we'd forecasted quite a bit of growth for 2020. But we, you know, we ended up growing more than that, and, you know, virtually sold, you know, anything, it wasn't bolted to the floor, like all, you know, all of our best stuff was kind of, you know, our inventory was pretty low. And as a small business entrepreneur that's fighting to find his place in the world and survive, versus some very big betters. We didn't like the source of the demand. But you know, but the added attention on the brand by people we're trying to reach was, was great for us. It's a

wade wallace  33:19  
convenient kind of cliche to say that, you know, good problem to have, but actually, you could very easily go to business with, you know, while making money, sometimes with some of the problems presented or, you know, just sold out of stock, right, and having people sitting there, what were some of the challenges that you faced with this increased demand? And how did you deal with them, we

tyler jordan  33:39  
navigated the period of the pandemic, relatively well. And it was really, really hard work, and it didn't happen by itself. And we have some great people. And we, you know, we did pull every trick and and string in the book, relationship net, work Kegel, you know, find creative ways to solve problems in order to realise it. But we did, okay. And because we work with, we want to work with certain people that have certain capabilities from a raw materials point of view, from a factory point of view, from supplier point of view. If you think about it, as as things get less commoditized, and more specialised, it gets much more difficult for us to make any kind of substitutions and do anything different. For us, we needed to it there was a whole bunch of binary things where it's like, we could either get that or we couldn't, and we've got neither found more or we didn't or we're able to build a substitute and time or couldn't. We decided when the pandemic hit, you know, before it started accelerating, you know, we were kind of we didn't cancel in Europe, since, for example, it's one thing we never did is, you know, we believe we were growing because we were growing, there was demand for our product and so we were comfortable that we were on and wanted to continue with our plan. What we didn't realise is that so many other brands, especially in our space, where we're we're kind of we use a lot of outdoor material Well, some kind of crossover and really backcountry, really high quality, protective stuff. Everybody else was cancelling orders like crazy the outdoor industry, which says a substantial, you know, outdoor and ski, which do a lot of business for Fall deliveries. They were panicking and cancelling orders. And they were, some of the brands are cancelling orders and leaving the factories stuck with raw materials. And so we ended up being getting caught in the crossfire, where suddenly we found out that our stuff wasn't being built two months later, not because we didn't want it, but because they weren't they hadn't gotten, you know, they hadn't gotten around to calling us yet to check if they we still wanted it.

wade wallace  35:32  
How long did you think this demand was gonna last for? Was this something that you even had time to think about? Or was there like, as this is just demand being pulled forward? This isn't in the new normal? What were your thoughts about that? At the time,

tyler jordan  35:46  
we were really clear that this is a bubble to some degree. And the real question is, how big a bubble is this? And what's it like when it pops. And you know, at least in our case, it's not correct to say, Oh, everybody just just built stuff and thought it was gonna stay that way forever. There were some loud voices that said, they thought this was like the second coming of the bike industry. And we just disagreed with that thought that that couldn't possibly be realistic. We all believed that, that a bunch of these people that were coming into cycling, or they were doubling down and cycling, we're going to really enjoy it, and they were going to stay. And so we believe there was a component of it that was going to stay like competition for us was was less about when is this going to end and more about how much of this is going to stay? And have we turned the corner as much as we think we have? Were you

wade wallace  36:31  
getting any order pressure from up the supply chain?

tyler jordan  36:34  
Yes, I would say. So from from our supply chain perspective, it got very competitive for to place the right things for the right factories. So as demand went up, it got competitive to make sure you can maintain space and get stuff built, you got to make sure listen, you got to be on your best behaviour. Because, you know, the dynamic in the business relationship changed. And we saw, you know, to be honest, for a long time, it's been imbalanced in the favour of the brands and the factories have been, like I said, factories got had orders cancelled with no notice where they got left with specialised custom built materials for brand. And the brand just said, Well, I don't want them anymore. That's an imbalance in risk and reward, that the pandemic finally allowed the factories to correct and say, no, no. If you want to place this order, then you are going to guarantee that you're you're guaranteeing the raw materials. And I want you to guarantee that with a raw material supplier or, or give me a letter of credit that covers me for that exposure, etc. So what we saw as we saw the factories, rightly, in my opinion, have more power in the relationship be able to push back on some of the, the what I see I've seen I've seen for a long time to be imbalances in the industry that let them kind of get more of a level playing field.

wade wallace  37:46  
Was there any Navy temptation or requirements even from you know, line of credits? Or if you have investors or whatever to take on more, because of payment terms or anything like that? Was that did that play into it? Especially being at a nearly zero interest rate? Phenomena time? Yes,

tyler jordan  38:06  
that was that was major for us. But just to be clear, I'd say that probably took about five years off my life expectancy stress wise, to suddenly have a bunch of additional financial requirements have been not just like, hey, by next season, it was real time, it was like, I need this now. You know, we were scrambling or, and we again, we're relying on the relationships. And we were well, you know, we worked with a couple of great factory partners that did like us and trust us. But you know, they're part of companies as well, that have to protect their own interests. And if they say, Hey, we just got, you know, we just got left with whatever buys big, outdoor brand big cycling brands, make sure everybody's buttoned up here, then we had to get buttoned up like everybody else. And so as a small brand, people would normally bend the rules or not be too concerned. You know, we weren't, weren't loosened credit, we had great relationships with people, and then we were meeting that kind of industry standard terms, when those terms only became very apart was very difficult to us. And, you know, there was, it was not at all clear to us that we were going to make it through that at all. So it was it was a very, very sketchy time. And and we, you know, again, like I said, there were some ups and downs, there's some real fun during the pandemic, but it was nothing was even the good parts weren't easy, everything was harder. And

wade wallace  39:26  
when you say that, you know, the financial requirements start to getting really difficult and so forth. Are you talking about the time of this increased demand when ordering was extra pressure in that so so the what I said earlier about a good problem to have you could go broke while making money. Was that actually the case with this increased demand came this extra financial pressure that was equally as hard to deal with?

tyler jordan  39:51  
Yeah, it was because speaking for a small business, there's a lot of different ways to get into trouble. You need things to work and this was during the boom, this was not during a buster slowdown This was during the growth phase. But during the growth phase, the start of that growth phase was very difficult to love the factories. And like I said, it was really unfair to them in my opinion. So they needed to protect themselves. And it was all happening so fast, they need to protect themselves now, it was like a, you know, ad nauseam, but you need to send me proof of financing so that you'll be able to pay for your when it ships. That's, that's achievable. But it's not something you just have sitting in your back pocket. And it's not as cheap or easy to set that up. If you want to, if you want to pay for, you know, you can you can buy insurance and you can get back and you can get support you can but it ties up your funds, or are certain guarantees where it takes a while to implement. And so it was those kinds of surprises and shocks were happening in kind of real time and you're kind of trying to deal with them. So is it was it was very difficult. And if maybe that's more absorbable or more more routine to handle. If you're a big stable business, it's, you know, everybody understands the lay of the land, but we're, we're small and growing. And so things were changing every year and and we had to learn a lot, we had to learn a lot of new tricks in that time period for sure.

wade wallace  41:07  
Occupying another niche in the industry, Josh Portner owns a parts and accessory brand called silica. It's a small but mature business with a wide range of products with a relatively complex supply chain. Josh is well known in the industry and comes from the early days of the pioneering wheel brand zip. And a decade ago, he bought the silicone name and reinvented the brand.

Josh Poertner  41:31  
It was terrible. Right, I think we'd had a couple of pretty dark years before COVID. You know, when Trump administration came in here in the States, they passed all these, you know, tariffs and steel tariffs and aluminium tariff and the Chinatown. We don't do anything in China. But you know, that just has the effect of like raising prices on everything. And our business model had been to assemble everything in house. And you know, we made a lot of parts from scratch, but we were assembling 100% here. And so, you know, we were importing gauges and buying steel tubing locally, and maybe a casting would come from Taiwan, but a forging would come from Illinois and and then we would do the assembly here. And so that 10% tariff like 17 for stainless steel for us went up to around 50%. And so I mean that we kid and I remember calling the Andes, my board members, Mandy wording and Andy Miller, who were I was with it through the zip experience and are just amazing guys who've been around and and have done a tonne of companies and calling them and saying okay, guys, I've got I got six weeks of cash. I'm just going to tell the employees to go home and like, I'm gonna will pay him until we can't pay him anymore. But I I don't know what else to do. Like the Yeah, the timing just felt like it could not have been worse in the moment, right? I had a good couple of weeks there where I just saw it all slip away. Like there's like if this doesn't change quickly. We won't be here in six or eight weeks, because that was truly all the cat all the cash we had on hand.

wade wallace  43:07  
Geez, so what was the first indication that this wasn't all doom and gloom? When did things start becoming strangely positive? Or was there a time in between?

Josh Poertner  43:19  
We were two weeks in and I knew we had this, in this sort of the timing starts to really work in our favour. We had this lubricant that we developed that we knew was good. We had the bottles, we had the we had everything. We just couldn't make it and ship it. And I came downtown got the company van, put all of it in the back of the company van and drove it to my house. And you know, what else were we doing? Right? So it's me and my wife and the kids in the garage and we're just bottling the lubricant and I have nothing else to do. And this is all going to be gone. Let me just feel like I can do something. And I didn't expect that. Not only did we launch it, and people started buying it, but like the YouTube I mean, there's hundreds of comments. And that's when it really hit me like, Oh, God, the whole world is at home right now. Like what what else is anybody doing? From that moment on? It just felt like this incredible tailwind. And from there it was i i honestly barely remember the next year. Yeah,

wade wallace  44:19  
and what about your other stuff? Because I mean, as you mentioned, the hard goods like like pumps, for example, which you're well known for. You said you move the manufacturing over to Europe, in Taiwan, is that correct? Yeah. Yeah. And did they get into they get shipped to you or did they get distributed globally from from from those locations?

Josh Poertner  44:38  
Both and so where the of the second place we start to look out as you know, we as the lockdowns happened, we had parts on the water and so the stuff gets stuck, you know, wherever ports as lockdowns begin opening in places it can be received and put out there and then as that's happening, I I think people everywhere are starting to get out of lockdown. But still, a lot of them don't have jobs. Kids are out of school. People start buying bikes. I think like the rest of the industry, we got that whipsaw effect of you know, first month, everybody cancelled everything, you know. And that just that just piles on to the depression of you know, me with my little six week pile of cash. It was bad. And I know everybody went through a bit of that, which of course, then makes everything that much harder when it does pick up and now they're calling back. Oh, actually, I want that. And I want it yesterday.

wade wallace  45:34  
Yeah. And and how did you manage that situation when all of a sudden, like everyone's realising what you're realising? And this is actually for winter? Yeah,

Josh Poertner  45:42  
so so that in a way, it was our kind of big luck number two, that because we'd had all that product moving. Right, as this was happening. For us, the whipsaw went from oh my god, I have all this inventory in the channel dedicated to these customers who aren't taking it, and I'm now being charged money to store it. The day they showed up and said, Actually, we need it, we were like, Oh, actually, we still have it still have it. We were able, from that moment on to really hyper focus on okay, you know, the stuff I do here, and indeed titanium goods, and, you know, chain lube and whatever, we're just going to do everything possible to not run out of that stuff.

You always got to learn something, right. And I think the thing that COVID really taught me, that we continue to implement heavily now is, is, you know, one, respect your supply chain, but to understand your supply chain, and, and I think one of the beauties of the COVID supply chain was that so many of the suppliers opened up about their problems. I mean, my supplier, database, Rolodex and certainly ability to talk to suppliers about these things, it's completely changed. It went from sorry, I can't do that, or sorry, I can't make it or your lead time is 12 weeks. And now they know us well enough that they call and go, Hey, I'm running behind, here's the situation, we've helped me troubleshoot it. That's a very different conversation, you know,

wade wallace  47:28  
so So this, so this windfall, it doesn't sound like you're necessarily able to sit back and enjoy it, you it just caused a flurry of activity on your side, trying to source materials and parts and to be able to make more product for this extra demand. Is that accurate to say? Oh,

Josh Poertner  47:47  
yeah, it was. Because remember, at the same time, you couldn't, you couldn't get people. They like you once everybody went back to work. Not everybody went back to work. And so yeah, I mean, we, we probably average, if the, I don't know, 50 to 55 hours a week for a year, trying to keep up with demand on the stuff that we make here. About a year into that we really started almost doing sort of like war game scenarios. Like, like, Okay, this, this doesn't last forever, you know, a container shipment from Taiwan to America went from $2,500 to $25,000, aluminium went way up, steel went way up, it also became scarce, which drove it up further. And so, you know, it was definitely a period where we were really looking at it thinking okay, guys, like we're growing in, in revenue and in volume. But it's not like extremely profitable. The thing I think our group got ahead of sooner, maybe than a lot of other people was sort of this idea that, you know, not all revenue. And not all business was worth getting in, there were just certain things, we developed the strategy, essentially based around seven products we call the super seven. And we said like, these are products that we can we need to focus on not running out of, and our inventory dollars need to be spent here. Yeah, I would say at the end of that first year, we got real serious about kind of Wargaming the outputs. We really came out with two theories. You know, we said, okay, the plausible theory a is that this huge spike in demand is new people coming into the market, and that those people, some percentage of those people are going to stay in the industry. And they're just going to fatten up all future business. Or the kind of the other end of the continuum was, we're just selling all sorts of extra stuff to all the same people we've always been selling to plus a bunch of kids that have entered the market, in that in a sense, we're actually just borrowing the Business from the future. Right? You know, if we double business today, it's just coming in at the expense of some amount of business for future years. And and then you try to game out what that is, you know, if if we, you know, sold an extra 100 of this thing this year, does that mean we sell 100 Less next year? Or do we sell 20 less for each of the next five years?

wade wallace  50:22  
Wasn't it tempting, though, with this massive windfall that the bike industry is basically never experienced? And it sounds like you're working extremely hard. But to step back from that, and to have that discipline is quite impressive, versus just keeping up with it all. Because you don't know how long this is gonna be five years. It's gonna be too. Right.

Josh Poertner  50:45  
Right, that? I mean, that was the FOMO element, we put it right. Yeah, I remember reading that article about, you know, rad power bikes, like buying their own freighter and shipping it to the port of Portland, or whatever it was, and thinking like, oh, man, you know, like, those guys are crushing it. So yeah, like, I wish I was in that. And then again, dialling it back and thinking like, like, hey, he stopped thinking about you or not them? Yeah, you know, here's our model, play to them, you know, let's run our game plan. You know, there was a speech given at the virtual Taipei show by a very significant industry person from a very significant company. And he showed a graph that essentially was saying they felt that this growth could continue out, possibly to 2028. I remember like some that just didn't sit right with me. And I kind of just in a notebook on a piece of paper, kind of just wrote that out the math of it. And I remember Colin hit the audience like, like, Andy, if they're saying that this growth continues to 2028. And to do that from a bike sales perspective. Either every existing bicycle owner has to buy another one in the next five years. Or the entire third world has to walk into the playing field and start buying high end bicycles. There's just no way like it just breaks. It breaks simple math.

wade wallace  52:30  
That's episode one of our four part series in our investigation into what brought the bike industry to the point of stripe it's in now. In the next episode, we look at the early signs that this boom might not last forever. What were the red flags? What did all parts of the supply chain begin to experience and how did they react?

Elorie  52:52  
In the history of what sport in the universe has the sport retained? Someone who tries the sport for the first time at 80%. No sport ever,

Tae - QBP  53:02  
all these retailers that had been talking about how confident they are about next year? rapidly losing confidence,

rob gitelis  53:10  
you need to take the issue or that here they are trying to

Jake Dudek  53:13  
do it in a conservative way so that you don't get caught holding the bag eventually.

Transcribed by https://otter.ai