It's amazing to me that some folks will actually defend this aggressive pricing. In the last issue of Mountain Bike Action I can recall 2 letters to the editor from readers defending these inflated prices. I guess there are some who prefer to pay more than less for their favorite hobby - what an incredible shift in economic theory. For the rest of us it's getting tougher and tougher to keep up with this frightening trend but what are we to do? To help me understand this market I thought I'd conduct a little market research on the subject so let's take a peek at some key statistics.
It would seem logical to assume that the price of materials would be a contributing factor so I thought I'd take a look at the price of aluminum, since aluminum is still the primary metal used in bike manufacturing. I follow the commodities markets pretty closely and aluminum prices have been declining since 2012 [www.infomine.com] and aluminum has never really been a volatile commodity so this can't possibly be the primary cause for the steady increase in prices.
So what about the costs of labor? According to the Organisation for Economic Co-operation and Development (OECD), unit labor costs in the US have declined significantly since 2007 [www.oecd.org] and although labor is a significant cost in any industry it doesn't seem to be the major contributing factor. I should point out that every industry has it's own unique labor costs and the OECD is measuring the aggregate costs of labor but you can clearly identify the trend.
Inflation is the gift that keeps on giving, or taking would be more appropriate so how much has inflation factored into the equation? According to the Bureau of Labor Statistics inflation peaked in that last decade at 4.1% in 2007 and for the 12 months ending March 2014 inflation came in at a paltry 1.1% [www.usinflationcalculator.com]. Inflation has actually been declining since 2011 so we can also rule out inflation as the main culprit.
Ok, so we looked at the price of aluminum, labor costs and inflation but one more variable can have a role in what plagues the mountain bike industry; exchange rates. We're all too familiar with the world of outsourcing and although it can result in lower prices it all depends on the country. This is not an economics lesson so I'll keep the concept of exchange rates simple. Suppose you're importing bikes from France for €3500 a piece. You would need to come up with $4823 for each bike you'll be bringing into the U.S. That is a 37.8% premium for any part you import from Europe and that can have a significant impact on the price you pay here in the states.
I couldn't help but wonder how much prices have changed over time so I decided to visit the website of Bicycle Blue Book [www.bicyclebluebook.com] for a little assistance. I ran a search for a Trek Fuel EX9 and this is what I discovered. From 2007 to now I found that the price for this bike increased 68%. That is an average increase of 11.33% per year which is well above the normal rate of inflation. There can be a number of reasons for this but it will all eventually come down to the same factors discussed here.
I understand that every business has to make a profit so you'll never hear me complain about the profit motive but isn't there something manufacturers and retailers can do to help make this hobby of ours more affordable? There seems to be a great deal of chatter about the advancement in designs and materials but I feel like we the consumer are funding the costs of all this experimentation, which would't be so bad if we could actually get to use it. Prices for the latest technology is far beyond the reach of most mountain bikers and that's what's most frustrating.
Margins baby! Fox going public could have a positive impact on the industry because going forward there will be pressure to improve margins and that could mean a more efficient company.
This trend cannot continue forever and the companies that recognize the importance of the middle market will earn their loyalty for years to come.
Dirt Life
This trend cannot continue forever and the companies that recognize the importance of the middle market will earn their loyalty for years to come.
Dirt Life
