The business plan: NBDA report 2009

Below is a summary of key points from the National Bicycle Dealer Association (NABD). 

• Total value of bicycle sales in the US decreased 7% y-y to $5.4b in 2009
• Unit sales volume of bicycles (> 20" wheels) decreased 24% y-y in 2009
• There were 4,200 specialty bicycle stores (SBS) in 2009
• SBS accounted for 18% of volume sales and 50% of value sales
• 38.1m Americans age 7 or older rode their bicycles more than 6 times in 2009 (2008: 38.7m).
• Adult cyclists use their bikes as follows: recreation (73%); fitness (53%); commuting (10%); racing (8%); sport (6%).
• 2,000 companies are involved in manufacturing and distribution
• There are about 150 brands.
• Hybrid and cross bicycles accounted for 20.4% of SBS sales in 2009 (2008: 19.0%).
• Road bicycles accounted for 14.9% of SBS sales in 2009 (2008: 13.0%).
• 99.5% of bicycles sold in the US were imported from China and Taiwan.
• The industry is dependent on free global trade.
• SBS revenue breakdown: 47% bicycles, 36% accessories, 11% repair, 1% rental, 2% fitness gear and 4% other.
• Gross margin for bicycles is 37%; break-even point is 39%
• Gross margin on hard goods are 48%

The report notes a positive outlook for the industry given increased interest in sustainability, environment and the impact rising gasoline prices have had on demand for bicycles and service; the report notes increased spending by the federal government on bicycle infrastructure; and, points out that stability is the key objective for the industry. The report notes that there is little brand crossover between channels: in other words, one does not find a Trek at Wal-Mart or a Huffy at a high end independent bike store. 

Bicycle sales breakdown 2009

2009	Volume	Value	$ b	units m	per unit	ratio
Department stores	73.0%	32.0%	1.8	10.9	165	0
IBS	18.0%	50.0%	2.8	2.7	1,044	3
Outdoor specialty	5.8%	2.0%	0.1	0.9	130	0
Chain sporting goods	4.0%	5.0%	0.3	0.6	470	1
Internet	3.0%	5.9%	0.3	0.4	739	2

Frame and Wheel crunched these numbers while trying to answer the saturation question. The table above shows that the IBS remains the most important and valuable distribution channel in the industry: it sells only 18% of the volume, but accounts for 50% of the value. This implies that the average price per bicycle is about $1,000 per bicycle. Department stores account for 73% of the volume, but just 32% of the value because the bicycle they are selling are mass market products with an average price of $165 (based on the numbers above). Interestingly, the distribution channel that has the next highest per unit value is the Internet at $739 per unit. The Internet channel accounts for 3% of sales volume but almost 6% of sales value. This implies that consumers are ready to buy higher value product on line. 

Frame and Wheel's agency model positions it to be a "crossover brand" between the Internet and the independent bicycle store. This means that the consumer will be able to buy the frame directly from the company (direct channel) or through their favorite independent bike store (indirect channel). These two channels are clearly the most important ones for the company's target market and they are not necessarily exclusive to each other.