SSU insolvency and the bike industry generally

[LeeLau]

https://www.linkedin.com/pulse/postm...aign=share_via

On SSU's collapse. Well written and from the heart with a nice combination of finance and bike industry nerdery

TLDR boom and bust story

- SPAC structure
- Rose-Coloured glasses bike industry that does a lousy job at supply chain management and forecasting
- Loose capital commitment allowing concentrated future investor to duck follow on financing

The SPAC pitch itself is illuminating and also foreboding viewed with the after-the-fact lens!

"The opportunity to merge with SSU was pitched in a call with investors as a technology platform for sports ecommerce businesses. SSU was reported to be doing an organic 3-year revenue compound annual growth rate (“CAGR”) of 25%, closing fiscal year 2021 with $1.6B in revenue, over $70M in adjusted EBITDA, and a projected 25% revenue CAGR in the coming five years. High growth, profitable (albeit narrow margins), a scaled tech platform within the growing active lifestyle markets, and a strong position to take advantage of e-mobility trends with e-bikes. Pretty nice profile!"

And I also love this quote

"Under normal circumstances, the bike industry does a remarkably terrible job at balancing its supply flow with fundamental demand drivers. I don’t want to spend too much time here talking about industry structure but in short summary, the reality is that there is too much capacity in the bike industry. Barriers to entry are relatively low and barriers to exit are relatively high. The last bit there is interesting. Due to emotional and romanticized attachment with the industry, shareholders and management teams often fail to make economically justified exit decisions when they earn low or even negative returns on invested capital"

[volklpowdermaniac]

“ Rose-Coloured glasses bike industry that does a lousy job at supply chain management and forecasting”

This is the part that always amazes me every comment section on any bike website since the Covid boom had at least 10 commenters, who said obviously and sarcastically “ I’m sure this will last”. I am the am the furthest thing from an economist- please please believe me I suck at it, but the point of the above was to mention how it certainly seems like a thing that almost everyone saw coming and yet none of these companies, or I shouldn’t say none , but many could not see the forest for the trees while dopes like us all did? I don’t know makes my head scratch. I guess it’s just the emotions of soaring profits? And again I’m sure it’s way more nuanced than that, but that’s my casual observation.

Selfishly, I’m glad the market is turning back for the people who are staying in the sport long term - to take advantage- having said that I realize the jobs and markets are doing poorly in order for me to benefit:/

[Andeh]

I am the am the furthest thing from an economist- please please believe me I suck at it, but the point of the above was to mention how it certainly seems like a thing that almost everyone saw coming and yet none of these companies, or I shouldn’t say none , but many could not see the forest for the trees while dopes like us all did? I don’t know makes my head scratch.

There seems to be a pretty high correlation of people who come into a bit of money, do some investing and make a bunch of money, and then think that they're REALLY fucking smart because otherwise they wouldn't have so much money. So keep trusting same instincts / advisors that told them to invest in stuff previously. And it works, until it doesn't. The problem is in the mean time these guys think they're way smarter than they are because they've had a good run of luck.

[ddocky]

At the start of COVID, companies had a choice: cancel orders at the factory or go on. I remember predictions on this very form that there were going to be a lot of nice bikes for sale cheap as people lost their jobs. Instead, there were PPP loans, people kept their jobs and outdoor recreation was "safe". The bike companies that cancelled orders suddenly could not get back in line and inventory was hard to come by (joke: my bike came in two colors: take it or leave it).

Any company that played it safe lost out. Which bet do you make in 2021? Things will suddenly go back to normal and demand will crater, or the sport has grown and people are still coming in and want your products? There is a lot of hindsight bias here.

[LeeLau]

Any company that played it safe lost out. Which bet do you make in 2021? Things will suddenly go back to normal and demand will crater, or the sport has grown and people are still coming in and want your products? There is a lot of hindsight bias here.

Make a bet, sure. SSU put a business model together on 25% CAGR. The bike (and ski industry) for that matter does not come close to this. What made it different this time?

I submit it's emblematic of how bad bike industry is at SCM or forecasting. And the employees pay

[Pinned]

Any company that played it safe lost out. Which bet do you make in 2021? Things will suddenly go back to normal and demand will crater, or the sport has grown and people are still coming in and want your products? There is a lot of hindsight bias here.

Short term profit possibilities if you bet for growth, medium term losses though - long term is yet to be seen. Most small brands cannot afford this bet when things turn down, large brands can weather the storm in the multi-year slump that's following (where we are now).

The total addressable market for cycling has grown, no doubt. But it's not anywhere close to what the short term bubble was. A bunch of small to medium brands have already failed and will continue to struggle over the next few years based on having made big investments / heavy cash outlay for a future that either won't come or is delayed for longer than they can hold out.

SSU's bet was not on sustainable growth - obvious in hindsight, sure. But to expect they'd come in and upset a market that's continuously mocked for being slow to adapt, behind the times, etc was...they made the same bet that many small to medium brands have made without the right financial backing to give them runway to succeed. Classic bike industry.

At any rate, bummer to see it happen as I think more choices are good for consumers. Consolidation isn't great and Spesh / Trek / PON need some competition in the US retail space - and SSU's goal to seemingly compete with QBP would be welcome too. Q's dominance isn't good for bike shops, so anything that gets the LBS lower prices is also good for customers.

[XXX-er]

yeah so I remember shops making 30% more during covid and wondering how long can this last and where are all the future customers gona come from ?

[grinch]

I heard the industry is still up 7% over precovid sales.
I guess companies are sitting on huge stock without the revenue stream to pay bills or offer stockholders any kind of increased value. There has to be a few companies that didnt bite on the unrealistic forecasts

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[volklpowdermaniac]

I heard the industry is still up 7% over precovid sales.
I guess companies are sitting on huge stock without the revenue stream to pay bills or offer stockholders any kind of increased value. There has to be a few companies that didnt bite on the unrealistic forecasts

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And of course the big guns are the big guns and while even if they bet wrong and failed will probably survive this, regroup, and become bigger after feeding on the fall out, but again like you said probably a few of them and others played it smart?

[grinch]

And of course the big guns are the big guns and while even if they bet wrong and failed will probably survive this, regroup, and become bigger after feeding on the fall out, but again like you said probably a few of them and others played it smart?

Yup. Covid certainly favored the big corps. Spesh and trek are buying shops out across N america. Small bike companies and shops will increasingly get less

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[Canada1]

How do the big retailers (chain reaction, etc.,) seem to have parts the local shops don’t?

[Jax]

How do the big retailers (chain reaction, etc.,) seem to have parts the local shops don’t?

They can afford the overhead; they buy more skus in different categories from brand X or Y, commit a set percentage to future orders, and reach a greater discount tier because of it.

Needlessly high MOQ's are a thorn in the side to smaller LBSs. Local shop can't afford to stock brand A because their MOQ is $40K for parts, or 100K to be able to stock their bikes. So instead they are forced to special order from qbp when the local customer just wants to buy a set of ENVE wheels or what have you.

[joetron]

^^^yep, this.
What parts were you looking for?


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[Canada1]

It seems like some of the basic shimano drive train stuff was available online, when my local shops couldn’t / can’t get it. But as you note, is it too much risk for my local shops to carry chains, sprockets and cassettes for a walk in?
I want to buy from the shop, but end up at competitive cyclist a lot.

[joetron]

Shimano US inventory had been very spotty until a few months ago. Smaller shops that didn’t put in large preseasons and instead were ordering just-in-time to keep a few key parts in stock had a hard time keeping full inventories. Ask me how I know.
Also, a lot of shops got real sick of playing the discount/price-match game with Shimano products as they do not have a MAP policy. Even though this has changed a bit, some shops are still quite gun-shy.
Much of the international grey market inventory has been cleaned up, and there was huge demand the past 3 years, which helped maintain margin. But I wouldn’t be surprised to see more grey market product pop up as orders get cut and the assembly factories are sitting on stuff again.
Finally, for a lot of small/mid sized shops it doesn’t make sense to carry full kits of Deore/SLX/XT/XTR. I usually just have a full mix of 12sp XT product with an SLX rd here and there during the busy season. Then maybe an 11sp SLX rd and cassette and same with 10sp. I’ll use these parts for a repair and re-order.
Spring/early summer I’ll usually have multiples.
Aaaand finally, you live in a seasonal town where bike biz is about to take a huge dump for 4 months, so a lot of re-orders for stock aren’t happening.
I’m surprised Contender wouldn’t have what you needed between their PC and SLC shops(they can transfer stock up from SLC next day).


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[grinch]

Looks like distributors are sitting on a lot of inventory as well. Black friday should be insane this year.

https://youtu.be/gQ8oPC7556E?si=WJexUnVE66TZ7Pzg

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[joetron]

Don’t have to listen/watch that whole thing right now…but in the first 60 sec: “got bought out a year ago by private equity firm…” is most of what explains HLC downsizing and a lot of the rest of the carnage we’ve seen and will see.
TLDR:Money guys who ride bikes want to get involved in the biz based on what happened in 2020/21 and then get wrekt. See: TPC, HLC, GG and SSU/CRC.


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[grinch]

Maybe qbp is a bit insulated from that to a degree?

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[joetron]

They’ve had a few layoffs, but are generally a more conservative company in terms of behavior.
The recent takeover of Continental distribution is a big move, but strategically good IMO.


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[grinch]

Yes, more parts and tools that dont have a "model year" has to help. If i had to find a specific tool, bearing or small part if was cbp. Stuff that doesnt get updated annually. Tires, somewhat, fall in that category

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[XXX-er]

https://road.cc/content/news/raleigh...YyQB2xxtPPkh2g

[toast2266]

^^^ Accell holds a bunch of thoroughly mediocre brands. I would imagine most of them are gonna see cuts similar to Raleigh.

[XXX-er]

So while you or i may not buy their products stuff we will buy IS affected so as good a thread as any to park it

[dwoovre]

Raleigh was neutered and Schwinnified years ago. They used to make some cool stuff not long ago (pioneer on the gravel-specific bike scene), but haven’t made anything an enthusiast would be interested in for a few years.

[stuckathuntermtn]

What/Who is SSU?
Edit: oh, the Wiggle CRC thing. A lot of people claimed it was more how they were run that killed them. Private Equity will be the end of us all.