Saturday, May 3, 2008

Bracing for higher prices and lower sales

Want a bicycle? Consider buying now, as prices are on the rise. According to Bicycle Retailer and Industry News, which is America's leading source of cycling industry developments, the country’s economic situation is about to hit the bike shop. It is expected that bike prices will rise by 10-12% and other cycling equipment will increase 10-20% in the coming month.

The cycling industry is citing the economic downturn, falling dollar and rising energy costs as the primary factors behind this jump in prices.

All of this sounds familiar. Similar price hikes are on the horizon for other items that are made in China, such as toys, footwear and clothing according to this NY Times article. The article warns of the impact of the falling dollar in addition to the result of China’s changes to labor laws, increased labor rates, increased regulation and higher prices of raw materials.

All of this has contributed to escalating inflation in China, which in turn is predicted to result in 20-30% boosts in prices for Chinese made goods purchased in the US.

How will Americans react? Will we tighten the belt? Cut the TV cable? Trade in the cell phone for a cheap, prepaid tracfone? Commute by bicycle? or sign up for another credit card?

It’s my observation that people have already begun to be more careful about spending money and they are putting off large purchases. A bigger concern, given higher prices and the soft economy, is how are all these local bike shops (LBS) and other small retailers with razor thin profit margins going to weather reduced sales?


  1. It's this American "Belt Tightening" that poses one of the biggest threats to our economy. As 70% of the GDP is driven by consumer spending, consumers cutting back now will have growing consequences down the line, which is why I don't trust the current market rally. Small local shops will start feeling the pain first followed by the bigger chains and consumers focus more on necessities.

  2. I bet we will see a little surge in spending as people receive their tax refunds and rebate checks in the next few weeks. That may be enough to keep the market rally going into early summer.