GCN Tech Show - The tariff tantrum, and the effects on the bike industry and riders

Equipment
27

Yeah there’s definitely some crazy deals to be had out there.

I just picked up a Gen 1 Procaliber SL frame that was manufactured in October 2022 for $800 (MSRP $2,700) and a Rockshox SID SL Ultimate 2021-2023 model for $480 (MSRP $980). I finished the build with some Bontrager XXX carbon bits, Kovee wheels, and full Shimano XT 11 speed. Ended up with a 20 pound hardtail for just under $2,000 all in. This bike would have been $6,000 easy during the covid era.

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With these kind of deals to be had, I think it’s going to be REALLY hard for bike companies to drastically raise prices before they clear out ALL of their backstock.

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28

Brands are handling the tariff price increases differently. Trek is raising dealer cost and MSRP, although they’re using an odd new term for it:

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Others are keeping MSRP the same but adding a tariff surcharge. In this case, they are raising the dealer cost and cutting into the retailer margin, but they’re also recommending that dealers add the same surcharge.

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So a couple of different ways to approach the messaging. It’s definitely going to be a moving target.

There are anecdotes emerging about factories and shipping containers dropping to half capacity, since brands are terrified of committing to an order, getting product manufactured and shipped, and then having it get slapped with a tariff before it arrives in the US.

Interesting times!

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29

The Marginal Gains Podcast is out with an episode on the tariffs and Silca’s posturing, etc…

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30

This feels like it will have the same affect as the pandemic: a massive supply chain shock as companies hold off ordering till they figure out what is going on, which will cause production issues with items put together from a collection of parts coming from all over the world

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31

They aren’t anecdotes, they are accurate. We have a number of finished goods and raw materials essentially trapped at our factory in China that we will likely have to scrap. We cannot afford a 145% tariff on them and our customers won’t pay that.

So now extrapolate that to all the categories and goods that get produced in China. They likely aren’t shipping now…and this is when supply for seasonal programs begin shipping.

Many of those programs are “Direct Import” where the retailer takes the shipment directly from the factory, with the supplier acting as a middle man only, no storing of the goods. IN those scenarios, the tariff burden is on the retailer directly, since they are the ones doing the importing. A LOT of those orders are starting to get cancelled, or at least reduced.

At this point, it is likely that there will be shortages of goods for the Holiday Season, which will drive up prices even higher.

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32

Or more companies are ordering what they think they need, and hope they can sell, all to avoid the tariffs. Playing chicken with the economy isn’t a great idea…

33

No avoiding the tariffs from China…they are now 145%.

Many companies are ramping up production / shipments from other countries to take advantage of the current 90 day pause, but they are still facing the Universal 10% Tariff, which remains in place.

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34

People with money still have money. And people in denial about the situation with money will definitely spend.

Show up to any of my local mountain bike races and you will see parents driving $100,000 bro dozers, with their kids all riding the latest SWorks. They likely aren’t going to go cheap now.

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35

The “Tariff Surcharge” method really bugs me as an accountant.

Given that the surcharge is shown next to tax, I should be able to calculate it out just like tax, no?

So in the case of the Kickr Run, from what I can tell is manufactured in Taiwan.

It’s not clear if the surcharge is meant to cover the current 10% blanket tariff or the pending 32% tariffs on Taiwanese goods.

Regardless, if we figure it’s the current 10%, that would mean the declared import value of the treadmill is $2,000, but if it’s the future 32% then the declared import value would be $625.

Is Wahoo really selling us a $625 treadmill for $5,000 and then forcing us to cover the tariff? I feel like 87.5% gross margin can’t possibly be the correct number here… how many manufacturing businesses are that high?

Likewise, does Wahoo maintain the same gross margin on all products? If not, does that mean the tariff surcharge as a percentage of final sale price will vary from item to item?

Alternatively, is Wahoo just throwing a dart at the wall and randomly picking a surcharge number that they expect will cover their total tariff expense and spreading that evenly across all products with no real differentiation between the various import values or origins of each product?

Personally, I think it would make most sense to just include the cost of the tariff as part of the CoGS for each item. I mean for inventory purposes, I would imagine this would have to be done anyways so it’s not even an extra step. Then, increase the the invoice price and msrp of each product to maintain the same margin at the end of the day.

I guess what I’m getting at, if Wahoo isn’t disclosing the CoGS on the treadmill, how do I know that surcharge line is appropriate or if they’re just trying to hose the consumer?

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36

You can’t charge for “pending tariffs”…well, I guess you can technically charge for anything, but since the 32% tariffs are not in place yet, there is no reason to charge for them. The $200 surcharge is almost certainly designed to cover existing tariffs.

But let me throw a wrinkle into this…you are assuming that the $200 applies only to that tariffs on that particular treadmill. As we were exploring options for our customers, one of the ones we presented was to amortize the tariff costs across all the goods we had in stock vs. taking a 20% increase on just the affected units. That option effectively “spreads the pain around” while lowering the overall price increase, while still covering the total tariff amount. Wahoo may have simply said “OK, everything is going up $200 as of now”.

Highly unlikely. Even on similarly priced items, we will mix and match margins to arrive at a blended program that works for us and our customers. Usually, as price increases, margin decreases (but profit dollars go up).

Tariffs are based on the value declared in the Commercial Invoice that accompanies every shipment. There are a number of ways in which that value is calculated and not every company uses the same method. For some of our products, our declared value is below our actual COGS and for some it is above our COGS. There is a formula we use to determine the value and it has nothing to do with COGS.

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Shipping from the manufacture, labor, marketing, R&D, shipping from store to homes, insurance, rent, taxes… the list goes on an on. It wouldn’t surprise me at all if the cost was in the $600 range.

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38

I’d be shocked if it was anywhere close to that. Have no idea what the actual number is, but based on my 30+ years in overseas sourcing, no one is making that kind of margin on a high-end product like that.

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39

That’s fair… you would know more than me. Just seems like the mark up would need to be pretty significant to pay the bills. What % would you say is the norm?

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Yes, exactly my point. I think it’s highly likely that Wahoo is going with the “spread the pain around method”.

The actual tariff paid would be included as part of CoGS and the “Tariff Surcharge” is an additional revenue item, but the two are not necessarily actually connected. There’s really no reason for the consumer to know the actual tariff on an individual item.

This bothers me from a consumer perspective, because they’re presenting it on the invoice as if it’s a tax that the consumer needs to pay. Except it’s not, it’s a tax the importer needs to pay. Yes, the importer can pass along it’s costs to the consumer via higher prices, but the consumer isn’t actually paying the tariff. I keep seeing these tariff’s compared to VAT, but they’re fundamentally different. I can recalculate VAT as a consumer, but I can’t recalculate a tariff.

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41

It has been decades since I have seen any price structures on exercise equipment, so it is impossible for me to say. Many overseas-sourced products range from mid-teens to 30+& margins. But volume, program structure and other things factor into it. Almost impossible to say any margin is the “norm”.

@Benjamin_Reynolds Overall agreed, but I would just point again that COGS doesn’t necessarily have anything to do with the tariff value. Also, while the consumer may not be paying the tariff directly, they are certainly “reimbursing” the supplier (at least partially) for it.

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42

If it’s like their ‘bike’, it’s probably from Vietnam.

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Oh yeah for sure, totally agree that the declared value isn’t necessarily what is what’s recorded in CoGS. I was just simplifying things. Just to prove your point, tariffs would be included in the CoGS total, but obviously they’re not calculated a tariff on top of a tariff.

I was thinking about this more and I think a better explanation of why this bothers me is if company A advertises their widget for $100 and company B advertises their widget for $110 most people would automatically gravitate towards the cheaper widget given comparable quality. However, if upon purchase of company A’s $100 widget company A adds a $10 surcharge fee and tax, but company B had no surcharge fee then they get to the same out the door cost. This annoys me because company A is purposely advertising a unrealistically low price knowing that they’re going to make it up on the back end. I can’t stand when companies do this, think ticketmaster, car dealers, etc. I just want to pay whatever the advertised price is plus tax. Heck, I’d love it if sales tax was included in the advertised price too, just like many of the VAT countries do it.

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Could be, I just quickly googled it, but that could for sure be wrong. Either way, I’d imagine a lot of companies import goods from a variety of different countries.

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46

I could be wrong, but for Toyota, it seems the higher priced vehicles come from Japan. :person_shrugging:

I had a Kickr Bike and tracked the manufacturer down that they were using in Vietnam so I could track incoming bikes. It was kind of fun, and broke up the long wait time…

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Yeah it really kind of depends… the Corolla for instance is assembled in the USA, but the GR Corolla is imported from Japan. Other brands do this as well, the Ford Focus for instance was assembled in the USA, but the Ford Focus RS was imported from Germany.

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