On Saturday under a hot Tuscan sun, the Strade Bianche will begin, the peloton will roll out of the medieval city of Siena and cycling’s World Tour will have finally broken the 138-day drought brought on by Covid-19.
But while the professional sport has spent the past four months in Lycra-less limbo, the global pandemic has been transformational for bicycles.
For two of the industry’s most important figures — Yozo Shimano, the fishing-obsessed chief executive of a 99-year-old Japanese gearmaker, and Bonnie Tu, Taiwan’s “godmother” of cycling whose business produces 4.2m bikes a year — particularly so.
Shimano, the world’s biggest producer of bike components with an estimated 65 per cent global share of quality gears and brakes, and Giant, the largest manufacturer of quality bikes, have enjoyed a surge in their share prices since an initial panic plunge in mid-March. Last week both stocks hit all-time highs, with a combined $10bn added to their market capitalisation since the end of the World Tour’s last race on March 14.
That is an impressive vote of confidence when Shimano was only forecasting a 12.5 per cent rise in net profit this financial year. In the previous one, the combined sales of Shimano and Giant were roughly $5.6bn. The big question, analysts said, was whether the market’s multibillion-dollar gamble on bikes had wildly overshot the true potential of pedals.
Mr Shimano said the evidence seemed to support investor optimism over the future for bikes.
Recent demand for entry-level and mid-range models, in the $600-$1,500 range, has significantly outstripped inventories in the US and Europe, while curtailing factory capacity in Asia. That has prompted wholesalers to bemoan global shortages and shop staff from Paris to Perth to declare panic-bought bikes “the new toilet paper”.
Bike and component makers have started to reorganise their global supply chains to prepare both for increased demand and future disruption. Governments in Europe are offering subsidies for bike buyers, with cities worldwide proposing thousands of miles of new bike lanes.
For now, said Ms Tu, demand was fantastic. In the UK, Halfords reported a 57 per cent increase in like-for-like sales from its cycling business in the 13 weeks to July 3. Japan’s largest chain of bike shops, Asahi, reported a 43 per cent year-on-year increase in June. It is a similar story for bike retailers around the world.
Giant was partly prepared for Covid-19 because of its experience with the Sars epidemic in 2003, according to Ms Tu. But while that respiratory disease also drove people from public transport to bikes, the spike in demand was nothing like today’s. “We knew it was coming, but we didn’t know it would be this high and this intense,” she said.
Shimano’s share price record, said CLSA analyst Morten Paulsen, was part of a general reappraisal of the role of the bike for whatever “new normal” emerges from the pandemic. On investors’ most optimistic reading, said Mr Paulsen and other analysts in Tokyo and Taiwan, the bike would replace journeys on crowded public transport, emerge as the ideal socially distanced fitness regime and propel a green reimagining of urban layouts.
Despite early disruption to supply chains and forced factory closures, the past few months had been great for sales of mid-range bikes, Mr Shimano told the Financial Times, talking by video link from Sakai in factory fatigues.
“What we are expecting is that there will be new customers who ride a bicycle because of the coronavirus and they will realise how good it is to ride,” he said. “They will know a new world and feel refreshed, healthy and satisfied. And then they will want a better bicycle . . . some will want to buy electric bikes . . . they will become bike-lovers and want to buy a second bike. Then the number of cyclists will rise globally.”
Mr Shimano and Ms Tu, both in their seventies, are bound by a longstanding codependence. They both hailed this moment as a golden opportunity but they did so cautiously.
Global bike shortages, noted CLSA’s Mr Paulsen, were as much a result of the extremely low inventories with which retailers entered the Covid-19 era. In Europe, stocks of the now hotly desired mid-range models were low because of a structural shift to higher-priced bikes. In the US, inventories were low as retailers hoped for a US-China trade deal and a reduction in tariffs on bikes.
There are other sources of doubt. Shimano, in particular, knows the pain of momentum abruptly reversing in times of crisis. In 2009 its sales suddenly dropped 21 per cent when banks slashed credit lines to bike retailers, leaving them unable to build any inventory.
However encouraging the past few months have been, Ms Tu told the FT from her company’s headquarters in Taichung that the instinct for expansion and factory automation must be approached in a measured way. “The boom cannot be everlasting . . . The question is how fast will the tide come in,” she said.
As a consequence, Giant has been hesitant about increasing production, not least because of continuing bottlenecks at key suppliers such as Shimano. “Many people ask me if it is possible to do more automation, but if I can’t get the parts then that’s no good,” Ms Tu said, adding that even though Giant had placed orders far in advance of competitors, there was still a lag receiving some parts from supplier factories, including Shimano’s, that were locked down until the end of May.
Beyond Covid-19, Giant has faced problems because of US-China trade friction, putting pressure on production in Taiwan and south-east Asia as factories there try to make up for displaced output from China.
“You have to understand that in the bike industry the more affordable parts are mostly concentrated in China,” she said. “Setting up a new facility is not just a matter of going somewhere, buying the machines and sending in people. Everything has hurdles. It requires a lot of planning, a lot of preparation, research, investigations and negotiation with the local government.”
Mr Shimano’s optimism on the future of bikes, meanwhile, is tempered by the challenge of navigating a globally diversified manufacturing company through a potentially long-term pandemic. What the various lockdowns and closures had exposed, he said, was the vulnerability that comes from cross-border supply chains.
Far fewer components were needed for bikes than for cars, he noted, but a single component could still be indispensable. The company’s efforts would be pushed into moving from cross-border chains to producing complete components in the countries — China, Malaysia, Singapore, Hungary and Japan itself — where they were currently produced. “That has been the biggest lesson of coronavirus and I don’t think we are the only manufacturer to have taken it as such,” he said.
These and other challenges, said Taiwan-based Nomura analyst Shaotang Lee, meant the heightened share prices might not be sustainable.
“Fundamentally, demand is strong,” he said. “But valuations have gone up crazily.”