A bumpy ride ahead for the cycling industry

Administrators were appointed over cycling, running and outdoor pursuits online retailer Wiggle on 24 October 2023. This is the latest of several cycle businesses to fail in the last 12 months.

Wiggle is likely to attract several suitors, however there will be far reaching implications for its already troubled supply chain.

The sector enjoyed strong trade during and following the Covid pandemic, with many people choosing to cycle rather than use public transport and an increased drive for exercise. People working from home found themselves with more disposable income and extra time on their hands, which supported strong demand for bikes themselves, cycling clothing and the plethora of other accessories required for both “leisure” cycling and commuting.

Roll forward 3 years and the industry is now suffering from a number of challenges.

Following strong post-Covid trade, manufacturers and retailers looked to increase stock levels to keep up with demand, often supported by relatively easy access to funding. Unfortunately, many did not foresee the drop in demand resulting from recent inflationary pressure, increased interest rates and the associated impact this is having on available consumer spending habits. Furthermore, the life cycle of a previously purchased bike has also been under judged in some instances, economic constraints leading purchasers to delay replacement of existing bikes or turn to increasingly popular second hand bike forums rather than buy from new, and the cost of paid advertising has sky rocketed over the last 12 months due to the advertising “wars” between larger players to gain a majority share of an increasingly competitive market, affecting their advertising budgets and pricing the smaller “local bike shops” out of advertising altogether.

In addition, supply disruption, particularly in relation to goods shipped from the Far East has materially disrupted the UK cycle market over the past two years, impacting stock levels and associated funding/liquidity levels for many businesses.

To make matters worse, the rise of HMRC as a secondary preferential creditor has reduced appetite for inventory backed lending, reducing access to necessary levels of liquidity.

As a result of the financial pressures and excess stock in the market, many brands have returned to the pre-covid behaviours of heavy discounting, particularly for distributors and a fight to engage with customers. Larger retailers are passing these savings on to consumers to try and garner their interest, creating additional competitive pressures on smaller, independent businesses. For consumers, there are many incredible deals to be found.

The failure of several businesses recently is likely to exacerbate the pressures on importers and manufacturers alike. Suppliers of peripheral goods are also likely to be impacted. Inevitably of course, operators with healthy balance sheets and available liquidity will be well placed to capitalise on the wider market challenges through acquisitions, joint venture arrangements or bulk stock deals at significant discounts.

The challenging environment in the market is by no means new. The failure of Evans Cycles, which was eventually bought by Frasers Group is a familiar tale.

Many businesses in the sector continue to find themselves over-leveraged, carrying large stock levels and will struggle to find a solution in the short term unless they can make fundamental changes to their operations, find additional capital and/or look to consolidate or reduce their debt levels.

It’s vital for businesses in the sector, who might be experiencing one or more of the above issues, to keep a close eye on cash and remain pro-active in the face of these challenges. It’s also vital to seek help as early as possible in order to gain specialist advice which can quickly establish their current position, provide options to help strengthen this position, and help navigate through the challenging times.

At BDO we have a wide variety of services, including M&A, Debt Advisory, Value Creation Services and Business Restructuring, all within our specialist retail and manufacturing sector expertise, to help. Should you want to speak to someone about any of the issues raised in this article please contact Mark.thornton@bdo.co.uk or Andrew.waudby@bdo.co.uk, or visit our Business Restructuring pages.