There is a running joke in the industry that goes like this: “Wanna know how to make a million dollars in the cycling business? Spend 5 million.” For anyone that has worked in cycling for any extended period of time, one thing becomes glaringly obvious. There is no money in cycling.

Ok, maybe that sounded a little harsh. There is money in cycling but relative to other industries there is less. You don’t go into cycling to get rich.

There are some overarching reasons for this that I will go into in detail. 

Passion

There is a significant number of people in the industry because of their burning passion for the sport. They gravitate to the industry because of an underlying desire to be near it. These people range from influencers, to managers, and entrepreneurs. They are willing to sustain an unusually high level of discomfort and investment to stay in the business. I am not against this at all, I just want to underscore that it warps the compensation requirements across many levels of the business.

Barriers to Exit

Another factor that has impacted the overall profitability of the cycling industry are the high barriers to exit. From an article by Jacob Dudek in which he writes about this phenomenon:

“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 (“ROIC”).

Even when bankruptcies occur, the industry often sees assets that are kept on life support due to either subsidies from existing shareholders (personal wealth), new money that wants to come into the romanticized space, or acquisitions that likely result in cannibalization. As such, capacity never actually leaves the way it should.”

The last bit is fascinating. The capacity never leaves as it should. This makes the industry bloated with brands and reduces the available profit for everyone involved.

Clothing Market Long Tail

It was recently reported that Rapha posted a 22 million pound loss in their last fiscal year. This is double the amount the company lost the previous year. In its 20 years in existence, Rapha has turned a profit only one time.

The market for cycling clothing has been flooded with new brands in the last 10 years, few of which actually bringing real innovation. There is a winner take all happening in clothing where just a few brands have locked up the vast majority of the market share while dozens of microbrands are fighting for the long tail of the remaining customers. I feel this is a microcosm of what is happening in much of the cycling industry, too many brands making similar products.

Low Margins

The inherently niche yet global nature of cycling is another major factor that impacts its profitability. Brands are required to have a large presence across multiple geographies with relatively limited resources. Distribution and supply chains are complex and there are plenty of brands selling knock off or me too products in every category.

Other factors – Some other factors that make the cycling industry particularly challenging: 

Seasonality and Cash Flow – Many cycling businesses face severe seasonal fluctuations and need to maintain inventory and staff during off-seasons. Cash flow management becomes extremely challenging. 

Technology and Innovation Costs – There is a constant pressure to innovate and keep up with new materials/technologies. High R&D costs for new bike designs and components with the need to maintain competitive manufacturing capabilities as well as regular tooling and mold updates.

Inventory Management Challenges – Brands are required to stock multiple SKUs for each product (sizes, colors, variations). There is risk of obsolescence with model year changes and high carrying costs for expensive items. Translation: Cash flow stuck in the warehouse.

Market Fragmentation – As many brands sell into multiple disciplines (road, mountain, gravel, e-bikes), as well as different price points and customer segments, not to mention, geographic preferences, this means more pressure on the warehouse and cash flow.

I could go on but you get the idea. So what is the point of this article? Am I trying to make all my readers regret their career choices? I hope you don’t. I certainly don’t. I wanted to bring to light something that is unique about our industry. 

The reasons above mentioned are (for the most part) inherent to the industry and won’t likely change. I wanted to use my platform as an opportunity to reflect on where we currently stand, and where we want to go.