The BMX Economics

Edit: This graphic, which was a quick 5 minute photoshop job, has been a large focus for a lot of criticism lately… Sadly, more than the words. This graph is not accurate at all, and was simply just a form of showing that there are more and more knock off BMX brands popping up every day producing more and more products causing there to be more supply than demand. I don’t have numbers to verify, and I sure as shit know I wouldn’t deny it being inaccurate but there are no numbers to verify, just constant complaints about there being too many brands now days… It was just something to go with the text. Apologies to anyone who was offended by this. I’ll put a picture of my room mates dogs red rocket or something that has no relevance if something like this comes up again.

2013 has been a really weird year for the BMX industry. I’m sure the majority of riders don’t really know or care because most of you are just worried about when and where you’re going to ride next and and that’s about it… But I’m sure some of you who pay a little more attention to the industry side have been seeing changes or even brands and riders talking about how times have been rough. When Dave and I were talking about some different things the other day, we got on the subject of how some things have changed over the years that I personally feel has caused the BMX economy to hit a recession so to speak. I figured since nobody really has talked about it before, I’d put together a little something explaining my perspective and what I think is going on. Curious to what the hell I’m thinking? Let’s get into this…

Alright, so growing up I didn’t really get or understand what people were talking about when they said the economy was doing really well or really shitty. I honestly didn’t know what people meant by a recession and what people were talking about when they show all these different charts and graphs showing arrows going up and down.

I spent a few years in college bouncing around majors from graphic design to marketing to business administration until I ultimately decided to take some time away to focus on things with my real job and the role I had with DIG BMX Magazine which lead me into The Union and where we are today. Prior to making that decision, I took a few classes in economics from a teacher that actually wrote the books most colleges were using at the time. Not to say that this guy knew everything about economics and that it turned me into some sort of wiz with the shit, but there were a few things that opened up my mind about how I see things today. I still to this day get pissed thinking about the different charts and graphs explaining things with no real figures or even examples to show what the hell it even meant… But I know I took a few things away from the hours I spent in the class.

If you actually look at the economy as a whole, it’s a big fucking mess. There are so many influences these days that can change the direction of things from weather to wars all the way down to social media and the internet as a whole making it easier for everyone to find the things they want or need or businesses to start.

Now I know up until now I’ve probably lost about 95% of you, but we’re swinging back towards BMX now. Looking back on BMX’s short history, things have definitely changed based on the economy and how people do business. If you go back to the start in the seventies when Schwinn brought out the Stingray and it was so different and cool that pretty much everyone had to have one. I’m sure if you ask most adults if they know what the Stringray is, they will know. It was the start of things with BMX racing and what got the wheels turning for freestyle.
For most of you, you know the history.. Kids would be ripping the bikes on make shift tracks, it picked up, more and more kids got into racing, tracks starting becoming legitimate things and then Bob Haro comes along and starts getting wild doing tricks. Fast forward a bit and more brands like Mongoose and Haro start popping up. More riders start coming over from racing into freestyle, guys like Mat Hoffman and Dennis McCoy are pushing limits in the late 80’s and 90’s (and still today)… and then all the sudden freestyle is becoming more and more legitimate and more and more brands start popping up like Standard, Terrible One, S&M, etc. etc. and things continue to grow and expand with more and more kids getting on the bikes. Now here we are in 2013 with riders from around the world riding and traveling, major contests in every country with it being aired on TV on the regular and new brands popping up every day.

Things have definitely progressed in a million ways and things have become better and better in every aspect. The bikes are better than ever, there’s some absolutely insane riding going on and BMX is actually one of those things most people who don’t ride BMX have a general understanding of what people mean when they say “you know, the bike tricks like in the X-Games” from what they’ve seen on TV.

BMX has built it’s own economy… It’s grown and changed with the times and I think it’s finally at a point where the business of BMX has grown faster than the actual sport itself…
I’ve been talking to a lot of brands over the past months about how things are going and the way things are starting to hurt when it comes to keeping operations going and kind of collected a bunch of data that has lead me to a few conclusions about why BMX is in a tight spot at the moment.

Let’s kind of break this down into a chain of events showing where problems are forming and what’s causing issues.

Brands:

It all starts out with an idea and a brand. The brand does their research and development to create something like, let’s say a fork for example. They come up with all of their needs and designs, finding ways to create an exceptional product that will be cost effective so that they can profit off it while making it easier for distributors and shops to buy it. Obviously some knock of brands go into a catalog and stamp their logo on something and call it good, which is why you will see a lot of similar products… but yeah… that’s another part to this. Below is the next step.

The brand takes this design and go a few different routes.
Option one: One of the biggest or most cost effective is taking it to Taiwan or some other country where production costs are (were) lower to produce these items in a short time frames and mass quantities that the U.S can’t really do. After the product is made it is shipped all over the world to different distributors to be shipped to shops and then sold to riders. The brand has to pay to have the product made along with the mark up on production and shipping so the factory doing the work can profit which gets passed along to the price tag on the product usually

Option two: Keep it in the U.S or the country the brand is based out of and have a machine shop or company that does welding produce the product. For example, brands go to guys like Solid, FBM, Standard and S&M to have their brands products made. Products are produced and then shipped to distributors around the world and then to shops where they are sold. The brand has to pay that mark up on production and shipping so the company doing the production work can profit which gets passed along to the price tag on the product usually.

Option three: Do everything in house. S&M Bikes, FBM, Standard and Solid obviously all are capable of producing their own products along with a few other brands. This option is a huge investment with all of the materials and equipment, but if everything goes smooth and the product constantly flows out the door then this almost seems to be the most profitable route. Brands are shipping their products direct to distributors with no middle man to pay for creating the product so profits can be higher or the price tag of the product can be lower.

So where is this causing issues? Well, prices in Taiwan have been rising which has caused brands that have to go that route to make less of a profit. This has either caused brands to create fewer products, scale back budgets for things like teams, produce a shittier product or raise their prices. All of which aren’t exactly positives.

Taiwan is also pretty much to the point where if you have the money to pay for a product to be made, they’ll do it. So that has pretty much eliminated any barrier of entry for new brands in BMX. There’s been a HUGE influx in brands the past few years which has lead to way more options for products (which is a good thing) but a number of those brands and products are based off of something already available (plastic pedals for example). Causing competition leading to fewer sales for both brands and prices to come down screwing with profits. This is bad because now we’ve got a lot of brands in it just to make money and not really support BMX the way it needs to be supported. A lot of these brands are ran by companies that aren’t even owned by riders which is already bad enough.

U.S production prices are still higher and the rate of production isn’t nearly as fast paced as Taiwan, which has pretty much helped keep things pretty level and fair when it comes to production and everything. Given we still see similar products being produced, it’s not like we’re seeing S&M pumping out 13 different versions of a plastic pedal that is exactly the same other than the name on it because they are trying to make some quick cash. So really this hasn’t been screwed with too hard. The only down side is with brands making less money, they can’t afford to do as much business with these in house BMX brands or even buy the equipment needed to produce their own products. It also means fewer jobs in the U.S which is a bummer (sorry to anyone from other countries reading this thinking that doesn’t help us anyways).

With all of those different routes or options, we have a lot of opportunity for brands to pop up. Obviously working off existing designs to create your products is an easy way to make some money quickly, in the long run it’s bad for BMX because it just spreads the existing brands even thinner trying to do the same thing. But that’s business.

Distribution:

Alright, so after the product is made and everything is shipped out. It’s sent off to distributors and the home base for the brand who will distribute product as well. This is a key spot where things have been good and terribly bad which is definitely causing a hiccup in this BMX economy.
Over the course of the past 5 years or so, we’ve seen a big growth of BMX in countries around the world that we normally didn’t see a lot of riders from. Look at Russia, Poland, Japan and Estonia which are all seeing huge growth in BMX. This is mostly thanks to a few key distributors popping up and making things happen to get kids on bikes. This is awesome because it helps BMX grow and really do well in places I’m sure Bob Haro and Mat Hoffman never expected.

Here’s where BMX has started to run into problems. Over the last 3 or so years, a huge number of brands have fired up their own distribution which has benefits and downfalls. One of the big benefits is that brands can eliminate a middle man between their product and shops improving their profit margins for both sides and ultimately allowing the brand to really get the most money possible to put back into the business to keep doing what they’re doing. Developing new products, throwing events, hiring on more employees, signing more team riders, doing more trips, firing out full length videos which are all good things. The down side is that it is screwing with how BMX gets into actual bike shops. Back in the day, a shop here in the U.S could find the majority of brands between a few different distributors like QBP, Seattle Bike Supply or Tip Plus for example. This was great because shops had an almost one stop spot where they could pick up the shit they need for their shop and get some BMX stuff mixed in. Brands were getting sales because shops would decide to give BMX a shot and then have them come back to order more when they saw things sell. It was a good way for people to get introduced to BMX as well.

Now days shops have 20 different distributors to get ahold of to get their shop stocked up on product. So brands are seeing fewer sales to shops or mail-orders because instead of being able to order everything and make it one shipment of product, shops spend the time calling all these different places to order a couple items and pay shipping on 10 different small boxes from 10 different places instead of one or two big boxes from two places cutting into their budget of buying. Do you really think a bike shop that doesn’t really know much or do much with BMX is going to know where to get ahold of everyone or even want to go through the hassle to stock up on stuff that isn’t high margin road bike stuff? I don’t think so. So right off sales are being lost due to how spread out things are.

Obviously with distributors like QBP here in the U.S expanding the number of BMX brands they carry has been a huge help to balancing this back out with shops. You can definitely spot the core BMX brands because they’re going to have support from these major distributors around the world which are definitely important.

One thing I should mention is that a lot of brands have started their own distribution channels so that countries or territories that cannot get their product have a place they can go to, to order product. This definitely makes sense, but if it’s a brands sole distribution channel it’s really not that good.

Now here’s two other things that has really screwed things up a bit.
1. Distributors have decided to skip the brands they’re buying from by starting up their own in house brands to sell… So now Taiwan is selling direct to a distributor who’s selling it direct to the shops. This has eliminated the brand and increased profits by about 25%, but now we’re for the most part seeing these knock off brands with products picked out a catalog without doing a real legit team or really doing anything to give back to BMX. So now we have more brands, supporting less of the core BMX brands, not helping out riders or scenes to maximize profits and eliminating a step of how things work.

2. Brands have tried to eliminate distributors and shops by selling direct through an online store. There are a few different brands that have tried to do this and ultimately it has back fired on them for the most part. Given, profit margins are higher so fewer sales do make it worthwhile to do it still, it’s not a good way to make friends or keep relationships with the industry or shops. I could name a few brands in the U.S and U.K that have given this a go, but I’ll just leave that up to you to figure out. The only benefit to this option is that the brands doing this are able to sell product at a much cheaper price than the rest, so they’re able to get young kids and less fortunate people on bikes which could give a kid the chance to get hooked on BMX, which I’m okay with.

However, since these direct route brands have come (and gone) we have seen a handful of brands start selling products from their own online stores. Now, the majority of these brands are only offering smaller promotional stuff like apparel, stickers or even small replacement parts and close out items that most distributors don’t even carry or are unable to carry because how many different options there are. This is something that has changed in BMX business because of the internet and the economy which I think is a good use. It still gives shops and distributors fair competition and helps these brands make a little extra money.

Shops and Mail-orders:

Alright, so after the product goes from the brand to the distributor, it’s off to the shops. BMX is one of those things that has slowly been introduced into shops (and pulled from shops when it doesn’t sell) over the years and some have done really well with it and some have done really bad. There’s been a handful of BMX only shops that have popped up in some key places around the U.S that do alright as well, but there’s also been a ton that have opened up and shut their doors because it just wasn’t making the money it needed. Obviously, this can go back to the different problems in the chain of events leading up to a shop getting the products at a good price so they can actually make it worth while for their time to sell it. There’s also a ton of outside aspects that can affect how well a shop does from how much they support the scene and help it grown (or not grow), if they price their products for sale competitively to what it would cost to buy online down to if the shop is a rad place to hang out at and the owner isn’t a douchebag or if they actually take time to fully understand the products they’re selling so they can explain things to the customer.

On the other side, in 2013 (and for about the last 10 years) mail-orders like Dan’s Comp, Empire and Albe’s have been making it easier for riders who don’t have local shops that support BMX get the stuff they need. This can be beneficial for BMX because it keeps more riders rolling and the prices they offer products at lower because of the volume of sales they make. Obviously, on the other side of things, it can hurt local shops that really support BMX because of the prices online can offer due to the amount of volume they do, but in reality if a local shop is doing things right, riders will come to them over ordering online anyways.

The problem with BMX these days is that shops and mail-orders have too many options these days. There are too many brands offering similar products, and each of those products have 5 different versions from colors to sizes making it hard for them to stock it all or even a portion of it. Like I said at the beginning of this huge write up, BMX business has grown faster than BMX as a whole. So now distributors are sitting on a ton of product that won’t sell because shops can’t stock it or sell what they already have…

Riders:
So the final step is the riders who are buying the products these brands are putting out. There are a ton of factors of why a rider choses a certain product over another. Price, size and color are three of the main factors, then there’s other things like the name of the brand on the product, warranty guarantee, or if your favorite pro rider rides a particular part. If you go around asking 10 riders why they picked certain part you will hear all sorts of reasons as to why they chose the parts on their bike.

Another thing that has been a huge factor for BMX since the start are trends. This has been a hard one for BMX brands, distributors and shops because trends seem to come and go as fast as clothing fashions do. Slammed seats, low slung frames, massive bars, florescent colors, plastic versus metal, freecoasters, longer top tubes, bigger tires and more have all been things that we’ve seen over the past couple of years and you better believe it’s been hard for everyone to keep up with it which leaves shops or distributors with products they can’t move, brands getting shipments of products that would have sold in an instant a month ago are no longer cool and more. This is fairly uncontrollable and something I think all brands have learned to accept, but it’s always been a little bit of a stick in the wheel if you know what I mean. Staying ahead of the curve or creating the next trend is really something brands are supposed to do so it’s not like this is completely out of control of everyone.

So now that we’ve kind of touched on all the different parts of the BMX business, let me kind of show you how it can turn into a downward spiral for everyone when one part starts going bad…

Let’s say sales are down and shops aren’t able to pay these distributors for the products they bought from them. Distributors aren’t getting paid, so now they’re unable to pay the brands for the product they bought off credit. Now because shops and distributors aren’t able to buy or pay back debt, the brand that supplied the distributors doesn’t have enough money to cover their expenses or pay for the production for their new products or even the products they “sold” to the distributors already. So now Taiwan is screwed (not really, BMX is probably 1/1000000000 of what they do) and these factories want their money. So now it goes back… Taiwan won’t produce any more product for these brands trying to get their newest products produced because they want their money first. Now brands don’t have the new products they need to sell to keep their money coming in…. Distributors don’t have any new product to sell to shops… and shops aren’t seeing any of the latest and greatest getting kids to come in and buy from them. So then it bounces back again with shops that are closing their doors and not buying from the distributors anymore… Distributors are making less money… Distributors are shutting down or not carrying certain brands anymore… Brands aren’t making enough money to pay their team riders, produce any new products or put money into marketing to sell their product… They scale back big or go out of business… Taiwan loses another brand having them produce their products and are still pissed they never got their money when shit started hitting the fan. So that’s how the economy can start to fall apart once one part of it starts to suffer.

Obviously BMX isn’t doing that bad that all hell is breaking loose and everyone is closing their doors like I described above, but because of all these different things happening, we’re seeing this chain of events happening and why we’ll most likely see a handful of shops, brands and distributors go under (unlikely that it’ll be any of the well established brands we’ve known and loved for years, but you never know) within the next year as the economy tries to balance itself back out so it has a system that benefits every step in the link or eliminates unnecessary steps.

With the way the world is changing with technology and internet, it’s no surprise that this chain of events to go from an idea for a product to it physically being on your bike might be changing and altering to make it work the most efficient way possible. Will we see bike shops close for good? No, people will always like going to a shop to see products before they actually buy them. Will distributors disappear? No, brands will always need a distributor in a place they don’t normally work in (U.S brand in Russia for example). Will all BMX brands go out of business? No… As long as people are out there doing gnarly drops, blasting quarter pipes and jumping massive doubles and ramps, replacement parts are going to be needed. But there’s definitely a lot of fat developing around some of these sectors so to speak and I think that naturally things will balance itself out so everything is working in a way that works from start to finish.

Media and Events

Here’s another aspect you might not have thought about yet as well… and something I personally think about a fair amount. BMX magazines and websites are the perfect example of this whole economy bull shit. BMX magazines like Ride BMX, DIG and The Albion or websites like The Union, The Come Up or Vital BMX are all supported with advertising dollars from these brands, distributors and shops trying to sell the products. When these different businesses in BMX start to suffer, they need to start cutting back expenses to make sure their employees are getting paid. That means those advertising dollars are going away… So now magazines are struggling because the cost of creating a magazine keeps going up and the advertising dollars are either staying the same or going down. You don’t even want to imagine how hard it is to ask for more money these days to keep doing what you do. I fucking hate that part of doing The Union more than anything. It sucks, but it’s necessary to keep the employees and bills paid.

So what does the struggling economy mean? Well, for The Union it just means I get to keep going to my real job where I bust my ass working on semis and trailers, getting dirty, sweating my nuts off to make sure my bills are paid and I can make sure everyone who helps me out gets something for their work… Which in all honesty isn’t that bad. It just means I’m stuck on my computer instead of traveling all over the world having fun on my bike. But for magazines with publishers outside of BMX that are looking for places they’re not making enough money, it could mean they get cut off and shut down. That sucks really bad, but it’s just business. Paying for trips, photographers, videos, writers, designers, accounting, etc. etc. costs money. It takes money to make money and when you’re in media, your money depends on how well the industry you’re covering is doing. BMX hurts, media starts to suffer. It’s all full circle.
The same goes with professional riders. When brands need to make cuts, that’s one of the first things that you will start seeing. Look at DC shoes. They cut off the whole team out of no where all because Quicksilver (which owns DC) is trying to find ways to start making more money and spending less of it to make their share holders happy. I know people don’t like these outside brands that don’t care about BMX that much, but you need to realize a lot of your favorite pros were making a lot of money to keep doing what they were doing because of that… and that helps the other brands they represent get more exposure, which lead to more sales, shops buying from distributors, distributors from brands and brands creating new products.

It also affects events and really anything involved in BMX. Do you think these massive events like the X-Games are going to be able to keep it going when brands aren’t able to send the pro riders to the contest? (From my understanding, X-Games does not pay for flights and hotels for riders to attend). No riders means no spectators… So no advertisers. Sure, BMX events will still happen. FBM does all their wild shit on like $20 and it works out well. But exposure to all those people who don’t ride is gone and that’s what helps keep BMX growing.

Alright, so maybe I’ve kind of drawn out this extensively long write up about why the economy is hurting so bad and probably made it out to be a lot worse than it really is, but I think this rambling has been needed for a long time. Nobody has really said “Hey, there’s a problem…”, but it’s something everyone in the industry is thinking about.
Over the next year or so, we’ll see a few brands and distributors go under, fewer products being offered from brands, media companies working with smaller budgets, smaller teams from brands, fewer or smaller trips, more DIY contests, fewer shops that don’t give a shit about BMX and a handful of riders who are just in it for the money disappear.
On the other side, with the economy correcting itself, you’re going to see the core brands ran by BMX riders who are in it for the love stick around, distributors that are supporting those brands doing better, more core BMX shops promoting tighter knit scenes which will all help grow BMX even more, bringing the advertising dollars back to the media and professional riders leading to more events and good times. It’s just how things work. BMX is big enough that it won’t die. It’s just in a place where things got a little out of control and now the clean up from the party is starting.

Also, I should mention this is entirely my personal opinion and take on things. I’ve gone back and added bits and pieces throughout this column so I’m sure at times it might seem a little weird, but I hope this all makes sense. I want to hear peoples feedback on this one, so let’s hear it. Positive, negative, don’t give care what the hell I’m saying… Let’s talk about this a little bit.

Brands looking to give some insight on their perspective of this, please hit me up and let me know. I want to do some interviews about what brands really think about the current state of BMX without sugar coating things. Let’s do it.