High bike stocks put Dutch bicycle market stability at risk

High bike stocks put Dutch bicycle market stability at risk

Average gross margins on bicycle sales in the Netherlands were at normal levels in the first half of the year, but faced extremely high inventory levels, according to reports from hundreds of H&L Accountants’ Dutch IBD customers.

At the end of June, H&L Benchmark Group inventories were up an average of 30% year-on-year, and more than 25% of its members reported inventory levels exceeding 50%.

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    High inventory market dilemma

    The Dutch market is already mired in high inventories, as evidenced by news of a sharp increase in retail supplier Accell Group’s inventories, which rose 70% in value to €936 million in the second half of 2022.

    This compares to a corporate inventory value of roughly €300 million to €350 million before the cycling boom.

    Meanwhile, Accell Group’s Fitch rating has been downgraded to B- twice in a row this year, with Fitch reporting that ongoing supply chain disruptions have put pressure on Accell’s cash flow generation and led to additional debt reductions to meet working capital requirements.

    This further delayed the prospect of deleveraging. EBITDA leverage is now forecast to spike to 15x in 2023 and 6.9x in 2024, and coupled with very tight liquidity, Accell Group is no longer commensurate with a ‘B’ IDR.

    High inventory market dilemma

    The problem of a slowly declining market

    Apart from high inventories, the slowdown in economic growth is also having an impact on the sector.

    The Dutch market is currently in a slow recession, consumer spending has been reduced due to high inflation, and suppliers are also facing the dilemma of high inventories, which puts great pressure on merchants. What are the top 5 electric bike rentals near me?

    Low price sales to clear inventories pose a threat to market stability, and margins and profitability levels are set to decline, making price adjustment the main issue for merchants.

    In the first half of the year, gross margins on retail sales in the Netherlands were at normal levels.

    However, compared to the first quarter of 2022, revenues fell by more than 10.3% in the first quarter, while in the second quarter, sales began to pick up, especially in June.

    And the final tally shows a small year-on-year decline in turnover of only 2.9% in the first half of 2023, but it is not yet known whether growth will be sustained in the second half of the year.

    The problem of a slowly declining market

    Low profit level

    E-bikes cost a lot of money in terms of motors(mid-drive motor) and batteries, but the key components are owned by the main manufacturers, and the rest of the bike makers focus on designing and marketing bikes assembled in their own factories and using parts made by specialized suppliers, thus squeezing their profit margins, and Accell Group is facing the same problem.

    Despite the downgrade, Fitch remains optimistic about Accell’s future.

    According to Fitch, “Trade working capital outflows (TWC) should gradually ease as Accell reduces inventories, which should improve liquidity headroom and return free cash flow to moderately positive territory from 2024.

    Accell is taking steps to tighten purchasing controls and improve operational processes, which, combined with recently introduced discounting policies, should ease inventory and accounts receivable.

    Accell is taking steps to strengthen purchasing controls and improve operational processes, which, together with the recently introduced discount policy, should alleviate liquidity pressures arising from increased inventories and receivables.

    We expect trade working capital outflows to be around €90m in 2023 and anticipate some reversal from 2024 onwards, although the scale of this remains uncertain”.

    Low profit level

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    Hi, I'm an experienced writer about mechanic and an expert on bike and e-bike tech who appreciates practical, beautifully-engineered things. And of course, I love cycling.
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