2022 WBIA Report: Growing inventories. Stagnant sales.
Rising inventories despite weak monthly sales
The ratio of inventory to monthly sales (Months of Inventory Ratio = Current Inventory / Monthly Sales) is an efficiency ratio that measures how much time is required for a corporation to sell its current inventory. Using the surplus and sales numbers from the WBIA Report, the Months of Inventory Ratio for the industry increased 36 percent to five months in 2021 (2020: 3.7 months). This means that the average bicycle company has five months of inventory on hand.
Growing inventories. Slow sales.
More worryingly, the rate of growth of inventories was 18 times the rate of sales during the same period. This is a difficult position for a bicycle company. A large and slow moving inventory ties up capital and reduces liquidity; it incurs high storage expenses and ultimately results in product obsolescence. The classic signal of an industry with high inventories is the prevalence of discounted pricing promotions as direct to consumer manufacturers and retailers attempt to turn their inventories into cash. A glance at your Instagram feed will provide plenty of evidence of this.