Interview translation: yoshi47
As the state of emergency has been extended, we will continue to operate by appointment only, as previously announced in our last blog post regarding our store operations. It seems it will be a long road before the spread of COVID-19 is under control, but as a bike shop, we want to do our best to help make life a little richer for everyone who is utilizing bicycles during these challenging times.
We are grateful to be receiving many requests and inquiries daily, whether it's through the many appointments for store visits or customers reaching out from afar via our web shop. Amidst all of this, a situation that has been gradually surfacing since last year has been causing inconvenience to many of you.
To put it bluntly: it has become difficult to get what you want right away.
We truly apologize to those of you who have been waiting for a long time for various services, such as assembling a bike from the frame up or having wheels built.
This situation is caused by a variety of factors: a surge in global demand as the bicycle is rediscovered as a tool for the "new normal," compounded by supply shortages of limited raw materials across many industries, not just the bicycle industry. For me, having been in this industry for over 10 years, this is a situation I have never experienced before, and I am sure it is the same for those seniors who have been in this industry even longer than I have.
Today, I have transcribed an interview with Santa Cruz CEO Joe Graney by the North American MTB media outlet VITAL MTB from a little while back. I felt it offered a very realistic look at the current state of the bicycle industry. It is a bit long, but please take a look if you are interested.
This interview was conducted in February 2021. The photos in the text were taken by the author when visiting Santa Cruz in 2019 and are unrelated to the interview.
Gord: Hi there. This is Gord from VITAL MTB. Today, we’re joined by the leader of Santa Cruz Bicycles, Joe Graney, to talk about the current state of the bicycle business. There is so much information circulating from different places about why bike shops don’t have products and why customers buying through web shops can’t hide their frustration—what is the truth? How’s it looking, Joe?
Joe: I’m just grateful for the chance to talk about this. I think everyone has the same questions, and since our accounts are constantly flooded with Instagram comments and voicemails, this is a great opportunity to talk about it.
Gord: That’s great. Well, I’d love to hear all about it.
Joe: Right now, if you order a new bike, it’s looking like it will be finished and delivered around March to May of 2022. Usually, there’s a lead time of about 2 to 3 months, but now it’s taking 12 to 15 months. Of course, I’m happy that there are so many orders. After all, airlines and restaurants are having a rough time due to the pandemic. But this is an extremely abnormal state, and it’s certainly not a healthy situation.
Gord: Is the fact that bikes are in short supply because people prefer buying a bike and going outside over traveling, since they can relieve stress locally even if they can’t go very far?
Joe: I think so. Usually, I try to work from home, but right now I’m in the factory and everyone is working frantically. Santa Cruz bikes are assembled here. But when California was the first state to lock down in March 2020, we actually had to close all the factories, and the employees were all worried about whether they would be able to go back to work. We thought all the orders would disappear and that we might lose our jobs. But the exact opposite happened. I think people started looking for things to do at home because they were stuck in lockdown. That’s when bikes started selling. When we realized this wasn’t just a temporary trend, bike shops started getting very worried about running out of inventory. First, it started with kids' bikes, and then the cheaper bikes started selling. One thing I was happy about was seeing a bike I first designed out on the trails. I felt like people started spending more money on their hobbies. My friends and neighbors started buying mountain bikes, too. You can exercise without a gym membership, after all. Riding bikes in nature allows you to maintain social interactions, especially in times like these when you can’t even go out for a beer.
Gord: You said you didn’t think they would sell out so quickly, but when did you start thinking, “Whoa, bikes are disappearing fast”?
Joe: I think it became clear around May 2020, when the orders from distributors started coming in. And the orders didn’t stop in June or July either. It was just a crazy feeling. At the time, we didn’t know what to do. The 2020 sales forecast was quite low, but by last summer, orders easily exceeded that forecast. I think other companies were seeing the same phenomenon; massive orders started pouring in, and parts suppliers were telling us they couldn’t accept any more orders. What used to take three months became four, then nine, and a month later it was 14 months. A tsunami of orders like that puts tremendous pressure on the factories making the parts.
Gord: So, if Santa Cruz and many other brands all want a lot of Shimano XT derailleurs, for example, could it happen that Shimano stops taking other parts orders entirely?
Joe: That’s right. For example, suspension forks with brakes, drivetrains, tires, rims, stems, saddles, and so on. Right now, if you order a new saddle, it takes 400 days to ship. Can you believe that?
Gord: That’s incredible! Waiting 400 days.
Joe: If there’s no alternative idea, you have no choice but to wait 400 days. In reality, we have to look ahead and move forward; it feels like we have to polish off a dusty crystal ball we haven’t used before, peer inside, and predict what we’ll need in the future. Also, new bikes will be coming out, but we need to check all the parts before we can let shops have them. We do have people on the ground for quality control, but it’s impossible for our engineers to visit those shops now because of quarantine, which is causing a very tedious problem. So, we have to plan for future needs while not panicking about the current situation, do what we can, and keep trying to deliver bikes to those who need them as best as we can. There are so many unfamiliar riders in my home area now. That never happened before.
Gord: When you say that, you are assuming Santa Cruz has its own factory in Asia, right? Are you able to produce all the frames you want? Does it feel like you are just waiting for the bikes to be assembled?
Joe: Our frame supply is probably the most stable. But you absolutely cannot double the production number overnight. Factories are built in proportion to their production output. In such uncertain times, I don’t think it’s a good idea to invest in expanding factories to achieve double the production. Usually, a new factory doesn’t reach 100% capacity for a few years. It’s a fact that parts manufacturers have increased their production lines in the last six months, and right now, we don’t even know who is really in business. Well, it’s stressful whether you increase it or not. Of course, it’s better for demand to exceed supply than to have no demand at all.
Gord: Of course. I hear a lot about the shipping costs of parts, like “A 40-foot container used to cost about $4,000 to ship, but now it costs $7,000.” Are there any other problems? Cohen was saying, “Exchange rates drive up the price of bikes, it’s not our fault.” Are there any other problems?
Joe: Santa Cruz is in a slightly different situation than other companies. That’s because we don’t import complete bikes. We assemble the bikes here. We build the wheels here, too. All the parts we import come from different places: Japan, Europe, and Asia. When that happens, shipping is definitely delayed. It’s hard to say what the standout problem is, because some are things we’re already facing and others have already ended. Let’s see, around Thanksgiving, the company we get our bike boxes from contacted us to say they were running out of materials and couldn't supply us for a month. The reason was that online shopping deliveries had become larger than ever, and those shipping materials were being used up. Last year, when the factory was closed, there were wildfires in Santa Cruz, and about 40 people were forced to evacuate, with some even losing their homes. Afterward, smoke got into the office, and the air wasn’t safe to work in. So we had to close the factory again. On top of that, parts and boxes were unavailable, container shipping costs skyrocketed, and I think the ports are clogged with cargo now. At the Port of Long Beach, 40 to 60 ships are probably waiting to unload. I hear the ports are in shambles because there are no workers due to COVID. Well, the bad things show no sign of ending. Five minutes before this interview, I got a text saying the employees living in the Santa Cruz mountains had to evacuate. The debris from the wildfires is mixing with the rain and falling on that area. So that’s the beginning of 2021, and the troubles just don’t end.
Gord: Doesn’t sound like a very good start. Is this the first rain after the wildfires?
Joe: They’re predicting high winds and heavy rain this week.
Gord: That’s tough. Anyway, how are you planning for the future? As you said, if you order a bike now, it’s 2022. How are distributors and the people working at Santa Cruz dealing with it?
Joe: We’re trying to plan with creative thinking. To deal with any scenario. While things are delayed, we’re thinking about what we can do for the people working here. Because I don’t want to tell them, “Stop working and wait at home.” We’re trying to create an environment where they can work. The most important thing here is to protect the people working here. When we restarted the factory, when you walked into the building, you were asked whether the people you’d been with and your own health were okay. We take temperatures. It was strange that everyone except me was wearing a mask. Well, the first thing we did was ensure everyone was safe. Last week, we had more than 15 infections, and some of them have roommates working here, or boyfriends, girlfriends, or even family members working here, so if they were infected, it would be a disaster. We started doing quick 15-minute infection checks here. If they start showing symptoms, we have them stay at home. We’re also planning when we can assemble bikes by confirming when the next batch of parts will arrive. The bikes we’re assembling over the next six months are already sold out via pre-orders. We had sold out all 2021 models two or three months ago, and we didn’t think they would sell out this fast, so we’ve stopped taking orders for now. The challenge now is to calculate when we can start taking new orders and when those bikes will be available. There’s also a quality issue, so if everyone is willing to wait eight months, I guess we could start. Well, if you knew for sure you’d get a bike in eight months, you wouldn't feel the despair that the world is ending. Sure, if you were promised eight months and had to wait another eight, that would be the worst. Right now, we’re doing orders in the winter like we’ve never done before. Comparing sales volume with last November, I think this year is the highest ever.
Gord: Is November the slowest month of the year?
Joe: Exactly. November, December, and January are not busy at all. But now, everyone wants a bike. During this season, we minimize the number of people in the factory and other staff members take vacations, waiting for the next spring to arrive, but now it feels like things are getting busier and busier. Of course, we don’t intend to overproduce, and production will be within a set range. One thing for sure is that you definitely won’t be able to get a new bike right away like you could a year ago.
Gord: Doesn't it affect new models? Even if you’re planning the '22 model, you’re currently shipping '21 models. How do you manage that?
Joe: Like I said, in this day and age, we don’t know when bikes will ship from the factory. Usually, there’s a stable development schedule, and the engineering team is doing a very good job in a difficult situation. It’s also true that not being able to travel is causing a very painful situation. We intend to release new models within the next 12 to 18 months, but the 2020 NOMAD was supposed to come out in July and was released in late November to early December, and the BULLET was also quite late, even though it was originally scheduled for September. It was just because the parts didn’t arrive. Scheduling accurately is a difficult problem for now.
Gord: Events were canceled, but do you still want to do races or marketing events? Or are those being affected too?
Joe: You might think that if demand increases, we should use that money for production expansion rather than events, but I was really sad that there was no World Cup last year. And when we did race events, I think we had the best ones in recent years. For us, it’s a legacy that’s been passed down, and it’s our reason for being, so we have no intention of distancing ourselves from race events. Of course, we want to hold race events.
Gord: That’s right. Is Greg (Greg Minnaar) preparing for the races?
Joe: He said he’s preparing. Luca Shaw is coming to the office tomorrow, I think he said he was going to hang out with Doug Fresh. And they’re getting ready for the season by setting up the new bikes.
Gord: Oh, that’s nice. Has there been any impact on PayDirt (a project that invests in building and maintaining trail courses)? After all, 100 million yen is a significant amount.
Joe: That’s a good question. During the first wave of COVID that happened last March and April, from a business perspective, many places suspended operations, and it was considered common sense to hold back on spending money to ensure capital wasn’t shaken. The company can’t go under, you have employees, and you have to pay bills. Of course, I think that’s the right decision. However, you can’t move forward if you don’t spend money, and I think it’s necessary to spend more than ever right now. Many people are riding bikes on trails now. Of course, I used to think it would be nice to have more trails, and I think this is a great chance to create outdoor spaces. We’re hoping that will also revive the bicycle industry business. We want to create a system where if there’s profit, we can use it to improve things. I think this project might be the most important thing we can do. I think now is the perfect chance to provide a place to experience mountain biking on legal trails. If you buy a mountain bike and go out, only to find out it’s an illegal spot, you’ll feel like an outlaw. You might feel like an illegal dentist, right? (Laughs) So, I think if more people get involved, move it politically, and collect more money, there will be more new trails. It’s still just a small start, but I’m sure it’s a once-in-a-lifetime chance.
Gord: That’s a very interesting story. If I were a loyal Santa Cruz customer and wanted to buy a NOMAD, how could I buy one? You said they’re all sold out, but can I still make some kind of reservation?
Joe: The first thing everyone should do is probably look around. Start with your local bike shop. I think supporting local bike shops is very important in times like these. From an economic perspective, while big companies are making more and more money as things divide into winners and losers, small boutiques and shops are suffering from not being able to let people into their stores, and they have to think about opening and closing; it’s really hard to only be able to let 25% of people in. Especially for shops run by a married couple. So, I’d like everyone to try their local bike shop first. And call other shops that carry Santa Cruz. Sometimes they have them in stock. But they sell out quickly, so call and get on a list. A bike shop near here told me they always keep a waiting list of people who want to buy, and they call them in order as soon as bikes arrive. But usually, they sell out by the third person, so you should get on the list early. However, if you don’t care about the bike model or the frame color, you might be able to buy a new bike sooner.
Gord: That’s right. I’d also like to hear how the future market will go. If the vaccine reaches everyone by this fall, will this state continue, or will it return to normal? Are you worried that people will start enjoying movie theaters and cruise ships again and stop riding bikes? Have you ever thought about having too many bikes built that don’t sell?
Joe: That’s truly a big problem for this bicycle industry. If you build too many bikes and there’s no demand, the price will drop. And the ones who have to take on that debt will be the independently owned bike shops. Their share goes down, and they’re barely avoiding bankruptcy. There are so many shops that are really trying hard, so that would be a business lesson, but I don’t know how other bike brands are planning; however, we do intend to grow by responding reliably to demand. We check economic trends without missing anything, and we need to be careful because negative things can happen suddenly. Well, this is my pessimistic view, but on the optimistic side, so many people are riding bikes now, even if things return to a normal lifestyle, I think we’ll see a 15–20% increase in profits. That’s because people who bought cheap bikes will immerse themselves in this world and will buy better bikes next time, and in the mountain biking world, some people might buy another bike. Also, I often see kids riding on trails. Digging dirt, doing jibs, playing with everyone after school. If we consider that the status quo, it’s a wonderful thing, and I’m sure teenagers spending their weekends riding bikes in the woods will be hooked forever.
Gord: That’s right. If you weren’t at the office, where would you want to teleport to, and what bike would you want to bring?
Joe: Let’s see, before these times, I used to go to so many places. While traveling, I’m lucky to live in a place with such wonderful trails, so I’d like to keep the office empty for about 10 months and ride the local trails 5–6 times a week. That would make me happy. Well, as a place to teleport to, I’d visit friends in Whistler. I want to enjoy the July Whistler bike park session with my friends on a crowded gondola. Isn’t it the best time now? And the bike I’d take is the new NOMAD. It’s the best machine.
Gord: Are you more of a 29-inch person rather than 27.5-inch?
Joe: Both. In my garage, I have a 29-inch TALLBOY and a 27.5-inch NOMAD. I have a mullet bike, too. I choose according to the course. It’s fun to ride different bikes.
Gord: Anything else you’d like to leave us with?
Joe: Lastly, I hope everyone at VITAL MTB stays healthy in this situation, just like us. It’s something to be grateful for that VITAL MTB lets the world hear our story. So, I’m really grateful.
Gord: Thanks for this time. I think we heard some very interesting things. The rest is to just watch how the world goes while eating some popcorn.
Joe: That’s right. Let’s survive this era and hope we can enjoy the rest of our lives laughing at the end.
Gord: Let’s toast in Whistler!
Here at SimWorks, we interact with domestic manufacturers and also stay in touch with overseas manufacturers like CHRIS KING, and the situation is the same everywhere. They are continuing production as much as they currently can against a record number of orders we have never experienced before, and in addition, material shortages are casting a shadow—it can be said that the same thing is happening in many industries, not just the bicycle industry.
I think we will continue to keep you waiting on delivery times for a while longer. Of course, I never intend to use the situation I just described as an excuse, but as we want to make the best suggestions possible within our current capability, we hope to keep our minds flexible and utilize each of our staff's diverse skills to address your concerns, so please feel free to consult with us.
Also, what I want to convey strongly once again is that making things is truly hard work. Even if it takes time for delivery, I have nothing but gratitude for the creators who are producing things even in these current circumstances. Personally, I would be very happy if this opportunity gives you even a small chance to re-imagine what it means to use the things you own until the very end.