Selling Electric Bikes in the USA Edward Benjamin Senior Managing Director eCycleElectric Consultants
Who is Benjamin? Chairman of the Light Electric Vehicle Association, an international trade association Senor Managing Director of eCycleElectric, a consulting company focused on electric bikes since 1997 Instructor LEVA Tech Training Former IBD, Benjamin Cyclery in SW Florida Former USCF racer, former Triathlete,
This presentation I will address issues that apply to both retailers and brand managers / importers that are selling to the USA market. This is not traditional in the USA, normally the industry does not speak frankly about the issues of distributors when addressing retailers. Things are changing.
Happening Now Often Heard: “When are electric bikes going to happen in the USA?” Answer: Now Almost every major brand in the USA now offers an electric bike. The western world’s most successful electric bike company is the Accell Group – which now owns several USA Brands including Currie – Here now. More than 100 electric bike specialty brands offered in USA.
Market Numbers eCycleElectric and World Wide Electric Bike Reports have studied USA market numbers since 1994. 2012: Approx. 58,000 units 2013: As many as 230,000 units, but adjusted for error to an estimated 173,000 units as of August 2014. 2014: Too early to tell….
Electric Bikes Make Money Electric bikes enable the largest and most affluent group of bicycle buyers in human history – the USA Baby Boomers, to continue riding and …. Buying. While the bike shop staff may not understand the appeal of electric bikes, the customers certainly do. Tell anecdote about parking lot, bike shop entry event.
Margins When you sell a manual bicycle, you compete with every bike shop in the area, and WalMart, and Target, and Toys-r-US, etc. When you sell an electric bike, you are usually the only retailer doing so. And your customer needs you more, for information, instruction, and service. You should, and can, charge a higher margin.
What Happened in EU Once heard…what happens in Europe has little effect on USA bike biz. Really? Lets think that one over again. Describe retailer experience 2004 -5
Customer Needs The Dealer Old guys like me can remember when a Schwinn Varsity was too heavy and bulky for UPS, needed an experienced mechanic to assemble it, needed a 30 day checkup, and could be relied upon to need new tires within a year or two. Any use of the bike would result in a need for service. My customers needed me and my mechanics.
Then Giant Ruined It The bikes of today are so well made, so easy to assemble and so durable that bicycle shops have become much less important to the consumer. And service department revenue is down, dramatically as a proportion of total sales. In my stores, it used to be 50% of the gross!
Electric Bikes Get Ridden More Miles Really! They need tires, tubes, brake shoes, re-laced wheels, frequent attention. The customers are having a good time and riding more. And every so often they need a new battery! A big ticket, high margin sale.
Ebikes Are Opening New Frontiers Aging Boomer Cyclists Electric mountain bikes Speed pedelecs Retiree recreation Commuting Millennials DUI
Now Gaining Attention World Wide, the ebike Market of the USA… One of the interesting conversations I have had, with a number of clients goes like this: “Help me sell into Holland,, that is a big market for electric bikes!” says the brand manager, or component maker. “Dutch companies and consumers ares already well served. And those successes there started 20 years ago.” Say I. “How about considering the USA market?” “Holland” I say, “Has 17 million people, and buys a bit more than 200,000 ebikes last year. The fleet there must be close to 1 million bikes. The boom times are over. “ “The USA has 310 million people, and bought close to 200,000 ebikes last year. It is not an easy market, but it has more potential than any European country, perhaps more than all of Europe combined, for the demographics are better in the USA market.” “How many distributors do I need for USA?” “One.”
Basics of Retailing Ebikes Commit! Putting a toe in is a waste of time and money. Carry a selection of units from at least 2 brands. Train your staff in how to sell them. Train your service department in how to support them. Keep fully charged demo bikes close to the door, all the time. Go with the customer on test rides.
After Sales Service Is Key And difficult! Most brand managers and distributors try to shift as much warranty and after sales service to the original OEM or component maker as possible. When a USA consumer is unhappy with warranty or after sales service, their first demand is for a full refund. And this is often given to them by the retailer. The shift in after sales service onto the shoulders of the component maker is very expensive and difficult for most component makers to accommodate successfully. But it can be done.
LEVA Technician Training Retailers have stated that one of the biggest barriers to their success with ebikes is the lack of service expertise in their staff. The Light Electric Vehicle Association has developed a training program for technicians. This program is targeted on bicycle mechanics who wish to expand their skills to service electric bicycles. 6 such training events are being held in 2014, and 8 are planned for 2015.
Demographic And Economic Drivers of Ebike Market in USA
Aging Boomers Millennials Moving to the City Parking Traffic Congestion Fuel Price Mass Transit Interaction Economy Carbon Footprint
Tianjin Lishen Battery Joint-Stock Co., Ltd. Propriety Confidential Parking Auto Parking spaces (including access) requires 37.2 square meters of land and pavement per car. Cost ranges up to $25,000 per space to build in some cities. Electric Bike Parking Spaces require ¾ of one square meter of any open surface.
Tianjin Lishen Battery Joint-Stock Co., Ltd. Propriety Confidential Some Cities Have No Chance for Parking of Four Wheelers
Tianjin Lishen Battery Joint-Stock Co., Ltd. Propriety Confidential Vehicles Per Lane At 40KPH, one lane can support 300 – 500 cars per hour. High speed roads up to 2,000 per hour. Same Lanes can handle 6,000 bicycles per hour.
Exporters to USA The following slides address the issues of selling electric bikes to distributors, or brands in the USA>
One Country 316+ Million Population (buying 15 million manual bicycles / year) 1 language for business 1 set of laws for commerce Patents and contracts are enforceable Already near 200,000 units per year…with LOTS of room to grow. A generous federal definition for electric bikes, easy to homologate Strong manual bicycle market, and rapidly expanding bicycle path, facilities nation wide.
But Not Simple 50 states, with different laws that affect ebikes Bicycle shops resist electric bikes (getting easier now) Distribution is very different from EU Cultural resistance to bicycles as transportation, and ebikes are …. transportation. Economy and culture is changing in fundamental ways Demographics are changing
Distribution Channels Unlike Europe and much of the rest of the world, a distributor of any product in the USA has the opportunity to serve the entire country. And any distributor can affect the perceived value or price of a product all over the USA. Where a company may need 25 or more distributors to serve Europe, all of whom will co-exist, with little competition between each other, the USA can easily be served by one distributor. Most USA distributors have learned that any competition at the national distribution level will often result in serious price cutting that destroys margins. So most USA distributors are very resistant to a business model that has more than one distributor in the USA. The up side of this is that a distributor can have a much bigger business, and be more efficient as a result.
Distribution Existing Channels: 1. Mass Merchants like Sam’s Club, WalMart, etc. 2. Internet retailers such as Amazon, or direct from brand manager. 3. Independent Bicycle Retailers 4. Electric Bike Speciality Retailers 5. Others, such as motility retailers, sports stores.
Efficient Distribution Most bicycle companies in the USA are brand managers who buy bikes from Asian OEMs and distribute them directly to retailers. There are only a handful of jobbers left, and they are developing their own brands, not distributing brands for a factory. One of the great frustrations for those entering the USA market is that there are very few distributors who are willing to promote any brand name other than their own. This means that the overseas brand or factory must either buy and existing distributor, or provide powerful incentives (such as financing), or start a new distribution network.
Proprietary Distribution It is not easy, but it is possible to create a new distribution network in the USA. Many of the barriers and customs that make this very challenging in Europe do not exist in the USA. This eliminates a layer of margins that can either increase profits and pay for the time and investment of a new distribution network, or allow a lower price to be more competitive. An overseers brand that sells to an importer / distributor that sells to retailers is now very rare.
Huge Geography The USA market is geographically enormous. It can take UPS 5-7 days to transport a parcel from one corner of the USA to another. It can take all day travel to fly from Florida to Seattle, and driving would take at least a week. Despite this, most brands try to embrace the entire USA market. This creates logistical costs as well as using a great deal of time. Service is one of the most notable issues affected by this. Overnight shipping of parts is very expensive, and even a successful brand’s sales may be spread out over many states and thousands of miles.
Example: Batteries The electric bicycle industry is not the only USA business to try and shift as much responsibility and service work to the component suppliers as possible. Most USA business have this idea. In the consumer electronics business, the costs and problems of millions of batteries have been shifted onto the battery makers. An example of how this can be turned into an advantage can be found in the business of Tianjin Lishen Battery Company.
AA World Class Battery Maker, Whose Name You May Not Know, Powering Many of the Phones in this room today… Tianjin Lishen Battery company supplies lithium batteries for computers, smart phones, consumer electronics of all sorts, in addition to being and OEM maker of batteries for some world famous CE brand, and a supplier to the electric bicycle, electric mini scooter, and electric motor scooter industry. Having all of the best and largest brands of smart phones using their cells was a great accomplishment when competing against famous international brands.
Tianjin Lishen Battery Joint-Stock Co., Ltd. Propriety Confidential Lishen Offices in USA America Lishen combined superior cell quality and performance with responsive management and local offices in the markets served. These local offices created very fast response to any battery problem, and are staffed with experts who speak the local language and are equipped and able to resolve warranty issues quickly. And to help brand managers with technical expertise for the development of new products. Lishen has 5 offices in USA: Atlanta, Austin, Boston, Chicago, Cupertino
Who is Buying? The demographics of the ebike market in the USA are these: Aging baby boomers 55 years old and up. These buyers have always been big consumers of bicycles and they find that electric bikes are extending their years of riding. Millennial’s 20 to 35 years. These young people are moving to the big cities, where the jobs are found. In the city, they find that parking, and driving, a car is an annoying and expensive practice. They prefer mass transit, bicycles, and powered two wheelers. Electric suits their pocket and their interests in a greener world. Additional, but smaller markets consist of adults with no drivers license, and affluent toy buyers.
Guaranteed Sale And Other Hazards of Mass Merchants Most brand managers, world wide, are wary of the pressure that mass merchants put on margins, and the specialized knowledge and practices that are needed to successfully serve the major mass merchants. A brand must be very focused on the needs of the mass merchant, and this often requires specialized product, processes, and a willingness to operate on a very slim and uncertain margin. And mass merchants have punitive and expensive return policies for their suppliers. A typical policy combines a “no questions asked” return policy for the consumer that then penalizes the supplier of that product for the full retail price of the product, plus a fine for it being returned. And if the supplier wants the unit back, a substantial service fee as well. (This policy means that the retailer maker more money on a product that is returned than on one that stays sold.)
Regulations The most general statement about the regulations for electric bicycles in the USA is this: The bike must conform to the CPSC (Consumer Product Safety Commission) definition of a “low speed, electrically assisted, bicycle.” That would be a two or three wheeler that meets all the CPSC requirements for a normal bicycle, plus: A motor of 750 watts or less that can propel a rider of 150 lbs at no more than 20 MPH. If a bike meets this basic definition, then in most of the USA it is a “bicycle”.
More on Regulations In addition to the federal definition, the USA has 50 states. Many of them have additions to, or modifications of, the federal definition, and a prudent brand manager or distributor will research all of the rules that affect his target market. Fortunately, an excellent paper on this has just been released by John MacArthur at Portland State University for NITC. Look for it on the LEVA website.
And more… There are a number of rules to be complied with that include such things as Customs requirements, UL Listing, Documentation of CPSC compliance, etc. A big issue is the need for both product liability insurance and a company process that is aware of product liability issues and how to manage these successfully.
Speed Pedelecs One of the current hot topics in the USA is whether speed pedelecs are legal. There is an interpretation of the regulations that postulates that if a rider is operating the vehicle at 20 MPH under electric power and then provides human power that increases the speed - that it is legal to exceed the 20 mph limit. A number of EU speed pedelecs and some USA brand speed pedelecs have come into existence as a result and these have been much discussed and are regarded as popular products. There is a letter from the CPSC that seems to confirm this hypothesis. But this may need to be tested in court before we will know for certain.
Pricing and Margins A very large proportion of the USA ebike market consists of bikes that sell for $500 - 600 dollars. Mostly in mass merchants and on line. Margin is minimal. A successful price target has been $1500-2500 and up. And the market has supported bikes that sell for as much as $8,000 USD.
Margins Most importers in the USA strive for margins of 30% or greater. Most retailers strive for 40% or greater. On higher priced units that have a demand, margins of 30% may be accepted. Both will accept a reduced margin on product that sells very well. But a common mistake in the USA market is for the manufacturer, brand manager, or distributor to try and force a narrow margin onto the retailer. Normally this simply results in the retailer switching attention to products that can be sold at a satisfactory margin.
Establishing New Distribution Starting a new distribution network can be accomplished, but capital will be needed to fund the 2 years or more of sales effort and marketing needed to create brand awareness and retail success. Several companies are attempting to use advanced ideas and practices on the internet and social media to sell directly and more efficiently to consumers. This can work, but at the moment the largest volume of sales are through mass merchants, Amazon, and brick and mortar independent specialty retailers.
Buying An Existing Brand The quickest way to establish distribution is to buy an existing brand. The best candidates for such acquisition will be the first to be sold. At the moment, there are a number of attractive candidates in the USA. A note of caution: As is the case in most cultures, when an overseas buyer acquires a company, it is a wise move to use local people for management.
Tianjin Lishen Battery Joint-Stock Co., Ltd. Propriety Confidential Questions? The author can be reached for complaint, complement or questions at ebenjamin@CycleElectric.com ebenjamin@CycleElectric.com All email will be responded to. This presentation will be posted at www.CycleElectric.com www.CycleElectric.com
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