If you have been in the market for a bike or parts over the last year, you will know that Corona virus has been devastating; cycling has boomed but shops and distributers sold-out of stock. Even with strong sales in 2020, manufacturing supply chains were left in tatters and Australian customers are sometimes the last inline, after the Americans and Europeans. In the meantime, Brexit has gone under the radar for Aussies, though it has started causing disruptions between Europe and the UK and could have a fallout for Australians distributers, bike shops and customers as well.
The last-minute Brexit deal between the EU and UK saved England from brutally cutting all ties with the mainland. But subsequent trade complications are beginning to reveal the extent of this new separation. In January, a number of European brands such as Canyon and Campagnolo announced they were suspending sales to the UK because their deliveries were now subject to extra tariffs and the brands themselves are required to collect VAT on behalf of the HMRC (Her Majesty’s Revenue and Customs).
English business across a number of industries reported troubles exporting to the European Union with complex paperwork and customs declarations causing significant backlogs. Some freight services have simply stopped accepting any deliveries between the EU and UK.
What does the British split with the EU mean for Australia? When the British PM Boris Johnson was on the verge of a no-deal Brexit, he pitched an ‘Australia-Style’ deal with the EU… which sounds romantic for the English who may have pictured trading the beaches of Mallorca for Bondi. The ‘Australia-Style’ deal refers to the current arrangements between Australia and the EU, though former Australian prime minister Malcom Turnbull went on record suggesting is a poor deal (for Australia) and warned, “be careful what you wish for.” Since 2018 Australia has been actively negotiating with the European Union as the bulk of Australian exports to the EU are subject to Tariffs and quotas as defined by the terms of the World Trade Organisation.
After Brexit was put into motion, the UK have been in trade negotiations with other nations, and since June 2020 have been negotiating a Free-Trade deal with Australia. But until an agreement is signed, trade between the two nations reverts to WTO tariffs and quotas. The historical and commonwealth relationship between the UK and Australia will lend importance pushing ahead with a deal, particularly as the English economy registers the impact of now being alone on the world stage, without the bargaining power of 27 other aligned European nations.
Australia has maintained a trade deficit with the EU and in 2016 this accounted for 7.8% ($20.3 billion) of total exports of goods. The UK receives half of these Australian exports to the European Union ($10.1 billion) and in contrast, the UK accounted for only 14.5% of total EU exports to Australia ($7.1 billion). Following this trend, Australia would have a trade surplus against the UK.
Once upon a time in the world of cycling, Wiggle and Chain Reaction Cycles were the most popular online retailers for Australian buyers. Changes to import fees worked in favour of Australian online bike shops such as Pushys and BikeBug. A maturing market also meant overseas retailers were increasing squeezed out of grey-import opportunities. As an example, Wiggle Australia now buys Shimano products directly from Shimano Australia rather than overseas suppliers which previously allowed them to pass on tax-free, bulk volume savings to customers.
The Australian Perspective on Brexit
Peter Bourke from the Australian cycling trade body, Bicycle Industries Australia suggests that Brexit repercussions will remain limited against the impact of Corona. “Specific brands such as Brompton and Hope have stock shortages in Australia, but these seem to be inline with all brands stock shortages. With parts and accessories companies reporting up to 600 days delay in supply of parts to OEM manufacturing, it is difficult to identity any impact specific to Brexit.“
Bourke continues, “Wiggle is still a major online platform in Australia, but this seemed to decline after the reduction on the GST threshold from $1000 to $0 a couple of years ago. Companies such as Pushys online and Bicycles online have taken market share since that time. All these companies are impacted by the general product shortages from Covid.
“In Australia, shops are starting to get more stock, still not to normal levels, but supply is expected to be stretched again after March when the Northern Hemisphere will again be looking for more stock as it moves in to Summer.“
Veteran racer and cycling industry figure Frank Fortuna from distributer FRF Sports (Colnago, Argon18, Campagnolo and Fulcrum) and the retail chain BikeBug predicts that a weakening British currency could impact online sales, “my initial, obvious concern is the possible deterioration of the British Pound” says Mr Fortuna. “The value of the British Pound deteriorating would create a significant advantage for UK online retailers, this would create the perfect opportunity for Australian consumers to take advantage of shopping on UK websites and make Aussie websites less competitive.”
Since the UK left the European single market at the start of 2021, Pound Sterling has slightly strengthened against the Australian dollar although this initial resilience could be temporary. A strong downward spiral allowing the Australian dollar (1 AUD : 0.56 GBP) to buy an extra 10 pence per dollar would increasing the buying power of Australian to levels seen almost a decade ago. As an example, a pair of popular Continental GP 5000 road cycling tyres which currently retail from Wiggle for ca. AUD 130 (GBP 73) would drop to around AUD 110.
One of the biggest Australian success stories is Bicycles Online are a customer direct retailer with Polygon bikes, Marin, the relaunched Cell Bikes brand and parts and accessories. They maintain an entrepreneurial streak having launched the Bicycles Online business in the United States. This provides them with a unique insight to overseas markets and Bicycles Online director James van Rooyen elaborates, “It’s not really any UK trade agreement or lack of, that’s having an impact on the Australian market. The key factors we are seeing is that there are additional difficulties for retailers and distributors in the UK to source products from supplier countries. Plus, the lack of passenger flights has massively increased international mail rates, as these flights are often top filled with mail cargo.”
Rooyen continues, “When this is combined the massive global demand and supply constraints, we are seeing international UK retailers focus on their local markets. Hence there has been a big reduction in the competition from UK retailers in Australia, and a return to the importance of local distributors.”
British cycling brands on the world stage
Brooks is one of the few English brands that are still ‘Made in England’ and while they are part of the Italian Selle Royal consortium, the rising cost of materials and new hurdles for export could impact the retail prices for customers. As a result of the departure of Britain from the EU, the bureaucracy and taxation meant that online sales for UK customers from the brooksengland.com website was suspended. This was a result of the 2011 shift of logistics and fulfilment to mainland Europe though Brooks have stressed that regular distribution and sales of Brooks products through other channels remained unaffected.
Another iconic British cycling brand is Hope Technology who are renowned for their MTB components. They manufacture in the 27,000m2 facility in Barnoldswich, Lancashire and ahead of Brexit stocked up on materials and supplies. Strong customer demand during the Corona pandemic means Hope Technology are employing new staff.
UK brands who manufacture locally such as Hope, Brooks, Pashley and Brompton are exceptions, most UK cycling brands however manufacture outside of Britain. Boutique brand Rapha, for example, design their cyclewear in the UK and it is made in China. For the supply, distribution and sale of British cycling brands which made and assembled in Taiwan or China and shipped directly, the Brexit impact is likely to be negligible particularly as the Corona pandemic remains the main cause of disruption.
Online and ‘Customer-Direct’ business operations is a retail segment that shouldn’t be overlooked. Wiggle and CRC dominated in Australia as the biggest online retailers of cycling gear for years and although since the removal of the $1000 GST free threshold in 2018, Australia online retailers have taken a decisive lead. Even before Britain voted in the Brexit referendum, looming uncertainty impacted forward-planning. Wiggle Australia country manager, Gina Ricardo discussed the impact on forward-planning in early 2020 at a time when the Brexit negotiations were still in tatters.
Hunt Bike Wheels has established itself as one of the most successful direct-to-customer businesses emerging from the UK and they have steadily built a loyal, global customer base. The brand is part of a consortium called TheRiderFirm and product manager Ollie Gray is responsible for the Hunt Bike Wheels. In 2021 you will spot Hunt Wheels on the BMC bikes used by South African UCI WorldTeam, Qhubeka Assos (formerly Team NTT).
Following the initial Brexit disruptions, the brand reported that they were looking after all the export documentation and absorbing any extra fees for European customers. Ollie Gray discusses the Brexit impact, “There will of course be some impacts in terms of paperwork and customs declarations for selling into the EU, but that responsibility lies with us and we’ve got a dedicated working group currently working through the nuts & bolts of that. As Australia is (obviously) outside of the EU, we don’t foresee any obvious change to the process for our Australian riders.
“In terms of Brexit having an effect on product development side of things, the needs of the rider remain unchanged, and so we’ll keep pushing forwards for that rider and deliver them products that perform to the highest level. So again, really, we don’t see product development as changing at all, just a few extra documents to fill in when we take wheels to the wind-tunnel in Germany or do any other product development on the continent.“
Brexit Implications for Australian shoppers
A saving grace for British cycling business in an inherent patriotic pride and ‘Can Do’ approach. For now, all indications suggest they are pushing to resolve the Brexit teething problems and minimise the impact on supply to distributers or customers. Australian bike distributers and customers are served by a big market of European, American and Asian brands of which British cycling brands make up a comparatively small proportion. While the fallout Brexit can be managed for now, the Corona impact on supply remains the big disrupter.
The long-term implications of Brexit however remain hazy, repercussions on the economic development of the UK over the next decade are open to speculation. The historical bond between the UK and Australia and mutual interest in a progressive free trade agreement should aid the pending trade deal and could introduce incentives for the export of British cycling products (among others) to Australia.
Australian customers buying British brands or from UK retailers will barely notice a difference for now – it is business as usual, just under the shadow of Corona. However, any long-term impact on cycling trade and sales will be guided by the Australian-UK trade deal along with the eventuating economic growth or stagnation.
Could the UK also become an attractive market for Australian brands? The trend has long since started with Bicycles Online and a host of cyclewear brands such as cycology gear, MAAP, pedla and Pedal Mafia who are steadily building their international customer base. Many businesses will opt for the much larger EU market and an office and distribution in Europe over the UK however Northern Ireland could be facing a boom in business with their unique access to the customs union.