Tariffs and price increases
The last week and a half have been busy, frustrating and exhausting, to say the least. With the threat of tariffs affecting small businesses across the US, including Bacchetta Bikes, I spent hours and hours reading articles, meeting with my team and working on a plan for something that didn’t actually materialize. And while I am definitely ready for a nice nap (and not something I will get with Passover a few days away), the craziness resulted in some much-needed reflection and change to share with you.
Tariffs and the bicycle industry
Earlier in the week, I posted a great article written by the folks at Rene Herse Cycles about the tariffs and their effect on the cycling industry. I have enjoyed reading the very civil discussions that resulted from it and I recommend reading it when you have a chance. But I will summarize it for you here:
Tariffs have been in the cycling industry for a long time. “The general idea [of tariffs] was to protect certain domestic industries against imports, no matter where they came from. And for things that nobody in the U.S. was making, the idea was to facilitate importing them.”
“The new tariffs are different: The rates are set not by product category, but by country of origin. Instead of protecting specific domestic industries, the goal appears to be punishing certain countries—and, by extension, American companies that source their products from these countries.”
The claimed purpose of these tariffs is to bring manufacturing back to the United States. But that is really not much of an option for the cycling industry whose infrastructure is so heavily tied to Asia.
For us here at Bacchetta Bikes, we have spent an inordinate amount of time reviewing our books to (a) figure out the actual, present cost of EVERYTHING, and (b) determine what’s the best way of addressing the tariffs and their impact on our customers. As the tariffs were put off for at least 90 days, (b) is not an immediate concern. However, going through (a) was quite enlightening.
A much needed review
Provide an exceptional recumbent bicycle
We have absolutely excelled in meeting this goal. Our bikes now feature current drivetrains and components, including 22 speed and wireless shifting, disk brakes, thru-axles and tapered steerer tubes on forks for an exceptional riding experience.
We have created an entire line of electric-assist recumbents that are state-of-the-art, with frames designed around the motor to provide a seamless experience (no slapped-on motor kits here).
Build a solid dealer network
This has been a challenging one due to product shortages during and after the pandemic. While we have not expanded our dealer network, we have raised the bar by providing best-in-industry margins with an easy-to-use B2B system for dealer orders.
Continue to provide exceptional support
I enjoy talking with people, I enjoy hearing stories, and as my wife will tell you, I enjoy problem-solving. I get calls daily from customers who have been riding their Bacchetta bikes for a decade or two, and I am proud to be able to provide them with almost whatever they need to keep their bike rolling!
Profit
And here’s the problem…by not reviewing our costs regularly, we have gotten to the point where we are not profitable. It’s actually a pretty easy formula - if costs go up and you want to maintain dealer margins, prices must be increased. While we have raised them, we just haven’t done it enough. Let me give you an example:
When we first took over Bacchetta Bikes, a complete bike cost us about $1,200. The general consensus in the bike industry is that 35% is a reasonable margin. So, if you figure we need to make that and a dealer needs to make that, the retail price for the bike is $2,840. We started four years ago with a price point of $2,750. We did this figuring that dealers weren’t actually selling that many bikes and this was enough profit for us to subsidize shipping direct to customers to keep the price low (we charge $369 but the average cost is actually $650).
That’s all fine and good except our costs were not actually $1200 per bike and we were selling more through dealers than anticipated (nearly 50% of our sales).
Tariffs have also influenced our pricing. With the new tariffs on China, the motor that we use for the Pronto line of recumbents has jumped in price from $785 to $1,200! And this does not include the battery (which is made for us in Taiwan where the duty remains 10%).
The actual cost of a bike is about $1,790, including duty and shipping. With this cost, using the same formula as above the retail price should be $4,236. And while we have raised our prices over the last year to $3,550, that still means that maintaining dealer margins and subsidizing shipping ensures that we are not actually very profitable.
Conclusions
If you look closely at our competition, comparable bikes are priced between $4,600 and $5,200. At $3,550, Bacchetta Bikes have been a steal! Unfortunately, though, we need to change that. On Monday, April 21, we will increase our prices approximately 20% to $4,250. This is still less than our competition, but gives us the profitability to keep building our exceptional bikes for years to come.
For our Pronto line, we only have four motors left in stock for Pronto Altos and Bellas, and five motors for the standard Pronto. Once these are sold out, prices will go up, even if it is before April 21. We will be updating the individual pages for these bikes as they are sold.
Any orders already placed will be honored at the price quoted at the time of the order. All orders placed before April 21 will similarly be priced at the current prices and will not change.
For all other brands we sell, we will keep you informed as they make decisions on pricing. ICE and Terratrike have both announced that there will be no increase in pricing at the present time.
We thank you so much for your patronage, your stories, and your adventures! We look forward to building your next bike, whether it is next week or next year. As always, please feel free to reach out to us if you have any questions.