High inventory levels threaten the stability of the Dutch market

According to reports from hundreds of IBD customers of H&L Accountants in the Netherlands, in the first half of this year, the average gross margin of bicycle sales in the Netherlands was at a normal level, but faced with extremely high inventory levels. At the end of June, H&L Benchmark Group's inventory was up an average of 30% year-over-year, and more than 25% of members reported that inventory levels had exceeded 50%.

High inventory market dilemma
The Dutch market is already struggling with high inventories, as evidenced by the news of a sharp increase in inventory at retail supplier Accell Group, which saw a 70% increase in the value of its inventory to €936 million in the second half of 2022. Before the bicycle boom, the value of corporate inventory was probably between 300 million and 350 million euros. Meanwhile, Accell Group's Fitch rating has been downgraded to B- twice this year, with Fitch reporting that ongoing supply chain disruptions have put pressure on Accell's cash flow generation and led to additional debt reduction to meet working capital needs. This further delays the prospect of deleveraging. With EBITDA leverage now forecast to soar to 15 times in 2023 and 6.9 times in 2024, coupled with very tight liquidity, Accell Group is no longer commensurate with a 'B' grade IDR.

Slow decline
In addition to high inventories, slowing economic growth has also had an impact on the industry. The Dutch market is currently slowly declining, consumer spending is reduced due to high inflation, and suppliers are also facing the dilemma of high inventory, which brings great pressure to merchants, in order to clear inventory and low-price sales pose a threat to market stability, profits and profitability will decline, how to adjust the price level has become the main problem faced by merchants.
In the first half of this year, the gross margin on retail sales in the Netherlands was at a normal level. However, compared to the first quarter of 2022, the first quarter revenue fell by more than 10.3%, and in the second quarter, sales began to pick up, especially in June, the final statistics show that the first half of 2023 turnover fell slightly by only 2.9%, but whether the second half can maintain growth is not known.

Low profit level
The majority of the cost of electric bicycles is in the motor and battery, but the important components are mastered by the head manufacturer, the other bicycle manufacturers focus on the design and marketing of bicycles assembled in their own factories, and use specialized suppliers to produce parts, so the profit margin is compressed, Accell Group is also facing the same problem.
Despite the downgrade, Fitch remains optimistic about Accell's future. "As Accell reduces inventories, trade working capital outflows (TWC) should gradually ease, which should improve liquidity headroom and return free cash flow to mildly positive territory from 2024 onwards," Fitch said. Accell is taking steps to strengthen its procurement control and improve its operational processes, which, combined with the recently introduced discount policy, should ease liquidity pressure from increased inventory and receivables. We expect trade working capital outflows of around €90 million in 2023 and expect some reversal from 2024 onwards, although their magnitude remains uncertain."

Source: BIKE-EU