Giant postpones payments to suppliers due to falling demand, rising inventory levels, and market “headwinds”

The news that Giant Group, the world’s largest bicycle manufacturer, has sought to postpone payments to its suppliers amidst concerns over falling demand and rising inventory levels has provoked consternation within the bike industry, though fellow Taiwanese brand Merida has insisted that its cash flow remains “normal”.

Just last month Giant reported that, despite challenges such as an increase in the cost of raw materials, logistics, and labour, as well as shortage in performance-level products, sales were up 14 percent in the first three quarters of 2022 compared with last year.

Addressing concerns that the demand for bicycles may have slowed since the Covid-19 pandemic, Giant admitted in November that “[market demand] has cooled down compared to the past two years”, but noted that the company “sees great potential for the cycling industry” as world governments prioritise environmental and health-focused policies.

> Giant sales up 14% compared to last year but shortage of high-end products remains 

However, just over a month after that optimistic report, local media in Taiwan claimed that Yen Ching-hsin, the head of Giant’s global manufacturing centre, had sent a letter to suppliers asking for a 45-day payment extension. According to Focus Taiwan, the payment postponement will affect suppliers due to ship their products to Giant between December 2022 and March 2023.

In a subsequent statement, Giant – while noting that nondisclosure agreements prevented it from discussing the details of the letter sent to suppliers – said that as the global bike industry returns to normal following the lockdown-related boom of the past two years, demand for low-priced models has weakened, in turn causing an increase in inventory levels and leading to considerable supply chain issues.

“Due to the key markets currently entering into the winter slow season, inventory of entry-level bicycles has increased and its supply chain continues to face challenges,” a spokesperson for Giant said.

“Considering all the headwinds in the current market environment, Giant Group has decided to manage this challenging situation with our supply chain partners by mitigating risks and conducting a proactive inventory control, with the goal to return supply chain conditions back to normal over the next few months.”

The company also told Bike Europe that “this is the first time we requested our supply chain partners to assist us by extending their invoicing periods so that we can endure this off-season together.

“Inventory levels should return to normal during the first half of the next year. Many action plans are underway, but we can’t provide further details. We still believe the future of the cycling market continues to be bright.”

Despite the payment postponement, Giant maintains that the company’s operations and working capital remain normal, and have pointed to the sale of convertible bonds in June and the completion of a rights issue in late November – both of which raised a total of NT$6.75 billion (New Taiwan dollar) – as evidence of its continued strong financial position.

“After prioritised repayment of bank loans, Giant Group currently has ample cash and credit line with banks, and cash flows remain normal,” the company added.

When news of the delayed payments was leaked, Giant’s shares listed on the Taiwan Stock Exchange plunged by 8.04 percent (though the share value remains above pre-Covid levels).

Giant’s reliance on its suppliers to endure the often-turbulent off-season has certainly raised eyebrows within the bike industry, forcing some of the brand’s rivals to deny that they are facing similar problems this winter.

Speaking to Channel NewsAsia, an executive from Merida – another major Taiwanese manufacturer – claimed that low and mid-end bikes, the demand for which has plummeted in the post-pandemic landscape, only account for a small fraction of the company’s product portfolio.

According to the executive, Merida has not sought to delay payments to its suppliers.

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Nevertheless, Giant certainly isn’t the only bike manufacturer to experience supply chain issues in recent weeks.

German brand Rose Bikes – who in 2020 said that it would no longer accept any orders from the UK – currently has 45,000 bikes in stock that cannot be assembled due to unreceived parts from China.

According to Rose Bikes’ director Thorsten Heckrath-Rose, the missing parts will be delivered in the next few months.

Last month Rose Bikes dropped the sale prices of its bicycles by 15 percent, presumably to allow sales to grow to pay for the increased stock, though the company said at the time that the drop was due to lower costs for raw materials and freight and a switch to more efficient production techniques.