The headline for this article is a quote from Paco Underhill's column in the March 2008 issue of ddi (display & design ideas) magazine.  For those of you who don't know, Paco Underhill is the founder of Envirosell and author of the books "Why We Buy" and "Call of the Mall."  He is considered to be the retail industry's "first shopping anthropologist."

Underhill compares our current economic downturn to the savings and loan meltdown of the ‘80s and in response to the rhetorical question: "Is it really as bad as it seems?" offers what he calls "A tale of thirds." 

One third of Americans are struggling to pay their bills, and for this third shopping is going to come to a standstill. 

The middle third is not at immediate risk, but they are scared, so they shop "smart," will use the internet to pre-shop, are not tempted by "affordable luxuries" and up-market brand names, and believe that a Samsung is as good a TV as a Sony - and for a lower price.

The final third is lucky or blessed, and the recession will have limited effect on them, so they will continue to shop and spend, as they want.

Underhill's tale of thirds corresponds to a series of three articles that ddi magazine published in the last quarter of 2007 under the title "The American Dream" that describe the social and economic characteristics, opportunities and challenges of the three categories of U.S. consumers:

• Low income / working class
• Middle class
• Upper / luxury class

Underhill goes on to state that: "The world of shopping is on the edge of a new form of chaos.  Retail continues to be the dipstick of social change."  The bottom third of American's have, or will stop shopping for anything other than necessities.  The middle third is online looking for the best deal and considering alternative distribution channels.  Those that can afford to spend...don't need new handbags, and they have already purchased the latest electronic and HD TVs. 

From this, Underhill concludes: "It will get ugly."  His view is that: "North America is over-stored, and most merchant organizations will be healthier shedding underperforming locations.  Based on the individual chains and channels, the contraction may vary from 10 percent to 30 percent.  New doors for American merchants will have to come from offshore expansion."

For the specialty bicycle retail channel we started the year with 4,394 storefronts and the contraction, according to Underhill could be the loss of between 440 and 1,318 storefronts over the next five to six quarters, bringing the total down to between 3,076 and 3,960 by end of 2009.  This begs the question...is this attrition inevitable?  My believe is that independent specialty bicycle shop owners have available to them choices, most of which will require them to make changes, that if taken will make them proactive in their own survival and have the potential to position them for growth. 

Just how ugly will it get for the specialty bicycle retail channel of trade?  There is a related question as to whether the specialty bicycle retail channel is over-stored...or not.  There are some larger bicycle retailers that believe it is a good thing for them if the smaller and mid-size bike shops in their communities go out of business.  There are even some suppliers that share this belief. 

However, there is a point in the attrition of bike shops in the U.S. beyond which it is detrimental to the whole channel of trade.  I respectfully submit that that point is between 10 percent and 30 percent attrition over the next five to six quarters - meaning that 20 to 30 percent holds the potential of sending shock waves through our whole channel of trade.   

Attrition becomes detrimental when consumers in markets around the country don't have a bike shop as an option or choice in purchasing a bicycle, and brands don't have sufficient retail outlets for national distribution.  Over the last decade the number of bike shops has declined while the market has been essentially flat.  In round numbers, 4,450 bike shop locations sold approximately 3-million new bicycles in 2007, or an average of 674 units per store location.

The question going forward into an economy that may cause a shack-out and further constriction of the number of bike shop locations is - can the remaining locations provide national coverage, and maintain sufficient volume of sales to sustain all of the remaining suppliers and brands in the market - and what options will the suppliers and brands have to exercise to maintain their businesses? 

We don't know, and can only speculate until we can take full measure of the changes the economy forces on our industry over the next 18 to 24 months.

This leads us to the issue of surviving this economic downturn, and the related issue of actually thriving no matter what the economic conditions.

Specialty bicycle retailers do not have to sit back and become spectators or victims of the current economic downturn and potential bicycle industry contraction.  Some careful planning now can lead to stabilizing their business and position it for actual, real growth.

How?  The quick overview is: By becoming totally consumer focused; developing a passion for specialty retail that is equal to their passion for bicycles; developing, installing and implementing retail store systems including a customer service professional retail process; delivering an extraordinary retail shopping experience and working with real business partners that will help them grow their business.  And last, but not least, owners and managers must lead their retail organizations by being proactive in making the low to no risk changes that are needed to make it all happen.

Some specialty bicycle retailers will be reactive and others will be inactive in response to the challenges of the U.S. economy over the next year and a half, and they will be the most vulnerable.  The bike shop owners who are proactive and adopt all or the majority of action items and changes outlined above will not only assure surviving the ugly part, they will position their businesses for growth.

After the ugly part...Underhill suggests that three things will happen, all of which are applicable to our channel of trade.

• American merchants have to get beyond "The Sale" as a promotional tool of choice. Improved supply-chain management and inventory control is the proven solution to discounting.
• The offering and service proposition need to get matched up. Having hip ads and dirty stores doesn't add up.
• Decision-making needs to get closer to the actual floor of the individual store.

Underhill says this last point will be "American retail's salvation."  By giving store managers more control, and proper incentives, Underhill feels they will make their numbers.  The specialty bicycle retail channel already has this advantage within its grasp because the majority of bike shops are single store operations, and the multi-store businesses are typically two store locations.  For the exceptions, the businesses with three or more stores...take note of Underhill's advice.

The first point is well taken, and there are huge gains and profits to be made by improving specialty bicycle retail channel supply-chain management and inventory control at the store level.   

The second point is also critical.  The specialty bicycle retail channel needs to make very few low cost and no risk changes to begin delivering an extraordinary retail shopping experience, starting with cleaning the windows, scrapping off the decals and stickers and sweeping the floors! 

As Paco Underhill puts it..."It will get ugly" before the economy improves, but our firm believe, based on real world case studies, is that we can grow the bicycle market one bike shop at a time as long as owner's are willing to make the low to no risk changes in thinking, practice and operations to make it happen!