The Top Ten Bike Business Lies, #9: It’s All About The Bikes.

January 11, 2010 by Rick Vosper

Note: in the following weeks months I’ll be covering the Top Ten Lies We Tell Ourselves In The (USA) Bike business. For your reference:

#10: Bad News Is No News

Here’s #9:

The Lie
The bike business makes its money selling bikes.

The Reasoning
Bike brands sell a lot of bikes. Bike shops sell a lot of bikes. Consumers buy a lot of bikes. A bike costs a lot more than, say, a pair of tires. Therefore, bikes are the lifeblood of the bike industry. Duh.

The Reality
The bike business is a lot like the movie business. Despite the sticker shock at the cost of your tickets, your local theater famously ends up with very little of that money, functionally turning the downtown multiplex into a very expensive popcorn stand with an interesting marketing gimmick. Which, given the quality and pricing of multiplex food, is a very fortunate thing for them.

Nor do the studios do much better. For every box-office hit, there’s a dozen lesser-grossing movies that fail to make back their production costs. (And when you see those box-office-vs-production-costs numbers on the local entertainment channel/website, keep in mind that those costs don’t include all kinds of other bottom-line-sapping fees, percentages, and overall cost-of-doing-business expenses.) In fact, when you get right down to it, big studios make the majority of their profit on license fees, DVD sales & rentals, video games and other spinoffs, and of course, the endless reruns available 24/7 on your local cable channel.

So when you come right down to it,  the bike business is a whole lot like showbiz. Only, you know, without all the fame, limos, starlets, money, and cocaine.

But we still have more fun.

Case(s) In Point
Retailers. According to the National Bicycle Dealers’ Association (that’s NBDA to us insiders) and their annual Cost Of Doing Business studies, the typical bike shop hasn’t turned an appreciable  profit on bikes in the last decade or more. Bike profits hover within a point either side of the break-even mark, and attempts to get bike brands to raise published SRPs to allow retailers a little breathing room are inevitably pulled down by competitors offering comparably specced product for less. While most distributors now publish (and enforce) perfectly legal anti-discounting policies to control the perceived value of their brands, it certainly hasn’t shown up on their retailers’ bottom line. Not is it likely to anytime soon. At least not under the current business model (that’s called foreshadowing).

Bike Brands are in a similar pickle. The industry is so competitive price-wise, and competing models so comparable in spec, that raising the price of a $500 retail bike by an extra ten bucks at wholesale will almost certainly render the bike unsellable at retail. The best product managers can do is try to hide lower-priced components (often found in front derailleurs, pedals, stems, headsets, and tires) among more prestigious ones, thereby lowering their cost. Product managers are amazingly good at this, which may explain why the best ones are so very well paid. But retailers and, increasingly, consumers have learned to spot these tactics, with the latter abetted by online buyers’ guides and the ubiquity of incredibly detailed information on the internet. (Retailers still have to do it the old-fashioned way, and the ability of a top bike shop buyer to memorize, recall, and compare spec is a thing of wonder.)

Another tactic is to negotiate discounts with suppliers. Shimano is famous for maintaining pricing even to its very largest customers, so this is typically done by putting non-Shimano brakes, cranks, or whatever on the bike. The component’s manufacturer offers up  top-of-the-line parts at a deeply discounted price (thereby raising the credibility/perceived value of both the part itself and the bike it’s going on)  while the OE manufacturer scrambles to make up the discount via economies of scale (production volume) and/or increased sales in its aftermarket channel.

But the real profit-killer for bike brands lies in preseason programs and the cost delivering them. A huge part of the Bike 1.0 business model involves tying up (larger) retailers’ open-to-buy dollars (floor space) with preseason orders, and that in turn necessitates discounts and dating (financing) programs. By my admittedly rough estimates from published BPSA figures, bike brands financed US $300-400 million in inventory in calendar year 2008 for lengths of time between 60 and 120 days. And all those associated costs are subtracted right from the brand’s bottom line.

One of the reasons bike brands invest so heavily in high-end race machines is because those are the only bikes they can turn a reasonable profit on. But the arms race is at work there, too, with profits being funneled into R&D and marketing, which includes the literally millions of euro spent every year by bike companies on pro racing teams.

In fact there’s a much deeper level of irony at work here: the only way most bike brands can afford the backbreaking costs of Pro Tour racing is by spreading them across the entire product line…which means that the $10,000 bikes the pros ride are quite literally subsidized by all the $500 bikes regular folks ride. You know, the same bikes and cyclists that the guys who those $10,000 bikes are so contemptuous of.

But Wait, There’s More
So the bottom line of all this is that very few people in the bike business are making very much money off the sale of bikes. Even the Asian factories that actually manufacture the frames & components are sweating bullets and scraping by on EBITDAs that would be laughable in other industries.

Under the Bike 1.0 business model, pretty much the only guys with double-digit net margins are the kingpins like Trek and Specialized and their affiliated factories (primarily Giant and Merida, respectively), plus a few— a precious few—component suppliers, notably Shimano.

The real money is in the aftermarket side of the business, which may explain why so many bike brands use the economic leverage of their bike sales dollars to force equipment of various assorted quality and value onto retailers sales floors.

Of course retailers are glad to have the good stuff. It’s the not-so-good stuff they’d rather not give floor space to, and that’s where the leverage comes in (it’s the same with the weaker bike models too, but let’s stay focused on the equipment side of the business for a minute for another paragraph or so).

Because equipment margins—both for suppliers and retailers—are typically half-again (or more!) what they are for bikes. And because bikes take up many times the square retail footage per profit dollar times inventory turn (yes, even when stacked vertically), there’s a huge struggle on both sides to focus on the relatively small number of square feet in the typical bike shop with the most dollars available to be squeezed from them. And who could blame them? After all, they got into the bike business at least in part to of make a living. Or thought they did, anyway.

But let’s step back a minute. All this is going on under the old business model which, remember, only directly involves about 40% of the bike sales dollars in the industry. But it’s impacting much of the remaining 60%, too, because those 60% companies are playing by the same crazy rules as the more successful 40% ones. Which is either dumb or completely nuts or both. You don’t run a successful corner coffee shop by trying to be as much like Starbucks as possible. If fact, if you’re smart, you try to the opposite, and try to be as un-Starbucks-like as possible.

The whole Bike 1.0 system runs on level-loading factory production to get the best price (and avoiding the big month-long production gap around Chinese New Year). Which means big bike brands have to take a lot of production at times when consumers don’t particularly want to buy it, like October through January. So they turn the situation to their advantage by getting retailers to inventory that unwanted production for them, and they do it by extending free credit and/or discounts until consumers are ready to buy. And of course that means they have to have the best-possible factory pricing to help pay for the whole Rube Goldberg cost structure in the first place.

But what if some smart Bike 2.0 bike brand paid a little more for their production, shipped it after Chinese New Year, and sold it on a more timely basis to smart Bike 2.0 retailers, who took delivery when the product was actually sellable? The business model would offset slightly higher production costs with savings on discounts and credit, effectively taking those dollars out of the banks’ pockets and putting it back into the channel that actually makes and sells the bikes. And then what if those smart brands split the savings with their smart retailers?

Retailers would make more profit, either by making higher margins or by selling more product or both. Bike brands would make more profit, allowing them to offer more models or more R&D or lower prices overall. Consumers would end up paying less for fresher (that is, with up to 6 months’ worth of product & cosmetics updates incorporated) bikes. And Bike 2.0 brands and retailers would be able to compete effectively with the larger names who remained shackled to an industrial revolution-era production system that cuts off a big slice of their hard-earned profit and gives to a bunch of bankers who probably never rode a bike in their lives.

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Posted in Bike 2.0, Marketing Master Class, Top 10 Lies | 4 Comments »

The Top Ten Bike Business Lies, #10: Bad News Is No News.

November 20, 2009 by Rick Vosper

Note: in the following weeks I’ll be covering the Top Ten Lies We Tell Ourselves In The (USA) Bike business. Here’s Lie #10.

The Lie: Reporting bad news might hurt the industry. Ignoring bad news will make it go away. And if you think otherwise, you must hate bikes.

The Reasoning: There, um, isn’t any.

It’s like a four-year-old who suspects there are monsters in his closet waiting to devour him. But whether they’re actually behind the door or not, he knows that they can’t hurt him as long as his head is tucked firmly under the covers. Make sense? Didn’t think so.

Case(s) In Point:

1. The Great 2009 Inventory Debacle. Bike suppliers (BPSA) carried record amounts of inventory into 2009, but said that was OK. Then they stopped reporting their inventory numbers for several months and hoped no one would notice when they had the exactly fame fifth-of-a-billion-dollars worth of inventory coming out of the prime selling season that they’d gone into it with.

Now, according to retailers around the country who spoke on condition of anonymity, a number of bike brands are offering discounts of 15-25% from wholesale on leftover ’09 and even current ’10 models…but don’t want to tell anyone because it might start a panic, OK? (Glub forbid we should drop retail prices and actually move any of those units.) So savvy retailers are snapping up discounted inventory, plus dating terms…and then selling it at full or near-full SRP to consumers as demand warrants, realizing fat profits in the process.

lemond trek armstrong cycling "lemond v trek"The punchline? Because there’s no real price incentive at retail, there’s no real stimulation of sales, and the net inventory situation is therefore more or less the same as it ever was…only with the suppliers giving their profit away to retailers and then paying the retailers to warehouse it for them.

So, largely due to an unwillingness to  deal with bad news like adults—to open the closet door and see for ourselves whether there’re any monsters therein—the inventory glut is going to be with us for many, many months to come.

2. LeMond v Trek Opening Arguments. You may be unaware that there’s been some boilover in the long-simmering dispute between Greg Lemond and the Trek Bicycle Company, and that Lemond attorneys have gotten the judge to more or less agree to turn the entire trial into a referendum on Lance Armstrong’s alleged ongoing record of in-competition doping. The reasons for this are pretty interesting, and if you want to read about it, the subject was well-covered, both by the excellent British semi-trade site Bike Radar and by a thoughtful, well-researched, 3,000-word analysis in the New York Daily News.

Now as cycling fans and/or people who actually make our living in this quirky little industry, you or I might think the looming specter of an acrimonious micturition contest between the two greatest champions in the history of American cycling might be considered at least newsworthy, if not actual Pretty Big News…if not for the pure courtroom drama of the thing, then at least for its potentially devastating impact on both US and world cycling.

But you won’t read about Lemond v Trek in the USA cycling press. Websites like VeloNews, Bicycling, Cycle Sport, Road Bike Action, all the usual suspects? Not a single. Freakin’. Word. And here’s the headline the industry journal of record, BR&IN, gave the topic (with zero mention of the Armstrong tie-in):

Trek, LeMond Case: Settlement an Option

That’s like the headlines on September 12th 1989 reading

WTC: Window Damage May Be Less Than Expected

So who’s covering the actual event? Exactly one fan blog, that’s who: Red Kite Prayer (Disclaimer: I have a comment on that article under my own name and occasionally place pieces there, usually by disagreeing with my friend Patrick Brady and saying something snotty about it).

Read the article. Now read the Comments section. Even if the “traditional” cycling press try to shove it under the carpet and declare it’s “not real news”, the cognoscenti certainly think otherwise.

(Note: I don’t have an opinion on the merits of the case; my point here is that it’s both potentially huge and being ignored by the cycling press.).

The Reality: To paraphrase the Prophet Bobke Roll, Have a warm steamin’ cup of Grow the Hell Up. There is either bad news on the horizon or there isn’t. And no one likes bad news, because it generally means that prices and therefore profits tend to go down. So suppliers like to hide bad news it from resellers, and resellers like to hide it from consumers*.

Plus, as Fred Clements, who is president of the NBDA and sits on the board of the BPSA told me in a recent interview, “There’s even a perception among both suppliers and retailers that if you’re the bearer of bad news you’re somehow trying to ‘hurt the industry’.”

But as the internet makes the world more transparent, it inexorably makes the stonewalling of unpleasant information increasingly difficult, and its consequences increasingly disastrous. So why are we still hiding the elephant in the middle of our sport/industry/livelihood room and pretending that the Bad News doesn’t exist, and even if it does, it’ll go away if we just hide under the covers long enough?

Besides, whether it’s good news or bad, professional businesspeople working in a professional industry require professional-grade, accurate, and timely information on which to make professional—which is to say, informed— business decisions. The more timely and accurate that information, the more informed and therefore sound the business decisions will tend to be. Which means that as an industry, high-quality information can help us all benefit more from good times and get hurt a lot less in the bad.

So if we want to become a more professional (and ultimately profitable) industry, maybe we should start by growing the hell up and acting like one.

*Note to Consumers: Sure, there’s a short-term consumer benefit to an industry downturn as cyclists get to pay less for stuff for awhile, but there’s already plenty of price competition in the bike market, and margins all around are already among the lowest in the consumer products world (we’ll deal with those issues in more detail in Lies #9, 8, 3, 2, and 1, promise). And in the long run, a profitable cycling business is a healthy cycling community, with a lot of the business’ profits getting reinvested in things that directly benefit cyclists, from bigtime teams and local fun events to advocacy & trailbuilding, increased R &D that results in more new cool products that consumers like, to increased breadth of sizes, colors, and specialty products that encourage women and other emerging demographics to become more involved in the sport.

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Posted in Bike 2.0, Bike Industry insights, Top 10 Lies | 3 Comments »

Bike As Dial Tone: Bikes, Pop Culture, Fashion, & Sparkly Eyeshadow

October 31, 2009 by Rick Vosper

I haven’t posted in awhile, partly out of laziness, and partly because the stream of comments still coming in about the Bike 2.0 manifesto. It’s great to get all this quality of response and feedback.

If you’re interested, the next couple of projects are:jopo

  • A 2-part, 2400-word  Bike 2.0-style guest commentary on The Future of Interbike over on Patrick Brady’s Red Kite Prayer. It’s been up for about a week, and it increased traffic to my humble industry blog by a factor of six. So if you haven’t read it, it may be worthy of your outcheckery.
  • Follow-up Bike 2.0 post back here on RVMS on the Top Ten Lies We Tell ourselves In The (USA) Bike Industry. As the title suggest, it’s in ten parts, and I’ll probably upload a couple parts at a time for your delectation.
  • And a couple of other projects I’m working on right now. Plus, of course, the normal work that clients pay me to do.

LCMDF-logo_smIn the interim,  here’s something a little more fun, but which nonetheless speaks directly to the power of Bike 2.0 in the market. It’s a music video from the “experimental pop/tropical rave/corky rapping/alternative noise” girl-band out of Helsinki, Le Corps mince de Françoise (LCMDF for short). Checkitout below:

remarkableThis is very cool— pretty good tune, too, in a sugary pop kind of way. But what’s remarkable to us cycling types is that these young, hip, fashionable women are riding bikes all over the nighttime city (Helsinki, presumably)…and that fact is considered completely unremarkable.

Compare and contrast with the USA, where every time some fifteen-minutes-of-fame faux celeb  throws a leg over a top tube, it’s a Media Event.

Partly this is because, although the band sings in English, the video takes place in Scandinavia, where—as in much of Europe, too—riding bicycles is just a regular part of people’s  lives, not something they need to put in the newspaper or blog about or even notice much. When riding a bike is really part of your culture, it’s like dial tone: you don’t even think about it. It’s just there.

dial-toneThe video also speaks volumes about the seamless integration of bicycles into both pop culture and women’s fashion. It’s just part of the story: the girls ride bikes to a disco, dance and perform in the same modestly stylish clothes they rode in with, and then ride home in the dawn. This is intercut with studio take where they’re all dolled up, dancing around and only pretending to ride bikes…which is kinda unreal, but there it is.

I love the fact that—during the live scenes, anyway—these girls can really ride. They sit well, saddle height is correct, arms and shoulders relaxed. There’s even a couple scenes where they overtake other young folks on bikes, ride together awhile, and then ride away. All the time they’re turning around, flirting and yakking the way folks that age do, having a great girls-just-wanna-have-fun time while holding their line (well, pretty much) through corners. Cleaner, in fact, than any number of club rides I could mention.

And the bikes themselves—although there are all kinds of others in the video—aren’t tricked out carbon racers or too-cool-for-school fixies with 16″ flat bars. They’re  Jopos, a ubiquitous mid-60’s Finnish design recently resurrected by manufacturer Helkama.

joposJopos are sort of the ultimate bike-as-dial-tone design, in some ways even more so than the classic Dutch utility bike:  one gear, kickstand, luggage carrier, enclosed drivetrain and integrated lock. They’re also utterly unpretentious, in the same fun sort of way as the Volkswagen Beetle, which is one reason they’re considered a classic bit of Finnish design. The new version is selling all over Scandinavia and Europe for  €379, or US$561 (just about $600 for our Canadian friends), so they ain’t cheap, either.

All of which makes Jopo a classic example of  Bike 2.0: a viable, highly profitable brand with a unique design concept set completely outside the standard industry business model—even on the other side of the Atlantic.

Did Jopo pay a placement fee or give away bikes to be in the video? Oh, probably. I don’t really  know and it’s not really the point.  What is the point is this:

jopoTo give you an idea of how popular Jopos are, they’ve only recently been re-introduced to the market and the Jopo Facebook page has some 4,645 fans. And it’s in freakin’ Finnish.

Trek, for comparison, has 5,144 fans as of this writing– just 11% more. Add in the English-language Jopo group of not quite a thousand, and Jopo’s Facebook presence is actually bigger than Trek’s…and more than half the size of the mighty Specialized Social Media juggernaut (although Specialized also boasts another 3,300 Spanish-language fans, including 300 diehards in Chile).

For the record, the population of Finland is less than 2% of the United States‘. So on a per capita basis, it’s not completely unreasonable to say Jopo’s  Facebook popularity in Finnish is 25X Specialized’s in English.

That’s a popular 2.0 bike. And it’s not even sold in North America.  Yet.

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Posted in Bike 2.0, Bike Industry insights, Social Media, Web 2.0 | 5 Comments »

The Bicycle Retailer Interview Reloaded: A Five-Point Manifesto

October 6, 2009 by Rick Vosper

Some of you (hi Mom!) have been kind enough to comment on my interview in the show issue of Bicycle Retailer. Heck, a few of you may even have read the darned thing. For those who haven’t already gagged at my shameless sense of self-promotion, a copy is available here.

nascent_realityThe piece was a rather long, rambling conversation between Marc Sani & myself about interesting things that are happening in the bike business, and the War & Peace-length result shortened to about 500 words. It introduced several topics I want to talk about here in more detail:

1. The bike business is not “changing”. It has already changed, and we just haven’t figured it out yet. As an industry, we (well, the North American portion of us, anyway) still think it’s 2003; business is going nowhere but up (at least for the “A” suppliers and retailers), and those small-fry upstart brands and retailers just don’t matter. In reality none of those things are true. The nascent  reality of the bike biz sector requires not just new products, but a fundamental shift in how the industry conducts its business. And itself. I call this new reality Bike 2.0.

brands2. The Bike 2.0 Polarization will continue— but formerly “niche” players are already part of the mainstream. I didn’t express this very well in the article, and either Marc or I (probably me) missed an important point in getting it to print. Here’s an outlined version:

2.1 No More “B”s. Ten years ago, the bikes portion of the market was divided into “A” (Trek & Giant), “B” (Cannondale, Raleigh, Specialized, et al), and “C” players (everyone else). Now there are only “A”s, which is to say, Trek/Fisher or Specialized, and everyone else. This polarization is also reflected in the retail side of the business where there are one or two dominant players in each market carrying one (or sometimes both) those “A” brands.

2.2 Specialized and Trek have consolidated their dominance by getting into the largest/strongest retailers and by locking down as many of their retail dollars as possible, systematically driving “B” players off the sales floor. The Concept Store is merely the logical conclusion of this process. (The interview goes on to quote me as saying “Trek and Specialized are much more tolerant of sharing floor space with Giant or Bianchi.” What I should have said is “Trek and Specialized are much more tolerant of sharing floor space with perceived “niche” brands like Surly or Orbea or Intense than with more mainline brands like Giant or Bianchi.”)

I should point out that despite the grumbling, there’s absolutely nothing unethical in this practice. (It’s just standard business tactics, kids; get used to it.) But it has profound effects on the brand landscape, as we shall see:

monkeys3. Paradoxically, this polarization process will allow formerly “niche” brands to flourish, increasing the value and diversity of the brand mix overall and paving the way for entirely new business models at both wholesale and retail.

3.1 Desptie conventional wisdom, not every roadie wants to ride Lance’s bike. The very success (and don’t get me wrong, technical excellence, too) of monolithic brands creates increased cachet for boutique brands & products. Sure, it’s cool to show up on the Sunday morning ride with a new Tarmac SL. But it’s so much cooler to show up on a BMC SLT 01. Ditto on the offroad side, of course. And the same goes for fixies, commuters, 29ers, e-bikes; helmets, shoes, wheels, pedals…you name it.

3.2 The same process opens up new and exciting opportunities for retailers as well.

3.3 Ditto for equipment, although to a lesser extent, since equipment suppliers  can sell in more (or even all) locations.

4. The “A” Brands (and retailers) aren’t going away. But neither can they be all things to all cyclists.

4.1 Even in a shrinking market, there are still about 3,000 specialty bike retailers in the USA. And less than half of them sell either Specialized or Trek. Which leaves—in addition to the “niche” positions I mentioned earlier in Trek/Specialized shops, more than a thousand retail businesses wide open to other brands. Many of these retailers are smart, savvy, financially sound businesspeople (they have to be— a contracting market already killed off the dumb ones years ago.) To say nothing of world class Big Box stores like REI, Sports Authority, et al.

4.2 Big (and profitable) is good. But small or medium-sized (and highly profitable) can be better.

4.3 Cervélo. Orbea. Electra. The new Raleigh. Felt. Santa Cruz. The ASI (Fuji) Group. I could go on, but you get the idea.

4.4 The next wave of successful brands—both supplier and retailer—will tend to be (and in some cases, already are)  smaller/quicker/faster/smarter/more focused. With business models to match.

4.5 The Internet—and especially Web 2.0 and Social Media— Levels The Marketing Playing Field. That one’s worth an entire separate column, so we’ll leave it at that for the time being.

5 . Welcome to the Bike 2.0.

5.1 The “A” Brands and their retailers are at saturation. Suppliers can’t open more retailers for territory/exclusivity reasons, and the retailers can’t take on new brands—even in new locations—because their suppliers won’t let them. It’s like two monkeys with their fists in either end of a double-sided cookie jar who can’t see the forest of bananas growing just over their shoulders. Whatever that means.

chart_smHere’s the Bottom Line: Even though the market is shrinking, even after we subtract out the mass market sales, there’s still almost three million units— and more than Half a Billion Wholesale Dollars— worth of business that the Big Guns can’t touch. And that’s just for bikes. Aftermarket equipment adds at least 50% to this figure. Know anyone who might like a slice of that action?

pie_sm5.2 Technical innovation in traditional product categories has slowed. Five years ago, advanced composites technology for monocoque road frames were advancing at a rate that mean only the biggest or deepest-pocketed companies could keep up. And at the same time, production has become incredibly agile, not to mention good. So nowadays I can make a Skype call to Asia and there’ll be a can of Pro Tour-quality Vosperini™ road frames on my doorstep 120 days later. Less if I airfreight them.  (New developments will occur in less mature— but also less technically demanding— product areas.)

vosperini5.3 When products are at technical parity, either Design, Service, and the ability to build Communuity with customers rules, or else Price does. Let’s hope it’s the former. (underlined  text is an edit– I am indebted to Jason Cardillo’s thoughtful comment  for making this very important point.)

5.4 The Balance of Power has already shifted from suppliers to retailers (so get used to it). The reason for this is simple: consolidation at retail is almost ten years farther along than at wholesale. Which means there are more technically advanced high-quality products than there are retailers to sell then (or, come to think of it, consumers to buy them). And that means—sparing you a bunch of Keynesian economic theory about how this happened in the first place—that retailers, being the point of scarcity in the supply chain, are going to be calling the shots for the next few years. I’m not sure, but I suspect this will be a Good Thing.

blood5.5 As Bike 2.0 evolves, supplier consolidation will increase. Barring any major upscrewage (and there’s nothing in the last five or six years to suggest such a thing is likely):

  • The “A” players on both sides of the fence will likely remain relatively stable, perhaps losing some market share as new market sectors develop and old ones deteriorate.
  • Some 2.0 retailers (which is to say, those not locked in to Trek or Specialized relationships) will prosper from increased revenues and market share; doubtlessly a few more will die off.
  • But the real fast- and-furious action will be amongst the remaining players in the bike brand sector where, make no mistake, There Will Be Blood.
  • These wholesalers will either change radically or die (or perhaps both). A few new names will emerge.
  • Some may reorganize along the lines of large-scale customization, as Seven has already done. Others will move increasingly into semi-specialty (chain sporting and/or Performance-style retail) channels, as Schwinn/GT and Fuji are doing.
  • But the plain and simple equation of a shrinking market with relatively few opportunities for channel development means that inevitably a large slice of the less fit bike brands will be dropped or turned into mass-market fodder for their name equity.

So, as I said earlier, welcome to Bike 2.0. Nobody— especially not me— knows how it’s going to end up. But I guarantee you it’s going to be one hell of a wild ride.

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Posted in Bike Industry insights | 21 Comments »

The Eurobike Report: Why “Sell It With Sex” Hardly Ever Works For Bikes

September 2, 2009 by Rick Vosper

Carlton Reid of Bike Biz UK et al has been posting a number of interesting Eurobike bits (known hereinafter as Eurobitztm) including a very fun photostream on Posterous.com.

Lazer_helmets_smOne of Carlton’s photos is of Euro helmet brand Lazer’s display, which is shown at right in all its splendor (or, in deference to Carlton, splendour).

As far as I know there’s nothing wrong with Lazer helmets, except that their sense of marketing seems to’ve been left behind in the 8th grade (sixth form, for you Anglophiles) locker room.

So exactly what– aside from some locker-room humor– is this advert trying to tell us?

The obvious intent is to pay off the make you faster tag: see, the guy got home early and caught his wife (or maybe that’s his boyfriend and the woman is just a neighbor who dropped by to borrow a cup of sugar– who knows?). But the rest of the image is so downright weird as to raise a number of doubtlessly unintended alternate interpretations:

  • Just who is this guy, anyway? Apparently, he’s just come back from a training ride on his TT bike (note disc) wearing his Lazer TT helmet. But he’s wearing mufti– no logos– so he’s obviously not a sponsored rider.  And he doesn’t know enough to use shoe covers. Or to take his cleats off before he marks up those nice wooden floors. Obviously he’s a poseur.
  • He got home earlier than anticipated. But are Lazer claiming the helmet made him half an hour faster? No, that would be silly. So clearly, given the sexual context, the “faster” claim has to with the cyclists’ own sexual performance. No wonder the wife/boyfriend is hooking up with someone else. So, whether straight or gay, in addition to being a poseur he’s sexually inadequate. And we thought the saddle companies were in charge of that message.
  • But at least the house is clean. Wait a minute. It’s not just clean– it’s empty. There’s no furniture; not even a bed, apparently. So in addition to being a sexually inadequate poser, he’s destitute.  Perhaps everything’s been repossessed and he’s being evicted because the doofus spent all his money on overpriced cycling equipment. That silly Lazer TT helmet, for example.

Conclusion: This is a helmet for wankers whose sex life is in the toilet and spend all their money on cycling equipment instead.

Wait. Come to think of it, maybe that’s the perfect target audience.

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Posted in Bike Industry insights, advertising | 2 Comments »

Worst (Inventory) Fears Confirmed: Tilt Your Head Back, Here Comes The Drill

August 12, 2009 by Rick Vosper

straight2hellBicycle Retailer’s Matt Wiebe has an excellent article about the long-awaited BPSA shipment-to-retailers numbers on today’s BR&IN web page. You may recall the BPSA hasn’t published these stats since way back in March and some folks were beginning to suspect that this might be because there’s a heck of a lot more inventory in the pipeline than many of us would be comfortable with.

<smug>And as it turns out, those folks were right.</smug>

But if the First Deadly Sin of journalism is “burying the lead,” BR&IN is going straight to Hell. Because the meat of Matt’s story—what we in the trade call the actual “news” (that’s a technical term)—is way down in the fourth and fifth paragraphs, and the Big News isn’t even mentioned until the final two sentences:

As shipments to dealers plummeted suppliers kept importing bikes and are now sitting on historically high inventory levels as they were in December. At the end of June suppliers had 285,098 more units in warehouses than last year, with 744,568 units total. Four categories have more than twice the inventory suppliers were sitting on in June last year. Hybrid, road and 26-inch cruiser and comfort inventory is up 216, 114, 117 and 109 percent respectively.

Suppliers claimed they were slowing imports this season to flush the bikes through the channel, however, it is clear from the June report they were importing a bike for every bike they sold. Right now suppliers are sitting on about four months of inventory assuming sales during the rest of the year match last year. On hand June inventory in some categories like cruiser, comfort, rigid and full-suspension mountain bike could last through November. (emphasis mine)

Since this is supposed to be a blog about marketing, here’s a graph, some observations, and a conclusion or two:

inventory_sm

Observations:

  • Holy Moley (that’s another technical term), that’s a lot of inventory.
    • just shy of two hundred million dollars’ worth.
    • At wholesale.
    • And it hasn’t changed in the last six months. What were you guys thinkin’?
    • Looks like things were starting to get under control, and then April/May sales fell well below expectations.
  • There’s only two ways out from under an inventory glut:
    • Stimulate demand (=sell-through =price reductions)
    • Reduce factory production, ride out the inventory through natural sell-through
  • Neither will be easy. Or pleasant.
  • Because no matter how you slice it, it’s hard to see how the industry’s going to move through four months’ worth of inventory in the few months remaining in the current retail season, so:

Conclusions:

  • This is going to hurt.
  • Bargains Galore at Interbike.
  • See you there.

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Social Media Final Exam: The Test Is Over, Here Are Your Grades.

July 29, 2009 by Rick Vosper

Quick, who won the 2009 Tour de France?

contadorIf you answered ‘Berto Contador, you’re half-right. But the biggest winner in Le Tour each year is not the guy standing atop the podium in yellow, but the bike company that gets the most benefit from the mind-boggling marketing bet each places on the table each season with the potential to turn a month-long road race into a public referendum on what legions of cycling geeks are going to spend their hard-earned shekels on over the next twelve months.

Assuming the bike companies actually realize positive ROI on their sponsorship/ advertising/promotion investment (we’ll have to tackle that oft-debated question another time), it’s not much of a stretch to suggest that the benefit from winning the Tour de Marketing is as much as  tens of millions of dollars in incremental product sales, spread across the brand. And an eight-figure prize purse is enough to get just about anyone’s attention.

Especially this year, when the battle was not just waged in print, on TV, and via the web, but in the nascent category killer Medium of All Media that is Social Media. All the Big Guys came out swinging, and when the virtual smoke cleared, one name towered over all the rest: Cervélo.

Now before you reach for your W, T, and F keys, let me explain.

robert_gourley_smI spoke for almost an hour yesterday with Robert Gourley, Creative Director at Mojave Interactive, a San Francisco-based agency specializing in Participation Marketing (also called Interactive or Conversation or Participation Marketing, which is delivered though a number of channels, not least of which is social media).

In addition to being a guy with impeccable agency credentials (Interactive Creative Director at Young & Rubicam San Francisco; work for Apple, Cisco, Microsoft, 7Up, et al), Robert also happens to be something of a bike geek, having raced both on- and off-road competitively over the past ten years. So what better way to showcase his company’s expertise in social media metrics than with a running tally that follows four major bike company’s social media performance through the ups and downs of Le Tour?

Which is exactly what he did. And now we—or at least the industry’s marketing geeks who find this sort of thing interesting—are the beneficiaries. Here are the results (all can be clicked to enlarge):

bar_chart_sm

piechart_smMojave Interactive’s conclusion:

As our audit shows, both Trek and Specialized use Social Media well. Specialized edges over Trek in some key areas, like integration and user engagement. Cervélo has great organic buzz, despite having a smaller corporate Social Media strategy.

The charts clearly show the Big Guns at Specialized and Trek have out-spent their competitors (or at least they’re tweeting more often), but the return does not seem to be commensurate with the amount of the investment. To understand how this might be, I asked Robert to tell us a little about the strategy, tactics and results of social media.

linechartFirst of all, how does Mojave work with clients? How do you add value to their social media programs?

What we do is step in at the beginning to help companies develop a playbook for social media—how you’re going to use it, and what they want to get out of it. And that’s very helpful, because if you don’t, you can easily turn your audience off. And I don’t think the bike industry has gotten there yet. I haven’t yet seen a unified strategy from a bike brand.

I’m a cycling fan, raced some back in the day, and a lot of execs in our core businesses are racing fans, so it was a natural for us to analyze the buzz level at the Tour as a thought leadership project for Mojave.

Does the ’09 Tour mark a coming of age for cycling and social media?

I think this Tour gave social media a huge boost with the chalkbot and the racers blogging from the road. To me, it seems more like a groundswell. It seems the brands don’t really have a social media policy in place, but it’s like a lot of the riders and team managers and product people are getting involved.

What would you say to comments floating around the blogosphere that cyclists themselves are way ahead of cycling brands at adopting and using new technologies?

I would agree. The brands are focused on product, and their marketing is all about that product. The Marketing folks have a lot of other channels to manage and they’re saying, “how am I going to handle all my other stuff if we invest in participation marketing?” So in addition to not “getting” the medium, they’re hesitant to take the resources from other programs to fund it.

Are we—the bike business, I mean—doing social media right?

Social media is very off-the-cuff and conversational, and if you’re trained to deliver product platforms and targeted messages and features lists, it’s very hard to change that mindset. But no one wants to talk to a brand, They want to talk to a person. That’s what makes social media powerful, and if they’re already struggling with traditional media, it scares them. I would hope that they start to get more serious about social media and spend the time to develop a clear strategy moving forward.

Which interactive metrics tools did you use to develop this picture?

We’re partnered with a bunch of different tracking tools analytics companies. But it turns out none of those tools really give you a complete picture. We’re a small group, and we have our own internal analysts, and we use them to develop a much more complete picture of what’s going on, and that’s how we put the Tour comparison together.

And with respect to the individual companies profiled:

Trek_logoHow much of Trek’s social media success is attributable to the Lance Effect?

Probably a lot. It’s like the association between Trek and Astana isn’t as strong as it is with Lance. They’re a one-rider brand, and the fact that another one of their riders won the Tour is almost secondary. Even with Postal, there was more of a connection between the team and Trek. But this year, it’s like the connection to Contador just doesn’t exist for them. (Or next year either –rv)

specialized-logoHow is it that Specialized, which is putting out as much presence as anyone and is arguably the industry’s marketing giant, has the least “buzz” of any company?

We see that in a lot of social media with marketers who approach it as a channel, but social media is not a channel—it’s a conversation. You don’t go to a party and just talk about yourself or your bikes or your coupons. It’s really about creating a dialogue. I imagine they’re very active, but not so good at conversation development. The goal in social media is to get people talking about you without you doing it yourself.

cerveloHow do you account for Cervélo’s strong performance from a relatively small brand?

I think they have more visibility because they’re an actual team sponsor. They also have something of an outsider identity. I think people find them sexier for that reason. The connection with the team is really strong, and that makes it more interesting for people to talk about the bikes. A year or two years from now, that may change, but right now they’re very good at flying under the radar. It may be there’s a small group of people creating a lot of buzz (“velocity”) and I bet Cervélo has a smaller group of power users who are both very connected and very passionate about the brand.

cannondaleAnd what about Cannondale?

Relative to the size of the company and the management changes they’ve gone through, they’ve performed extremely well, frequently posting updates, especially on Twitter. They also house their own photo and video galleries.

They seem to keep a steady buzz amongst users, however was unsuccessful in efforts to boost engagement and word-of-mouth during the Tour. Users (want to) do things like share content amongst themselves. Cannondale needs to get in and be a part of that. Finally,  There’s a possibility that users may feel like Cannondale doesn’t care about them: they have 1400 Followers on Twitter, but they only Follow 8. That could make users feel like Cannondale’s uninterested in conversation.

Questions for Robert? Post ‘em in the Comments Section and we’ll see what we can do.

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Let’s Do the Numbers: Why “Down $200 Million” Might Just Be “The New Flat” After All. Or Not.

July 23, 2009 by Rick Vosper

Part One: Industry Sell-Though Numbers: Three-Card Monte Scam Or Shell Game?

The US Department of Commerce released the previous-five-months import numbers for bicycles imported to the USA a couple of weeks ago amidst the usual (which is to say, nearly nonexistent) hoopla. We’ll come to the fun part—the speculation, rumors and general loose talk—in just a minute. But meanwhile, here’s the actual numbers (click to make more readable):numbers_01_sm

Trained eyes (your own, for instance) will quickly see that in terms of units, imports of bicycles are down by some 17%, but that in terms of value, they’re only off by about 2%. I mean, you don’t need to mail off to the Rotman School for an MBA to look at those numbers and say Dude, that is like seriously messed up.

Turns out the answers turn into a twisting, E-Coupon joyride through the twisted alimentary canal that is the bike biz. And you know where that leads.

Since it’s a bit of a heavy read for blogfodder, I’ve broken up into two parts (maybe more). This part—Part One, obviously —is further split into five sections, so you can skip through as your interest permits. It’s organized like so:

1.1 What’s Wrong With This Picture? A brief digression about how the industry gets its numbers. And then ignores them.

1.2 Back To The Numbers. The significance of insignificance, explained.

1.3 Sell-Through: The Missing Piece Of The Puzzle.

1.4 How $1.2 Million in Inventory Just Went Missing.

1.5 Who Knows? And Why Aren’t They Telling Us?

1.1 What’s Wrong With This Picture? Is this a big darn deal or not?
kong_2Depends on who you talk to. I got these numbers from Jay Townley, who was formerly Executive VP of Operations at Schwinn back in the mid-1960s (what we’d nowadays call “Schwinn Classic”) when Schwinn was the equivalent of modern-day empires like Trek, Specialized, and Easton-Bell Sports…all rolled into one and ruled without regard for logic or mercy, or for that matter, standard business principles by the shadowy Schwinn Family Trust. Youngsters in this business simply cannot conceive how powerful the Schwinn empire was—a single, monolithic, damn-near-omnipotent entity that took on the entire US Department Of Justice for more than a decade on antitrust charges like King Kong atop the Empire State Building, lazily swatting Curtiss F8C-4 biplanes out of the sky with one hand while performing unspeakable acts on Fay Wray with the other.

Like Kong, Schwinn ultimately lost that battle. But unlike Kong– whose showbiz career was headed strictly nowheresville and who spent the rest of his days hanging around the lobby of Grumman’s Chinese Theater cadging Banana Daiquiris from tourists and selling just enough autographs on the side to support Faye’s growing Sterno habit– Jay was destined for better things. Like President of Giant USA and chair of what later became the BPSA . All of which is by way of saying that when it comes to two-wheeled beans, Jay knows better than just about anyone else how to count them.

Except, of course, that no one on the supplier side of the business wants to listen to what he has to say. We’ll develop this theme more in Part Two. (That’s a little trick I like to call foreshadowing.)

Every month, Jay focuses the firehose stream of DOC data into usable format and every couple of months sends it off into the aether, where it is duly reported by Bicycle Retailer, used by the NBDA, and largely ignored by the suppliers because it doesn’t jibe very well with their business-is healthy-and-growing message (although they’re happy to subtract their own numbers from Jay’s to see how much of the business is going into the chain stores and mass market). But as I say, we’ll deal with that at more length in Part Two.

1.2 But Back to The Numbers .
So why isn’t the supplier side of the business more concerned about an 18% drop in unit sales versus last year? If automakers take a 20% hit on units, they go for a federal bailout. Why not bicycle suppliers?

Simple: it’s not their units, that’s why . Consider the following graph (click to enlarge), which highlights which segments of the industry took that 1.2 million-unit hit:

numbers_02_smSo 1.17 million of those 1.18 million fewer units are in 20” and other predominately mass-market wheel sizes. Which means it’s mostly the local Wal-Mart and Toys R Us taking the hit, not the local bike shop (unless that shop happens to be a BMX store).

Same logic applies to the apparent 18% increase in FOB price—it’s not the bikes themselves getting more expensive, it’s more like the less expensive ones just aren’t showing up and thereby raising the average price of the remaining units, sort of like what happens to skill level on the Tuesday-Thursday ride when the triathletes are out of town.

1.3 But What About Sell-Through?
Here’s where things start to get interesting. Reps I talk to say that bikes over $3K are bolted to the retail floor, accounting for most of the estimated 5% downturn of retail sales overall (bike brands I’ve talked to agree…for every brand except their own, of course.)

Some markets seem to be hit worse than others. Local sources tell me retailers in Madison, WI, right in the Trek/Pacific/Saris back yard, are actually laying off employees. In mid-July. Which is kind of like the ASO laying off Podium Girls in the middle of the Tour (except, of course, that shop employees tend to have better personal hygiene).

Fred Clements, Supreme Potentate over at the NBDA , agrees with the 5% figure (I didn’t ask him about the personal hygiene part).

nbda_quote“We think it’s going to end up a down year. It’s the economy, it’s the weather, it’s the storms and rain in July, so we’re looking at a year that’s certainly not going to be as good as 2008. The high end has certainly been hit the hardest, and we can blame the recession for that.

“My sense was the retailers came into the season being reasonably lean, and the suppliers were reasonably bloated. I think it’s going to end up being an off year.”

Which brings us to the Most Interesting Question Of All:

1.4 So Where’d All That Inventory Go, Anyway?

We’ve got a bloated inventory picture at season start. Almost two hundred million dollars worth, representing some three-quarters of a million units. We’ve got flat imports of new inventory through May. And we’ve got retail sales off by an estimated 5%. So it doesn’t take an MBA to ask the question: who’s got all that inventory?

It’s possible (A) that retailers discounted it, pulled the product through the supply chain, and bled the overage down that way. It’s always possible (B) the suppliers dumped it on Mexican or South American markets (a favorite trick in other industries) at forty cents on the dollar. And it is vaguely possible (C) the suppliers are still sitting on it, although it’s a pretty expensive possibility. Heck, it’s possible that (D) Charlie The Talking Unicorn whisked it all away to Candy Mountain . But I don’t think so.

1.5 Pay No Attention To The Men Behind the Curtain.
In any normal industry we would make an educated guess about the situation by looking at the monthly BPSA sales-to-retailers and inventory reports. This would be very good from an industry health standpoint, because then everyone would know whether all that gosh-darned inventory is harmlessly (albeit unexpectedly) sold off, disposed of, or sitting quietly on warehouse shelves somewhere like a $200,000,000 time bomb, ticking quietly away until we least expect it.

But this isn’t any normal industry, this is the bicycle business. And for some reason, the BPSA has chosen not to publish its monthly figures since way back in March. Lessee, it’s now the middle of July, so… April, May, June…gee willickers, they’re at least ninety days behind!. In the busiest part of the season, too. So effectively no one knows where all that bloated inventory went to…or at least if they do, they’re not sayin’.

Now, less charitably inclined observers might suspect that’s because they don’t want the rest of the world to see their inventory problem. You know, the same one I warned about back in April. But who knows, maybe they just had more important things to worry about. Like, um, well…as soon as I can think of what that might be, I’ll be sure to tell you all about it.

Coming up in Part Two: Why Everything You Know (about the bike business) Is Wrong.

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Sincerest Form Of Flattery Redux: The Easy Point-And-Click Version

July 17, 2009 by Rick Vosper

brouhahaIt’s been a couple days now since the last piece hit teh Innertubes, and neither my phone call nor email to the friendly folks at RoadID.com have been returned by owner Edward Wiggins…or anyone else there, for that matter. Was it something I said?

But I see their “sincerest form of flattery” ( the whole “blatant rip-off” thing seems so, so harsh) faux-Specialized ads are still running on Versus.com, VeloNews.com, and doubtless elsewhere as well. And besides, as they say, Enquiring Minds Want To Know. Or did they think no one would notice?

roadid_captionedspecialized_captionedSo as a public service I’d like to post various and sundry options here—sort of a multiple-choice format, you know—and let Mr Wiggins save his valuable time time by simply clicking on the corrrect response…and we’ll end this whole brouhaha without any further ado.

Because, like I always say, a little brouhaha is still  better than no ha-ha-ha at all.


I’ll leave this poll open throughout the Tour De France, or as long as RoadID.com continues to run the ads, whichever comes first.

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Sincerest Form Of Flattery Dept: On The Lack of Originality In Bike Ads

July 14, 2009 by Rick Vosper

Whilst watching Tour coverage on velonews.com this morning (and at the same time in video, on versus.com—I love the internet almost as I love my AADHD), I was struck by the following ad:

roadid

As you will note, it looks just a teensy little bit like the current crop of Specialized ads:

specialized01

So I called the folks at roadid.com to find out. Spoke with a courteous and professional young man named Mike, who said the ads were managed personally by company owner Edward Wimmer. As far as any resemblance to Specialized ads, Mike said, he’d never seen the Specialized ads, so he couldn’t comment. Did I mention that in addition to courteous and professional, Mike is obviously smart? Anyway,  he promised to get back to me with an update on the ads, and I put in an email to Edward, so we’ll see.

I’m sure the whole thing is an oversight.

And then there’s this one for Muscle Milk from the friendly folks at Cytomax:

cytomax

As you will note, it looks suspiciously like the black-on-black ads Specialized has been running since 2002 (disclaimer: I was directing the marketing department there at the time, although all credit for the look goes to the geniuses at Goodby Silverstein in San Francisco). Here’s an example of one of those ads (click to enlarge):

specialized02_sm

Nice ad, huh? Those Goodby guys do good work. As you can see, it features a moody image emerging from a dark background with shaded typography doing the same. (I believe this particular one was created but never run in deference to Mr. Boonen’s après-Roubaix  nose problems earlier this year).

A classic  look, and one which Specialized has been using for seven years now. And I’m sure it’s entirely coincidental that Cytosport independently developed an identical look, right down to the type shading. Let’s see: click this link to see for yourself.

Oops.

There are plenty of other examples, too, and not just involving Specialized (although a glance through the publication of your choice might cause you to wonder who decided that all bike ads had to be black-on-black). And it’s not like my former employers at Specialized have a patent on moody black backgrounds, but fer pitysakes, guys, aren’t there any other colors you could use?

Finally, if you’re looking for originality in cycling advertising, you’ll have to look here.

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