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.
The 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.
2. 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:
3. 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.
Here’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?
5.2 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.)
5.3 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.
5.5 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.
Tags: bicycle suppliers, bike industry, BPSA, Cervelo, NBDA. BPSA, retailers, specialized, trek
October 6, 2009 at 9:09 pm |
Rick, great post and nice follow-up to the interview. A quick comment on 5.3 and 5.4. With products at technical parity and the balance of power shifted to the retailers, I think a third answer to 5.3 comes out – service. Suppliers who offer great service to retailers, and make it easy for retailers offer great service, can win out over design and/or price. Actually, now that I think about it, the real answer is value – a combination of design, price, and service.
October 7, 2009 at 4:03 am |
Excellent point, Jason, although I may define service a little differently than most folks. Also, I was thinking more about bike brands than retailers, although with Web 2.0, the ability to maintain a conversation with customers becomes critically important for brands, too. In fact, that’s an important enough point, that I’ll edit it. Great catch!
October 6, 2009 at 9:24 pm |
Wow… Very astute, great post, thanks.
Uh, do you have the geometries yet for the Vosperini bikes? ; )
October 7, 2009 at 8:46 am |
Thought-provoking piece, as usual.
Where do you see Dorel fitting in? They seem to itching to get into that A category. Not just with brands, but with owning country distributorships, too, witness recent buy-out of Mongoose/GT distributor in UK (and turning it into the Cannondale distributor from Jan 2010).
And, while I’m on, where do you see e-bikes fitting in? With Shimano about to make e-parts, SunTour displaying proto e-parts at the shows, do you think Specialized with dip its e-toe into the water?
October 7, 2009 at 2:31 pm |
Great article, Rick. And great blog in general. Much of what you say, in my view, is dead-on and has broader application in sporting goods retail. It’s a fascinating time to be in business. Like riding a landslide during an earthquake.
My one challenge to you is to prove this statement:
4.5 The Internet—and especially Web 2.0 and Social Media— Levels The Marketing Playing Field. ”
Maybe it’s accurate to say “helps level” or “partially levels,” but the statement as written is telling me that marketing budget isn’t a factor. To that I must say, NFW!
Looking forward to your explanation!
October 7, 2009 at 3:50 pm |
Hmm. Good point. I think what I was trying to say was more like “tends to level the playing field,” but of course you’re right. Or maybe it’s just leveller than it was with print ads & stuff.
October 8, 2009 at 4:57 am |
[...] sooner. And if you think there’s no space for them in North American shops, take a look at Rick’s recent post about the opportunity brands like these might be seeing. If he’s right, there could be more [...]
October 8, 2009 at 7:38 am |
awesome post…i didnt have time to read it all but i got it bookmarked! i learned a bunch from what i read so far
October 8, 2009 at 11:26 pm |
Rick,
Thoughtful piece. There’s lots to consider here and I’ll shoot some comments back once I’ve read over it a couple more times. Since I’m sort of stuck in the eddies of the biz – bmx race, the smallest niche in the niche bmx market – I see the market from a different perspective.
While I believe what you say about a shrinking market, the A players position and the opportunity for the smaller players there are some points you made that I see a little differently. Now excuse me while I ramble –
1) The underfinanced dealers have not gone away. They are still out there and most suppliers – especially the mid/small size suppliers are extending stupid credit limits and terms to dealers who will not be able to pay. Currently, in the industry, 50% of past due receivables are more than 90 days old. This is huge, huge I tell you (should be more like 3%) and it will not be repaid. Bad debt and excess inventory are the two things that will kill any supplier in this business and I expect to see a high failure rate of these small and medium size suppliers because right now the industry suffers from both. Not necessarily a bad thing thing because it will open the door to acquistions and mergers for the more financially savvy and give increased market opportunity to the survivors.
2) The dealer is in the drivers seat as you point out, but most are not taking advantage of the opportunities. More than anything old school dealers want to be ‘protected’ – protected territory, price protection, internet protection, protection from dated inventory – protection from competition. But…and this is the good thing, this old school mindset is a wide open door for the entrepreneur. I see it every day, the new small guy who sees an opportunity that the ‘established’ dealer is ignoring and hustling to take advantage. There are so many ways to reach existing and new consumers it’s a play ground for those who can identify these opportunities. The old school dealer sits in his shop waiting for people to walk in while the ‘upstarts’ are outside going where their customers are. Old school dealers want to dictate ‘what is best for the customer’ and ignore what their customers are asking for – a very paternalistic attitude.
3) The industry has changed, is changing and will continue to change. Even the A players will be trapped if they don’t change their business model. Model years have to give way to continual introduction, inventory levels have to drop, marketing approaches have to change, who we market to has to change, sales channels need to be opened and exploited and credit has to tighten.
That’s all for now, but I will return!
Chris
October 9, 2009 at 2:31 am |
Wow, Chris. The excellent points you raise would take an entire blog post to explore. Want to co-author a piece?
October 9, 2009 at 2:12 pm |
Rick,
Sure, let’s talk about it off line and see what we can put together.
Chris
October 9, 2009 at 6:37 pm |
Rick,
A quick comment about concept stores. In my opinion the value of securing these arrangements goes well beyond locking up floor space for bikes – or a territory for that matter. As you know companies like Trek, Specialized and Giant (to a smaller degree) spend a lot of time, effort and money to design, manufacture and promote clothing, accessories, and consumer services. (That sentence was a triple trifecta) Because these companies did not have franchise stores or exclusive arrangements they had no control (dealers could cherry pick which brands/products they wanted to sell and were under no contractual requirement to represent a brand’s complete product offering) and limited input to consumer presentation at the point of sale. A very frustrating experience I’m sure. By having ‘partners’ the supplier has more control of the retail presentation process. They can ensure that all their products are, at a minimum, physically represented (customer can touch it, try it on etc) and have a better opportunity to mold the sales presentation (sales pitch, features, benefits etc). In my opinion this is the true value of Concept Stores – control of brand representation at the point of consumer presentation.
Chris
October 23, 2009 at 4:41 am |
Hi Rick
Great post, and very interesting comments above in reply. Aligns with much of what I’ve done in my own business, a high-end fit studio where every bike is custom spec’d and there is no inventory (at least not complete bikes). I think customization will be a key theme over the next few years given the technical parity that you highlight. Once people realize how much of the cost of a A brand bike goes to pay for marketing, and that they could spend those dollars to get their own unique thing, the A brands look less appealing.
I do think there is some argument for the “old-school” desire of dealers having a reasonable level of protection from vendors on pricing and territory – even when there is not a big dollar commit in the form of dealer stocked inventory, there is a time and marketing commitment in getting and staying knowledgeable and being able to represent and service the brand well. This varies a lot over the price range of course – noone’s going out of their way for a $500 bike anyways, I imagine. At the high end (read: low volume), there are only so many locations needed.
Regards,
Karl
October 26, 2009 at 8:25 am |
[...] to this question involves a complex set of dynamics I call Bike 2.0 and discuss in more detail here. This bit may be a little, ah, statistically dense for most folks, so enter at your own risk. [...]
October 27, 2009 at 1:15 pm |
let me guess, you got your MBA in a cracker jack box ? let me guess, you never actually worked before you got said MBA ?
October 27, 2009 at 2:44 pm |
An MBA? Surely you jest. No, I learned my Marketing over the past 30 years in the bike and hi-tech worlds. And anyway, it was a cereal box. PLUS I had to save up the coupons, too.
November 7, 2009 at 5:04 pm |
[...] Vosper’s What the Bike Business is Coming To — The Bicycle Retailer Interview Reloaded: A Five-Point Manifesto — [...]
November 20, 2009 at 2:34 am |
rickie-poo
you’re probably already on it
but did you see the leisure trend numbers?
RetailTRAK™ September 2009
Percent of total merchandise* sales by month
Jun-09 Jul-09 Aug-09 Sep-09
Bicycles 54% 51% 52% 51%
Apparel/Helmets/Shoes 14% 15% 14% 14%
Aftermarket Parts 16% 17% 17% 18%
Aftermarket Accessories 16% 17% 17% 18%
continuing to see the new “era of the upgrade” mentality
less new bike
more new parts and stuff to make it/me feel new
hope you’re well
January 11, 2010 at 8:48 pm |
[...] 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 [...]
February 4, 2010 at 6:38 pm |
heh, heh……”upscrewage”
February 7, 2010 at 11:18 am |
Are you going to update this post, I am really interested what will be the next one.