Online versus traditional brick and mortar IBD… again/ still/ some more…
The cycling industry, like nearly every other industry known to man, struggles to come to terms with the growth of online retail and how to adapt to it/ with it. The cycling industry- especially at the retail level- has been fighting to survive the battle against online retailers ever since the earlier catalog mail order days. The vast majority of retail IBDs have been unable or unwilling to compete with the buying power and discount pricing of many online retailers. For several years nows, the manufacturers in the industry have also struggled to come to terms with the growth of online retail. Many brands have tried to cultivate twin distribution channels, attempting to remain strong in both IBD and online worlds. For some brands and product categories, it has worked with relatively few issues. The main category, but certainly not the only one, to receive the greatest amount if scrutiny and angst has been bikes- complete or framesets.
There are many arguments why a brand would want to partner with online retailers, the biggest and most obvious being the sheer number of consumers doing their research about brands/ products online, and then hunting for that ever popular and hated “buy now” button. For traditional IBDs, there are plenty of reasons to fear online retailers- many online retailers offer prices that can be cheaper than what an IBD can buy a similar product for, thanks to their massive buying power and lower overhead. Online retailers, often referred to as evildoers attempting to undermine the health of the industry and put shops out of business, are far from The Evil Empire®. Is it fair to paint all online retailers as being ruthless bloodsuckers for simply being often more efficient and existing in the space where so many consumers spend vast amounts of time?
For brands, especially for smaller bike brands fighting for dollars in an increasingly competitive market with dominant incumbents increasing their control over retailers in the traditional IBD world, choosing to ignore online distribution- either through consumer-direct sales or with an online retailer- could spell death. With retailers often seeking to streamline their businesses, to keep things easier in a tough market or because of pressure from their major brands, smaller/ newer brands are left with very few options if they want to survive. Ignoring online distribution means saying “no” to consumers interested in their products. In my previous role as Brand Manager at Masi Bicycles, I had to frequently tell a consumer that I couldn’t directly sell them a bike, and that there were no online retailers who could sell them a bike… I had to say “no” to a sale. And I did it a lot. Masi had very large geographic areas without any retailers, and consumers in those areas who wanted to buy bikes… but we had to say no to selling direct and there were no retailers who could help them out. And things haven’t changed much in the industry in the few years since I was at Masi. It’s not entirely about small/ new brands either, because there are plenty of consumers who can’t get easy access to established brands too- or they simply choose not to deal with the local IBDs available to them. What are brands to do? Continue to say “no” and allow the brands who say “yes” to steal their sales?
For the IBD, there are numerous issues at play. If they attempt to compete on price, they may end up selling products- just to capture the sale- for less than they paid for the product, or at such a small profit that it becomes hardly worth stocking the product. Many retailers have had the experience of being “shopped” by consumers who use the retailer and their expertise to determine the proper product/ size/ fit that they need, only to have the consumer go home and buy online (or even within the store on their smart phones). Sometimes, it isn’t enough to explain the added value of personal service, good relationships, and proper product knowledge that the consumer misses by shopping online. Many consumers are addicted to the thrill of getting the ultimate “deal”, even if the shipping and/ or labor to install/ set up the new widget brings the IBD and online source to pricing parity. There is an increasing number of consumers who just flat-out prefer to shop online, for everything they purchase. This coming Christmas season is expected to be another record-breaking year for online sales. In fact, just this past week, UPS shares went up significantly in value based on reports by the company of the anticipated increase in business due to online sales. Even if an IBD is able to entice consumers into their shop, there is always the chance that they will not have the item in stock and need to order it themselves, increasing the desire of the consumer to go home and order it… and possibly get free freight, unlike the IBD!
Online retailers, have struggled for years to develop a better buying experience than walking into the local trusted retailer. Sometimes it’s easy, and other times it’s not. Online retailers without knowledgable staff, or with high turnaround, can struggle to survive as well. It takes a lot of volume of low margin closeouts to keep the lights on and the computer server humming. Having the right mix of product and inventory is an equal challenge for online as well. There has to be a balance of closeout inventory pulling in the low-price consumer, as well as new and currently hot products (at full margin) to keep “the geeks” coming back. Logistics is its own nightmare too, especially for larger companies doing their own private label products.
With brands, the answer will likely settle into a hybrid model of traditional IBD retailers and some sort of online presence. Either consumer-direct sales or some version of a “buy now/ buy local” option on brand websites, even if it directs the consumer to a nearby retailer- similar to Shopatron. For the retailer, the answer is likely going to require developing both an online presence, and learning how to offer a buying experience that trumps the convenience of buying online and potentially saving tons of money. And online retailers are increasingly attempting to develop IBD footprints, as well as learning how to increase profitability without just selling an increased volume of closeout products at low margins.
Overall, the answer is going to be uncomfortable at times, and is going to require a lot of dialog between all parties. There are many more pieces to the puzzle, and nobody seems to have the lid to the box so we can all look at the picture and figure it out. Consumers are online. A lot. They’re comfortable buying everything from watches to clothing to food to cars… and bikes. Brands need to reach more consumers- the industry has not had enough growth beyond its regular customers in over 10 years. Retailers have to make money and reach consumers- whether online or off the sidewalk. With the market’s hyper-competitive environment, the answer is likely going to get muddier before it gets much clearer.
Tim Jackson
Chief Kool-Aid Dispenser
Shut Up and Drink the Kool-Aid! 
With 3 stores, a total of 150K sq ft in floor and warehouse space (completely full with almost 2000 2014 bikes and product) – we DO have the buying power of online retailers. How do we fight them? We do not carry any products that are sold online without a POLICED M.A.P. policy. Products purchased online and brought in for install are charged double labor with no warranty/guarantee on the labor (hey, we have no idea where you got this XT derailleur – it could be knock off so we can’t guarantee it works properly).
Even with these policies, we consistently draw customers from Mass, CT, VT and ME. Why? Because of the knowledge and service. Sounds cliche, but it is what has set us apart from the big guys in Boston. The stories I hear…..
So it’s that simple – want to be a part of our stores and sell a ton of product? Support as a supplier and value your own product. The minute you decide your products are worth less – so do we.
GoGoGoodale’s!
Rob- brother, that’s perfect. Goodale’s is a great example of how to navigate the choppy retail waters. Adding value to the purchase of the consumer, which I will assume includes educating the ones who purchase online and then come in to the store for service, explaining the benefits of purchasing from Goodale’s. Many retailers just angrily alienate the consumer, who then never returns and further supports their decision to buy online.
But what should manufacturers/ brands looking to establish themselves, building a consumer demand, but unable to grow an IBD base due to competition and retailers not wanting to be “pioneers” for new brands do? How do they get products to consumers? Do they just accept that they are not going to grow? Innovation suffers and development stagnates when we rely solely on the established brands to lead the charge.
One thing that is not being talked about here- and which I feel is perhaps the ace card for the IBD- is the service/repair department. I feel the future IBD will need to become the premier repair/service source first, then the retailer part will follow. Things that need to be fixed these days on bicycles are getting higher tech, require more skill and knowledge, and more specialized tools than ever before in my 14 years as a bicycle mechanic. You can’t “buy” that knowledge of the ins and outs of service work on-line. Most individuals will not be set up to do such work at home either, despite the on-line bicycle sales that happen. (Witness all the on-line ordered bikes I have to “re-assemble” that customers are bringing me.)
So, I feel this aspect of IBD retail is something shops should invest into. Get skilled labor, pay them well to help them stick around, and invest in a repair area that reflects professionalism. The days of the “grease monkey” looking repair areas and high school/college shop rats for repair guys/gals needs to be re-imagined.
The problem with this logic: There just aren’t that many service/labor dollars to go around. Let’s say, generously, that labor revenue is 15% of IBD revenue. And let’s say a successful IBD could do (like Vecchio’s has here in Boulder) 60% of their dollars in labor service. That would reduce IBD numbers to 1,000 shops instead of the current 4,000. So while it may be a saving strategy for any individual store, it’s no cure for the overall decline of IBD numbers.
Mark/ Ray- See, this is why I didn’t bring this up… because I knew it would come out in discussion! (Man, I’m smart!)
Yes, service is a big part of the equation, and Ray is also correct in his assessment. It’s not every shop that can make it work, or is willing to invest in making it work. I know here in SoCal that the supply of really great mechanics is something bemoaned regularly. Too few retailers will (or even can) pay a good mechanic enough to keep them in the shop. Mechanics here have become extremely nomadic- moving from shop to shop to shop, chasing small pay increases. There are a few examples of shops keeping mechanics around, paying them well, and seeing the benefits from it… but it’s not the norm.
But I completely agree that products are becoming more and more technical, requiring greater expertise, and that will hopefully lead to an increase in the importance of the IBD. I mean… look at the growth (and anticipated growth) of e-bikes. I shudder to think of the average consumer attempting to work on or troubleshoot e-bikes. A very educated and well-trained service department is going to be needed to address these products.
As Tim mentioned, the rapidly increasing level of technical detail and knowledge required to work on bikes is incredible. Road, Mtn, and E-bikes all require much greater attention to detail than even ten years ago, and shops are starting to realize that this ability is something that needs to be sold and merchandised.
However, in the modern bike shop world technical proficiency is only part of a successful mechanic and service center. A bike mechanic is more like a barista or bartender, with his or her stoke, passion, ability to listen, professionalism, and intense local knowledge of trails and roads being as important as possessing the skills to maintain components.
Once (if) a mechanic and the shop they work at realizes this and acts on it, opportunity presents itself. The development of service-only shops is an interesting example of shops getting it.
Hi Tim, surprised you didn’t talk more about the key factor separating bicycles from all other online merchandise: The need for assembly and tuning. Isn’t that the primary factor that keeps the brands from selling bikes to online retailers, the fact that customer satisfaction can’t be assured without a skilled mechanic in the loop? IBDs bemoan the shrinkage of their numbers from 7,000 to 4,000 over the past couple decades. Look at independent camera and stereo stores, that sell true “commodity,” work-great-right-out-of-the-box gear. Their numbers have declined by 80-90%, rather than 40% as with IBDs.
Ray, you have fallen victim to the trap I set… and I am very happy about that! I like to set the table and let the rest of you do the cooking. Yeah for me!
You are absolutely right, but… there are many online retailers who have found a way to address that. Many online retailers are able to offer fully built bikes that have been fully assembled, tuned, set up, and require an absolute minimum of assembly by the consumer. Some brands have products that come out of the box and only require inserting the seatpost/ saddle and turning the bars.
My point is that enterprising online retailers are figuring out ways to minimize the set-up risk for consumers. And more and more consumers are becoming comfortable with that. Hell, people are buying cars online!
I’m not advocating a particular agenda, my point is that we have a need to find a way to evolve with the market and hopefully find a way for everybody to survive. Working for a bike brand, my interest is always in serving the needs of both of my customers- retailers and consumers. Do we, in the absence of a local retailer, continue to say no to consumers asking to buy our products? Do we tell our shareholders that we are going to have to accept zero growth? Do retailers continue to forfeit the control of their businesses to their largest suppliers who have the retail network needed to reach the most on-the-ground consumers? Does the market condense further and further in terms of retailers and brands?
There’s a lot left to figure out.
I listened to this in the car this morning, and it is a scary example of what is happening… and why we, as an industry, need to find a way that all of us can survive.
http://www.npr.org/2013/10/28/240742832/moving-in-with-manufacturers-amazon-delivers-a-new-approach
Give the intro a read, or listen to the full segment. It’s very illuminating.
i will try to add something more in-depth to this conversation later, although tim has heard how i see it a thousand times already.
i will say one of the basic things that the majority [90%] of bikes shops fail at is being a bike shop. the service is usually atrocious and i fail to see why i would be enticed to buy a product in stock and at a discount, if i am confronted with an employee and or owner who could care less if i was there. IBDs will never, i repeat never be able to attract the customer who is only interested in the cheapest price or product, so do not try. that was also true before the internet. focus on customer service, KNOW YOUR PRODUCT, use technology like the big boys [the internet is the great equalizer too], but most important make the potential customer feel special. make it a QUALITY shopping experience and create long term relationships [lowest price is a short term relationship]. a website is at a disadvantage when it comes to this.
example of a quality shopping experience i recently had: i went into a SMALL independent dog food store in my neighborhood, the proprietor was so friendly, KNOWLEDGABLE, and an absolute pleasure to interact with, i gladly paid more for the dog food that he recommended from a very small curated selection. i walked out calm [who can say that about the internet], with a smile and was completely content with my purchase, even though i paid a premium [aka full price]. i love technology, i love the internet, i love saving money and i love owning a website, but i also know that no website will ever have the necessary variables to create a QUALITY shopping experience.
as far as masi not having direct sales, that is a simple fix. offer direct sales to those that do not have access to a local dealer. for those that do have access to a local dealer, let them buy the product online through the masi direct sales website from the local dealer [and require pick up from the local dealer]. you know the old speal, to insure quality and safety, you can buy from the website and pick it up from the dealer. masi gets a happy customer and the dealer gets a sale. once a website is setup it does not cost money to run [you know what i mean]. masi could also charge the dealer a finders fee if need be, say $50 a sale. this is not rocket science…
[any spelling or grammatical errors are tim’s fault]
jim
I have two issues with the article as written. 1 is the inferences made regarding the growing number of customers buying online 2 is the issue of not having a stocking dealer near where a customer is located.
On the first issue I agree that more and more folks are turning to the internet to do research and make purchases. This article and many that I read make it appear that the biggest reason for this dramatic increase is convenience and availability. When in fact the overwhelming reason most folks buy online is price. A good retailer and can easily win the customer if the only benefit online is convenience. But when the delta on price is 20%, 40%, 60% or more… customer service makes no difference. I am all for a free market but this current trend will do more to harm the “free market” than help it.
A brand should be managed and I would assume a brand manager would do just that manage their brand. That management must include the “value” of the brand in the market place. When brands make the short term decision to increase sales at the long term cost of the brands value then we see what is currently happening. The commoditization of that brand and by extension our industry. What happens when IBD’s are no longer around? Many IBD’s are in areas where rents and cost of living is high. They do not have the luxury of having a business located in areas where the cost of living and rents are cheap. If that were the case then brand managers like yourself Tim, would not have distribution anywhere for brands like MASI.
Which brings me to my second point of contention. If a brand is managed well and has a marketable message then it sells. In small towns as well as large. That said even the best brands will experience “gaps” in the distribution model. When that happens there is a simple solution. Ask the customer who their local dealer is. Call that dealer and make a deal with them to take care of this customer. Ship the bike (COD or prepaid if getting payment is a concern) to the local dealer have them build it ( for a fee) and have the customer pick it up there.(this assumes that you do not have a dealer in the vicinity of your customer if you do then perhaps there is a discussion to be had with the customer as to why they won’t shop there as well as a discussion with the dealer)
Here is what that can do. 1. The vendor makes the sale with out going out of the defined distribution model (the IBD chain). 2 The vendor may pick up a new dealer. 3. The dealer may pick up a new customer. The bottom line is the bike is in the hands of a consumer at a price that maintains the value of the brand, built by a knowledgeable shop which is good for all three players, the vendor, shop, and consumer.
One final note… There is another issue that is never talked about in these types of articles and that is the over production in our and other industries. Part of the problem of our current situation is there is simply too much product in the marketplace. And the differentiation between those products is almost 0% is some cases. Off the top of my head we have Trek, Specialized, Giant, Cannondale, Cervelo, Felt, Kona, Bianchi, BMC, Look, Jamis, Orbea, Pinarello, Masi and more than 40+ additional bike brands out there. All these manufacturers make traditional bike style bikes. That is to say diamond frame, two wheels, cranks, pedals, chain etc… If each of these manufacturers made only 10 models and there are close to 50 manufacturers then that is 500 bikes models for sale. Many of these companies have 20, 30 or more models to choose from. And don’t get me started on the number of Light options in the market place….
This is not a simple problem and when articles get posted that try to distill it a disservice is done. It is like having blinders on and assuming that you are seeing the whole picture. The advice always sounds reasonable based on the content of the article but when viewed through a wider lens begins it begins to fall apart.
Whooa sorry for the long rant….
No need to apologize Jeff- this is precisely why this site was born; to facilitate these discussions. I certainly never pretend to have all the answers. I wish I did- I’d make a lot more money!
You’d be shocked Jeff how many times I tried the exact model you mention; calling existing Masi dealers without inventory, or local retailers near ready consumers, who said “NO” to an instant, no risk sale. Zero risk. New consumer. Cash money. And they said “no”. There were often times when I had to tell the consumer that they couldn’t have a bike because nobody was willing to take their money.
Production levels are a product of the market and brands (all brands) seeking growth- or at least maintaining their relative size. As new brands come along, or new technologies, we see even more growth. No way to really slow it/ stop it, without a major crash in the industry or increased consolidation. It;s the same in all industries… so we’re not special that way.
Thanks for chiming in; THIS is precisely why I started this site back in 2005.
Tim,
http://www.savethebikebiz.com
You’ll need to invest 3 hours. Then you’ll have the complete picture that you imply doesn’t exist above.
There is far more to retail economics than the same sophomoric points that have been hashed and re-hashed for the last few years, now, in this product category.
Happy to take questions at jeff@openfour.com.
The problem with Masi’s brick & mortar policy was that the author didn’t believe in it. If a customer calls up and asks why he can’t buy xyz policy on-line, the ready answer should be quick & simple. “A Masi isn’t a Masi unless it has a local retailer standing behind it, making sure it’s the appropriate bike for the customer, properly fit, fully assembled and able to take care of any warranty issues that might arise.”
Sure, that means there are going to be people who can’t buy a Masi in less-populated areas. But if you’re selling not just a frame with parts hung on it, but something with the added value of a local expert standing behind it, then you’ve broken free of commodity selling and entered into a domain that’s more exclusive with potentially greater reward.
But really, the big issue here is having a policy that says you’re going to distribute in a certain way, and not getting behind the reasons for doing so. It’s a lose-lose way of doing business, because you don’t respect what the value the retailer is adding to the product, you’re just thinking of lost sales to people who want to buy on-line.
Mike, I can assure you that when I was with Masi- and I’ve been gone for nearly three years now- there was no lack of “belief”. But remaining a small niche brand with limited retail support and a growing consumer demand places brands in an unenviable position.
And again, I don’t claim to have the answer and I don’t believe that anybody has “The Answer”. If it existed, we’d all be doing it.
Not to disagree with a learned and successful retailer (and my friend) Jeff Selzer, who manages Palo Alto Bicycles and is an NBDA Board member, but… Survey after survey rates convenience and availability above price as a factor for online buyers. No question, when a product is, say 40% cheaper online, that may be the greatest appeal. But… IBDs are losing share in product segments where there IS price parity. Another thing, and lest this turn into a rant… consumers, not supplier brands, will determine how many bike shops there are in the US. And individual bike shops will thrive or die depending on how well they do at addressing a market segment that is going to continue to be there. So yes, do 60% of your sales in labor/service if you can. And be a bit at the mercy of the limited number of good mechanics. If I were to open a bike shop today, I’d totally focus on the $300-800 bike buyers, families, first-time commuters, and their related accessory and apparel needs. People who need your expertise and service, and really can’t buy what they need online. Not a carbon fiber or titanium piece in the store. Almost easier to do as a start-up than trying to convert an existing store.
And similarly not to disagree with an experienced researcher in Ray, but consumers are not so in charge as they are often pitched to be. Consumers did not drive creation of internet retailing any more than they drove the rise of chain stores, catalog ordering, or the latest technologies in modern bicycling. Consumers are often used as the scapegoat for what we who deliver products perceive we “must” do to cater to them.
Rather, consumers make choices. Who presents those choices to them? We do (suppliers, no matter where you are in the supply chain). At best, consumers determine who will still be here, at any level, based on the choices they make. BUT, those choices are multi-dimensional. It could be between two different retail channels for the same product SKU, or it could be between a product and a substitute in a completely different industry for how they want to spend their next hour of recreational time.
Much of the consumer research is flawed by loaded and leading questions that make certain assumptions based on the bias of the one conducting the research. No matter how hard we work at it, humans seek answers and devise methods to find them through their own inalienable bias.
IMO, suppliers do indeed, particularly brand owners, determine their own fate by the choices they present to the marketplace. A brand is not compelled to offer its products through any particular retailer, channel, at any particular price or quality, etc except according to its own beliefs. These are all brand owners’ choices, and a savvy brand owner that understands retail economics must think long-term. As a famous rock band sang: “if you choose not to decide, you still have made a choice”. (An attempt there to point out that the omnichannel of sales is not ergo very often the best one.)
But if we can get past the consumer God-complex, and recognize that we have fare more power than we are told over our own brands, products, and marketplaces, then I can’t agree with Ray more than where he says our best opportunities are with people who need us the most, and I would expand that to include marketing heavily to people who need us and aren’t looking for us. (That vast middle of the American market that isn’t cycling, or isn’t riding quality equipment. THAT is our growth opportunity that is so often looked past by brands who continue to fight over the same shrinking pie of aging enthusiasts who learned what they know a generation ago — guess from where — the IBD!
Awesome thread and thank you all for contributing to this discussion. I love it!
Follow-up thought with the discussion with Mr. Franco in mind below: I see research in retail economics taking divergent paths much like research in global warming. In both disciplines, there are cadres of information sellers.
One type helps to create and then buys into a newer “prevailing wisdom” conducting subjective research intertwined heavily with theory, opinion and assumption. This research runs the gammut from honest attempts at empirical methods all the way to horribly flawed methods looking for pre-concluded results.
The other type sticks to reporting readily verifiable data that is undeniable, even if at times incomplete or misinterpreted. When both types of research lead to the same conclusions, there is little debate. When they reach different conclusions, the debate can get quite heated because the financially vested interests behind each side see their funding sources threatened.
But science is touted as and is supposed to be emotionless and free of financial corruption. Old retail science, which has not changed much and reports the truth insomuch as the underlying data is accurately measured, aggregates actual sales numbers from going businesses: P&L and balance sheets are central and, taken together with with sales demographic data, these reports can tell any industry most of what it needs to know about what is right and wrong in its marketplace.
In the last ten years, as quality cycling has struggled and failed to grow, a new crop of information sellers have arisen, biased, trying to marry an incompatible commoditizing force (internet selling) with a non-commoditizing channel (small brick-and-mortar, high service authorized dealers). It mathematically cannot be done with long-term success, but there is much money to be made selling the *possibility* to brands, distributors, and large dealers.
We retailers and suppliers, most of whom are not economists due to our focus on/love of the product ahead of the enjoyment of interpreting hard data, are gullible. So are many of the consultants who never set out to mislead anyone, they simply bought into the prevailing wisdom on a wish. We want to believe that someone can find the magic bullet for the LBS winning on the internet’s turf. Would that be just like we won on the big-box turf, prior to the internet, as it took half of the dollars and 3/4+ of the unit sales away from the LBS? Indeed, why not just let the LBS die and encourage all brands to go online direct-to-consumer yesterday, if online selling is all it wants to be? Because at the end of the day, we know this commoditizes and kills brands and isn’t a promised land of plentiful success. Cycling brands recognize that no LBS = no brand, and they are spending precious resources paying consultants who are telling them they can have both the LBS and the internet.
Beware the consultant selling a rosy hybrid, omnichannel picture of retail. You pay him up-front, and after he has made his money, it matters little to him whether you make yours. What this one sells reduces human beings into numerical representations of subjective attitudes and invites us to treat consumers like systems and formulas for sneaking dollars out of their wallets. Most consumers eventually pick-up on this and resent it, but they won’t tell you this, they will just leave you and go do something else.
The ONLY way to win against online retail is customer service. People don’t buy bikes from businesses, they buy them from people.
At Franco Bikes, we know this, and we sell bikes exclusively direct to consumer, online. We considered the IBD model, with the appeal being distribution, but ultimately decided against it very early on. It was a fairly easy decision, but offers many of its own unique challenges.
As an industry, we have a tremendous challenge ahead of us with global marketplaces like Amazon.com and Walmart.com selling brands like Sidi, Shimano, Lazer, Fuji, and many, many, many more, with millions of more SKUs to come. They might be mostly “closeouts” to the industry, but to a less than super savvy customer, model years don’t matter with bikes, and much less with helmets, shoes, and clothes.
The idea of an IBD developing an online presence is a bit less relevant than great customer service and a focus on community. The big two online retailers fight for and control much of the online traffic very simply, algorithmically driven investment in SEM. If it’s profitable, they’ll spend against it.
I firmly believe that there is always opportunity for great merchants, and great local businesses can always survive. It’s simple though; expect tomorrow to be harder than today, control what you can control, and focus on the customer.
I appreciate Mr. Franco’s courage and willingness to engage on this thread, which he might have assumed would not come with much agreement with his POV.
Julian: http://www.savethebikebiz.com. If you want to understand what you’re up against.
Mr. Franco’s vision is not unlike that of Competitive Cyclist, Sette, Neuvation, etc. He appears to be putting a more personable face on it, but there are some structural hurdles that he cannot overcome.
Fundamentally, brands like his and these others cannot exist without a critical mass of LBSs and experienced cycling consumers graduating away from the LBS. Statistically insignificant are the people who, without LBSs, would be willing to start from scratch and enter quality cycling by buying expensive equipment (meaning anything that costs more than the average Vilano) online with a faceless transaction, no matter how friendly the telephone customer service.
An elementary test for any theory is to take it to its logical end: if Mr. Franco and his online peers all performed remarkably well in the next few years and cyclists flocked to them; and if, taken together with cheaply built/sold online equipment, America lost a critical mass of LBSs which became financially unviable, what would happen to the quality cycling market afterward? A: it would dwindle to only elite-class competition, which itself would shrink, and cycling would stop being an American past-time for the vast middle of the population due to lack of easy, in-person access.
And in fact (as I’m sure Ray could easily illuminate) the regular publications from this industry about average age of enthusiast, number of riders, average price per unit sold, etc. are all already pointing at this future.
This is meant only in the clinical definition, no emotive connotation intended: even online “quality”-ish brands are parasites that can only exist by stealing resources from a living tree. Once the tree is dead, so is the parasite.
If riding consumers wish to save their sport, starting online companies won’t keep the next generation on bicycles, it will only ensure that the last generation to enjoy them got to borrow from the future to get a cheap deal today.
Hi Jeff, I would venture to guess that our POV is probably much more similar than it is different. You’re absolutely right about the structural hurdles that are very difficult to overcome, one of those being physical locations. That’s why we have two.
With the two B&M stores, and in those communities, we are a “bike shop” to those that visit those showrooms. I believe there will always be a place for a great LBS. They can be critical to allowing a consumer to move along their evolutionary path as a cyclist. It’s just that the definition of great is going to become much stricter, as the savvy consumer has more and more buying options.
Having our brand available in LBS’ would have been great, and in an ideal world, it would have happened, and worked! Unfortunately, we didn’t think that being the fifth or sixth brand in a bike shop being pressured by their first or second largest bike brand to give them more and more space, and more and more of a financial commitment, would work. We thought selling direct, where we control the product, price, and experience, would be more successful and ultimately build a better brand in the long term. If we could add great dealers that protected our brand in the same way we do, I would.
Selling exclusively online is not the answer either. The ideal version of commerce is a mix of both; allowing the customer to buy the product where and when they want to acquire it, at the same price. If I could
I think someone mentioned books and bookstores earlier, yes? Interestingly enough, while getting a free pass from the investment community on actually turning any sort of profits, Amazon funds their investment in their money losing general merchandise growth with their profits in books.
Mr. Franco has nothing to say about the power of brands in his list of reasons not to open a brick-and-mortar store. The last great piece of consumer research on the bicycle marketplace told us this: When asked what’s most important to them in making a bike purchase, consumers listed reputation of manufacturer as #2, reputation of dealer as #7, and dealer/salesman recommendation as #11. Mr. Franco has no recognizable (to me, anyway) bike brands to sell, which puts him in the “online gruppo shopping” game, a very hard game to win. Had he opened a B&M store, he might have obtained the right to sell a brand that consumers are looking to buy.
Hi Ray, I should have mentioned that we do indeed have two of our own B&M stores, with more to come. I believe that the future of commerce is a mix of both. I know we would not be as successful as we are without those locations.
When I began this site toward the end of 2005 (wow…), this was the type of interaction and dialog I dreamed of. My entire purpose for this site was to create a space for discussion among all elements of the industry; consumer, retailer (traditional and otherwise), suppliers, manufacturers, distributors, marketing folks… “the Industry”. So, thank you all for bringing some life to that dream.
Tim: OK, so I’m thinking I now know how a lab rat feels. 🙂
The primary issue with IBD-supportive suppliers is that they don’t actively market the idea that an “XYZ” bicycle isn’t an “XYZ” bicycle until it has a great local dealer standing behind it. Schwinn was really good with that message, back in the day. Do not, ever, apologize for not selling on-line. Use your outward and obvious support (to the consumer) of the IBD as a way to getting into difficult territories. Be that single brand that a smaller shop in a smaller community wants to support, to the exclusion of all others.
If you’re going to have a feature, don’t bury it, put it up front. Tell the world. Make it (IBD-exclusivity) a key part of your story. Trouble is, the inside (the supplier) loyalists will see that as being in conflict with their own story, that the product is king. Or they won’t want to commit to a marketing plan that might lead to reduced flexibility down the road, just in case they decide to change directions.
The one voice missing from this dialog, has been that of the non-industry insider, consumer. I’ve been hoping that some would chime in, as they’ve been commenting on my personal Facebook page (https://www.facebook.com/timothy.v.jackson/posts/10152869163287588) and commenting privately to me since this was originally published.
The consumers are making the choices with their dollars, and those decisions are driven by many different reasons, and price is not the only one. As Ray points out, “Survey after survey rates convenience and availability above price as a factor for online buyers.”
Part of that “convenience” factor can likely be also worded as “better purchasing experience”, if the comments I’ve been getting were to be taken into consideration. Many consumers, even those who are well-informed cyclists (not just “newbies”), are loathe to enter a traditional bike shop due to the way they feel they are treated- either by condescending or ill-informed staff, or being treated like they are not “part of the club”. That can be magnified significantly for women, who routinely share horror stories of being treated like they are not welcome in a bike shop- “maybe I should talk to your husband/ boyfriend”, or having sales staff constantly attempting to stare down their shirts while doing “fittings”.
The retail experience that exists in many shops is part of the reason many consumers choose to spend their dollars online and gamble with their money, possibly ordering the wrong item or wrong size, etc.
We need to examine every aspect of the consumer’s experience; from the brand image, to the retail experience, to the after-purchase service experience, and beyond. The entire consumer life cycle.
I argue with Jeff’s points that we (brands and retailers) have control over consumers, or even our own brands. This has been proven again and again in the marketplace and is one of the major tenets of current Marketing classes across the globe; brands who allow their consumers/ customers to shape them are far more successful and build significantly greater communities of loyal brand evangelists when embracing the concept of shared control.
What the industry needs, more than “an answer to the online problem”, is MORE consumers. We have to stop preaching to our own choir, trying to sell a 3rd, 4th, 5th, and so on, bike to people who already have bikes. We need to grow the pie, rather than fighting for ever-smaller slices of the same pie. We need to encourage and develop women to participate in the sport. We need more people getting out of their cars to save money/ the planet/ stay healthy. We need kids riding BMX bikes and learning that being outside and away from their video games is cool. We need communities to build infrastructure that supports bicycle- and pedestrian- commuting. We need to see the success of groups like Safe Routes to School, so that we HAVE a future consumer to fight over.
The “answer” is not any one thing at all. Not one singular approach. It is a hybrid of many things. Online sales are like the genie out of the bottle, and the genie is not going back in. It is my opinion- flawed as it may be, and certain to produce more ridicule- that the landscape of retail is permanently changed and the evolution will ultimately be blurred lines between online and B&M. The local IBD will always exist and have an important role. Online retailers will always exist too- until something else comes along. Shops catering to a niche or providing a level of expertise/ service that can not be replicated online will excel. But there is a growing need for all facets of the industry to work together to find the best possible way to grow the size of the cycling public and cater to their wants and needs. In the end, THEY decide who wins or loses. We can stomp our feet and say “it shouldn’t be like this” all we want… but that’s hardly a plan to succeed.
And, please, do not get me wrong; I support the local IBD wholeheartedly and always have. Ironically, my very first non-IBD purchase of a cycling product was back in the mid 80’s, when I purchased an Avocet cycling computer out of a paper Palo Alto Bicycles catalog that had become dog-eared from turning the pages looking at products I had zero access to in the small town in Alabama where I grew up. I support local shops here with my dollars. I’ve always advocated for shops in the various jobs I’ve had in the industry and had my first of several bike shop jobs in 1982. I was hired out of a bike shop here in San DIego by NIteRider in January 1996. I believe in the IBD and want to see them survive and thrive.
We, the larger collective WE, have to find a way that we can all keep this industry alive. This, the Bike Industry, is my home and my life… and I want it to survive.
I won’t minimize the problem with bad LBS service. I serve on the NBDA BOD and struggle with trying to educate dealers who are tough to get the attentions of. Yet, if we are going to address retail cultural decline, should we leave out addressing the same decline in wholesale and the horror stories that exist with poor outside and inside reps, dirty-dealing, crappy margin support, insufficiently distinct brand value, overproduction & dumping, and the like? There is enough bad practice to go around.
Tim, agree that we need to make more new consumers — what is FOCUS doing to reach the non-enthusiast mass market and help with that effort? How is it serving transitional and entry-level markets? Nonetheless, you nearly lost my continued interest here and I about fell out of my chair when you all but said that you cannot control your brand. If you believe that, my advice is that you will enjoy a career much more in something other than brand marketing & management. If you have ever watched Celebrity Apprentice, then you know that you never display weakness to Donald Trump — you’ll be the next contestant that gets fired.
I reject flatly this post-modern idea that consumers shape or should shape brands and that we to take the hands off the wheel and let them steer. I have read those Gen-Y worshipping articles written by 20-somethings, too, and they fly in the face of centuries of retail education and theory. These pundits have proven nothing, except that if you really want to let your brand operate at the whim of fickle consumers, then you may truly be here today and gone in a wink tomorrow. The internet did not change anything THAT much. If there are marketing professors teaching this tripe, they should not be teaching and I would say so to their faces. This whole line of reasoning needs to be thoroughly debunked.
You seem pleased to have a rousing debate. Hope you don’t come to regret it. 😉
Responding to both Julian and Ray….
While on a level playing field I agree that customer service is the deciding factor between winning and losing, when the game is “fixed” that is no longer the case.
Ray to your point that almost every survey shows that customer service trumps price. It all depends on how you ask the question. If I am asked “which is more important to you customer service or price?” I most likely will say customer service. If on the other hand I am asked “on a $500 purchase are you willing to pay $250 for good customer service?” I may answer that very differently.
Surveys while interesting rarely give a real world view of issues.
Julian I do not disagree that a combination of both online and in-store experiences are in the future for most retail. Where you and I diverge in our thinking is the fact that simply having the combo package with good customer service is the answer. If pricing continues to erode as we have seen over the past couple of years then regardless of an organizations make up sales will drop. I believe that Jeff Koenig attached a link to a white paper that speaks to the cost of commoditization. If you don’t have that let me know and I will send you a copy. The bottom line is the issues that are brought to light here are not issues that can be solved at the retail level. Do some (some might say many) IBD’s fall short in the customer service arena? Yes we do! So that gets fixed 100% fixed. It won’t matter. As I stated earlier good customer service is not worth a 20%, to 60%+ discount. What has and will continue to happen is the following…..
Customer: What is your suggestion on which tire I should use?
Employee: What type of riding are you going to do with it?
Customer: I want a high performance tire
Employee: We have a number of options are you going to race, train, or just ride?
Customer: Race in a Tri
Employee: What type of wheels will these be going on…….
You get the just… good questions trying to focus on the customers needs. Here is how this conversation ends….
Employee: based on our discussion I would recommend tire X at $64.99 x 2
Customer: Pulls out phone, scans bar code finds tire X at $39.99 x 2. Thanks for the great advice I really want to buy from you if you can match this price I’ll get them from you.
Employee: Sorry we can’t afford to sell these items at such a low price and still be able to give you that great advice.
Customer: Says thanks and leaves.
I have had this happen to me. If they check and see the price online is $62.99 or even $59.99 each my customer service wins but when they can save $50.00 on two tires even I am not that good!
Hi Jeff, I don’t disagree with you on the pricing either. I did see the link to the white paper, and I read all of it. Aside from selling direct, I agree with pretty much all of it. The biggest advantages for going direct were the direct dialogue with out customers and the ability to control the price. I don’t know if you’ve seen our site, but we’re not a discounter, our bikes never go on sale, are never closed out, and we do not maintain model year designations. All things that I, and seemingly many of you, believe would help the IBD.
I applaud all the things that you are doing smartly, Julian. Selling direct to consumers is fine as long as you are happy with a limited growth potential — nothing wrong with that. Choose who you want to be.
Brands that have or that want to have significant volume and wide geographical footprints cannot consist of a few people in a home office and a hosted eCommerce platform. A few people cannot dialogue with all those customers and treat them as individuals. Brands that want to grow need the power of leveraging — the power that dealers bring to be many more personal hands and feet listening to and meeting the needs of customers.
Dealers won’t be very attracted to a brand that is already accessing their customers around them.
Thanks Jeff. In a perfect world, we would add dealers and give them protected territories and also compensate them full for bikes sold into their area. If I could find ideal partners that would help us grow in that way, that would protect pricing, and help us grow the brand in a meaningful way, I would absolutely go for it. I recognize the ability of great IBDs to help us grow the business. The challenge for us at this early stage is where to invest; in talking to customers and creating some “pull” or in growing and supporting a dealer base. For now, we’ve decided to invest in the former.
One more post, then I’ll bow out. Questioning the efficacy of consumer research (about why people buy online) is, in this particular case, not a good argument to make. If you’re looking at just ONE piece of research, agreed, things can get skewed. Google “why consumers buy online” and scroll away. There are hundreds of studies saying the same thing. Here’s one where the title kinda says it all: Consumers Want Choices and Convenience When Shopping Online http://finance.yahoo.com/news/consumers-want-choices-convenience-shopping-160000944.html
Agree, Ray, that research remains important. All kinds have something to offer. It must be used as carefully as other tools in business and it can easily be misused, which I’m sure we don’t disagree on. Misuse often occurs when stakeholders are insufficiently grounded in the fundamentals and they are looking for easy answers to fill the gaps in their understanding.
The point is well taken that convenience and choice are top desires for consumers. I’ll point out that this is no change from before. It was true before eCommerce, true before big box, and true before the Renaissance. We are creatures made, it would seem, to determine our own outcomes by making choices and seeking efficiency – the more the better.
The same is also true for retailers. We want more great choices of products, brands, and suppliers who make buying from them easier and more convenient. The same is also true for producers who want more great choices of materials, designs, tooling, warehousing, distributing, shipping, etc. In this, all people are the same in their relative places in the economic model.
Where brand owners are getting stuck is believing that distribution model is what builds, grows, and/or profits a brand. These are as stuck as retailers who believe that low-price discounts and clever offers are what build their businesses, and as stuck as consumers who believe that buying the cheapest option preserves their future wealth.
Consumers that build wealth, in addition to working hard, do so by buying the best value (bang-for-the-buck), which is rarely the lowest priced option. These are seeking high-value options, but when none are available (which is why industry commoditization is so harmful to them), they resort to choosing between bad options or exiting participation in that product category.
Retailers that succeed, like LBSs, in addition to working hard, do so the same way — they look for brands that offer distinctly unique value stories to themselves that make selling those brands to their customers easy. This generates demand, turns, and profit.
Brand owners need to get un-stuck in commoditized thinking just like failing consumers and retailers. The first question a brand owner needs to always be asking is, what am I offering of distinctly unique value compared to my competitive peers? Is that value readily understandable, demonstrated, experienced, and easy to communicate to dealers and, ultimately, consumers?
It was already pointed out here that there are too many brands, but to be clear, it is too many brands who look, feel, perform, and are priced just like their competitors. It is hard for the consumer and the dealer to truly distinguish between them. The product claims that get made by brand owner websites are a lot of smoke and mirrors.
It was asked here how does a new brand break in? How has a new brand ever become a force to be reckoned with whether in this century or the last? Cleverly invent or enhance something in a significantly distinct and unique way, PROTECT it (legally-patents and also economically-limited distribution), and get out there and sell it to grow a network of dealers just like dealers must sell it to grow a base of customers. What brand, new or old, has any built-in “right” to customers or to short-change the hard work of growth by gaining a shortcut like internet-direct marketing & sales? Most brands who start and sell online immediately have nothing unique to offer but an attempt to undercut everyone else on price. It is instantly a commodity brand that never built a quality legacy.
Why don’t brands want to grow slow and strong this way? Greed is too easy and insufficient of an answer. It is under-capitalization. If one wants to be in manufacturing and have a national sales footprint, one must have a large amount of investment capital. This is a natural and necessary barrier to entry to protect a product category from rapid commoditization and destruction by a floods of under-capitalized new brands looking for shortcuts in everything from manufacturing to distribution to M&A and ultimately customer support.
What the internet has done is reduced good and natural barriers to entry (or at least the perception of them) and allowed many a consumer-turned-producer to source production and find a sales channel without the money and work that it takes to be unique, ensure product quality, and support retailers and consumers with high-quality consistency.
A blog format is way too short to explain all of this – that’s why there’s a white paper, which itself is nothing new and just a rehash of decades of college coursework being applied to a specific industry. Just because the information is “old” and some people know it already does not mean it is any less valid or true for today. it is critical that those who don’t understand retail economics come up to speed fast if this industry is going to be preserved for future generations.
interesting but sadly delusional discussion that misses the real point because it relies on false premises: that the IBDs are the best and only way to provide bicycle sales, service and advice; that IBDs are the destiny of the bicycle industry; that the market is NOT consumer driven; that retail is a “science”; that bicycle retail outside of B&M IBDs is not legitimate; that it is OK to artificially support IBDs against their natural failure. We are pretty much in a “perfect competition” market wise, which means that no player has the means to control price: not the manufacturer, not the distributor, not the retailer, and no, not even the consumer. But the consumer in this situation can influence HOW they make their purchase, and thus is the the true driving force in determining market direction. Retailers can possibly collude with their supply side brethren, forge a vertical integration and force the consumers hand on specific brands, but would lose the battle as players outside that network filled the resulting gaps. If consumers move from the current retail structure to an alternative one and are still satisfied with their purchase, we as an industry must learn why they choose the alternative channel and find ways to attract them back. In short, we need to understand the consumer more than the supplier. The adage in retail has always been that the three most important items for success are location, location, location; the internet has that in spades: a location right in the consumers home. Though traditional retail is certainly taking a hit, this hardly spells the demise of the B&Ms, in fact I think it is causing a resurgence. Many of the successful online retailers are now adding physical stores to their channel, if B&M retailing were dead or dieing this would not make sense. Instead it begs us as traditional retailers to change our approach, to look at the stores being created by the virtual business community and learn what we can. Another phenomenon is occurring simultaneously: the emergence of the “new wave” shop, new retailers created by and for the millennials, and whose approach again challenges many of the notions of “traditional” retail. The biggest mistake I see is the effort to double down on the way retail has been rather than focusing and following the new trends; before we know who we are as retailers we have to know our customers and what they want.