Category: Online

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