The headlines from November 2011:
Chain Reaction & Wiggle guilty of “exploitation”, says US store
The US store in question is competitive cyclist and a shop blog post was posted by company founder Brendan Quirk. Mr Quirk (and co.) sold the online retailer to Backcountry.com in August 2011 and Quirk left employment with Competitive Cyclist in April 2014 to take a role with Backcountry.
In the blog posted titled Definitely Not Wikileaks, Quirk argues, “I kept thinking that Chain Reaction and Wiggle aren’t winning in the high-end US marketplace because of a strategy. They’re winning by exploiting a market anomaly. Exploitation is not a strategy.”
Are online retailers in countries outside of the US ‘exploiting’ or are they ‘competing’? Before we answer this, lets concentrate on the accusations. Discussing how the online retailers Wiggle and Chain Reaction Cycles have such a competitive advantage, Quirk turns to the difference in enconomic-geographic influence, “Because they’re based in Europe, Chain Reaction and Wiggle have the advantage of buying their goods directly from manufacturers.”
While it is true that distribution channels / processes between countries different, CRC and Wiggle don’t exclusively purchase directly from the manufacturers. But Quirk acknowledges the role of the manufacturer or brand, “Whenever we ask manufacturers why they don’t have global pricing parity, they plead the same case: They’d love nothing more, but they have no enforcement mechanisms.”
Analysing this, under the assumption that the brand / manufacturer sells a product at the same price, price differences creep in with mark-up from a distributer but it suggests that rather than a common 50% markup by a retailer, that Wiggle and CRC have much lower margins. The UK stores are not bound by the Manufacture Suggested Retail Price (MSRP) where-as the US stores are.
Considering that Wiggle and CRC are retailing within the law with this approach, are they guilty of ‘exploitation’ because overseas cyclists chose to purchase from them rather than paying a premium to buy locally? Hardly, though it doesn’t stop others from feeling threatened by online retail. Spanish bike shops joined efforts to protest against Chain Reaction Cyclists and in Australia, the cycle retail representative body is lobbying for regulated taxes on imports.
In the public sphere the brands are quiet, they are doing good business and reaching the customer. Customers who chose online are growing to understand the pros and cons, while the price saving are hard to resist. Online retailer have reduced overheads and are competing in a growing market. This leaves traditional retailers and wholesalers who are used to the classic supply chain but now feel threatened. Some chose to adapt (such as shifting brands to the those that maintain consistent pricing so that retailers are not undercut). Some chose to fight a losing battle.
While the end-consumer would prefer to pay the lowest price, they may still choose a local bike shop if they value the service. But it is difficult to consciously spend more money for the same product in situations where there is no added value, such as chosing between competive cycling (as a US resident) or chosing overseas. What ‘Value proposition’ do competitive cyclist offer in this situation?
Consumers may not want to hear this, but pricing can be managed, brands have the power create consistent pricing and allow for a level playing field. Why should a distributer and retailer stay with a brand that is actively undercutting them?
Photo: © Dauld