Wiggle Chain Reaction Merger Romance

Wiggle and Chain Reaction Cycles Romance put to the Test

The merger of the two biggest online bike shops, Wiggle and Chain Reaction Cycle is now being put to the test by being referred to the Competition and markets Authority (CMA) in the UK. Reported on BikeBiz, they have noted that the CMA are surveying bike and Parts and Accessories suppliers who need to respond this week. 

Online retail can be a double-edge sword for bike brands. On the one side, online shopping in booming and it provides an opportunity to sell a lot of stock to this growing market. On the other, online shops compete with the traditional bricks and mortar bike shops and the distributers who are also vital for marketing the brand and customer service.

Suppliers can be pressured into discounting their stock for online retailers – it means lower prices for customers online while distributers and bike shops who have traditionally supported the brand pay more for the stock and have increasing online competition.

The Wiggle and Chain Reaction Cycles entity has not released details about changes and whether both brands will continue to operate independently. For customers, it is likely that the brands will remain separate and behind the scenes, management, supply-chain and logistics can be optimise.

 

Wiggle World's Biggest Bike Shop

Phew, Wiggle confirms that it is the Number One bike Shop

On the last blog post, we asked whether Chain Reaction Cycles had returned back to the top place as the worlds number one bike shop after their 2014 turnover was released and the term largest bike store used by media as well as themself. 

You never doubted that Wiggle would lose their lead, and their financial data is out – according to Bicycle Retailer (US trade publication), Wiggle has £179 million in sales in 2014 compared with £153 million for Chain Reaction Cycles (CRC). The most important metric is turnover, so Wiggle retains the claim of being the world’s biggest bike shop.

We reported that Wiggle list 12,000 products which is based on their inventory which is available to Smart Cyclist. This is just a fraction of the 66,000 products from CRC. Bicycle Retailer however reports that Wiggle have 50,000 SKUs – which are Stock Keeping Units, but again this doesn’t provide enough information to accurately use and compare because of product variations such as colour and size. For example, if Wiggle have 12,000 products and with variations there are 50,000 units, CRC have 66,000 products – but are these the ‘units’ and variations or are there four times the number of SKUs? This is not clarified.

While information for public release is generally carefully considered, and thus tends to be scarce, the report does however provide insights into sales in different territories.

…sales were up 26 percent in the U.K. and 20 percent in Europe over the period, but down 13.1 percent in the rest of the world.

Certainly currency exchange has a role, but also competition from the growing number of online retailers now servicing local markets (who can be competitive and offer even faster delivery).

What is interesting is the growth, CRC had 6% growth while Wiggle recorded 12% growth which is certainly a reflection on their continuing commitment to brand promotion and awareness.

Chain Reaction Bike Shop

Chain Reaction Cycles – again the world’s biggest bike shop?

This is confusing – a new report by the European bicycling trade publication Bike Europe talks about the ‘low’ growth of Chain Reaction Cycles (CRC), calling them the world’s LARGEST bike store. In this blog we recently looked at stats from previous years showing that Wiggle had taken over from CRC based on total sales volume: Has Wiggle beaten Chain Reaction Cycles to the Top Spot?

While it may just be simple rivalry, being the biggest, or the largest or the best is still a selling point. And perhaps it is just in the detail, with LARGEST being about range, they have just over 66,000 products for sale. This may… or may not include product variations (eg, black, white, silver or S, M, L, XL).

In comparison, Wiggle list just over 12,000 products, a mere 18% of the range from CRC. But considering Wiggle have recently been top-dog in sales turn-over, it certainly suggest that a broad product range alone is not the sole indicator of success. Until the reports for Wiggle are out, CRC probably are the Largest while Wiggle may remain the Biggest.

Make no mistake, these are both massive stores with a large customer base. The Bike Europe article talks about Small Growth of only 6% for CRC. They compare this growth to smaller (undisclosed) online bike shops which is where some criticism of this comparison is warranted.

At the top-end in a saturated market with fierce competition from direct competitors and new and niche players, growth is tough. Cycling is growing but the new bike stores, particularly outside of the UK with retailers who serve local markets and are an alternative for new buyers (to the big overseas retailers). Younger online bike stores can also afford to be more dynamic and cater to niche markets.

But critically, is exponential growth always the perfect measure of success – what about stability and sustainable turnover with stable or efficient profit margins?

A few interesting statistics, from the 2014 financial year reporting, the CRC turnover was £153 million with pre-tax profits of £4.8 million. The margins are low in the high turn-over world of online sales and it seems that Chain Reaction Cycles have been concentrating on streamlining – with much less overseas publicity and advertising as in previous years.

Bike Europe also reports that staff numbers have been reduced from 612 to 540.

 

Trek Online Shop

Trek create their own Internet (shop)

The market size of the big brands allows them the opportunity to do business on their own terms, for example many of the big brands such as Specialized and Trek no longer exhibit at bike shows such as Eurobike and instead run their own dealer events and customer demo days. And they have also controlled online sales, the popular online retailers Wiggle, CRC, PBK and Ribble don’t sell Trek online. 

Trek and Specialized belong to the few brands that have prevented sales through the big online retailers and a quick search confirms. Wiggle provide a “not found” for the search term Specialized and Merida while for the search term Trek the big bike brand has some competition from a nutrition brand.

Screenshot from Wiggle:

Wiggle Trek Bicycles

Chain Reaction Cycles however take a different approach, while they don’t have Specialized or Trek in stock, they have plenty of positive results in searching for Trek, Specialized and Merida, however all promote their own inhouse brand called Vitus. They are ‘managing’ the search results to push their own gear.

chainreactioncycles trek bicycles

 

Runout Stock

It is common practice for brands to offload their old season products at good prices and the online retailers are good outlets as they have massive amounts of traffic and also operate on lower margins. This can be a Win – Win situation for the brand and retailer (and customer) as dealers are not able to offload the stock. It does however mean that the retailers may not stock new equipment. And some brands resist the online retailers regardless, and any stock that comes through are from rouge distributers.

 

Trek Connect Retail Marketing

This is the name of the new service going on trial for two years and open to 30 Trek dealers in the United States. The brand is supporting these dealers with an online sales platform which includes the dealer in the loop.

The big problem which dealers have with the internet is that they are cut out, the brands on the other hand don’t immediately lose-out with internet sales because they are still making sales. However in the long term it upsets the bike shops and the brand can lose retail support which is still crucial, particularly for higher priced items such as complete bikes which a majority of customers still prefer to buy instore.

With the new Trek online shop at trekbikes.com, the dealers will receive a ‘service commission’ and customers encouraged to pick up the bike instore. Any bike ordered goes to the dealer anyway who will assemble the bike and can delivery or hold it for the customer to pickup.

Trek Bicycles Website

 

Measuring Success

There are a number of angles to approach the move by Trek and predict the success. From a dealer perspective, the Trek brand is trying to support them and generate sales. And very importantly, providing a commission for sales.

From a brand perspective, they have to support their dealers and see the popularity of the internet and don’t want to miss the train.

From a customer perspective it can be viewed more critically, what is the actual benefit for the customer? Often customers are looking for the lowest price when buying online and have a number of ‘brand independent’ retailers who are competing for their dollar. A dedicated Trek Online store won’t compete with other online retailers or bike stores, the prices need to be regulated so that it isn’t creating a disadvantage.

For a customer, the online access however may provide some advantages such as:
• Faster and quicker overview and selection of the preferred bike and parts
• A larger range and more options than available instore (though Trek have the instore Project One concept)
• Convenience when a store visit is not possible

Buying online does assume that the customer can chose the right bike and right size so this may be an area for confusion, if a customer purchases online to discover instore that the bike is the wrong size. It is the fault of the customer, though the dealer will probably have to help resolve.

The biggest volumes of internet sales in the bike world is in parts and accessories, for customers there can be some convenience in saving a trip to the bike shop… but this is about bikes so the online purchase option for Trek bikes may be more ideologically important than for actually generating sales. The online shopping isn’t competing, rather is another doorway to Trek.

The new retail concept launches in September 2015 for the US and Bike-EU reports that this is a pilot program which will trial for two years.

Wiggle Chain Reaction Cycles Sponsorship

How Wiggle and Chain Reaction Cycles change Bike Sponsorship

Whether you run an event, an advocacy group or are a publisher, the chances are that it has taken years to establish, and was have grown out of love, passion and enthusiasm also needs solid financial supporters to make ends meet. 

Have a look at the number of big events, or advocacy groups or publishers which have truly been able to retain “bike only” sponsors alone, even bike brand sponsored pro-cycling teams have a limited lifespan and tend to turn to the lucrative ‘non bike’ businesses who want to capture the hearts and minds of cyclists; Red Bull, Skoda, IAM, Sky, Saxo, Orica.

In big business there are big brands, but the more local, the harder it is, and the less likely that you can rely on Giant, Trek, Specialized, BMC or Shimano. These are big brands in cycling, but bike brands are tiny on a global scale and their marketing “vision” much shorter.

International online retailers are a new opportunity, they run big sales numbers and any event or organisation or outlet is a conduit directly towards their customers. They are still careful with their investments, but the larger your audience, the bigger the potential.

However the competition between the bricks and mortar retailers and the online retailers creates the perfect ALL OR NOTHING scenario…

Where support from locally based brands wanes, getting Wiggle or Chain Reaction Cycles onboard as a key sponsor or financial support can help you reach new heights… and it is ‘bike’ and it is compatible with the ‘non-bike’ sponsors.

However getting Wiggle or Chain Reaction Cycles onboard can also sever all ties with local brands and also leave you open for criticism for not being a patriot, for not supporting local jobs and business.

While sponsorship from local brands may have been tough to acquire (or non-existent), once you turn to the Dark Side, you may never again have a chance with the local industry again.

So the question is, what do you stand to lose and will this make a difference?

Will it really affect the ability of your event, your organisation or your ‘channel’ to grow… will you be able to retain enough of your participants, members, readers or following… and grow these numbers.

Whatever the decision, don’t forget that the world and the marketplace is changing so consider the future of retail use this to help make a decision today on your sponsorship and support allegiance.

 

photo © KevPBur

Shhh Shimano

Is ‘Shimano’ a naughty word?

There are so many good things to say about the Shimano brand in the world of cycling (not to forget, they are big in fishing). Even if you you have a budget Shimano groupset, it will still be well designed and will continue to perform as long as you look after it. And Shimano has also lead the component market without the teething problems that have held back SRAM or the chains of nostalgia which hold back Campagnolo.

Customers are happy, but a lot of bike shops and even their own national Shimano suppliers are having second thoughts. So why the discontent, it is the legacy of Shimano distribution which allows the European online bike shops access to super cheap wholesale pricing.

The Bike Dealer Blog recently published a blog post, The “S”-Word: Dealers Speak Out and discussed the American perspective of the Shimano distribution strategies;

Shimano American management claimed it cannot do anything to control European distribution, a part of the world that doesn’t allow MAP or MAP enforcement.

An example is given of a California bike shop owner who complains that the Shimano 105 5800 groupset is available online from European retailers for $382.49 while his wholesale purchase price is $500.

This scenario is similar in other countries with not online the bike shops, but also the Shimano national offices facing stiff price competition from their own brand, and little power to act for fear of being cut-off.

The Bike Dealer Blog quotes a Texan bike shop owner (which I assume is unrelated to the ex-seven time Tour de France winner),

Here’s the problem. Which bike company wants to bankrupt itself to make a point? You can’t avoid using Shimano components on your bike. You can’t even work on phasing them out, except at the low end, and if you try to do that, Shimano will strike back by making their parts cheaper and thus your competitor’s bikes a better value.

For a bike dealer to shift to SRAM or Campagnolo also involves its own challenges. Aside from missing out on the strong “Shimano” brand and having to service this brand anyway, what is stopping SRAM and Campagnolo from also tapping into the lucrative European internet retailer market?

While the European online bike shops are branded with the blame for killing local bike industries, and while the distributers and bike shops call their customers ‘heartless’ for buying online, it is the brands themself who have ultimate control. These big brands however have been caught by surprise at the power and speed of the internet and the subsequent price discrepenies which make customers happy and bike shops unhappy are a legacy of deals and arrangements which can’t be changed overnight.

For young brands the lesson is to establish globally consistent pricing which ensures that bike shops and distributers can compete on price. And consistent pricing makes customers happy, they no longer pay a ‘massive local premium’ for the same item.

online_shop_exploitation

Are Online Bike Shops Guilty of Exploitation?

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

Chinese Bicycle Manufacture

Direct from the Factory and the Power of the Brand

What is the value of the brand? Are you paying extra, just because it is a brand.

Brand name bikes and gear costs more and of course this includes the value of the marketing and all of the overheads – but it also includes ‘brand security’. What is ‘brand security’? It is peace-of-mind. It is knowing that someone from the brand is resposible for quality control. It is knowing that the brand has a genuine interest in quality control because they want to minimise warranty claims and the brand reputation.

It is no secret that most of the worlds bikes and bike parts are manufactured in Asia, China produces 67% of the worlds bicycles. Chinese produced bikes and parts are low-end while Taiwan is the high-tech center of the bike world with the average sale value significantly higher than for Chinese bikes. [1]

Giant Bicycles and Merida are hardly quintessentially Asian, but as Taiwanese brands differentiate themselves by embracing western expectations for qualities. The American and European brands who produce in Taiwan generally place staff on the factory floor to ensure the quality is up to scratch. Without these checks, the pressure to deliver leads to short cuts and compromises… which are a disaster.

But with online sales booming, Chinese based retailers are getting savvy. By raising the prices slightly there is more scope for quality control – but because they are operating a customer direct business model they are still cheaper than the big name brands. There is still competition from the well known and attractive established brands, though Asian manufacture have the know how… so why can’t they be just as good?

They can, but the Chinese direct-to-customer brands need to concentrate on their product quality. They also need to understand western values and expectations as well as improve their English communication. This all reflect on their brand and reputation which will florish. And right now, Chinese brands are recognising the value of quality and are beginning to build their brands. It means that reliable Chinese direct-to-customer brands will be giving the classic and established brands a run for their money.

 

[1] Reference: Profile of the Chinese Bicycle Market

 

American Online Bike Shops

America leads online retail… but not for bikes

The United States is the birthplace of the internet (DARPA) and is a nation defined by Start-Up success. Amazon is the worlds greatest online retailer and much of the world’s online entertainment comes courtesy of the US and American based services. But in the bike work, the United Kingdom is the worlds leader – this doesn’t make sense at first glance.

Why is the UK different, there are a number of influences and we will briefly explore a few.

 

Mail Order History

Of course mail-order existed in the US, but in the days of old the back pages of UK cycling magazines were filled with super deals from mail order companies. This was a strong culture in the UK and progressed naturally to the internet. While it didn’t mean the same retailers made it across, many customers were comfortable with the approach and the internet make it easier still.

 

Distribution

Different nations have practices for distribution, some brands have a tight control over distribution, some distributers have a tight control over brands and retailers. This also extends to brand reps and whether they are independent or employed by the distributer or brand and how they have built personal and brand loyalty.

The effect is that in one country, online retailer access and cooperation can be easier, while in the other there are restrictions and limitations which affect availability and price.

 

Shipping Costs

Where store prices for certain products online in American stores can be competitive, or cheaper – often shipping costs is a killer. Why does it cost $200 to ship a $500 wheelset from the US? Why does it cost $600 to ship a bike? The UK have been filing back postage costs – and while a buyer still may have customs and local taxes, the shipping costs are marginal. Then again, some of the biggest US online bike shops simply don’t sell some, or any products to customers overseas and cut out a massive audience.

 

Customer Service

Purely speculative of course, but perhaps local bike shops in the US had great customer service; Sunny side up and you’ll come back now you hear. The transition to buying online was slower and it is only a matter of time before a few clever business owners learn the tricks of the UK retailers and apply locally.

 

America in Isolation

The proud British folk don’t always like the responsibilities of belong to the European Union (remember, the UK is still a world leader… right) but even with the English channel separating the UK from mainland Europe, the trade between the Western European developed nations is roaring. The geography and historical trading during the last two millenia means that this is ingrained in Europen society – success and growth means serving customers in other nations.

By no means is America cut-off, but beyond Canada and Mexico, customers in other developed nations are a long way away.

 

Online sales is booming

And while these were just a few suggestions, as the planet (and hopefully eventually the politicians) slowly realises how good cycling is, the entire cycling industry will still see a massive growth in customers and the door is open with plenty of scope for new shops to grab a healthy slice of the pie, be it in America, Eastern Europe or at the source, Asia.

 

Has Wiggle just beaten Chain Reaction Cycles to the top spot?

Cycling Weekly reports that Wiggles yearly sales have soared 19% in 2013 which increases their turnover from £141 million in 2012 to £168 million.

In our early reports on the turnover of Wiggle and Chain Reaction Cycles we noted that CRC reports a 2012 turnover of £170 million and while their 2013 profits have risen, their turnover has dropped 6% to £145 million.

Wiggle Chain Reaction Cycles

CRC turnover discrepency in reports
The BBC article also note sa CRC 2012 turnover of £156 million, lower than we have originally reported, but confirmed by other media such as bikebiz. Our original source for the reported £170 million is a 3rd party service provider called Export Technologies who reported in a Chain Reaction Cycles Case Study:

From 2008 to 2012, Chain Reaction Cycles tripled its online revenue, finally reaching over £170m in annual turnover by the end of 2012. Roughly two thirds of these sales came from outside the UK.

Wiggle is now the number 1

But the good news for Chain Reaction Cycles is that it has increased on it’s 2012 profit £861,000 with a healthier 2013 pre-tax profit of £4.8 million which the company attribute to “improved sales margins and ‘significant overhead cost savings'”.

The 2013 profit for Wiggle is not yet available however in 2012 they recorded a pre-tax profit of £12.3 million and have noted that they have strong investments (costs) as the Team Wiggle Honda sponsor and overseas investment such as their first overseas office in Sydney, Australia.