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.

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.

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.

Are you a scumbag if you buy online?

The worldwide cycling industry would like you to believe this. But the worldwide cycling industry also facilitates online shopping, the online bike shops have to get their bikes and gear from somewhere and you can’t believe that a brand doesn’t know who is selling their genuine bikes or parts and accessories.

You are a scumbag if you go into a bike shop to look at gear, to try it and to take time from the staff when you intend to buy the same thing online. This is known as Showrooming and is tackled in the online BBC article: The peril of ‘showrooming’.

Your not a scumbag if you go into a shop and browse, or if you are genuinely looking to purchase but don’t find what you want.

It is a fine line, but the nature of retail, even before the internet was that customers compared anyway and want the best deal. And good staff will look after you.

The hard to devour line is “traditional bike shops will disappear.” Cyclists will be left with nowhere to service their bikes (and are probably not patriots if they are buying from overseas shops). Why is it the consumers obligation to pay a premium for the benefit of somehow shifting supply and demand for an apparent indirect long term benefit?

It is supply and demand, and it demands brands, wholesalers and retailers to change. Don’t showroom – but likewise, if you find the most competive price for a bike or cycling gear online, do you homework, know the pro’s and con’s, but don’t be ‘guilt tripped’.

Field of Dreams Movie Poster

If you build it, they will come.

Derived from the classic move Field of Dreams (1989) with Kevin Costner. “If you build it, he will come.” has spawned an entire legion of believers that simply creating something is enough to guarantee success.

A great movie, but in the real life of business and specifically online shops, if you build it they won’t come. Not without promotion and marketing.

There are a lot of online shops out there, many unsuccessful. But some do a fair trade and limit their real potential when they fail to stay current (technology, design, marketing, inventory) while others have achieved the critical mass and in addition to continued marketing, can rely on a solid customer based.

Marketing and promotion can take many forums, and there is no single perfect way to market – some retailers location a single high achieving channel while others have grown organically and saturate.

If you build it, that’s a good start. But if you market it, you increase the chances that they will come.

Here are some ideas: How bike shops win customers in the modern age

Inside Chain Reaction Cycles

Big online retailers usally don’t let customers peak behind the scenes. Only very recently have they ramped up personalised customer service so with some retailers it is possible to have a sole contact person manage your ‘issue’ from start to finish.

Gaining  a behind the scenes look into the giant online bike shops is still a rare opportunitity but recently online retailers recognise that customers want to identify with them. Knowing a shop and the exchange also creates a sense of belonging for customers.

Earlier this year, Dave Everett was welcomed on behalf of CyclingTips into the Chain Reaction Cycles in Ballyclare, Northern Ireland.  While it is a promotion excercise by world’s number 1 retailer, with focus on their inhouse brand, Vitus (with French origins) there are a few valuable snippets of information. Everett suggest that CRC have 60 staff looking after customer support.

Images and article on CyclingTips: A tour of the Chain Reaction Cycles headquarters