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.

 

Geo restriction Country Blocking

Geo Blocking Sales for bikes and parts

Traditional geographical boundaries meant that was always a regional focus to the sale of bikes and gear. Of course the key brands were available, though always through local agents such as the distributer / wholesaler / importer or a national branch of the bike brand. 

Mail order made it possible for enthusiasts in remote continents (i.e. Africa, Asia and Australia) to have some access to speciality gear, there was usually a long wait and premiums for currency exchange.

With the ride of online shopping, sales initially were regional and for successful shops who adapted, they become international. But there were two effects:

Firstly, the products were no longer just ‘niche’ and hard-to-get products, rather they were everyday parts and accessories which were already available ‘locally’.  Customers were buying because it was cheaper… not because they couldn’t get it from their local bike shop.

Secondly, brands were now selling to the same buyer, but not via their local importer and bike shop and for many brands it raised questions of warranty and supporting the traditional retail channels.

 

However, the customer was usually a winner.
The customer has the same item for a lower price and are comfortable buying online so it is also convenient. Of course there are risks such as warranty issues and customer service challenges when dealing with the overseas shop. The end effect is that the bike rider has the same item… and the brand still sold their product.

 

Geo-Restriction and GeoBlocking for bikes and gear

Mavic was a very early adopter and for years they have been blocking Wiggle and Chain Reaction Cycles from selling their wheelsets to selected countries overseas. Other brands such as Continental have remained readily available.

Of course for customer who really wanted the Mavic wheels there were a few ways around restrictions such as using a 3rd party service to mask the country of origin and in cases it allowed delivery to an overseas address. Sometimes a bit of juggling the cart (selecting £ and UK delivery, adding the item and then changing currency and location) or simply ignoring on-site notes of restricted delivery… and letting the wheels simply turn up a few weeks later.

For ‘direct to customer’ brands such as the German brand of Canyon bikes and brands which are simply unavailable and unsupported in some countries, mail-forwarding can be used and is a service which is becoming increasing popular in the U.S. for example. A last resort is an international flight to Europe when the cost of flight and expenses is lower than the cost of purchasing locally.

 

How do retailers GeoBlock?

Wiggle detect a visitors location and when the product isn’t available they suggest that the product is no longer available, rather than not available. A challenge being that the products can be easily found on the wiggle site and only when selecting an unsupported delivery destination are the products suddenly out of stock.

Product No Longer Available

Search Engine Optimisation dictates this approach, it is better to include a product in the inventory and then try and guide a customer to alternative products, rather than to lose them completely. Of course customers who also notice this and over time simply may not visit.

Error 404 Page Not Found

Chain Reaction Cycles likewise have the product available in their directories for SEO purposes, however appear to favour an approach of sending visitors with an incompatible destination to the homepage. This can usually lead to the customer wonder ‘what just happened’ and trying a few times. Within their search database the term “Mavic Ksyrium” with a UK destination and GBP selected shows 25 results while with Australia as a destination and AUD there are only 8 results.

Among the Australia results are a few Mavic wheelsets which are apparently not blocked. Perhaps clearance or hard to sell wheelsets.

Mavic Ksyrium UK

Mavic Ksyrium Australia

 

Evans Cycles takes a different approach. In the past they haven’t appeared to block brands for sale, though more recently have changed tact. During testing there was also blocking on some Shimano parts which is unusual as Shimano and SRAM virtually never have geo-restrictions, sometimes the big online retailers sell before local bike shops overseas can even get stock.

Customers from ‘incompatible’ delivery destinations will see the complete range and receive no information or notice of restricted availability (with their overseas location and currency selected). First when the customer tries to check-out and pay are they informed that they can’t purchase. How annoying!

Evans Cycles Unavailable

 

While Evans do allows their own system to be circumvented, this process will not be documented. And there are also many other retailer to chose from. From the big ones, with our example of Mavic, Ribble have a single wheelset in their database, without any restrictions for people outside of the UK. Likewise ProBikeKit have no apparent restrictions however are focussed on UK customers and seem to neglect customers outside of the UK when it comes to customer satisfaction.

Hargroves Cycles is also in our database however doesn’t sell outside of the UK….

Actually they do, but unlike their competitors Hargroves don’t allow the destination to be selected by (potential) customers while browsing. Country selection is hidden inside the checkout process and their overseas delivery charges are hefty in comparison. In favour of Hargroves is their extensive range of our example brand ‘Mavic’.

 

Where does this leave the customer?

Some brands block some online shops from selling to customers in some countries. It depends how determined the customer is, where there is a will, there is a way. The inconsistency by many brands who try to block will leave loopholes. When online retailers in England wont sell, what about Northern Ireland… or a German retailer?

For brands there are also consequences. Some customers who experience these road blocks may return to local bike shops or local online bike store. Some brands require their products to be sold in-store, even if you are in South Africa for example, South African online retailers are not allowed to sell.

But some customers will simply walk away and turn to other brands, brands which are comparable but which they can purchase through a channel which they prefer, and for price they feel competitive.

 

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

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.

 

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’.

Online Shopping Love and Hate in the Cycling World

Where customers have access to choice and competive pricing, online shops are seen as a threat by many others in the industry.

“You are either with us, or against us” is the mentality driven by traditional business who easily turn their backs on any one or any entity aligned with online retailers.

In Australia, CyclingTips blog highlights a recent example of a charity organisation, the Amy Gillett Foundation, who have partnered with Wiggle as an event sponsor. A local distributer released an open letter criticising this however the Foundation were quick to point out that the distributer had never actually supported them anyway and that local business support has been insufficient. Read more: Local charities partner with online retailers but face industry fall-out

But there is an opportunity for dealers, brands and wholesalers. Rather than fight and oppose independent local entities such as charities and media – take over and dominate the advertising, sponsorship and support. Without a doubt, most would welcome the local support and pay it back. While it can’t rest on the shoulders of one business, a mutual understanding within the industry will share the load and share the gains.

Three reasons why your Local Bike Shop can’t compete with Online

For established bricks and mortar bike shops, the internet boom has come as a shock, many were not prepared, didn’t understand and wouldn’t adapt to the changing market.

Yes, PRICE is the obvious one. Chain Reaction Cycles, the worlds’ biggest online bike shop and Wiggle (a close second) don’t have the same overheads and the big ones use their bulk buying power to get their price down.

Product RANGE is hard to compete with. Local bike shops are locked into specific brands and it simply isn’t economical to stock everything so availability is an added factor. And of course, if one online shop doesn’t stock the item you are after, or it is out of stock, the next online bike shop is just a few clicks aware, not miles away.

The next reason is SPEED. Obviously you get immediate satisfaction visiting your local bike shop and buying something directly from the shop floor – but what if they don’t have it. The speed it usually takes for the distributer to deliver to the bike shop, then adding in your extra travel time makes it inconvenient.

Next up, three reasons why your local bike shop is better than the online shop.

 

How do online bike shops sell the same products for less?

When the online sales boom started, one of the biggest effects was the online businesses could significantly reduce the traditional overheads; high street’ retail premises, skilled floor staff and many of the costs involved in running a bricks and mortar business. When bicycle parts and accessories have mark-ups up to 100% (of the wholesale purchase price), eliminating the expensive shop costs has a big impact on profit margins.

Selling online is cut-throat and in Feburary 2013 Wiggle posted a 2012 turnover of 140 million pounds. But after costs and overheads the retained profits were just under 9 million pounds. The constant  discounting by online shops means that they are reaping obscene fortunes.

But big online bike shops have a few tricks up their sleeves to remain competitive and consistently undercut smaller shops on price. The approach will vary from shop to shop, but here are a few in brief:

• Bulk Buying: large volume purchases give big online retailers  power to negotiate on prices.

• Old Season Stock: brands with old and hard-to-sell stock can offload to online shops who buy cheaply and can quickly sell.

• OEM Equiptment: accessories that are officially purchased for assembly on complete bike, but are never assembled (or even disassembled) and then sold seperately.

• Grey Market Sales: bikes, parts and accessories which are purchased via unofficial agents or routes. Also making wavailable to customers in countries that are otherwise served by official distribution partners and dealers.

• Tax Breaks: Online shops may locate to countries, regions or districts with low taxes and exemptions.

• Wheeling and Dealing: using loopholes, unsanctioned or even dubious channels to acquire cheap stock.

Some brands actively try to manage their distribution, and explains why they are hard to find with the big name shops, but many have traditional distribution agreements which fuel price discrepencies between distributers and online retailers.