story and photos by Jay Prasuhn
Canyon announced recently it will be bringing its direct-to-consumer model to American next spring. What does it mean for the current retail bike sales model in America? Check our story from our April issue as we talked to Canyon, Trek and retailers to see how it all affects how you’ll be buying bikes in the future.
Last year, we all watched Jan Frodeno tie a beautiful bow on a remarkable, record-setting season by winning Ironman’s European, 70.3 and World championships. With those wins, Frodeno became the first athlete to own a Kona title and an Olympic gold medal.
The bike Frodo rode to his Kona crown, the 2016 Canyon Speed-max CF SLX, is a study in efficiency. It’s quick and clean, with integrated hydration, fueling and tool storage. Just days before the win, Canyon CMO Matthew Heitmann was part of an official media debut of the new Speedmax, and it received incredible attention. Then, Frodo rode it to his Kona crown. Suddenly, the Speedmax was the must-have tri bike.
“That was unbelievable,â€ Heitmann said. “There’s huge interest in triathlon in the world, and having the best triathlete as the world champion, on the bike we were debuting? It’s huge for us. We couldn’t have asked for anything better.â€
The upside? You can buy one—online no less—direct from Canyon. In fact, they don’t sell the bikes in shops; you simply click and pay, and your bike shows up in a cardboard box at your door, cabled and ready to ride, save for a few basic installs.
Downside? If you live in America or Canada, unless you fly to Canyon headquarters in Koblenz, Germany, you can’t get one. Yet. But your desired Trek Speed Concept? Oh yeah, you can buy one online—click, ship, ride—with just a smartphone and a credit card.
Mark 2016 as the year the bike-buying landscape made a seismic shift. For decades, you likely bought your new bike one way: with a trip to your local bike or tri shop. After a bit of finagling, you rolled out of there with your new ride. But the Internet has changed all that. In the last decade, we’ve gone from buying simple things online, like a set of tires, a pair of shoes or your LAVA Magazine subscription. Now, guns, cars, sex (in some states) and your Domino’s pizza can all be acquired from the comfort of your own couch.
Now, after years of resistance from the industry’s biggest brands, bikes are making their direct-to-you debut, with Trek—and soon, Canyon—changing the face of bike sales. Some welcome the change with open arms. Some traditional retailers, eyeing their already slim profit margins and skeptical about this tech wave, are stomping mad. Others are prepping their shops for the evolution. Either way, the online wave is splashing ashore in America.
On its face, the consumer-direct model is simple: an online transaction just as when you order your holiday gifts from J. Crew. Click, ship, wait for the knock at the door. It cuts out the middleman: the retailer. With no middleman to manage and engage the transaction, there’s often no markup from an importer or retailer for the consumer to absorb. And for manufacturers, stock is managed directly; the order comes in, the product goes out—often to the cost benefit of the consumer. For web- and cost-savvy buyers, this is the prime reason to buy online—it’s simply cheaper.
Yet for its ease, the consumer-direct model is fraught with complexity. With the debut of online bike sales from industry behemoth Trek last winter, and the impending debut of online-only Canyon Bicycles to North America, a longstanding bike sales model—your local shop—is at risk of losing your sale. Enough lost sales and they’re at risk of becoming victims of the Internet age.
Remember Tower Records? Blockbuster Video? Your local cabbie? Enter iTunes, Netflix and Uber. Love it or hate it, the Internet takes the tactile pleasure of a newspaper you love to unfold in the morning, and replaces it with the cold, hard tap of an iPad. It’s easier. But in the case of all our accoutrements as triathletes, be they tri kits, running shoes, wetsuits or bikes, is it better?
Within triathlon, Xterra Wetsuits has proven it’s a tenable model in the wetsuit segment. It sells through zero retailers, with consumers buying wetsuits, Lava pants and inflatable paddleboards direct. Shipping is easy. And unlike with bikes, there’s no build, adjustment and maintenance; just pull it on and go. It’s to the ire of the rest of the wetsuit market, which, like the bike market, sells through traditional retail channels. But with no middleman, Xterra is laughing all the way to the bank.
FLOWING FROM THE CHANNEL: TREK GOES ONLINE
If bikes direct becomes de rigueur in America, all credit will go to Trek. Born in 1976, Trek went from early silver-brazed alloy frames to beautiful carbon fiber offerings, built wholly in their factory in Waterloo, Wisconsin. The company was bolstered in the 1990s and early 2000s by Lance Armstrong’s seven Tour de France wins and continues today as a leading brand in engineering and composites.
Last summer, Trek stunned the bike industry when it announced a new program called Trek Connect. In September Trek became the first American brand to sell direct. However, the company supported that endeavor by having bikes ordered online shipped to existing Trek retailers or their own Trek Superstores. There, shop staff build and deliver the bikes.
“The writing was on the wall for a while, and a pure play wasn’t a sustainable model,â€ Trek brand communications director Eric Bjorling says. “We had three options, and option one was to ignore the Internet and that didn’t seem viable. Option two was to focus on digital and say, ‘Good luck, retail,’ but we built our brand on IBD [independent bike dealers], and those are our partners and friends.â€
So they decided to serve both their e-commerce and brick-and-mortar interests. “The way consumers want to interact with a brand and the product is evolving,â€ Bjorling said. “It’s not easy being first here, but it’s been a great thing for our retailers.â€
While the gut reaction from many Trek retailers was revolt, Trek’s quick education was that the omni-channel system still supported them by providing the storefront with a cut of the online sale. Since then, the uproar for those retailers has generally subsided, with the message among retailers being: “This may well work.â€
“For us, online doesn’t replace brick-and-mortar sales,â€ Bjorling says. “Thus far, it’s picking up a few purchase from retailers that didn’t have that bike on their floor, or a non-traditional product, and triathlon bikes are very much that. Really, it’s an external warehouse, if you will. That’s how our retailers are thinking of it, and it’s been a good thing.â€
Trek president John Burke is resolute. “This is a massive investment in the long-term success of our brand and our retailers,â€ Burke says. “We believe the most successful companies in the future will all be omni-channel enabled and we are doing everything we can to make sure that future for our retailers is bright.â€
COMING TO AMERICA: CANYON SPANNING THE GAP
For years, cheaper online meant “cheap.â€ For a while, that was the preferred sales model of Canyon founder Roman Arnold. After taking up the reins of his father’s bike shop, Radsport Arnold, when his father died, Arnold decided to create and sell his own bike brand: Canyon. He did what many have done (and still do): opened an Asian open-mold catalogue, picked a frame and slapped a “Canyonâ€ sticker on it. After a slew of recall issues, Arnold decided to invest in his own tooling and make bikes the way he wanted: strong, fast and safe. He hired PhD Michael Kaiser to study composites, hired more structural and aerodynamic engineers, and became a legitimate brand.
He then decided to eschew the standard practice of finding a distribution channel and a network of retailers, and instead sold his bikes online, direct to the consumer.
“There was this Internet thing, and Roman had what we Germans call ‘BauchgefÃ¼hl’ or gut instinct—an intuition,â€ says Canyon CMO Matthew Heitmann. The early years of Canyon’s online experiment were challenging to say the least. “Roman had a hard time overcoming negative press and sentiment, because everything sold online at the time was an inferior product.â€
His answer? Win mindshare by being better. The company hired a cadre of engineers and build their own test rigs, setting their standards higher than European product safety standards. “He said OK—I’ll make bikes that test the best,â€ Heitmann says. Soon, Canyon was the top-tested bike in Tour magazine’s famed testing protocol. It thrust the brand from obscurity to the hottest bike on the German market, and online orders went through the roof. “The motivation for Roman and Michael was combating the negative perception and having a better reputation,” Heitmann says, “but of equal importance, they wanted to build a safe product, so they could sleep at night.”
Today, Canyon employs 40 people who are dedicated solely to R & D and engineering. The company was the first to initiate the use of a CT scanner to scan forks and include a QR code with a record of manufacture. “We like to say that Canyon is an engineering firm that builds bikes,â€ Heitmann says.
The company, based in Koblenz along the banks of the Rhine River, is not only hot in Germany anymore. It recently opened sales into Australia and New Zealand, and with American fans clamoring, Canyon has its eye on bringing its road, mountain and tri bikes to the American market.
Canyon’s direct-sales model allows them to warehouse thousands of bikes, shipping them worldwide from their headquarters in Koblenz, Germany.
Sometime soon (perhaps later this year, maybe early 2017) Canyon will plant its flag on American soil. And when that happens, the market will be truly disrupted. For while Trek’s online component will have a generally similar retail pricing protocol to brick-and-mortar stores, Canyon will be direct to consumer quite literally: your bike arrives boxed at your front door. With no middleman in any sense, the cost savings goes largely to the consumer, to the tune of about 30 percent. Consumers on the fence between two brands will tilt toward the massive advantage Canyon will own: cost.
“It’s hard to say, as every currency is different, but in general, if selling in US dollars, you’d be looking at least a 20 to 35 percent savings over like-type bikes,â€ Heitmann says. When matching Canyon’s Kona-winning Speedmax against CervÃ©lo’s P5, a Cannondale Slice or a Specialized Shiv, it may just come down to price. And at that point, direct sales becomes very attractive.
“We have a nightmare scenario right now: the demand is so high, we’re just having trouble delivering,â€ Heitmann says. “We’re catching up, but consumers, they just rave; they say they’re the best bikes and the cheapest. It’s such a compelling story. I mean, to have one of the best bikes in the world for 30 percent less—why not? Additionally, we’re winning all the races, demonstrating in triathlon and on the [Pro Cycling] World Tour that we have a superior product.â€
With that, Americans are clamoring.
“For our future plans, America is the most important market,â€ Heitmann says. “We’ve taken the initial steps and would like to be there this year. But we build according to production runs, and we know the American consumer isn’t going to be excited about that. So our plan is to have a really good quantity of bikes already manufactured, boxed and ready to go. We feel you’re not a true global player until you’re in the U.S. market.â€
THE VALUE COMPONENT: SERVICE
It’s easy to sell wetsuits, apparel and other triathlon bike parts and soft goods online. But selling bikes has a whole other degree of complexity. When a consumer buys a bike from a local shop, they buy not only the bike but also the support, generally in the form of favorable discounts on accessories and friendly service at reasonable prices.
But without the shop, a bike bought online brings just a bike. No place to bring it for derailleur adjustments, no warranty service. Nothing. But make no mistake, gears are turning to be sure the direct consumer is looked after.
As you may have noticed, mobile service is a white-glove cottage industry, catering to triathletes who, really, don’t want to get their hands dirty or simply don’t have time to take their bike to the shop. Enter Velofix.
The Canadian-based company is everything your local shop is; a qualified mechanic spinning wrenches, a few key pieces from pedals to tires available for sale, and the inviting aroma of a freshly-brewed Nespresso wafting in the air. The only difference? The Velofix mechanic is on four wheels; a beautifully built-out Mercedes Sprinter van, complete with Park Tools, space for storage and a full-service work bench. Schedule an appointment and the mechanic collects your bike at home and returns it shortly after. No shop to visit.
Where the local shop that you’ve frequented for years may frown upon your arrival with a Canyon or a web-bought Trek, Velofix fills the niche. Yes, mostly for the consumer who simply doesn’t have time to take their bike to the shop, but also as a de facto mobile service center for a potential web buy. When your bike arrives to you, Velofix is there to swoop in, collect your bike-in-a-box, build and tune it, making it ready to ride.
With companies like Canyon showing up without built-in service, Velofix may become the perfect roving service provider. The company, with its 38 vehicles across the US and Canada, says they’re up to the task, doing anything from the one-bike rear derailleur adjustments booked from your iPhone to a full tunings on all campus bikes for Microsoft.
“Someone said we’re like the Uber of the bike business. Online is gaining massive traction,â€ says Velofix founder Chris Guillemet. “The direct-to-consumer model for bikes is a huge part for us.â€
Guillemet saw the opportunity to go mobile as soon as he saw a stagnation in standard model bike margins. Something had to change, and online was it. “The last three and a half years, online sales have been way more prevalent for us,â€ he says. “It’s a hard place to be in storefronts. Insurance and rent are going up, but margins on bikes aren’t.â€
Guillemet says he welcomes Canyon’s pending presence. “I think there’s plenty of room to work with retailers, because consumers will still be bringing their Canyons to brick-and-mortars for service. But Canyon really is a brand we’d love to partner with, and provide basic lessons—how to lube a chain or change a tire—to their consumers.â€
DEFENDING BRICK-AND-MORTAR SHOPS
Your local bike shop is suffering.
Maintaining a storefront, paying staff, organizing shop rides, and selling bikes on razor-thin margins is not a glamorous life. Truth is, the shop isn’t paying its mortgage with the $7,000 bike it sold to you; it’s only getting a small part (usually a few hundred dollars) of that sale. Rather, it’s the aftersale—the bottle cages, shoes, maybe a pair of shorts, or a handful of gels—that makes up the difference once you are (hopefully) a devoted customer. Add service (tune-ups, a new tire swap) provided the shop gets you as a repeat customer, and it’s a barely sustainable model. Barely. And when that new year model bike becomes dead year-end stock, selling at or below retail is often at a loss. It gets tougher when parts, from stems and derailleurs to tires and aero hydration systems are available online. It’s an overplayed industry joke, but always plays the same: Want to know how to make $1 million in the bike industry? Start with $2 million.
Which is why there’s a general thought that most mom-and-pop bike shops bristle at the thought of a customer walking through the door, trying out a new bike to be sure it fits, taking it on a test ride, and then walking out said door and ordering that same bike for hundreds less online. To add insult to injury, said customer often ends up bringing aforementioned online-bought bike into the store to have it built. The shop will do it, but not with a smile, and certainly not with a discount or sense of urgency.
For consumers plunking down big bucks on carbon tri bikes, their shops match their acumen: educated, forward thinking, and tech savvy. Most tri shops know the online wave is coming and are preparing to make it work for them.
“We look at a customer’s buying patterns, not just from a retailer perspective or manufacturer’s perspective,â€ says Skip McDowell, CEO of Nytro Multisport. One of the most well-known and longstanding retailers nationwide, Nytro has a bustling storefront in Encinitas, California, with BMC, Cannondale and Quintana Roo bikes throughout the cramped quarters as historic Lotus frames hang from rafters above.
But even as a renowned retail location, Nytro maintains a thriving online presence. In fact, 80 percent of triathlon bikes sold out of Nytro come from the web. And it’s a rare online presence at that. As a high-volume retailer with most of its suppliers, Nytro is afforded special license from a few brands (Quintana Roo and Cannondale among them) to sell bikes online (many as part of a first-time triathlete package that includes a bike, wetsuit, helmet, shoes and race kit) provided Nytro respects their retail pricing limiters. It’s that forward-thinking retailing that has kept Nytro one of the most successful triathlon storefronts in America.
Still, it’s not without challenge. “People are buying online, but the industry is having a hard time, both in online and brick-and-mortar,â€ McDowell says. “With Amazon ruling the SEO market for soft goods—helmets, shoes, apparel—those sales have shifted from direct or retail to Amazon.â€
That aside, bikes are still the realm of retailers. And by McDowell’s thinking, it still can be. It’s just that retailers need to get on the online train. As do the bike brands.
“First, bike manufacturers have to get into the business,â€ McDowell says. “If they put their head in the sand and say, ‘We’re never gonna have an online strategy and support the IBD,’ in five or six years you may not have a business. It’s coming; you have to embrace it and be part of it. And do it correctly, where it’s efficient and doesn’t harm brick-and-mortar.â€
He commends Trek for their gumption in being the first to take the direct sales chance in America. “Some [retailers] liked it, there was some negative press. But at least they had a strategy—they put their toe in the market and can adjust as they need to.â€
But McDowell says retailers need to be proactive about their business. “They have to look at how people are buying today. The smarter brick-and-mortar guys know it’s more than, ‘Here’s the bike and here’s the cost.’ You gotta develop a relationship with the customer.â€
As a retailer, McDowell thinks there ought to be incentive from the direct sales manufacturers to send those customers to his store for build. He has a million different ways he could slice it and make the direct model tenable—even profitable—for retail storefronts. They may not get the bike sale, but they get the customer in the end.
“Maybe there’s a way to structure things so that it’s a win-win for the customer and the dealer,â€ McDowell says. “Maybe offer a two-year maintenance-free program for the customer; free parts, fit and service. Or a $100 certificate toward any of their branded accessories to go with that bike. Or online gets a different kind of warranty: subsidized parts; an authorized bike build that adds a year to the warranty, whereas online-only with no retail component gets a different kind of warranty. I think if things like this happen, retailers will embrace it, knowing that ‘Hey, these guys are driving customers to us.’â€
SPECIALIZED: DEFENDING RETAIL, LOOKING FORWARD
Defending the local shop are companies like Specialized. In fact, while Specialized does sell many pieces of its wide accessory range—including helmets, shoes and apparel—direct to customers from its website, it doesn’t sell bikes online. You want a Shiv? Hit up your local dealer.
That said, they—like all other traditional channel bike manufacturers—are watching. And while they stand firmly behind defending the status quo, they’re not averse to change.
“It’s a huge topic that we think and talk about a lot,â€ says Sean Estes, road product manager at Specialized. “Stu MacLennan, who spearheads our USA sales efforts, comes from Apple, and what we learned from him was that with online, they sold more product—period. Whether buying online or from a retail storefront, bringing online into the equation meant more sales across the board. If we do it, we want to figure out how to best do it.â€
What does that mean? “First and foremost, we’re going to support our retailer, as our business was built by them, so we only want to do something that supports them,â€ Estes says. “But we want to bring them into the digital age with us.â€
Interestingly, Estes says that Specialized nearly launched a program similar to Trek’s, “But we pumped the brakes. We felt it was good, but we were still working on making sure we were doing right by our retailers.â€
While Specialized may take a “sit back and watchâ€ approach as Trek makes the initial dive into direct sales and support, “It’s interesting to look into, but not guiding our decisions right now,â€ says Estes. “Our overarching goal is to move into the digital age with our retailers, but we don’t have any direct or immediate plans.â€
What does this all mean to triathletes as we get ready to drop $3,000, $7,000 or $12,000 on a new bike? We’re likely to be among the first adapters to any online programs. “I think triathletes are interesting,â€ Bjorling says. “They’re well educated about the product they use and do a lot of up-front research.â€
Is this a death knell for retail? It may be more akin to a Chicken Little fable for those crying foul about online—a fear of the unknown for retailers that have operated in the same manner for decades. To that point, Canyon doesn’t aim to be the big bad guy upending the apple cart. Nor would Trek, or potentially Specialized or CervÃ©lo or any other brand. It’s just that the apple cart is now a clickable online cart. Canyon contends there is a place for all methods to coexist.
“It’s bewildering to me that there are some brands that are so vocal about being anti-online, where it’s so clearly the only way to survive,â€ Heitmann says. To see Trek embracing it, it shows forward thinking. For us, it’s simply the best business model.â€
Heitmann continues: “I used to have a bike shop, and any way we could get a customer—whether through sales or service—was great. We hope to provide new customers for them. We don’t want to put anyone out of business; we want to coexist. We can’t service every Canyon bike owner in the US when we’re there, so we hope to have a reliable network of shops.â€
One thing is certain: the wave is coming. Get your board—or bike.