3 Dirty Little Secrets of the Bicycle Industry

– and is the future of the traditional wholesaler under threat?

dealing with the devil

Dirty Little Secret No.1 – more and more bicycle retailers are moving on from being online malcontents, to online customers.

Faced with the new breed of dynamic online cycling retailers, with their huge product ranges, fast turnarounds and prices typically 30-50% cheaper than their local retailer; consumers quite quickly transitioned from “I’d prefer to support my LBS where possible” to “bugger it, look at the money I’m saving”.

Now the same thing is happening with Australian bicycle retailers. And when I say ‘now’, it’s really been happening for a number of years; especially in the outer territories such as WA, FNQ and Tasmania. But now also in the major metro markets of Melbourne, Sydney and Brisbane. More and more local retailers are now openly admitting to buying more and more of their stock from the very companies they despised and railed against (and still outwardly do).

Dirty Little Secret No.2the major online retailers have long offered ‘trade’ accounts, with a further 10-20% off the listed prices.

Whilst not enough margin to purely sustain an Australian retail business, the chance to still win the sale, keep the customer and make a few dollars in the process has become too tempting to resist for many retailers. And not just on the high end components and premium accessories; but on bread and butter items as well. Categories wholesalers thought would never be affected by the onliners.

The willingness to deal with the ‘dark side’ is made all the more palatable, by the real or perceived lack of help from brands, their distributors or the government to do anything about the huge pricing disparities*. The sympathetic shrug from their local supplier and the spiele about how they’re working hard with their suppliers to stop Wiggle, Ribble or Bike Bug selling their product to consumers at essentially wholesale prices, has worn thin.

The Not So Secret Little SecretWiggle have now set up an office in Australia

The much maligned UK online behemoth, ‘Wiggle’ (sorry if I sound like I’m picking on you guys), have opened up an office in Sydney. Now whilst they are saying it is to better support Australian customers; which I’m sure they are hoping to do. I have to wonder, which customers they are taking about exactly. End consumers, or bicycle retailers?

They did the rounds of Australian suppliers a couple of years ago, seeking direct supply from local wholesalers; mainly for AS standards helmets (as they can’t legally sell most major helmets brands into Australia) and big box items they didn’t want to have to import from the UK; without much joy.

But what’s to stop Wiggle or the other major onliners, becoming primary suppliers to Australian retailers and usurping established wholesalers? Well, in both theory and principle, there are plenty of obstacles; e.g. territorial agency contracts, upside down seasons, GST, customs and freight charges, local baseline costs of doing business. i.e. all the same costs and issues that Australian distributors are dealing with.

What makes the prospect of onliners usurping distributors more feasible though, is the fact that territorial contracts are being openly flouted or ignored by flaccid suppliers. Which leads me to my third dirty little secret;

Dirty Little Secret No.3more and more of the major brands are now directly supplying and liaising with the major online retailers

The thinking (or the excuse) was that the best way to control the situation, was to be inside the tent. The hope was that this would assist pricing stabilisation and distribution controls. All it has meant though, is that the online retailers now have the same or better buying power, as the major distributors and probably more power and influence. The tail is now basically wagging the dog.

Could we soon see a time where Wiggle, Chain Reaction, PBK, R&A, BikesDirect and co. are the major competitors for the likes of the Monzas, Bikesportz, Madisons, QBPs and Grofas of this world? Could they even ultimately replace them and control the whole distribution chain? Could the next logical step be to start purchasing the brands and the factories themselves? Tin-foil hat wearing conspiracy tripe for some I know; but is it really that far-fetched? Or that far away?

And if it came to be; would it ultimately be a bad thing or a good thing for the industry or the consumer?

Are you a wholesaler? Are you at all concerned? What are you doing to keep your business relevant and viable in the mid to long term?

Jonathon Nunan

www.betterbikebusiness.com

*I thought it important to note here that in fact, many brands, distributors and industry bodies have been working very hard on this issue for many years now. Peter Bourke and the BIA for example, have been relentless on this front. And there are definitely some major brands who can claim to have largely stabilised their global distribution and pricing through tightened up online and distribution management policies.

As someone who formerly represented a leading Australian distributor, I can assure you that this issue was front and centre at nearly every show, supplier meeting and Skype chat; if not the primary issue. Whilst many IBDs might feel their concerns are not being addressed; I can assure them they are. The problem is very few have been able to find real, workable or legally enforceable solutions.

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2 Comments Add yours

  1. Gary Jackson says:

    Hi Jonathon, What about “Parallel import laws”. I was on the receiving end of a long lecture from a major wholesaler once regarding buying from overseas online suppliers and then re-selling in my store. Where do we stand?

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    1. Hi Gary,

      I think we’re all a bit torn on this subject. As a former National Sales Manager of a major distributor, I probably had that exact talk with retailers hundreds of times. And on principle, ideally, the official distributor would be protected, respected and supported. But in reality, it isn’t playing out like that. Partly because ‘business is business’ and retailers and consumers are always doing their best to secure the best deal. And I get that. I don’t actually blame retailers or consumers for that.

      But mostly, the blame and the responsibility has to lie with the brands/ manufacturers themselves. Their hands in the air denials and shrugs just don’t cut it anymore. They have been trying to play both sides of the fence for long enough now. They have to decide whether their product will benefit the most from dedicated, professional supply and support in each market, or whether a laissez-faire open market approach will produce the best results for their turnover, market share and end customer experience/support.

      Official suppliers take on all the risk and investment, with few guarantees. And more and more they are undermined by competing distributors, sometimes by their own customers (often one in the same) and indeed, even occasionally by the suppliers themselves; and of course by the massive global pricing disparities. Whilst not easy, this can to a large extent be controlled by the brands themselves. They control what their products are sold at in each market. They designate where their products go one they leave the factory or warehouse. To say they have no control over what happens to their product is utter rubbish and just lazy excuses. Its just cover for the fact they don’t really care that much; especially in markets that don’t matter to them massively.

      But watch things change rapidly when one or two of their key markets suddenly suffer the effects of weakened distribution, pricing disparities, malcontent retailers, disenfrachised consumers etc.

      Its taken a while for everyone along the food chain to understand and work out how best things should work. What the ramifications are of certain policies or structures. And what will produce the best result for all the required players; including the end consumers. I have some faith that this will largely work itself out in the wash as time goes on. It has to. Those that don’t work it out, will simply fall by the wayside. So, I guess I am counting on an element of industry Darwinism here. But I think its an evolutionary process that all of us as members of the bike industry can play a proactive part in progressing. In some ways you, as a retailer, by taking advantage of the various foibles in the supply chain, are helping to provoke that evolution. Perhaps rather than you getting the lecture, maybe next time it will be given to the supplier instead. If it hasn’t already.

      Cheers,

      Jonathon

      Like

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