Bicycle Retailer and Industry News (BRAIN) has been a long-time provider of highly relevant data, insight and analysis for all who participate in the bicycle industry. Rick Vosper, formerly the Director of Marketing at Specialized and VP Marketing & Product at Valtec, is a regular contributor in the Opinion and Analysis section of BRAIN publications.
In 2019 I eagerly read a series of articles in Bicycle Retailer where Vosper documented what he describes as the three “ages” of the specialty retailer bicycle channel in the United States – Bike1.0, Bike 2.0 and Bike 3.0. The three-era model, and the analyses provided by Vosper in the five articles, are excellent. I highly recommend reading each and all in detail. Below I will do my best to summarize the key points manifest in the series by Vosper and hope that my summary inspires you to read in detail each and all of Vosper’s articles.
First, here are the links to each of the articles by Vosper in Bicycle Retailer:
- #1 (7 January 2019): Welcome to Bike 3.0, The New Reality. Part One
- #2 (21 January 2019): Welcome to Bike 3.0, The New Reality. Part Two
- #3 (17 June 2019): The Spectacular Success — And Failure — of Bike 3.0, Part One
- #4 (1 July 2019): The Spectacular Success — And Failure — of Bike 3.0, Part Two
- #5 (28 October 2019): Welcome to the Zero-sum Game — Part One, Market Dynamics
Please note that Vosper has more recently penned a Bike 4.0 series regarding “the last mile” in retail. Soon I will add a new blog post regarding that series as well.
So…let’s dive in.
Below is a summary of Vosper’s three “ages” of bicycle or specialty retail:
- Bike 1.0 (1950 – 1975): A single brand, Schwinn, dominated the specialty retail market in the US during this period. While this created stability in the market among both retailers and suppliers, I would also suggest that single-player dominance also resulted in less innovation, thus making the industry ripe for the disruption manifest in Vosper’s Bike 2.0 era.
- Bike 2.0 (1975 through early 2000s): Vosper states that this period began with Schwinn losing its antitrust case in a Supreme Court ruling (more detail here) and extended through the initial explosion of mountain bikes. The Supreme Court ruling resulted in a large increase in independent bike dealers (IBDs) or stores during the Bike 2.0 era, reaching a maximum of 6,100 IBDs in 2001. Mountain bikes attracted new consumers that had not purchased bikes during the Bike 1.0 era, presumably because bike models like the Schwinn Typhoon or Schwinn Centurion were no longer attractive compared to new models from a variety of bike manufacturers that became available in the marketplace. During Bike 2.0 a plethora of new bike manufacturers became established because no specific bike manufacturer could dominate the marketplace. Note that during this period, single-player dominance was still present in other segments of the marketplace (e.g., Shimano drivetrains).
- Bike 3.0 (early 2000s to present): During this period Vosper states that, following standard economic and consumer retail models, the following trends should have happened during this period…
- Fewer traditional retailers (i.e., local bike shops);
- Consolidation among suppliers (e.g., Trek consolidating Fisher, Klein, Le Mond, and Bontrager; SRAM consolidating Sachs, RockShox, Avid, Truativ, and Zipp), with higher margins as a result of fewer suppliers controlling the supply and what stores are allowed to carry their brands;
- Internet e-commerce becomes a dominant driver of change in the industry.
Here is where I would suggest that Vosper’s analysis gets very interesting, in that he then documents in the third and fourth articles (the “Spectacular Success – and Failure” articles cited above) how and why the Bike 3.0 era did not evolve as he expected based on general economic models and real-world cases. For example, Trek and Specialized have become dominant brands and both command higher price and margin premiums, but not as large as Vosper originally expected. In addition, only 52% of independent bike dealers (IBDs) carry the top four bike brands (Trek, Specialized, Giant and Cannondale), with the remaining 48% of IBDs carrying bikes and gear from other smaller bike manufacturers. If one includes large-chain retailers and internet-only retailers (in addition to IBDs), the percentage of retailers that carry the top four brands dips well below the 50% mark. In short, the top brands did not command such a high market premium to result in the collapse of many of the smaller brands. Vosper suggests that is because if Trek and Specialized were to add significantly more IBDs to their Authorized Dealer portfolios, they would risk alienating their existing dealers due to regional market overlap. Vosper also cites other factors that have resulted in higher than expected brand diversity, such as…
- It is still relatively inexpensive to launch a new bike shop compared to launching new locations of franchise brands (e.g., McDonalds) or capital-intensive businesses (e.g., car dealerships).
- It is also relatively inexpensive to initiate a new bike brand and sell bikes and gear from those brands to the “non-top-four-allied” IBDs.
In addition to the lack of brand consolidation, prices of bikes has remained relatively stable. Vosper credits the very transparent nature of price data available to both consumers and retailers through the Internet with keeping prices and margins lower than he originally anticipated.
In Part One and Part Two of the Bike 3.0 articles (links provided above), Vosper discusses in detail the drivers and resulting marketplace realities that we are now experiencing during the Bike 3.0 age. In the following bullets I will attempt to summarize key points that Vosper makes…
- Premium pricing: Trek and Specialized are the dominant brands in the U.S., and therefore command higher MSRP and MAP, and offer higher dealer margins (but lower than in years past);
- Market share: Contrary to expectations (per bullets above), Trek and Specialized combined have secured authorized dealer relationships with only one-third of IBDs in the U.S. Adding Giant and Cannondale to the list, the top four brands have authorized dealerships among 52% of U.S. IBDs;
- Vosper also cites that in 2012, 52.6% of IBDs carried the top four bike brands, and in 2017 51.9% of IBDs carried the same top four brands;
- Retailer consolidation: Contrary to predictions, the number of U.S. bike dealers overall (including IBDs, large sporting goods stores, and internet bike stores) has remained relatively flat at approximately 7,000 since 2011. Data shows that while a percentage of IBDs do close every year, an almost equal number of new IBDs open each year as well.
Therefore, while the top bike manufacturer brands do command higher prices, the market share and retailer consolidation metrics have not moved to levels that Vosper’s Bike 3.0 model predicted.
In Vosper’s fourth article (“The Spectacular Success — And Failure — of Bike 3.0, Part Two”) he contrasts the fairly diverse bike manufacturer situation with the dominant position manifest by Shimano. Vosper cites a 2016 Credit Suisse Equity Research report that put Shimano’s global market share at 70-80%. Vosper also estimates that Shimano components are available at essentially 100% of US bike retailers (because almost all US bike retailers carry at least one bike model that uses Shimano components). Vosper also discusses the situation where consumers can purchase Shimano components directly from non-US internet retailers at prices at or below what US IBDs can purchase those same components at wholesale prices. That has resulted in a significant loss in potential parts and services revenue for US IBDs, and further consolidates Shimano’s market dominance in the bike component category.
In Vosper’s fifth article (“Welcome to the Zero-sum Game — Part One, Market Dynamics”) he dives into internet-based sales that bypass IBDs. The fifth article also serves as a transition point into Vosper’s next series of articles, his Bike 4.0 series discussing “the last mile” situation from the perspective of bicycle retailers and consumers. I’ll dive into those series in a future blog post.
As I look back across the five articles that are the focus of this blog post, I would suggest that the dynamics between bicycle manufacturers, bicycle retailers and consumers are perhaps similar to other markets with physical and somewhat expensive products. For example, one might reason that the dynamics manifest in the auto industry mirror fairly closely what we have seen in the bicycle industry. The number of car manufacturers remains fairly diverse, with no single manufacturer dominating, while also acknowledging that some, such as Toyota, do command higher market share than others. Because of the physical nature of a bike, and how different body sizes and shapes result in a consumer preferring one manufacturer or model over another, perhaps the bike manufacturer market will continue to remain relatively diverse until an innovation comes along that makes it easier for a bike manufacturer to offer a suite of highly and easily configurable bikes to suit a variety of consumer needs and wants.
I hope you found this summary of interest, and that it piques your desire to read each of Vosper’s articles. I look forward to sharing soon my summary of Vosper’s next series on “the last mile” dynamic in a future blog post. A hearty “Thank you!” to Rick Vosper and BRAIN for providing these excellent insights for all of us who live and play within the robust and dynamic bicycle retailer industry.
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