Why Trek’s Consumer-Direct Initiative Changes Everything

Why Trek’s Consumer-Direct Initiative Changes Everything

The Most Important Industry Move No One Wants To Talk About

It’s been just over sixty days since Trek’s bombshell announcement at the company’s August dealer event.

Pull-Quote 1.021 Prefaced by the phrase “we play offense!” Trek president and longtime Packers fan John Burke told retailers and media folk that his company would henceforth sell its bikes direct to consumers. Those bikes, he said, would be fully supported by the company’s network of nearly two thousand local retailers. And all of this would happen by the end of September.

From the cyclist’s viewpoint, Burke’s omnichannel announcement sounds like a pretty sweet deal. Any Trek model, in any size and color variation from the company’s vast product portfolio, available within a few days with all the convenience of online shopping and all the service and support of your hometown Trek dealer. Heck, for a modest upcharge, you could (usually) get the retailer to drive the fully built-up and tuned bike out to your home or office and deliver it, literally, into your waiting hands.

The consumer media reported the announcement with a certain cautious excitement and then quickly went dark. But, within the industry itself, Trek’s omnichannel initiative (more about that name later) has been the hottest topic of conversation since Lancegate.

Except that no one on the supplier side of the industry wants to talk about it.

A spokesperson from Specialized declined comment. A spokesperson from Giant declined comment. A spokesperson from Accell Group (Raleigh, Diamondback, Redline, and many others) declined comment. Executives from CSG (Cannondale, GT, Schwinn, and others) did not respond to repeated phone calls and emails.

For the record, guys, the usual response when your competition pulls the rug out from under you, and you’re sitting on your butt,  wondering what the heck happened, should be, “It’s an interesting proposal, and we’re studying it carefully.” Then you wait and see.

If the initiative turns out to be a disaster, you can claim you were against it from the get-go. If it’s successful, you wait until the innovator has done the hard work of troubleshooting all the inevitable bugs and then launch your own version, hopefully with enough new wrinkles that you can claim yours is different and perhaps even better.

But that didn’t happen here. Response to Trek’s announcement is being flat-out stonewalled by every major player in the industry. And I do mean every.

A spokesperson from the NBDA, the industry’s retailer association, declined comment, even declining to comment on whether Trek’s direct-to-consumer internet sales initiative conflicts with the NBDA’s own Commoditization and eCommerce policy paper, which flatly condemns direct-to-consumer internet sales.

To be fair, there’s a strong case to be made that Trek’s program does not conflict with NBDA policy. Although the sales are made online, the bikes are assembled and fulfilled by authorized Trek dealers. And before you ask, yes, the NBDA declined to comment on that part, too.

As I said, no one in the industry wants to talk about the Trek Connect program. Except Trek, of course.

Trek brand communications manager Eric Bjorling is happy to oblige. Starting with the confusing terminology behind the program, which even most Trek reps seem not to understand.

“Trek Connect E-Commerce is the title of our overall retailer-centric e-commerce platform,” he says. “Omnichannel is a generic term meaning multiple channels through which a brand can interact with a consumer.” Omni-, in this case, meaning either directly from Trek or through Trek retailers.

The onsite consumer experience on the Trek site will be about the same as it is currently, Bjorling says. “We know from our research that consumers come to Trekbikes.com to research the bikes they’re interested in and learn about the brand. The link to order will be obvious without being obtrusive. (It) will be easy to find on the bike pages so as to continue the intuitive experience we’ve developed without being a barrier to what most people come to the site for.” So no hard sell, then.

Interestingly, given the sheer size and resources Trek brings to the initiative, the company’s sales expectations seem fairly modest. “The percentage of business done through the site will be small when compared to traditional retail,” Bjorling says, “but what it will do is offer the brand and our retailers’ locations to a customer base that wants to shop online and may look elsewhere if there are no options.”

In terms of the nitty-gritty, the site accepts Visa or MasterCard, and customers are charged a flat-rate sales tax in each of the 45 states that collect it. The buyer’s card is charged at time of shipment. Pretty standard stuff, although some retailers in higher sales-tax states may complain that the flat-tax policy makes the same bike (slightly) cheaper from Trek than from their own stores.

Regarding the go-live date originally promised by the end of September, Bjorling will only say “We’ll be going live very shortly.”

Pull-Quote 1.031In fact, the whole Trek Connect initiative seems downright reasonable in big-picture format. Retailer comments have fallen into two camps, as they almost always do. There’s the sky-is-falling contingent (“Now is the time for all Trek dealers to drop them!!!!,” says one dealer in the Comments section of BR&IN. “walmart, here comes trek,” says another, who has apparently forgotten how to operate their caps key.)

But a much larger and more thoughtful element is asking tough questions about how the program will work at a very detailed level…which, as always, is where the devil hangs out. Not-very-sexy but critically important items like returns and allowances, sales tax variations, processing of credits back to retailers, maintaining continuity of customer service, that sort of thing. All important stuff, and all stuff that has to be addressed before a program of this magnitude can launch successfully.

Yet, despite an almost total lack of (reasonable) systemic objections, when Bicycle Retailer polled its readers last month (only a small segment of whom are actually retailers), the tally was almost exactly two to one against other brands enacting similar programs.

Which is just flat-out crazy. Because there’s an elephant in the room that everyone in the bike industry acknowledges, but no one wants talk about. Just like Trek’s direct-sales initiative itself.

We’ll talk more next week about the elephant, the room, and how it impacts the sales strategy of every brand in the bike industry. See you then.

 

 

 

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32 comments


    1. Author
      Rick Vosper

      In each case, I spoke (or didn’t speak.depending) to senior executives authorized to make statements on behalf of their companies. They didn’t say they needed to talk to anyone else. In each case they said “We have no comment on that,” or very similar.

      But it’s a great idea–the thought of putting them on the spot does have a certain amount of appeal.

      Of course, my guess would be they’ll say “we have no comment on that,” but I’ll ask Padraig..

    2. Padraig

      I’d love nothing more than to spend a trip over here playing 20 questions with the buck stoppers, the bosses. The reality is, I’m on assignment for Bicycle Retailer and my trip has been very carefully orchestrated—by other people—to be a series of visits to factories. Even getting this sort of access isn’t easy, which is to say, I’m grateful for any access at all.

  1. Andrew

    I don’t know a lot about the economics of small bike shops, other than that they have a hard time of it. I’d love for people who understand these things to chime in. My understanding, though, is that the dealers have to buy each and every bike from the company, at which point it becomes their overhead and their problem to sell. I am also under the perception that dealers make relatively little money off of bike sales, with a greater percentage of their income coming from service, accessories, etc. Assuming these two things are true- why wouldn’t a small dealer want to have the sales being done direct from the manufacturer, so that all they had to worry about was the after sales issues etc? The Trek model seems to keep the dealers very much involved- it’s not a Bikes Direct thing by any means.

    Help me out here, people.

  2. Joshua Hoover

    I sense independent bike dealers (IBDs) are not completely on board with this model because it moves the brand and the customer closer to each other and eventually could mean the brand controlling the entire sales channel. I don’t think the brands really want to do this, but then again, retail has shifted quite a bit. More and more brands sell direct these days. They can do it and some are finding that it’s their best path forward. That scares independent retailers, especially (in this case) IBDs who (as Andrew above pointed out) don’t make much money on bike sales as it is. It’s a tough business.

  3. Mike C

    Let’s find out who eats it when the consumer buys the wrong size bike, doesn’t like the one they bought, or any other reason for return. The local shop will not be reimbursed for their labor in assembly, customer care or anything else.
    Trek will insist the shop keep this bike in their inventory whether they need it or not. It’s that or bite the bullet, pack it up and ship it back all on the local shop time. Does the on line consumer order another and start the process all over?
    Meanwhile, the local shop could have been doing repair work and earning a living wage.
    It’s a shit policy and a shit program.
    Leave the sales to the local shop to deal with so the customer has someone to trust with their bike and their money

    1. winky

      I haven’t bought a bike face-to-face from a retailer in decades. For my last road bike, I bought from a retailer’s web store, with lots of to-and-fro emails regarding the exact specs. 2 times prior to that, it was by phone to the store, who then hand delivered or shipped the bikes to me. I know what size I need. I really don’t like personally interacting with sales people for products where I am both exerienced and an enthusiast and therefore (think that I am?) well-informed. My BS meter usually just goes off the chart as they push their personal preferences on me and I get angry. (Small side example – I know what fit I like in ski boots but every “top bootfitter” I’ve ever been to tries to put me in a boot a full size too large.)

      I’ve sworn off Treks for a couple of reasons, but this retail model would otherwise really, really appeal to me. I can research and spec the exact bike I want, without someone else’s semi-informed view being thrust in my face, and without my own view being judged and challenged, but still make the connection woth the local store for service and support. Best of both worlds.

  4. Dave

    I’m very curious about warranty issues. I worked for a big Trek dealer in my region from 1978 to 1986 and again from 1986 to 2000. Trek warranty claims–everything from unbonding frames to bad chains–was 1.5 full time peoples’ jobs; I was one of those people. Is Trek going to compensate dealers well enough to cheerfully continue being the last-stage engineering and quality control facility that my old employer’s shop was?

  5. Scott G.

    Mike C., hopefully the customer goes to the LBS to get fitted.
    Upside is less left over inventory of cheap wheels, stems, tires
    and saddles pulled off new bikes.

    Think of it as Project One without the Klein paint jobs.

  6. Ransom

    Mike C raises the central question, no? I don’t see that it’s been answered, but if he’s correct that the shops will have to eat all mistakes while Trek gets all the sales, then it’s untenable. And yeah, bikes aren’t like jeans; putting them back in the box and shipping them back when they don’t fit is seriously problematic. OTOH, *if* Trek really makes reasonable accommodations to the shops for the role they play, that in combination with the near-elimination of bike inventory overhead could work out well. In the same way that some places do free returns on their products and this generates enough additional sales to cover the returns processing, perhaps Trek’s plan is to say that once a bike ships to a shop, it stays there, but either at a deep discount to the retailer, or perhaps the bike’s physically there but remains on Trek’s books. The retailer, of course, didn’t pay anything in the initial arrival of the bike, and the return/refund would be done by Trek either shipping another size, or refunding the customer.

    In addition to the inventory overhead thing, one of the other problems we’ve heard about is the ludicrously-early decision making on how many of each model. This addresses that as well, no?

    I’m dubious and uneasy, but until I hear more details, I just don’t know. On the one hand, I want an example on hand in my size to ride before I spend money. OTOH, I’m literally currently on the cusp of ordering *two* bikes from my local shop on the bikes’ reputations and my fondness for that shop.

  7. Retired Cat 6 Racer

    I manage a Trek retailer. I’m not scared of this program at all. As the Trek representative said in the article, I don’t think this is going to be a very large part of our business. It is, however, a way to reach non-traditional customers, and, to some degree, to satisfy the “I want it immediately” buying culture that we have now.
    Some basic mechanics of how the program works, as I understand it: The customer will choose a retailer to have the bike shipped to. That retailer will receive a reduced margin (theoretically offset by the reduced stocking/marketing/credit card processing costs). There will be an option to have the bike delivered for an additional $50 charge (which the retailer can opt in or out of, and select the radius they’re willing to travel).
    Returns are definitely the biggest concern; if a customer returns a bike, the retailer is expected to take it into inventory (and can then sell it [hopefully] for it’s normal margin). As was touched on above, customers may very well select a bike that is sized incorrectly and then exchange it for the correct size. Trek has told us that, in the event that a relatively unsellable bike ends up on our floor, they will “help us out.” It is unclear what exactly that means (and it would probably vary from case to case).
    I’ve heard rumors that Specialized is working on a similar program, and I believe Giant has actually put one in practice on a trial level (we’re neither Specialized or Giant dealers, and this is all rumor and hearsay).

  8. Pat O'Brien

    If I was a Trek dealer and they laid this on me, I would find no reason to have Trek inventory on hand. Just steer the prospective customer to the website to order after determining the frame size they need. Now you get just in time delivery, just like Trek probably demands from its suppliers, and few in any returns. What’s good for the goose….

    “Trek Connect E-Commerce is the title of our overall retailer-centric e-commerce platform,” he says. “Omnichannel is a generic term meaning multiple channels through which a brand can interact with a consumer.” That sounds like marketing “bull-shinto” to me.

    1. Pat O'Brien

      PS: Just checked Trek’s website, and I did not see any way to order a bike directly from them on line.

    2. Mick

      That would seem to be a solution, but, you’d cease to be a Trek dealer pretty quickly…Trek requires require a minimum booking/inventory level for all dealers.

    3. Pat O'Brien

      Thanks, Mick. I thought that might be the case, but wasn’t sure.
      As a bike shop customer, who has been riding for over 20 years, I still depend on my bike’s shop advice for many things, especially drivetrain choices when building a bike from scratch. I no longer buy big brand bikes. Our last 3 bike purchases have been SOMA and Salsa frame sets built into bikes by our local bike shop.

  9. Cat 4 Elite

    According to the National Bicycle Dealer’s Association: “Gross margins on bicycles average about 37%, though the break-even point has been shown to be 38.6% for the average store (the average “cost of doing business”).” This appears to mean the specialty bicycle retailers effectively lost money on every bike they sold. Given that the current system of retailing bicycles is broken, this might be a step in the right direction. Trek handles the overhead, and the SBD handles everything else.

    As a consumer the problem I have with bicycle retailing is one of selection. In my city (Cincinnati) there are 4 Trek dealers (two Trek brand franchises and two SBDs). If were to call each of them and ask if they had a Domaine (SP?) 4.5 disk, size small that I could test drive, the answer would be no…but they could get one. Get one means that I buy it sight unseen, and If I don’t like it tough. This was less of a problem when I lived in Denver, and must be more of a problem in smaller cities. What I would like to see is dealers that have test bikes in extensive models/sizes, but not inventory for sale. The dealer takes care of the showroom/test ride, and Trek fulfills the order.

  10. Mike Jacoubowsky

    OK, to start with, it’s time to think of the local bike shop as exactly that. The LOCAL bike shop. Not an “Independent Bicycle Dealer” which really doesn’t describe its advantages, or the differences between, the bike shop in town and a pure on-line play. The LOCAL bike shop is the one the customer comes into and has a conversation with someone where, hopefully, everything all comes together in a way that can’t be done in a pure on-line ordering system. The shop employee SEES the customer. He’s 290 pounds, or she’s 85 pounds. The shop employee also is familiar with the cycling opportunities in the area, and will, again hopefully, be able to put together a package that makes sense.

    The alternative? the 290 pound guy buys what looks like a great deal on-line, and orders a 3 year old tri-bike closeout at half price. This, by the way, is a real example, known because our website DOES allow consumers to order bikes from us on-line. The catch? Every single order is intercepted, by us, and through what you might consider a super-concierge service, we contact the customer and make sure everything makes sense before taking their money. Why? Because we want that very first experience with their new bike to be AWESOME instead of telling them whoa, wait a sec, you want this bike for what??? Totally wrong bike for you!

    Why should we give up the single biggest advantage of “local” for on-line purchasing? That’s just nuts. We should be offering customers a way to order a bike from us at 10:15pm, after the kids have gone to bed and there’s some time to reflect on the day, if that’s what they want to do. That’s OK. But we can go a lot further than someone thousands of miles away with a pure on-line sale. We can offer on-line with a difference. We don’t have to give up anything that makes us special but instead offer an enhanced experience that will give the on-line customer a chance to recognize that on-line, by itself, might not be all that it’s cracked up to be.

    My biggest issue with the Trek plan is that it offers no opportunity for the retailer to intercept an order and make sure it’s appropriate. I don’t doubt that Trek will find a way to take care of the retailer if the bike is the wrong thing (and not stick the retailer with a bike he or she doesn’t want to have in stock). What Trek is overlooking is the desire to make sure that first experience with their new bike is AWESOME and not one in which there is conflict between the customer and the retailer because the bike is clearly not appropriate, and how in the world can it be a good thing to tell the customer THEY made a wrong choice? That should be avoided at all costs.

    With a bit of fine tuning, I think Trek’s got something that can really work, especially in more-rural markets where dealers might not be stocking all of the bikes that someone might be interested in. But in urban areas like mine, the much bigger issue will be the same as it ever was. Matching the right customer to the right bike. The right size, fit correctly, and appropriate for their needs. That simply cannot be done on-line for most people. Except… that it can. As I said, a retailer on top of their game (and we’d better be getting there because there’s less and less room for retailers who aren’t) should be intercepting on-line orders and treating them exactly the same way they would if it were a customer in the store. Attention to detail on all aspects.

    Thanks, Mike Jacoubowsky, Partner, Chain Reaction Bicycles http://www.ChainReaction.com
    Member of the Board of Directors of the National Bicycle Dealer Association, but what’s expressed here is 100% my own view and not in any way an expression of official NBDA policy.

  11. James Moore

    As president of the National Bicycle Dealer’s Association I’ve been very much ‘on the record’ reagarding the NBDA and Trek’s new consumer direct model. For years the NBDA has held a Position Statement that affirms the value of the local bicycle shop’s role in the acquisition of a new bicycle. The following excerpt if from that Position Statement;

    “The local dealer is best suited to assess the customer’s needs and make the proper recommendations regarding the style of bike that will best serve the customer. The dealer is also best qualified to make an informed size recommendation after interacting with the customer in person. The local bicycle retailer can also make prudent recommendations that consider the customer’s budgetary limitations.”

    Without the expertise of the local bicycle dealer on the front end of the bicycle selection process the likelihood of the consumer selection the wrong category of bike, the wrong size, or the wrong level of durability is greatly increased. The NBDA feels strongly that the acquisition of a new bicycle should start with the local dealer, proceed through the capable guidance of the local dealer, and be concluded with and supported after the sale by the local dealer. By removing the local dealer from the critical selection process the Trek consumer direct model is in conflict with the Position Statement of the NBDA.

    The full Position Statement can be easily found on our website; http://nbda.com/about/the-vital-role-of-the-local-bicycle-dealer-pg366.htm

    James Moore, President, NBDA

    1. winky

      My local dealers are certainly not in the best position to assess my needs nor to make proper recommendations. The staff at my local dealers are fairly incompetent (on average).

    2. Jay

      I don’t fully agree with the premise that my LBS knows better than me what best suits my riding style. I do think that they are a good resource, and for neophytes, an absolutely necessary resource. I do think that creative shop owners will still be able to develop a means of providing service before and after the sale.


    3. Author
      Rick Vosper

      Hi James, and thanks for posting. I understand your point. I’m also quite familiar with the Position Statement and the specific portions of it you cite, because I have a copy of it here on my desktop.

      Nonetheless, the NBDA representative I spoke with refused to comment on the Trek initiative and when asked, specifically declined to comment on its relation to the Position Statement.

      I stand by my what I wrote, although I will include a paragraph about Comment in the follow-up piece on Thursday. Hope this helps.

  12. Jay

    This could actually work quite well for your LBS. This moves them closer to the Amazon business model. A small LBS cannot maintain an inventory of every bike in the manufacturers lineup. A virtual inventory can free cash for operating expenses. There is potential here and smart shop owners can provide services before and after a sale, i.e. Providing guidance on frame size before, and fittings after. The customer can make their choice of bike at their leisure.
    I know that there is pressure to purchase inventory on the owners who then have to determine what will sell for them. This removes some of that pressure.
    I don’t know that this is the ideal solution, but it seems to be a step towards an improvement.

  13. Les.B.

    I have a LBS that I trust way more than my self in the matters cycling. Were I in the market for a new bike now I would definitely go to them.

    Disclaimer: I’m an old geezer, probably decades older than most of you. So you will want to totally disregard what I say.

    So this is the “trendy” (notice I used a trendy word, “trendy”). Back in the Cenzoic Era shopping for a bike was a fun thing, working with the shop, doing the back and forth (person to person — how gauche). Getting the frame, maybe peeing in when the wrench does the assembling.

    But the the trendy (2nd time, impressive) thing now is mouse clicks. Buy your bike with mouse clicks. Now that’s livin’!

  14. Gerb61

    I guess this only works if your LBS is an authorized Trek dealer of course. If your LBS is a dealer for brand X or brand Y and the nearest Trek dealer is 75 miles away then I don’t see any advantage here. Will Trek work with any old bike shop just to make a sale and gain a customer?

    redkiteprayer.com/2015/10/why-treks-consumer-direct-initiative-changes-everything/

  15. Pingback: The Elephant, The Room, And The Hidden Agenda | RKP

  16. Randy

    Giant just unveiled it’s version of this model and the biggest problem with it, as with Trek’s, is that dealers are not paid for these sales with money…rather with account credit with which they can only use to purchase more Trek or Giant product. Unfortunately most of us need actual cash to fund the vital aspects of our business like payroll, utilities, rent, mortgage, taxes etc…not to mention our personal income.

    As a Trek and Giant dealer you can count me doubly out. I’ve seen this and other thing like it coming for years….In anticipation I have structured my business in such a way that even if I never sell another complete bike I’ll still remain profitable….and independent.

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