Trek’s Online Sales Plan, Part Two
Last week we talked about Trek’s omnichannel sales program, where consumers can order Trek bikes direct from the company’s website and pick them up from (or even have them delivered by) their local Trek dealer. We talked about how the plan would work, and about the curious fact that no one else in the industry wants to talk about it.
But first, a bit of housekeeping. James Moore, President of the NBDA Board commented that the Trek initiative does indeed violate the NBDA’s position paper on Internet sales, and included this quote:
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.
(You can see James’ entire comment here, but there’s a lot of other comments too, so you may need to do a search on Moore to find it easily.)
Back to business:
At the end of last week’s piece, I suggested the nobody-wants-to-talk-about-it part may be due to an elephant-in-the-room phenomena not directly related to Trek’s ambitious online plans. But not entirely unrelated, either. Because the aforementioned pachyderm is the real driver behind the sudden rush from Trek—and plenty of other brands, soon enough— to sell bikes consumer-direct online, and to fulfill and service those sales via their existing dealer networks. And they’re going to add online sales to their business model now. As opposed to, say, a couple years from now.
That’s the why part of the question we’re going to talk about this week. Beginning with the identity of the elephant.
The elephant’s name is Canyon.
Canyon Bicycles GmbH makes road, mountain, and tri bikes based in Koblenz, Germany, which is on the banks of the Rhine in the western part of the country, about halfway between Bonn and Frankfurt.
RKP readers may know the Canyon brand through its sponsorship of the Movistar and Katusha teams. Which, as we’ll discuss another time, is not a cheap date.
Canyon has been one of the rising stars on the European scene for more than a decade, hitting a growth spurt and going from €45 million in turnover (that’s Eurospeak for “gross revenue”) in 2011 to just over €100 million in 2014, which is $113 million US dollars. Canyon bikes are currently sold in fifteen countries worldwide. But not in North America. At least, not yet.
So how does a medium-sized-if-well-regarded European brand become an elephant in a North American room full of US-based industry behemoths? And, more importantly, what does this have to do with Trek Connect and/or other brands’ vision of omnichannel sales?
Three simple reasons:
- Canyon sells 100% of its bikes consumer-direct via the internet
- At about 30% less than its competitors do through retailers
- And Canyon announced at Eurobike this year that their entry to the USA is “forthcoming,” which many have taken to mean “sometime 2016.”
Of course, Canyon has periodically announced it’s coming to the USA (since at least 2011), and they’re not here yet. Plus, there are plenty of other consumer-direct bike brands already available to consumers. So what makes Canyon different in the eyes of industry watchers?
First, Canyon product is acknowledged to be very good—at parity with other premium American brands, certainly. Second, the brand itself is relatively well-known, not just on the road, but in dirt and tri racing, too. But here’s the kicker: unlike many other discount brands sold consumer-direct, Canyon is pretty darn good at this stuff. They’ve been selling bikes direct to consumers at very significant discounts for a decade or more. Their track record in Europe and other markets is outstanding, and their customer satisfaction reputation is, well, adequate, at least by EU standards.
Every American brand with a presence in Europe already knows this, too. Because Canyon’s been eating their lunch for years.
It should be noted there are other consumer-direct brands that currently support customers at least as well, and in the North American market, too. But what those brands lack are Canyon’s multi-niche market recognition and its 9-figure sales horsepower.
So Canyon’s incipient entry into the North American market may well be the unspoken driver behind Trek’s decision to move now rather than later. Not to mention the unspoken driver behind every other major brand’s refusal to comment on it.
In the words of industry veteran James Maxwell Radcliffe, “If there are any traditional bike brand pants left un-peed after the Canyon’s Eurobike announcement, they belong to brands with either amazingly large gonads or amazingly poor arithmetic skills.”
Here’s why. With a direct online sales presence, the traditional brand’s proposition versus a Canyon or similar competitor is pretty clear: you can buy one of our bikes online and get the full protection and support of our local dealer network. Or, you can buy from a less expensive but lesser-known brand, and send your bike back to the factory with an unknown level of service and support when it has issues.
That’s a pretty good proposition.
But without that online sales presence, there is no proposition at all, because there’s no direct comparison between the two business models. The consumer either leaves the traditional brand’s site with a referral to a local bike shop (who might or might not have the style, size and color requested), or the consumer rolls his eyes and clicks to buy the online competitor’s bike Right Now.
Right Now is pretty darn hard to beat when all you have in response to a consumer metaphorically yelling “shut up and take my money” is a referral to a bunch of dealers on the other side of town who won’t be open until Tuesday morning when said consumer is at work and y’know, working. With a proposition like that, a Right Now plus a hefty price discount from your competitor is nearly impossible to beat. Which is why every—and, yes, I said every—bike brand has to be in the Right Now business, right now. Or they’re just not going to be the famous cowboy at a gunfight, holding a knife.
To be sure, there are hybrid consumer-direct models like Buy Local Now—which is used by Raleigh and Giant currently—and Shopatron. But these models take control out of the hands of manufacturers. The beauty of direct sales, where the transaction takes place on the brand’s site and is fulfilled through retailers, is that the brand has full control at every step of the process.
This is important, because control is what makes direct sales through retailers the antidote to every bike brand’s worst nightmare.
The nightmare goes something like this. You’re a bike brand. You spend a lot of time, money, and effort getting a consumer to the point where they’re ready to buy your bike. They drive to your retailer’s place of business, step inside, and announce they want to buy your brand’s model ABC…and at full retail price, too. Everyone wins, right?
“Oh, gee,” says the retailer. “We don’t have that size right now but we do have (insert competitor’s brand here) model XYZ. It’s every bit as good, and it’s on sale this week.” This tends to happen especially when the dealer has a bunch of the competitor’s close-out or discounted stock in inventory.
Bike brands hate that, unless they happen to be the beneficiary. But what happens on the other side of the retailer’s door has always been a black box to suppliers—a black box which retailers have guarded fiercely and without compromise. Until now.
Trek has gotten inside that black box, at least in the case of sales coming from its website. And if it’s proactively defending both itself and its retailers against the eventual domestic competition from Canyon (and others) at the same time, so much the better.
But there’s a huge fly in the online pie. It’s pointed out in last week’s Comments section by retailer Mike Jacoubowski and others: consumers ordering online will often want to return products, and
in the Trek model, those costs will fall on the retailer.
The enormous majority of consumers have no idea what their bike size is. And as Trek’s own website says, It is possible to give you some rough guidelines based on height, but these are only a starting point for a proper bike fitting with your local dealer. The only way to be certain of the right size is to visit an authorized Trek retailer (emphasis added).
We know that sized items in general are a nightmare for online retailers, and it’s fair to predict that Trek will be no exception.
Zappos’ return rate for shoes, for instance, is 35%. And compared to bikes, shoes are dirt cheap to return. Plus they can be re-sold as new. If one in three Trek Connect bikes come back for poor fit (or the dealer sees it’s clearly not the right size) when the customer comes in, there’s not just going to be a problem, there’s going to be open dealer rebellion. And there’s a zillion other things too, from “the color looked different online” to the bike the customer ordered being completely wrong for what the customer wants to do with it.
Canyon doesn’t have those issues to the same degree because they’re set up to ship bikes back and forth in boxes (relatively) easily. Costs of unpacking/assembly/fitting fall on the consumer, as do costs to rebox the bike if they need to send it back under Canyon’s 30 Day Right Of Return policy. (Canyon also has a larger “Bike Guard Box,” at least in Europe, that allows the bike to be packed and shipped with just wheels and saddle/seatpost removed, but that’s an upcharge. No word on what US freight rates would be on a box that size.)
All of which bring us to the pivotal question: will Trek’s costs to adequately support retailers in replacing and/or servicing Trek Connect products ultimately make the initiative too costly to operate? It’s pretty simple:
- If yes, either retailers will opt out of the program en masse because they’re losing money, or Trek will shut the whole thing down because neither it nor its dealers are able to realize a profit.
- If no, and assuming Trek and its retailers can come to some sort of equitable give-and-take agreement where each side feels they are fairly compensated, things just might work out.
So. At least potentially, Trek has incremental direct sales (that is, sales it wouldn’t have gotten otherwise), a preemptive move against market disruptors like Canyon, and increased control over the weakest link (from Trek’s viewpoint, anyway) in the distribution chain. What bike brand wouldn’t want a similar like this? And, when asked about a hornet’s nest like that, what brand wouldn’t vehemently refuse all comment?
Consumer-direct sales through retailers is just a smart business move…if it can be made to work. Assuming the bugs can be dealt with satisfactorily, the model makes sense for Trek, it makes sense for Trek dealers (at least in the long run), and it’s a move that every other major player is going to have to cover anyway, regardless of what they don’t want to say about it. Or how often they don’t want to say it.