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Vosper: Walmart’s house of carbon cards

Published May 6, 2019

There’s always something to panic about in this industry. Oldtimers hearken back to the Reagan administration when we were all at the mercy of (pre-internet) mail-order companies with names like Nashbar and Performance. In the ‘90s, it was the rise of electric bikes, sold to legions of goggle-eyed consumers like two-wheeled hotcakes via unstoppable mass-market juggernauts such as Brookstone, Circuit City and RadioShack.

I even recall a front-page turn-of-the-millennium article (don't recall the byline, exactly, but it may have been Marc somebody's) about how the Segway was going to eat our collective lunch because, after trying one, no reasonable consumer would ever want to ride a bike again.

Last month’s kerfuffle du jour came at Sea Otter when Walmart announced it’s getting into the high-end carbon bike business with three new models at various build levels to be sold consumer-direct under the brand name Viathon. Or, as more than one wag termed it, Leviathon.

Cheap shot, I know, but better than no shot at all.

I even recall a front-page turn-of-the-millennium article about how the Segway was going to eat our collective lunch because, after trying one, no reasonable consumer would ever want to ride a bike again.

BRAIN's managing edior editor Dean Yobbi brought us the main story in BRAIN's May issue and online today, even teasing the “Leviathon” pun. But here’s the takeaway beyond the product announcement: the entire Viathon project is engineered, sourced, assembled, marketed and supported by freelancers, bike industry veterans with top-notch bike industry credentials.

The product is not the brand

In preparing this editorial, I consulted with two senior bike industry product managers and a senior bike industry engineer, all with experience at both large and small industry players. They agreed to share insider knowledge on condition that they not be identified. We went through what’s known about the Viathon brand and its products from various angles, and there is a strong consensus that every piece of the puzzle is well conceived and thought-through, at least on paper.

One of the most remarkable things every consultant pointed out is how thoroughly unremarkable the products themselves are, at least from a pure tech and salability standpoint.

Let me explain that. The first 20 test samples are only now in the hands of journalists, so there’s no real consensus on how the bikes actually ride yet. Competing brands will doubtlessly purchase Viathon samples and run everything from cyclic fatigue tests and MRIs to full composite burnouts. But given the pedigree, there’s no reason not to suppose these won’t be solid, good-bike-for-the-money riding machines.

You would expect a company like Walmart — whose reputation, after all, is “America’s low-price leader” — to lead by nailing down the lowest price point it could manage. But it didn’t. And that’s what’s remarkable.

There are comparable bike models, the PMs tell me, at comparable spec, from Cannondale and half a dozen smaller brands, and every one of them available this very minute at comparable prices from local bike shops with full dealer-level service and support, not to mention from competing direct-sales companies.

“In theory,” one PM said after going through the spec list, “I could take another $?? out of their entry-level models and still make gross margin selling it consumer-direct. More on the more expensive ones.” (I’ve redacted the actual number, but anyone on either the retail or supply side of the business who knows how pricing mechanics work should be able to figure it out. If you don’t, the answer’s probably none of your business, anyway.)

Which leaves us with a powerful question, one which we in the marketing game like to call the Value Proposition. If there’s no price advantage, who’s going to buy these things, and, even more importantly, why?

To be fair, this is hardly a challenge that’s unique to Viathon. It’s a question every brand asks itself, and at a very deep level, too. Or at least it should. But this is the bike business, so who knows.

The sound you hear is pieces, falling together

One of the most significant things about the internet is its power of disintermediation, which is a fancy term for “eliminating intermediaries,” which is a slightly less fancy term for “cutting out the middlemen.”

We’re accustomed to thinking about disintermediation in terms of flattening channels of distribution and pricing. It’s one reason consumers can buy selected cycling products from certain-brands-whose-names-I-won’t-mention-here-because-everyone-already-knows-who-they-are cheaper than bike shops can get those same products at wholesale, much less sell at a sustainable profit. But disintermediation is an equally valid principle with respect to knowledge and, here’s my point, expertise.

In this case it means an interested party like Walmart’s Viathon brand manager Zach Spinhirne-Martin can access an entire supply chain’s worth of experts to put together not just individual products but a high-end bicycle brand. World-class experts like engineer Kevin Quan and the Cranktank marketing guys and assembly/logistics ace Richard Wittenberg. Best of all, thanks to the power of disintermediation, that access is both relatively easy and surprisingly affordable, as such things go. More about that in a minute.

There’s even a sort of Ocean’s Eleven cachet to the whole enterprise. You might not care for what they’re doing, exactly, but you can’t help being impressed with how they’ve pulled it off.

It’s an already-common model in other industries. But, as far as I’m aware, Walmart/Viathon is the first company to outsource a bike brand in quite this way and certainly to this level of sophistication. For sure, everyone uses consultants nowadays. And there have been one-person brands for decades, not to mention the ones ginned up ex nihilo by purchasing off-the-shelf commodity bikes and slapping a head badge on the result. But these are not crappy bikes from shady operators at an open-mold factory someplace in the Guangdong Province hinterlands. They’re high-end and almost certainly IBD-level products sourced from solid factories via respected professionals with established consultancies who know our business inside and out.

There’s even a sort of Ocean’s Eleven cachet to the whole enterprise. You might not care for what they’re doing, exactly, but you can’t help being impressed with how they’ve pulled it off.

When in doubt, follow the money.

As I hinted earlier, I put the pricing question to my panel of experts. What does it cost to put a brand like this together? Consensus is that the Viathon-style dev model is not only doable, but doable without Walmart-level fiscal resources. Which is another way of saying that if one outsider company can create a high-end carbon bike brand from scratch, so can another. As many, in fact, as care to try their hand at it. Because it’s cheap to play.

You see where I’m going with this, right?

Of course, starting a bike shop—or a bike brand, for that matter—has always been a relatively affordable proposition. That’s one reason there are so many of us. Economists call this “low barriers to entry.”

The hard part, of course, is being profitable and, if you’re lucky, sustainable. But if you’re in the bike business, you already know all about this part.

But here’s something you may not have considered: with barriers as low as they are, and the mechanics of putting a brand together accessible as never before, it’s not only cheap to play in the bike lane now, it’s cheap to quit. By some people’s definition, anyway.

The hard part, of course, is being profitable and, if you’re lucky, sustainable. But if you’re in the bike business, you already know all about this part.

Multiple injections of outsider money into an already struggling, fiercely competitive and — at best — modestly profitable market space is hardly a recipe for anyone’s long-term success. We’re already seeing it with megacorporations like Uber and Lyft entering the e-bike/bikeshare sector. We’ve even seen what happens when they shrug and walk away, leaving the chump change it cost them to play our game scattered in literal heaps of unsellable product, littering the sidewalk like either pigeon feed or pigeon shit, depending on how you look at it. And now it seems entirely possible we’re going to see that process continue in other product classes as well.

So, Walmart is building more than carbon bikes here. They’re erecting a house of carbon cards — one with the very real potential to collapse on the rest of us, who are in this industry mostly just because we love bikes and want to spend the rest of our lives working with them.

Is it time to panic? Probably not, but you have to admit Viathon makes better post-ride discussion fodder than imploded mail-order houses, e-bikes at dead department stores or Segways threatening to take over the bike lanes.

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