The basic elements of this story should already be familiar to BRAIN readers. It begins on Aug. 18 of this year, when BRAIN announced that Pon’s bike division had acquired the Mike’s Bikes chain in Northern California. Mike’s was the largest Specialized dealer on the West Coast, and the former owners of the 12-store chain promised there were no plans to change the brands carried in its stores.
But Specialized preemptively pulled its brand from the Mike’s stores, despite the fact that the move dropped the number of S-Works dealers in the Bay Area by a full third. In the meantime, Mike’s reached an agreement with Giant to sell its products instead of Specialized’s.
At the time of the Mike’s deal, Pon made this statement: "The acquisition of Mike's Bikes aligns with Pon's strategy to expand its retail operations in North America by acquiring premier specialty retail brands in top markets.” That’s an incredibly powerful statement, but one that passed unnoticed by most industry observers.
Then on Oct. 11, Pon announced it has agreed to pay $810 million for Dorel’s Cycling Sports Group, which includes Cannondale, GT, Schwinn and a number of other brands. Combined with its existing U.S. and European offerings, the move will make Pon the largest group of bike brands in the world. Bigger than Giant. Bigger than Trek and Electra. Bigger than Specialized.
Bigger may or may not be better, but here in the U.S., all these Pon brands, old and new, face exactly the same problem: they can’t get enough of the right retailers to sell their products, because so many of those dealers are busy representing Trek, Specialized, and Giant.
This speaks to the business model I’ve long called Bike 3.0. The strategy of the top three bike companies — Trek, Specialized and Giant, but especially Trek and Specialized — has been to try to control the market by locking down floor space with top retailers, preventing competing bike brands from establishing a significant sales volume with those dealers.
There are more than 6,300 mainline bike shops in the U.S., according to Georger Data Services, but only 44% of them — about 2,800 — sell one or more of the top three brands. Cannondale is currently the #4 U.S. brand in terms of dealers, but it’s significantly smaller than the other three. Cannondale has its own dealer network, of course, as do Pon’s U.S. brands — Santa Cruz, Cervélo, Focus, and Gazelle e-bikes. But the dynamic of the Bike 3.0 model effectively locks those Pon brands out of a major presence in those 2,800 top retailers.
So what happens next?
Compared to a purchase like the indiGO Auto Group, Pon’s acquisition of the 12-store Mike’s empire is just pocket change.
Pon Holdings, parent company of Pon.Bikes, is not shy about augmenting its distributed brands by purchasing retailers. Case in point, Pon purchased the indiGO Auto Group in 2019, with 21 dealerships in California, Missouri and Texas. IndiGO dealerships sell Porsche, Bentley, Bugatti, Lamborghini, Ferrari, Rolls Royce, Aston Martin and McLaren, along with more mainstream brands like Volkswagen, BMW, Land Rover, Audi, Jaguar and others. Compared to a purchase like that, Pon’s acquisition of the 12-store Mike’s empire is just pocket change.
So we have Pon, which now controls a powerful stable of bike brands that can’t find enough premium retailers to sell their products. And Pon has a business model of acquiring retailers to sell the brands it represents. In fact, it’s already acquired one of the biggest and most successful dealer chains, and right in Specialized’s backyard, too. Now what do you suppose Pon is likely to do in this situation? That’s the question that should make Giant very, very nervous. Not to mention Trek and Specialized.
At the same time, more and more leading bike shops are open to being purchased. Fat with cash from the huge upswing in pandemic sales (never mind the supply shortages), there’s never been a better time for owners to cash out. A lot of those owners got into the business during the 1980s mountain bike boom, so they’re in their sixties now and starting to think about retirement.
All of which leads me to believe it’s likely Pon is about to go on a shopping spree for bike shops in a big way ... especially Specialized and Trek dealers.
Trek already owns something like 200-300 dealers in the U.S., so Specialized will be particularly vulnerable. But that still leaves some 1,500 Trek dealers that Trek doesn’t own, so the kids from Wisconsin will have plenty of chips at risk on the table too.
The Big Question now is whether the new Pon group of brands — Cannondale, Santa Cruz, Cervélo and others — can buy enough bike shops in key markets and influence enough others to switch allegiances. If so, Pon may soon displace Giant as the #3 player in the industry, whether sooner or later, and go head-to-head with Trek and Specialized. Or to put it another way, Pon has the potential to completely rewrite the bike brand power dynamic in the United States for the foreseeable future.
And that’s the big picture most of the industry seems to be missing.
Chapeau to Dan Empfield of slowtwitch.com for first suggesting this idea to me.
