Way back in 2019, I introduced the concept of three “ages” of the post-World War II US specialty retail bicycle supply chain, culminating in what I called Bike 3.0. You can read the original article from back then , but here’s the TL,DR version:
Bike 1.0, roughly 1950 – 1975, when the specialty retail market was dominated by a single brand, Schwinn, creating an era of relative stability at both the supplier and retailer levels.
Bike 2.0, extending from the end of the bike boom and introduction of the mountain bike through the late 1990s and early 2000s. In hindsight, I would more narrowly define the start of this period with Schwinn’s Supreme Court loss in its decade-long antitrust battle in 1967. This corresponds to the rise of the current selective distribution model, especially as characterized by the now-ubiquitous Authorized Dealer Agreement. Most importantly, this period was governed by the phenomenon of Perfect Competition, where no particular brand or brands accrued enough marketshare or competitive advantage to gain control of the market.
Bike 3.0, starting near the turn of the current millennium. The present era features a few dominant players, a group of four companies —Trek, Specialized, Giant and the new Pon brands (Cannondale, Santa Cruz, Cervélo et al) — which I’ve labeled The Quadrumvirate. Part of the Quadrumvirate’s strategy behind Bike 3.0 has been to control key retailers in each market by tying them as closely to a single brand as possible, locking competing brands out of those dealers.
Failure of the 3.0 model
The 3.0 theory also predicts a declining number of traditional retailers, contraction and consolidation of the supplier segment, and is abetted by the rise of internet commerce, which impacts all segments. But with the exception of e-commerce, none of these things has come to pass. The number of dealers has remained remarkably stable, as has the number of competing bike brands.
One dealer strategy to maintain independence has been to add one or more additional Quadrumvirate brands to their product mix. In 2020, almost thirty percent of Quadrumvirate dealers carried two or more of the four top-tier brands.
I’ve also written about how the Bike 3.0 model has failed to overcome the forces of Perfect Competition, which would involve granting a few large companies enough market share to control pricing channel-wide by placing their products at a significant price premium. This lack of channel control has been furthered by the rise of lower-priced consumer-direct brands operating outside the traditional specialty retail channel. These include a host of emergent D2C competitors in the e-bike segment and Canyon and others in both the electric and pedal-only segments.
A final failed aspect of the Bike 3.0 model has been the relative inability of brands to control their competitors’ presence in key retailers. Especially in larger, more financially successful shops, one dealer strategy to maintain independence has been to add one or more additional Quadrumvirate brands to their product mix. In 2020, almost thirty percent of Quadrumvirate dealers carried two or more of the four top tier brands, according to Georger Data Services.
Vertical integration: D2C + retail acquisition = Bike 4.0?
The rise of two practices in the last seven years are handing increasingly greater control of the retail channel back to bike brands.
The first of these is the implementation of consumer-direct sales by suppliers, either with the option of bypassing the dealer entirely, as Specialized has recently announced, or by using the dealer as the fulfillment mechanism (“Click and Collect” or C&C), as Trek pioneered in 2015 and has since been adopted by the rest of the Quadrumvirate, and any number of other brands besides. More about C&C can be found here.
The emerging Bike 4.0 model is one where the dominant players are $1 billion-plus companies which partly integrate the supply chain through a combination of (2) D2C sales strategies and (3) by purchasing retail bike shops in strategic markets.
In both cases, the bike brand makes the sale and pockets the consumer’s money. Whether the supplier shares some of the profit with a retailer is beside the question: either way, these are literal direct-to-consumer sales.
By bypassing the retailer via D2C or C&C, suppliers partially integrate the vertical market, moving the dealer out of the transaction, dealing directly with the customer, controlling every point in the sale and, depending on the dealer arrangement, putting some or all of what would have been the dealer’s profit into its own pocket.
The second integration strategy has been to co-opt the dealer’s role by simply buying retail businesses outright, folding the dealer’s earnings into the parent/supplier’s revenue stream. Neither company shares acquisition data, but Trek has been purchasing bike shops for years, now owning what is estimated to be some hundreds of retail locations, while Specialized has followed suit at a rapid rate, according to industry watchers.
In August 2021, Netherlands-based Pon Bike Holdings purchased the eleven-store Mike’s Bikes chain in Northern California. Two months later, Pon announced its plan to acquire the Dorel Sports group and merge it with its own family of brands. The acquisition went through in January of this year and results in a conglomerate with almost $3 billion in worldwide sales. Whether Pon will continue buying retail bike shops as an ongoing strategy remains to be seen.
The remaining Quadrumvirate player, Giant, has repeatedly announced its intention to stay out of the retail business, although it does make C&C sales. As Giant’s president, John “JT” Thompson, told me in a March email exchange, "We are not in the retail ownership game, period! … We've determined our best path to the consumer is through competent and energized (LBS) retailers."
All of the foregoing suggests a general definition of the emerging Bike 4.0 model is one where the dominant players are billion-dollar-plus companies that partly integrate the supply chain through a combination of D2C sales strategies and by purchasing retail bike shops in strategic markets.
The Bike 4.0 challenge
If the first rule of sales is make it easy for the customer to own your product, the 4.0 scenario succeeds. Riders can purchase bikes online, in a company-owned and nominally single-brand store, or from an independently owned bike shop with all the value-added services that come with that relationship. With the Specialized model, they can even choose the level of assembly for their new bike.
Will the partial integration of the supply chain allow a few dominant players to control the market sufficiently to put an end to more than four decades of Perfect Competition? It really depends on how large a role the company-owned stores are going to play in the long term and how much revenue the various direct-to-consumer initiatives generate. Whatever comes of Specialized’s D2C project, six years of Click & Collect hasn’t been able to move the needle on consumer-direct sales. And, whether the Bike 4.0 era has two dominant players or three (or even four), the market will ultimately decide whether it succeeds or fails. Just like always.
