Back in 2019, I proposed there have been three different eras of the U.S. specialty retail bike business post-World War II, which I labeled Bike 1.0, Bike, 2.0 and Bike 3.0, respectively. You can read more about those here. In 2022, I predicted we were entering a new era, which I called Bike 4.0 (same link) and which started in approximately 2020, along with the COVID pandemic.
Today, I'm saying that Bike 4.0 has fully established itself as the dominant industry paradigm, and the specialty retail channel is doing business in new and fundamentally different ways.
With the exception of Bike 1.0 after World War II, when the market was effectively controlled by the Schwinn juggernaut, the remaining eras are all marked by the central dynamic of Perfect Competition, a type of market in which many companies are selling identical or near-identical products, and where no one has enough market power to set higher prices on their products or services without losing sales. Each of the following eras have come about as the result of dominant suppliers trying to overcome the perfect competition dynamic and impose an alternative business model that will allow them to increase their profitability. More about that in a bit.
Bike 4.0 from the retailer's viewpoint
Key retail operations in major markets are increasingly owned by one of three suppliers. These businesses are undeniably part of the retail channel but, by definition, are not IBDs.
The Bike 2.0 and 3.0 eras were characterized by the independent bicycle dealer: a self-owned shop or group of shops that functioned relatively independent of suppliers (hence the name). These shops represented suppliers' products to consumers, and either side could change supply arrangements more or less at will as provided in the now-ubiquitous Dealer Agreement. In recent years, slightly more than half (about 56%, according to Georger Data Services) of U.S. retailers sold one or more of the industry's top four bike brands: Trek/Electra, Specialized, Giant, or Pon (Cannondale, Santa Cruz, Cervélo, et al), a group which I have chosen to call The Quadrumvirate.
Links in the supply chain were relatively discrete: governed by the dealer agreement, retailers sold exclusively to consumers. Suppliers generally sold only to retailers. In these eras, the retail landscape was virtually 100% IBD.
In the Bike 4.0 era, most retail operations remain independent, but key shops in major markets are increasingly owned by one of three suppliers — Trek, Specialized, or less often, Pon. These represent several hundreds of businesses that are undeniably part of the retail channel but, by definition, are not IBDs since they're not independently owned.
Accompanying the growth of supplier-owned operations are two new classes of retailers: freestanding mobile repair businesses, which may sell equipment but usually not bicycles, and e-bike-only retailers often associated with nontraditional brands like Pedego, Harley-Davidson, or Yamaha.
While the total number of retail operations in the U.S. has remained consistent (about 7,000 locations, according to GDS, a number which does not include mobile repair businesses unless they also sell bicycles), the percentage of old-style IBDs in the channel has necessarily shrunk significantly, both as shops go out of business and as a result of dilution as nontraditional players (including supplier-owned retail businesses) enter the market.
At the same time, the traditional sales channel has given way to the omnichannel market, where suppliers and retailers, as well as consumer-direct brands like Canyon and others, all compete to sell bicycles and equipment to the same group of consumers.
Bike 4.0 from the supplier's viewpoint
The dealer acquisition game is a high-stakes gamble suited only to the financially strongest brands.
From the supplier's side, the biggest change for Bike 4.0 is that virtually all suppliers now sell consumer-direct, whether overtly, via sold direct/shipped to a dealer ("Click & Collect"), or through third-party sellers like Amazon.
D2C bicycles fulfilled by dealers is hardly new; Trek pioneered the concept in 2015. But during the past year, there's been a fundamental shift. For the first time, a Quadrumvirate brand, Specialized, is selling complete bicycles direct to consumers without dealer involvement. And it goes without saying that where one brand goes, others will surely follow. Like many developments in the market, this one is neither good nor bad; it is simply the way things are.
Specialized and Giant have even begun publicly referring to this new, customer-centric, wide-open market as an ecosystem rather than a channel. While purely semantic on the surface, the fundamentally changed market it describes marks the most profound shift from the Bike 3.0 model.
The other sea change in Bike 4.0 is that a few suppliers (Trek, Specialized and, to a lesser extent, Pon) are outright purchasing bike shops in important markets, vertically integrating key segments of the specialty retail channel. In theory, this move improves brand profits through increased sales, economies of scale, and market efficiencies. Whether this in fact will be the case remains to be seen. Only time will tell.
Vertical channel (or ecosystem) integration also marks a fundamental differentiation among Quadrumvirate members themselves. Of the four leading brands, only Giant does not own bike shops in the U.S. And as far as we know, none of the other brands represented in remaining 44% of non-Quadrumvirate bike shops do, either. The dealer acquisition game is a high-stakes gamble suited only to the financially strongest brands.
Endgame: the 20-year bet
The biggest question Bike 4.0 poses is whether increased revenues from D2C and vertical integration will allow at least the biggest players to break out of the Perfect Competition trap.
To conclude, Bike 4.0 differs from the 3.0 version in four fundamental ways: dilution of the IBD and the proliferation of alternate retailing models; the traditional sales channel being replaced by an omnichannel sales "ecosystem;" direct sales to consumers by suppliers (which may be a subset of the last point, but I think is important enough to merit a mention of its own ); and vertical integration of suppliers and retailers by at least some of the largest industry players.
Any one of these shifts would have had the power to alter the Bike 3.0 dynamic and bring about systemic change to the industry. Taken together, they represent a new era in how the bike business does business.
The biggest question Bike 4.0 poses is whether increased revenues from D2C and vertical integration will allow at least the biggest industry players to break out of the Perfect Competition trap. Should they be able to do so, it will fundamentally alter the market landscape, to say nothing of making those players much more financially powerful.
The jury's going to be out on that one for at least the next several years.
Since the Bike Boom ended (start of Bike 2.0), eras of the U.S. bicycle industry have lasted about 20 years. Consequently, it's tempting to speculate that the 4.0 era will be with us until 2040. But as with many other aspects of our culture, the rate of change itself is accelerating in the bike business. Speculating about when Bike 4.0 will end, and what will replace it, is anybody's guess.
