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Once the premier American-made bicycle, Schwinn long ago succumbed to foreign manufacturing pressure.
Once the premier American-made bicycle, Schwinn long ago succumbed to foreign manufacturing pressure.

In the Information Age, It's Now Caveat Venditor

Independent Bicycle Dealers are an endangered species in the United States. One third of them have gone out of business since 2000, unable to compete in the age of the online, drop shipment seller and smart phone-armed consumers. How do the remaining bike shops survive? Can they?

I am currently reading "Leading Out Retail - A Creative Look At Bicycle Retail and What All Retailers Can Learn From It" by Donny Perry. I want to better understand the dynamics that drive the American bicycle market, especially the retail bricks and mortar operations we call the local bicycle shop.

Sadly, it's not a pretty picture. Since 2000, some 2,140 Independent Bicycle Dealers (IBDs) have gone out of business. In 2000, there were 6,195 IBDs according to the National Bicycle Dealer Association. The latest survey in 2013 showed there were only 4,055. This despite the number of bikes being sold remaining relatively static, generating some $16 billion in revenues annually.

Even more chilling for IBDs is McKinsey Consulting forecast that in-store purchases will be down by 25% by 2016.

What's going on? Increasingly, those sales are taking place online, either through savvy IBDs who successfully manage both a physical and digital presence, or by an increasing number of virtual retailers, who may never even see the bike in question but simply facilitate the sale via a drop-ship arrangement with the manufacturer or distributor.

Reflecting this trend, McKinsey adds that "by 2020 those who have adopted an omni-channel retail experience (cross-platform retailing consisting of mobile, online and physical store) will see 80% of in-store revenue driven by mobile and online platform." (Emphasis mine).

Regardless of where the bike - or e-bike - gets bought, what is well established is that before the credit card number is typed into that online form or the customer walks into the physical shop, they have likely done a fair amount of homework prior to the purchase, homework facilitated by manufacturer web sites, blogger reviews, and social media.

Perry notes that while some 15% of purchases today happen online, "more than 90% of all major purchases start online."

As Daniel Pink puts it in 'To Sell Is Human', "Most of what we know about sales was built for a world of information asymmetry." The seller was at the distinct advantage over the buyer because he or she had access to information the buyer did not have and could use that to their advantage.

The Internet changed that forever. In an NPR interview, Pink explains, "Something curious has happened in the last 10 years in that you can walk into a car dealership with the invoice price of the car, something that even the salesmen/women at car dealers didn't know too long ago."

Penny refers to this as 'caveat venditor' - seller beware - and asks us to consider the following statistics:

98% of shoppers read product reviews on retailer or manufacturer websites when considering a higher-end purchase. High-end bicycles and e-bikes especially fall into that category.

40% consult external review websites in their purchase decisions and consumers choosing among higher-end products are more likely to visit external review websites prior to purchasing.

95% of smart phone users have looked for local information. 77% of them contacted the business and 44% purchased.

74% of consumers look to social networks to guide their purchases.

Penny points out that "the higher the cost or the lower the frequency (of the purchase), the more research someone will do on their options." He set up a boxed quadrant to illustrate this. Low cost, high frequency items, such as coffee, meals and groceries, are in the lower left corner. Low frequency, low cost - the top left quadrant - include things like souvenirs, haircuts, movie tickets, an oil change. High cost, high frequency - lower right quadrant - would be rent or mortgage, loan payments, car payments.

It's the upper right corner - low frequency, high cost - that today generates the most research before actually making the purchase. We all do this. Looking to buy a new smart phone, tablet, computer, car, house, electric bicycle: research it first online.

The question then becomes not which product you buy, but from whom do you buy it? The online vendor who'll drop ship it to you - some assembly required - or the local retailer? If you're only concerned about the initial price, you may go with the cheaper offer, which increasingly is putting the bricks and mortar guys at a disadvantage, so much so that over 2,000 have gone out of business in the USA over the last dozen years. In the battle between the virtual seller with few employees and little if any inventory and the IBDs in town, it's the guy with the lowest overhead that wins.

So how does the IBD/IBR compete with the one (shipping) container wonders?

It's in the arena of convenience, service, and the purchase experience where the local IBD -- or as Penny prefers to call them IBR's, for Independent Bicycle Retailers, a subtle but important distinction -- can beat the virtual. Consumers will have to recognize this, however. There's a reason 35-40% margins are built into the retail price of a bicycle that goes beyond the physical cost of the machine itself. IBR's that recognize this will survive and thrive. Those who don't, won't. But in the end, it will be the customer who either wins or loses. Cheap prices are no always the best measure of 'Value.' Reliability, dependability, convenience, and knowledge are intangible values that while not 'priceless', are always worth the extra money.

Posted By: Bill Moore [01-Dec-2014]

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