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Intense Cycles launches consumer-direct sales, reduces retail prices to vie with D2C brands

Published December 4, 2017
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Company will connect online customers to dealers via service contracts rather than in-store fulfillment. 'The important thing is getting that customer into the store,' CEO says.

TEMECULA, Calif. (BRAIN) — Intense Cycles on Monday launched a consumer-direct online sales program and new lower pricing aimed at helping the brand and its dealers better compete with mountain bike brands sold exclusively D2C on the internet. Intense calls it a "hybrid, IBD-centric" approach.

Rather than fulfilling consumer-direct orders through its U.S. dealers and sharing the margin — commonly known as a "click and collect" model — Intense will ship 95 percent-assembled bikes direct to customers from its Southern California headquarters and will instead include a service contract with the consumer's qualified local Intense dealer. The service contract is free to the consumer, with Intense compensating the dealer for the contract. Intense declined to detail the dealer payment beyond characterizing it as "substantial."

"The important thing is getting that customer into the store and getting them accustomed to working with that store and getting service. That's what we're trying to do: get them new customers," Intense CEO Andrew Herrick told BRAIN last week.

At the same time, Intense is lowering its retail prices by 20 to 25 percent to bring pricing in line with brands selling exclusively consumer direct, such as Canyon, YT Industries and Commencal. Intense will sell to consumers at the same prices as its dealers.

" 'Click and collect' doesn't solve the pricing problem with Canyon and everybody else. It only addresses one or two reasons people don't want to go to bike shops. It hasn't addressed price," Herrick said. "What we're trying to do is get the dealer in the game, instead of them having to match prices online."

Herrick said the moves are designed to help Intense and its retailers combat rampant consumer price shopping and a race to the bottom at retail that has badly eroded shops' margins, especially on high-end bikes.

"The consumer is calling every bike shop in his area and seeing who will give him the best price. He runs an auction, because he's been running auctions for the last 10 years on eBay, he's been running auctions on Amazon or he's been searching to see who has five stars.

The consumer is completely hardwired in a digital way, and we're running an analog business," he said. "The consumer does their research and they say, 'I've got a budget of this and I'm going to find a dealer that will sell for that.' "

The company is calling the consumer-direct program Intense Rider Direct, and participating retailers are members of the Intense Rider Direct Network. Dealers must stock a minimum number of bikes per quarter to qualify. With the new retail and wholesale pricing, "we have created a margin structure where the dealer makes the same or higher than they are currently after being badgered by the consumer for a discount or to price match another price," Herrick said.

For each consumer-direct sale, Intense will issue a service contract with the buyer's local Rider Direct Network dealer covering the bike's break-in period. The duration of the service contract varies depending on the size of the bike sale, ranging from 30 days for closeout bikes to 90 days on top-end models. Dealers can also choose to extend the terms of the contract.

"It consists of anything that's not hardgoods-related. So all cables, all derailleur adjustments, all suspension setup. And the dealer will be expecting you with open arms, because we will already have bought the contract from the dealer," Herrick said.

"We need a dealer to make something on every single transaction. So if you take the inventory risk and put five bikes on the floor and sell them, you deserve to make the margin. If we sell the bike, and we buy a service contract from you, you deserve to be paid well for two reasons: One, because you're providing service, and two, because you're displaying bikes on the floor to help us sell more bikes. But we're not in competition with you in any way," he added. "If the consumer gets on the phone and says, 'Hey, I'd feel much more comfortable buying from Joe down at my shop. Is he going to charge me more?' No, because the price is the same."

Intense Rider Direct goes live internationally Monday on about 25 different geo-specific websites that can't be seen outside their home countries. In the U.S., Herrick has been visiting some of Intense's top retailers to gather feedback on the program. The company currently has about 200 U.S. dealers.

At Squatch Bikes & Brew in Brevard, North Carolina, owner James Matty is bullish on the new business model.

"After going over everything, everybody says, 'Margin this, margin that.' Well, margin has never been great in the industry as far as complete bikes or frames go. That doesn't concern me. What concerns me more is if we can have greater volume with people. And then if we all up our game with customer service, that's going to take the industry to the next step," he said.

Matty also doesn't foresee Intense's move into selling consumer direct cannibalizing his bike sales — at least not to a great degree.

"You've got a certain amount of people who don't want to come to a bike shop. They just don't. How is pulling a little bit of power from online retailers, taking it in-house and getting a little more power to the local bike shop going to hurt?" he said. "Those people weren't going to come in here anyway. If anything, they're going to come in here now and say, 'You're an Intense dealer. Intense shipped this bike to me. I'm having a problem with my rear derailleur.' Even though any bike shop could fix that, they're still probably going to come to the Intense dealer. It's going to be their first choice.

"And the people who understand the service factors of dealing with a local bike shop, they're going to come to us anyway. They weren't going buy online. So as far as an adjustment in sales goes, yeah, there's going to be some. Will it be as significant as people are thinking about? I don't think so. I think it's going to help the local bike shop," Matty added.

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