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Cannondale shuts off distributor over Costco sales

Published October 3, 2012

BETHEL, CT (BRAIN) — Cannondale has dropped one of its non-U.S. distributors that Cannondale said sold some of its bikes to the Costco warehouse chain. 

Some Costco outlets are offering a "limited amount" of Cannondale bikes, according to a letter that the bike company's Dave Manchester sent to U.S. retailers on Tuesday. Manchester is senior vice president of North American sales and marketing for Dorel Industries' Cycling Sports Group, which includes Cannondale.

"We’ve identified a distributor outside of the United States who conducted the unauthorized sale of their supply to this mass retailer. Action has been taken against this distributor and they are no longer part of our distributor network. Additionally, the bikes will not be covered under any warranty," Manchester said in the letter. 

Manchester did not identify the distributor in the letter. On Thursday, Michael De Leon, a senior manager of global public relations for the Cycling Sports Group, said the company would have no further public comment on the issue. 

Manchester's letter also referenced a letter that one of Cannondale's competitors has been sending to its dealers.

Update: BRAIN has obtained a copy of a letter that Specialized founder and CEO Mike Sinyard sent to dealers Tuesday. See below for complete text of Sinyard's letter.

"One of our competitors is emailing our dealers right now telling them that we’re selling Cannondale bikes in the mass channel," Manchester wrote. The sales were unplanned and Cannondale remains committed to the IBD channel, he said. He said Cannondale's recent purchase of the Guru bike fit system and its support of the Cannondale Pro Cycling team show its commitment. 

"Cycling Sports Group is deeply committed to the IBD channel. Others in the industry would have you believe otherwise, but I trust that those who know us and work with us know better. We will continue to be focused on earning your business, not counterproductive propaganda campaigns," Manchester stated.

Manchester was apparently referring to a letter sent by Specialized's Mike Sinyard, which urges retailers to chose suppliers who do not sell to mass merchants. Aside from the recent Cannondale appearance in Costco, Sinyard refers to bikes that Giant Bicycle manufactures for the retailer under the Northrock brand. Sinyard's letter does not mention Specialized's Full Force brand, which was sold to mass merchants briefly in the 1990s. 

Participants in a thread on the MTBR.com forum have been discussing the Costco Cannondales, which they said include the Cannondale Trail Sl29er being offered for $749 at the Redwood City, California, Costco outlet. The Trail Sl29er has an MSRP of $890.

Manchester's complete letter:

October 2, 2012

Subject Line: Deeply Committed

Dear Cannondale Dealer,
 
It’s been just a few weeks since Interbike where we launched two important initiatives – the GURU Experience and Cannondale Pro Cycling – that both demonstrate, among other things, significant commitment to and investment in the Independent Bike Dealer channel.

Let’s be honest though, others in the industry would have you believe that we’re not committed.  I’ll cut to the chase. One of our competitors is emailing our dealers right now telling them that we’re selling Cannondale bikes in the mass channel. Here are the facts as we know them. Costco was able to secure a limited amount of Cannondale bikes and is selling them. We’ve identified a distributor outside of the United States who conducted the unauthorized sale of their supply to this mass retailer.  
 
Action has been taken against this distributor and they are no longer part of our distributor network. Additionally, the bikes will not be covered under any warranty.
 
Cycling Sports Group is deeply committed to the IBD channel. Others in the industry would have you believe otherwise, but I trust that those who know us and work with us know better. We will continue to be focused on earning your business, not counterproductive propaganda campaigns. 
 
Please reach out to me directly if you have any questions or concerns.

 

Dave Manchester

Senior Vice President of Sales and Marketing North America
Cycling Sports Group

Letter from Specialized's Mike Sinyard:

October 2, 2012

 

Dear Specialized USA Retailer,

It was great to see many of you at Interbike. I hope you had a great show. I wanted to update you on a few troubling developments that came out of the show.

Here’s a first-hand account from Jesse Porter, Director of Business Development, USA:

Costco buyers were at Interbike looking for bike brands. At least 10 people were walking the floor in a pack. One Costco buyer came over to me at our booth. He wanted to know if Specialized would sell our equipment, apparel or bicycles to Costco. I asked him why he needed Specialized when he already has Schwinn and Cannondale. He said he was looking for high-end bikes because too many of the entry-level bikes Costco sells are returned.

Buyers from other big box and mass stores such as Target also attended the show.

This underscores the threat Costco poses to your business. Costco is not just an outlet for inexpensive mass-market brands; Costco is an outlet for high-end brands in every other category. For example, it sells premium electronics brands.

This move shows Costco is pursuing a strategy to sell the IBD brands you helped build. The more you support brands in Costco, the more you must compete against them for your business.

We turned Costco away. But did other exhibitors do the same? Other IBD brands that already sell outside the IBD channel may give them a shot.

We have recently seen Cannondale SL 29er 4 Trail Bikes being sold at Costco locations in California. This is an IBD-level bike priced at Costco at $749. This appears to be an inline MY12 model with an original MSRP of $890. The MY13 model with similar spec has an MSRP of $1,000.

To the consumer, there is very little difference between the old and new versions.

Since then, we have learned these bikes have been at the following Northern California Costco locations: Santa Clara San Francisco Mountain View Redwood City.

In addition to the SL 29er 4, the SL 29er 5 Trail Bike has been in these California locations: Rancho Cordova Clovis Cal Expo

Remember when Schwinn said they wouldn’t go outside the IBD channel? Now they sell to Costco.

Dorel, Cannondale’s parent company, also supplies other brands to Costco so it's not surprising to see Cannondale alongside Schwinn. This is not a coincidence. We have seen forum posts on Cannondale bikes at Costco by riders in the past.

Do you support other brands that support Costco? Giant manufactures Northrock Bikes sold at Costco.

Forge Bikes, sold online through Target and Amazon, are also manufactured by Giant.

Riders have commented in chat rooms that Forge bikes are quite a bargain at half the price of Giant.

Bikes and equipment sold at Costco undermine your credibility as an IBD. It creates the perception with the rider that IBDs are ripping off the rider.

This weakens the IBD and diminishes the value of the performance brands you sell.

The reason I continue to push this message is to create awareness that we are at a critical Tipping Point. The Tipping Point is real, it’s here now and it’s coming to a head.

Golf, tennis and electronics specialty retailers are nearly extinct. The reason they are basically nonexistent is the brands that supply those specialty retailers also sell through mass market discounters.

I want my legacy to be a successful, sustainable retail business model with you. Your success is our success.

This is not just about Specialized. Other brands also support the IBD. We need you to remain strong and healthy.

Your decision will determine your future.

Please vote with your dollars.

What is the future you choose for the IBD?

Mike Sinyard Founder & President Specialized Bicycles

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