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Executives Focus on Long-Term Strategy

Published May 1, 2009

BY MEGAN TOMPKINS

MONTEREY, CA—While hope for sales growth in the near future remains slim, Performance Bicycle chief executive officer Jim Thompson is taking an extended view of the retail business and preparing for a rebound in consumer confidence.

Thompson, who has a master’s degree in finance, said he has never spent so much time on the balance sheet side of the business. After a soft fourth quarter he has projected down from single-digit growth to a flat plan as the baseline for this year.

“We’re performing better than the baseline, but we need to get through the year. We can’t sit here and predict sales curves,” said Thompson, who joined Performance nine months ago from multi-channel golf retailer Golfsmith.

Instead, the industry newcomer is taking a long-term approach, looking at his business in a three-year growth cycle instead of a 12-month cycle. While he is thinking conservatively, his three-year strategic plan does not involve completely retrenching.

“Some level of offense we believe is critical for when the consumer does return,” he said, citing strategic investments in a new store concept and online initiatives.

Thompson said he expects consumer confidence to return mid-year 2010. However, he expressed concern about whether consumers will return to previous buying habits. “This is such a cultural shift, we expect the consumer on the other end of this recession to change,” he said, predicting behavioral change in spending, the value placed on brand, and the value placed on service.

Counterparts from the distribution and manufacturing parts of the channel echoed Thompson, who sat on an economic panel at the Bicycle Leadership Conference last month.

Steve Flagg, chief executive officer of Quality Bicycle Products, said 48 months of consecutive growth at the company came to a screeching halt in November. Despite expectations of a dramatic slowdown in sales growth this year, he also intends to invest more in his business. Flagg said it seems like a good time to invest in innovation and growth strategies.

Flagg said one change is that QBP is relying less on fancy software to predict inventory based on historical trends. In the past, Flagg said, it was the wholesaler’s biggest asset. But despite slowing sales in November, inventory kept coming in based on the computer generated trending model. Now, QBP has added a layer of checks and balances. “Every month we sit down and have this human intelligence thing where we say, let’s override the computer,” Flagg said.

Thompson agreed that statistical models don’t work in this uncertain environment and called for brands to cooperate with key partners to better assess the situation. “We have to as a segment be really smart about putting sweat equity behind planning our business,” Thompson said.

Stan Day, SRAM’s chief executive officer, concurred that as a largely OEM supplier, with 80 percent of its components going to manufacturers, transparency from its partners is essential. He compared SRAM to the “tail end of a bull whip when it gets flung,” because of its dependency on bike suppliers. As a result of depressed manufacturer orders, he projects that SRAM’s sales for the first six months through June will be down 25 percent.

Day said he sees this downturn as an inventory hiccup that the industry will work through. But the industry’s ability to control inventory levels concerns him. “Too much inventory is evil,” Day said, adding that inventory drives down prices, consumes capital and obscures quality issues.

Day said the industry needs better information, both from the BPSA and retail data capture programs that show retail sell-through. “That improves profitability for the industry,” Day said.

BPSA statistics chair Chris Speyer, who presented year-end BPSA numbers at the conference, said the statistical report has excellent trending information but still lacks participation. He said non-participating suppliers should get past trying to protect their unit volumes. Brands can learn what others are doing by walking through factories in Asia, Speyer said. “There are no secrets.”

Others voiced the need for more membership dues to support its legal efforts to battle proposed state laws and requirements of the Consumer Product Safety Improvement Act (CPSIA).

“We’re going to be faced with these legal challenges,” said Pat Cunnane, BPSA board member and president of Advanced Sports Inc. “People are jumping in because they have to, but we still need more members.”

The conference, sponsored by the Bicycle Product Suppliers Association, was held for the first time at the Sea Otter Classic. Due to its timing at the beginning of the selling season, few retailers could attend. But suppliers liked the timing and praised the combination of the supplier-driven conference with a consumer event that is already on many travel schedules.

Sea Otter has a three-year contract to host the conference and Sea Otter president and chief executive officer Frank Yohannan said he is committed to enhancing the conference. One idea he floated for next year is moving the conference a day earlier. Ending the conference on the first day of Sea Otter would allow industry leaders to spend more time at the festival.

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