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Euro Brands Go Direct to Grab Market Share

Published November 30, 2009

BY NICOLE FORMOSA

SAN JOSE, CA—In the four years since Look Cycle left Veltec to form its own U.S. subsidiary, the French manufacturer has more than doubled the size of its business in the states and increased its dealer base by 30 to 40 percent.

Ming Tan, vice president of marketing and development for Look Cycle USA, attributes that success to employing premier outside sales reps, offering more competitive retail prices by eliminating the distributor’s margin and gaining the ability to consistently control the brand’s message.

“There is quite a big investment. It’s a big commitment going from being part of a distributor to a stand-alone. We felt like we were getting to the point of recognition as a pedal brand, as a frame brand, that it was time,” Tan said.

Other European companies are making similar decisions to try to capture market share in the potentially lucrative U.S. market. In the past year, Colnago, Sidi and BMC have parted ways with their respective distributors in favor of establishing their own operations.

And more may follow suit.

Al Budris, general manager of the newly formed Sidi America, said he’s received numerous calls from European brands curious about Sidi’s new model since he took the job in early August.

Why now? A slow growth industry with a finite pie that’s getting divvied up among several major players leaves little room for boutique brands to capture the consumer’s attention, Budris said.

That makes it ever more important to closely control brand image, quality and presentation and to carefully select partners where product is being sold.

From Sidi’s perspective, going direct allows a company to be that much closer to the end consumer. Before, the distributor would meet with the manufacturer quarterly with notes accumulated on the market. By the time that data is digested, it’s at least six months old.

“By taking control of the brand you accelerate the information back to the brand and you accelerate time to market,” Budris said.

For German brand Focus, the fact that it’s managing its recent entry into the U.S. market via a wholly owned subsidiary versus partnering with a distributor has been a selling point for new Focus retailers, said Scott Rittschof, president of Focus Bicycles USA.

“To get control of our marketing and to throw some muscle of the parent company behind the distribution gives our customers the faith and confidence they need to make a commitment to our product,” Rittschof said.

And, cutting out the average 35 points a distributor typically takes can allow for more money to be put back into the brand, and lowers costs to the consumer.

BMC expects to lower its retail prices 10 percent on average by taking over its own U.S. operations, a decision the Swiss company announced at Interbike, said Fabio Selvig, general manager of BMC North America.

That opportunity for consumers to save a few percentage points on a high-end product in a down economy, along with the recent addition of American rider George Hincapie to the BMC Racing team are reasons Selvig believes the timing is right to push the brand in the U.S. market.

And although BMC had a good relationship with former distributor QBP, the two companies have different business models.

“We need to have designated reps visiting dealers in the market, we need to have direct feedback to BMC in Switzerland, we need to have BMC events interacting with reps and consumers to keep a pulse on the market and translate into potential customers,” Selvig said.

BMC has hired five factory reps to work in specific target markets and will hire brand ambassadors to represent the company at industry events, Selvig said.

The move to the direct model is a significant investment, however. Budris estimates it costs minimum a quarter million dollars to “open the door,” not including inventory and operating cashflow, to start a subsidiary.

Partnering with an experienced distributor with an established dealer network and credit managers that can offer input on advertising and sponsorship softens the risk of entering a new market, said Lance Donnell, president of Sinclair Imports, which recently signed an exclusive agreement to bring German brand Stevens into the U.S. market.

“To set up a subsidiary there needs to be a certain level of business. I always envisioned that a brand needs to do $5 million out of the gate to operate a subsidiary. There are a lot of costs to taking care of a brand—health insurance, rent and everything else. It’s not possible just to sell $1 million worth of bikes to make a go at a subsidiary,” Donnell said.

Donnell said European brands tend to look at America as the Valhalla of cycling without realizing that the high-end market represents a miniscule part of the industry with stiff competition.

“The brands like Stevens, Colnago, BMC and Kuota are basically fighting for table scraps of the huge bike brands. There are 20 brands wanting to be the primary boutique brand in the store,” Donnell said, adding that small brands need to win tiebreakers, like having exceptional service—typically a strength for distributors—to see success here.

Some European brands have settled on a hybrid model, lessening the expenses of taking on the operation while benefitting from their own marketing.

Belgian helmet manufacturer Lazer, for example, entered the U.S. market through an exclusive distribution agreement with QBP five years ago, but earlier this year, hired industry veteran Christopher Smith to work on increasing brand awareness and sales.

Last year, after several years of handling all its distribution through a third-party warehouse, Look added QBP as a sub-distributor to manage its $119 and lower commodity pedals and cleats.

“QBP does such a good job with everybody, not just A level retailers, but B level and C level too. They’re more efficient than we are whereas our model works really well with A level program dealers,” Look’s Tan said.

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