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Tough Incentives Business Rewards Dealers

Published July 7, 2009

BY MEGAN TOMPKINS

MINNEAPOLIS, MN—As a commodities trader Ed Vigil has spent his career diversifying portfolios to manage risk.

He applied that diversification strategy to his bike business by creating a corporate division servicing the premiums and incentives industry.

“It puts a tremendous hedge on what we do with the retail business,” said Vigil, who owns two-store retail chain Bokoo Bikes in Minneapolis.

The corporate division supplies bikes that can be redeemed for points through customer loyalty programs run by such major corporations as American Express and Carlson Companies. It also fulfills group purchases for corporations and government agencies.

Vigil conceived the business idea more than five years ago. At the time, he owned a Trek concept store in Chanhassen. Two years ago he opened a second store in Minnetonka as a Giant Retail Partner.

He approached Giant with his proposal and last year entered into a five-year exclusive partnership to handle all sales, logistics and fulfillment for Giant Bicycle for the incentives market.

“Ed had the vision—he sold us on it. He’s always seen it out there. Ed’s pitch was he’s going to take care of it, we’re the supplier,” said Gregg Frederick, director of sales and business development for Giant Bicycle.

For Giant, which has never been in the incentives market until now, the program allows it to reach a wider potential customer base.

“It’s an opportunity to grow our brand and get more bikes in the hands of people that may not otherwise go into a bike shop,” said Elysa Walk, general manager or Giant Bicycle. “More often than not, they’re making a choice on a bike instead of a TV or a vacuum.”

Bicycles are uncommon in the incentives business because they come in various sizes and colors and don’t fit into a one-size-fits-all rewards program.

Vigil said in addition to anticipating inventory needs, the bike industry’s calendar year and new model introductions pose problems working with corporate customers.

Most corporate incentive houses expect photos and information for catalogs that are typically mailed in July—just as bike brands are finalizing details and pricing on new models. Vigil said it’s difficult to have current product information and corporations don’t want models or colors to change in the middle of their year.

“There are definitely challenges that are uncommon to the retail side of the industry,” Vigil said. “For the corporate world we would like to have bikes that never change.”

He said he communicates carefully with Giant regarding product placement and is working with them on some carryover models and colors.

And Vigil said he is upfront with corporate clients to let them know what he can and cannot do to fulfill their requirements. He offers choices so that corporate clients will be happy if the product color or selection changes.

“Some wording going into the contract is ‘this bike 2009 or newer’ or some phrase that hedges the risk on our part,” Vigil said.

Chris Zane, owner of Zane’s Cycles, who has 15 years of experience as the exclusive supplier of Trek bicycles to the premiums and incentives market, agreed that the bike industry’s model year changes make servicing the incentives market challenging.

He said commitments to corporations such as Marriott can last anywhere from 12 to 18 months, which requires frontloading quite a bit of inventory.

“The thing with special markets is it takes a really long time to get in it, but once you’re in it, it takes an equally long time for it to go away. We try to control the offerings we have so we can continue to get the inventory,” Zane said. Still, he said he sometimes receives orders for a Trek model that no longer exists. And he said a year like this, in which he was locked into last year’s lower pricing, reduces his profitability.

Still, Zane said the biggest challenge is providing consistently good service to the corporate customer who offers the bike and individuals who receive the bike.

“It’s pretty demanding—you spend a lot of time holding a lot of hands,” Zane said. “Our focus has to be on making sure everyone in the loop is completely satisfied at an extremely high level. If a customer gets a bike through the Marriott rewards program and something happens, Marriott loses a customer, not Zane’s.”

Zane said providing excellent customer service is essential for developing repeat business that makes the corporate business worthwhile.

“That’s what gives the business the value. You build a relationship, they become dedicated to your offering and you need to continue to earn their willingness,” Zane said. “If you’re just looking for a one-off program, that’s a lot of work.”

Zane said he’s seen a lot of brands come and go since he got into the incentives business in 1994. Fuji, Mongoose and licensed brands like Jeep and Columbia have all dabbled in it. He said it’s tough to figure out who the players are, make the logistics work and have the inventory.

“Ed’s the first guy in since we got in who’s had the interest and is tenacious enough to have it benefit his operation,” Zane said.

Although the corporate business offers lucrative sales potential in the seven figures, Vigil said it’s a challenging business that requires logistical expertise and attention to detail. “It’s not a business for everybody. We deal with lots of stuff: extended lines of credit, collections from large customers, FedEx and UPS logistics, and how orders come in,” Vigil said.

Corporations expect that the time from when a customer places an order to when they get a bike will be no more than 10 working days. Bokoo receives the bikes from Giant and builds, tests and repackages them for shipment.

Bokoo ships bikes redeemed through points programs directly to the recipient’s home or business. The recipient has to do four tasks: put on the pedals and install the handlebars, seatpost and front wheel.

In addition to retail employees, who also build and ship bikes for corporate customers, the incentives business has three dedicated employees, including an attorney to handle contracts and an accounts payable manager. Vigil spends about half his time on the corporate business.

To drum up new business, he has contracted a team of nine outside sales reps who represent high-end brands such as Tumi luggage and Weber grills to corporate accounts.

And he has an advantage when submitting a business proposal. Vigil, who was born in Mexico City, applied for and received minority-owned business certification. That helps him win new business from top 500 corporations and government agencies that give preference to minority-owned companies.

After six months in the business, Vigil has developed a nice corporate customer base. He has eight models in the Business Incentives catalog coming out this month, 10 models with American Express and will have eight models with Carlson Companies.

He also has fulfilled contracts for local and state governments. Some government contracts require a local service provider, as in the case of a purchase order from the Canadian government for 300 mountain bikes. In such a case, Giant works with its sales team to link Vigil up with one of its local dealers to incorporate in the proposal.

Giant’s Walk said that in addition to bringing local bike shops into the process, the corporate channel could also cultivate new IBD customers. “They’re going to need a helmet, a pump and service and that will take them into IBDs,” Walk said.

Vigil believes that any displacement of business is not from other bike shops but from competitors in the premiums and incentives markets. He expects that competition will remain slim due to the barriers to entry.

“You have to make an investment in money, an investment in people and be ready for the curves that are thrown at you. And you better be resourceful because you only get one shot. In some cases you might have to lose money—and it’s not like losing a couple hundred dollar sale, but a corporate order with a couple hundred thousand dollars worth of bikes,” Vigil said.

Vigil said he is working with Giant to communicate inventory needs and make sure that no one involved loses money as a result of holding excess inventory.

“We need to put hedges through the whole system to ensure I don’t get hurt, Giant doesn’t get hurt, and the corporation doesn’t get hurt,” Vigil said.

But mitigating risk is what Vigil did on the commodities exchange for 15 years. He still runs a trading operation above his Chanhassen store.

Vigil said procuring the right mix of bikes is not unlike trading commodities. Vigil said dealing with commodities appears to be a simple function of price but a simple commodity like sugar could be raw sugar, refined sugar or brown sugar. He said the same is true of bikes, which come in many models.

“There are lots of parallels,” he said.

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