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IBDs Squeezed as Suppliers Battle for Share

Published November 18, 2011

By Lynette Carpiet

TAMPA, FL—University Bicycle Center sold more than 300 pairs of Specialized-branded cycling shoes last year. Shoes were one of its biggest categories with Specialized, according to Carlos Mirabal, vice president and manager of the Tampa, Florida, store.

That made his decision to drop Specialized particularly difficult, but he felt compelled to after he was presented with an ultimatum by his Specialized sales rep.

“This is the first time they said you have to drop Giro shoes if you want us to take your preseason order,” Mirabal said.

Though Mirabal said his store only sold a handful of Giro shoes, he decided to part ways with Specialized, which he had carried since the late ’90s and was the exclusive dealer for in the Tampa region for a long time.

“When it’s all said and done, we have to be the independent retailer we are,” he said. “We’re not a concept store. We did over $200,000 with them. How they could literally screw it up over a few pair of shoes makes no sense.”

Mirabal plans to fill in with Scott and Cannondale bikes and P&A as well as shoes from Scott, Shimano, Pearl Izumi and Giro. Mirabal picked up Scott three years ago when his partnership with Specialized began to strain after the brand opened a new dealer in town.

Bell Sports, parent company of the Giro brand, heard similar complaints from Specialized dealers in California, Texas and Michigan, and in September it took the matter to court, filing a lawsuit against Specialized Bicycle Components for allegedly engaging in unfair and unlawful business practices.

According to the court documents, Specialized issued an addendum to its dealer agreement requiring dealers to agree to no longer purchase or sell Giro cycling shoes, and that Bell “suffered and continues to suffer an increasing decline in market share as a result.”

Bell Sports claims Specialized threatened to withhold high-end bicycle inventory from dealers carrying Giro cycling shoes and that some dealers were told they would not receive their year-end purchase volume incentives or manufacturer rebates if they continued to sell Giro cycling shoes.

In a letter to dealers, Specialized founder Mike Sinyard explained his position on the suit. “We want Specialized represented by premium retailers alongside other premium product—not product that’s available through mass merchants,” he said, adding that Easton-Bell Sports sells through Wal-Mart. “Does it make sense to support brands that do not wholly support you? Does it make sense to sell products that are available elsewhere for less?” he said in the letter.

Sinyard declined to comment any further on the lawsuit.

The lawsuit brings to light an issue that has long plagued suppliers: growing competition for market share in an industry where overall sales and ridership numbers have remained relatively flat. And in this highly competitive environment, Trek and Specialized are exerting a tighter squeeze, retailers say.

“The bike industry has been a zero-sum game for the past 10 years,” said Charlie McCorkell, owner of the Bicycle Habitat, with two stores in New York. “For somebody to gain, somebody has to lose. The downturn in the economy has exacerbated that. If everybody was doing better, there wouldn’t be this pressure.”

McCorkell said both of his main suppliers—Trek and Specialized—demand more of his purchasing dollars, but he has also been more willing to commit more of his dollars to them. “This isn’t a one-way street,” he said. “We’ve always committed our money toward Trek and Specialized and they take care of us.”

But whether a retailer is forced or courted into doing more business seems to depend on the commitment from the retailer as well as the market they’re in.

“Dealers have to do enough business for those brands that they can fight back and say, ‘We’re not going to do that,’ ” said Dale Brown, owner of Cycles De Oro, a longtime retailer that carries Specialized and Giant, along with smaller bike brands. “One of the reasons we don’t sell Trek anymore is we’re resistant of them telling us how to operate our business and what level to sell. We’ve had to battle with Specialized on a couple of occasions, but because of our location, there’s only room for one representative of one of the major brands. So they can’t pit us against each other,” he added. His store is in Greensboro, North Carolina.

For years, Trek and Specialized, like many other suppliers, have leveraged incentives such as freight discounts, volume rebates, better pricing or dating terms in exchange for selling their products exclusively.

At its annual dealer event this year, Trek told dealers it was increasing its P&A requirement as a percentage of total bike purchases to 23 percent. Meeting the amount to receive the incentive is not mandatory for retailers to remain Trek dealers, but those who meet it realize some great benefits, said Eric Bjorling, who handles media relations for Trek.

Brown said Specialized has offered a similar P&A incentive program for years.

Meeting the new Trek P&A requirement was not a big deal for Gene Hodges, president of Treads Bicycle Outfitters. He said that’s typically less than what his store buys.

“Every vendor has some kind of bottom line,” said Hodges, whose main lines are Trek and Cannondale at his three Colorado stores. “It makes sense even though, depending on the dealer, it might be tough. I don’t consider that a problem. When they come in and say, ‘You can’t sell this and you can’t sell that,’ I’m just like, ‘Go away. It’s my business.’ ”

Hodges came to that crossroads in 2008 when he dropped Specialized after carrying the brand since the mid-’80s. “Stores that want to carry a variety of brands, that’s where the battle is,” he said.

And as both Trek and Specialized look to grow their market share, more and more shops have aligned themselves with one or the other brand. The few remaining dealers that carry both say it’s a tricky balance.

“We have to be creative in how we manage our partnerships,” said Hill Abell, owner of Bicycle Sport Shop in Austin, Texas. Trek and Specialized are the main brands at his three Texas shops. Abell said that two years ago his store picked up Cervélo, but in order to bring the brand in he had to convince Specialized that it was going to legitimize his shop as the go-to source for triathlon bikes and parts.

Abell said that because of his dealer agreement with Specialized, the company has to approve of any new brand he picks up.

While Abell admits it’s a struggle sometimes to keep his main suppliers happy, he believes that ultimately it’s good for his business. “It gets us to focus on a few key lines. So many retailers try to be all things to all people. They carry six major bike lines. No one does well under those conditions,” he said.

In the case of Giro shoes, however, Bell Sports contends that Specialized has leveraged its market strength with dealers in a way that’s no longer competitive.

“A line has been crossed,” said Greg Shapleigh, senior vice president of Giro and Easton Cycling. “They’ve stopped simply providing financial incentives for retailers who support their brand and their business to telling them what they can and can’t buy even if they’ve met the obligations of the agreement they signed with Specialized initially. That’s fundamentally different from incentive-based programs that all of us big companies have.”

As of press time, no ruling had been reached on the case and the next court date was scheduled for Nov. 14.

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