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Fred Clements: Giant lowers prices, dealers react

Published March 31, 2014
A blog by NBDA executive director Fred Clements

Editor's note: This blog post was written by Fred Clements, executive director of the National Bicycle Dealers Association. Clements' previous blog posts can be read on bikedealerblog.wordpress.com.

Dealer reaction was swift to Giant's announcement last week of a new program to lower retail prices on 30 bike models starting March 31.

The program, dubbed "Gateway to Adventure," was described by the company as a long-term strategy to help "broaden the market and get more new consumers into our retailers' stores" according to Giant's John Thompson.

The NBDA member chat forum erupted with a fountain of comments, positive, negative and unsure. The conversation morphed into a broader conversation about the future of the specialty bicycle industry, the value of pro racing support, and the different market awareness of the "Big Three" bike brands. Names are withheld per the policies of the members-only forum.

"Big Pay Cut for Giant Dealers?" was the subject line of the first comment. The Illinois dealer described the new program as "substantially lowering their SRP on virtually all of what I would consider their 'bread and butter' bikes(including all the kids' bikes). This is being touted as something to 'broaden the market' and 'get more NEW consumers into your store.'"

The dealer did the math using a hypothetical example of an Escape 2 being sold for the price on Giant's website. At the old price of $500, the gross profit would be $230. At the new price of $420, the gross profit would be $176, a loss of $54 in gross profit for the dealer.

From Northern California: "I like the idea of bikes costing less, in general. But what Giant is trying to do is to sneak in under the radar with a tactic that works only as long as the others don't play along. Giant, by not showing an Advertised Retail on-line, will in fact appear to be cheaper than Trek or Specialized. Once Trek and/or Specialized adopt the same strategy, they no longer have a marketplace advantage, and some dealers (including me) have more issues with customers looking for bargains than we presently have."

From Houston, "I think it will take a 25-30 percent increase in units to make up for the lost margin. So you have to work 30% more to make the same money on Giant."

A positive view from California, "Still sounds good to me. I'm tired of losing sales to Marts too. If a customer was looking at various shops, saw all the bikes from G,T & S pretty expensive and then goes to a Mart, everybody loses. If Giant takes this bull by the horns and tries to prevent some of the erosion, even if it's in the name of stealing sales from S or T, it sounds good to me.

"I seriously think kids bikes are way overpriced. The players are all trying to make money on every unit they sell and missing the bigger picture, that losing on kids bikes to the Marts of the world may very well mean losing out as they get older too."

A Kansas retailer commented, "If G is serious about taking unit sales back from the mass market channel, and cut into the 7 out of 8 bike sales that the mass market retailer now gets, then it is going to take a lot more than what has been announced. It is going to take a wide range of basic accessories of reasonable quality at similarly lower pricing than offered us today, a long-view investment in marketing a 'we're for everyman-return to the IBD' message to these customers that don't read our industry rags, and a financial approach to gradual correction that allows us to build increased sales over time and still overcome the increased selling expenses of handling more customer volume. Our leases, the cost of labor, and marketing aren't going to go down with G wholesale prices and we still need to net enough margin dollars to pay those bills."

A counterpoint from Maryland, "There are fixed costs associated with the sale of each bike that lower margins and higher volume do not overcome. However, I see the opportunity to attract new customers, not just sell a lower price bike to the folks who would have already been going to buy from us. You have a choice. You don't have to stock the basic models. We do this all the time. We could bring in a low end bike from another company, but we choose not to. Lots of stores already choose not to stock bikes by T or G below a certain price level and pitch to the customer that below that level the bikes just aren't up to the high standards for products that we want to offer at our shop. I guess I can't help being an optimist."

From Pennsylvania, "... Giant wants to be #1 in the U.S. As the bicycle industry has been in a zero growth rate for awhile the only way to capture more sales is at the expense of other brands. This latest ploy is certain to capture and transfer market share to Giant short term. As a Giant dealer this could certainly be beneficial. Long term a war is brewing, buckle up."

From Illinois, "If this becomes the new normal (for all the brands) some combination of the following will have to occur IN MY SHOP (YMMV): 1. Hope that we get a lot of new customers that all buy accessories -- I don't believe this initiative will do this. 2. Change our business model from high-touch/high-service in order to lower our costs -- but then I end up offering the same level of service as the Marts (and they would win that race). 3. Drastically lower our occupancy costs by moving to a remotely located industrial park -- will I lose business due to lack of visibility? 4. Move to a warmer-weather location to increase selling season -- probably already a lot of competition there though. 5. Change our business model to serve only the higher-end adult rider -- could TRY this but now we're competing for dollars more with the Internet, from people that often feel they don't need our expertise. 6. Simply accept my huge, permanent pay cut -- this would be o.k. if I felt I really was making more money than I should have been anyway. At this point I'm kicking and screaming a bit to avoid having to choose any of the above."

From Mississippi: "I do ask myself one question: If Giant is trying to bring in the customer who leaves our store and buys at the Mart after seeing our prices, then why not just create a new lower entry level of bike to capture those customers who find our current entry level price point too high?"

A Kansas dealer summed the move up as being "Short-term. Reactive not responsive. High-density/volume-focused. Forcing or willing success to 'be' rather than earning it. These are all concepts that this industry has been riddled with and a personality trait is much harder to change than a mere opinion.

"The price list should not be trying to do the competing for us retailers. Give us some room to maneuver. Give us a way to look good to our consumers who see what the supplier suggests as the retail price than forcing us to either look bad or close our doors."

From Georgia: "I have been a Giant dealer since opening and what Giant is doing here is a true game changer. I really feel positive about this move ... this initiative has me more excited about the future of my business than anything else which has come along in a long time. The real benefit here is that with these offerings, no customer could go to Dicks and find a price gap that they could not resist."

From Wisconsin, "Remember, these bikes went down in price actually very little. The small change is not going to bring a tidal wave of customers in the store. I have been discussing this with everyone I can to try and find an upside. One thing that keeps coming up is that this is somehow going to gain us some Mart customers, but when we think about what the few customers that do come in and state they were looking for something cheaper, it isn't $30, $40, or $50 cheaper, it's hundreds!

"If we want more people riding, in my mind, it comes down to more and better places to ride. That is a long goal that's worth working for and we cannot do that by shrinking profits IMO. In my immediate neck of the woods there is some so-so mountain biking, but we have had some world class trail building going on within day trip range. All of a sudden we are starting to sell trail bikes. We always had great low traffic country road riding and road sales have always been strong. 13 years ago we were lucky enough to get a paved rail to trail right through town that immediately boosted the hybrid/fitness type rider category overnight. Before the rail trail almost all the riders in our community were fairly avid cyclists.

"Selling entry level bikes at prices that haven't changed in essentially 25 years really seems short sighted to me personally. The sad part is that it seems that we as retailers aren't really part of the decision process – 'Thank you sir may I have another!'"

A comment from Texas: "I agree that Trek dealers have paid a 'tax' by getting lower margins, the same way that Specialized dealers have taken lower margins for the Specialized marketing machine. This is where I ask is it worth having customers come into your stores that actually know about the brands of T&S for the cost to your margin, if you look at the lower margin differential as cost of advertising that you would do in your market? I cannot remember the last time someone came into my store that actually heard of Giant bicycles that was not an avid cyclist.

"It is interesting to me that the bike companies are still throwing so much money at professional cycling now that Lance is gone. Until there is another Lance it seems very futile since the only people watching it are avid cyclists. So they are marketing to the same small group of Americans and not moving the dial."

A final word from Northern California: "I've been railing about the 'Team Tax' on the IBD for some time! ... Even back in the Lance days, it was pretty evident that it was a huge boon for Trek for maybe three years, after that? A bit of saturation but mostly it became a big thing for cycling in general, not just Trek dealers, but it was Trek dealers who were paying the tax.

"It's crazy that the professional peloton is becoming increasingly-dependent upon bike companies for survival. And this from a HUGE fan of professional cycling. I think it's the most-awesome sport in the world, doping or not. But the greater the burden placed on brick & mortar brands to support pro cycling, the more difficult it will be to reduce the pricing differential between ourselves and our on-line competitors."

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