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Big Three brands duke it out with March discounts

Published February 25, 2016
Specialized's sale goes live on Tuesday.
Giant and Trek say Specialized's high inventory is driving the discounts, but Specialized says it's business as usual.

LONGMONT, Colo. (BRAIN) — Three of the largest U.S. bike brands are offering deep discounts on bikes next month, possibly a response to high supplier inventory levels coming out of the winter, although all three brands say their inventory levels are just fine.

In BRAIN's February 1 issue, Matt Wiebe reported that suppliers were holding nearly a quarter million more bikes in inventory at the end of 2015, compared to the end of 2014 — a 44 percent increase.

While spring sales are an industry tradition, the offerings this year appear to be deeper and wider than usual, and come a bit earlier in the season.

Specialized's three-week Spring Savings promotion launches at retail March 1 and will include ads on social media, cycling websites and even billboards in some areas. The company is providing dealers with an array of in-store POP displays and artwork.

Specialized's promotion involves about 45 bike models and gear including helmets, shoes and wheels. Bike retail prices are discounted 9 to 23 percent off MSRP, with discounts at retail from $150 to $801.

"Specialized has a firm handle on our inventory position" — Bill Schouman

Specialized opened its discounted wholesale buy-in window Feb. 15. Dealers who buy-in before Feb. 29 receive an additional 2 percent margin during the promotion on the newly purchased inventory. Dealers who use existing inventory during the sale can get a rebate at the end of the promotion that the company said would protect the retailer's minimum margin. Specialized is not offering a rebate on discounted P&A, but said dealers could preserve their margins by replacing their P&A inventory sold during the promotion with new items at the discounted wholesale prices.

Bill Schouman, Specialized's director of market development for the U.S., told BRAIN the promotion was not the result of high inventory.

"Specialized has held some type of spring retail sales event utilizing various themes over roughly the past decade. This has been less about inventory levels and more about boosting sales during the historically somewhat slow month of March," he said.

But Trek sent a letter to dealers on Feb. 18 announcing that it was offering discounts so its dealers can compete with Specialized next month. In the letter, Trek's Paul Moran cited data from The NPD Group he said showed that Specialized's offseason inventory was 37 percent higher than Trek's.

"We work very hard to manage and forecast our inventory well, so that Trek and Trek retailers can be in a healthy position for the season. We are in that position now, but we must recognize the reality that other companies are not," wrote Moran, Trek's director of North American sales.

Trek's promotion involves 38 bike models, discounted from $50 to $500 dollars at retail. The company also is offering dealer rebates to preserve margins at the promotional MSRPs.

Giant also has announced wholesale discounts and special dealer terms on some bikes and gear for the month of March. In a dealer memo earlier this week, the company's U.S. general manager, JT Thompson, said Giant's inventory is in good shape. But he said Giant's two main competitors are "massively over-inventoried on bicycles and gear."

Damaging to the industry?

"While our bicycle inventory is in very good condition, we will not leave you (or the Giant, Liv and Momentum brands) on the sidelines," Thompson wrote.

Thompson said Giant would not lower its advertised retail pricing on its website or in ads, allowing dealers to choose whether they want to discount the bikes and P&A at retail.

In a letter to Giant retailers, Thompson said the discounts by Specialized and Trek are "extremely damaging to the industry."

"What these two major players are about to do is devalue the inventory of their retailers. These brands will make major pushes in the coming days – advertisements, direct emails, social media, billboards – telling consumers about the big savings that can be had by buying in March. These brand's retailers – who are already stocked to the rafters because they've been pushed into high pre-season orders – are going to be forced to buy more and sell it for less."

Specialized's Schouman said he was aware of the charges being made by Giant and Trek, but reiterated that its promotion would be good for dealers and riders.

"Specialized has a firm handle on our inventory position," he said. "We go to great lengths to make sure we have the right bikes in the right quantities to support our retailers through the selling season. As always, we know we will be heavy in select models as the year plays out at retail.  We are aware of some competitors' comments in the last week in regards to our Spring Savings promotion.  While we appreciate their concern, they don’t have access to our purchasing strategy for MY16.  We prefer to remain focused on our business and how we can improve being a better supplier for our retailers and ultimately the riders."

A variety of factors point to lower bike prices for the 2017 model year — including the collapse of the Chinese economy, which decimated its once-promising domestic consumer market for higher end bikes, but opened up bike production capacity for other markets. Lower fuel costs cut material and shipping costs for bike and parts makers, and currency exchange rates are trending favorably for the U.S. and Europe. Shimano’s recent wholesale and retail price cuts on aftermarket parts may reflect some of those factors, although Shimano pushed discounts out to OEM bike makers late last year.

Schouman said those factors are not driving the discounts on 2016 model year bikes, however.  

“Our prices for MY16 were locked in well before the start of the model year. Any recent developments have had nominal effect on our inventory carrying costs,” he said.

UPDATE, Feb. 26: Cannondale told dealers on Friday that it was launching a similar promotion.

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