In 2019, I introduced the concept of three “ages” of the post-WWII specialty bicycle supply chain in the United States, resulting in what I called Bike 3.0. You can read the original article from the time, but here is the TL, DR version:

Bike 1.0circa 1950 – 1975, when the specialty retail market was dominated by a single brand, Schwinn, creating an era of relative stability at both supplier and retailer levels.

Bike 2.0, spanning from the end of the bicycle boom and the introduction of mountain biking through the late 1990s and early 2000s. Looking back, I would define the beginning of this period more narrowly with the defeat of Schwinn before the Supreme Court in his decade-long antitrust battle in 1967. This corresponds to the rise of today’s selective distribution model, particularly characterized by the now ubiquitous authorized dealer. Deal. More importantly, this period was governed by the phenomenon of perfect competition, where no single brand or brand accumulated enough market share or competitive advantage to take control of the market.

Bike 3.0, beginning around the turn of the current millennium. The current era features a few dominant players, a group of four companies – Trek, Specialized, Giant and the new Pon brands (Cannondale, Santa Cruz, Cervélo et al) – which I have labeled The Quadrumvirate. Part of the Quadrumvirate’s strategy behind Bike 3.0 has been to control the major retailers in each market by tying them as closely as possible to a single brand, excluding those dealers’ competing brands.

Failure of the 3.0 model

Theory 3.0 also predicts a decrease in the number of traditional retailers, a contraction and consolidation of the supplier segment, and is encouraged by the rise of Internet commerce, which affects all segments. But with the exception of e-commerce, none of that happened. The number of dealers has remained remarkably stable, as has the number of competing bicycle brands.

One of the dealers’ strategies to maintain their independence has been to add one or more additional Quadrumvirate brands to their product line. In 2020, nearly thirty percent of Quadrumvirate dealerships sold at least two of the top four brands.

I’ve also written about how the Bike 3.0 model failed to overcome the forces of perfect competition, which would involve giving a few large companies enough market share to control prices at scale. of the channel by placing their products at a significant premium. This lack of channel control has been accentuated by the rise of low-cost, consumer-oriented brands operating outside the traditional specialty retail channel. These include a slew of emerging D2C competitors in the e-bike segment and Canyon and others in the electric and pedal-only segments.

A final failed aspect of the Bike 3.0 model was the brands’ relative inability to control their competitors’ presence at major retailers. Especially in larger and more financially successful stores, a dealer strategy to maintain independence has been to add one or more additional Quadrumvirate brands to their product line. In 2020, nearly thirty percent of Quadrumvirate dealerships sold at least two of the top four brands, according to Georger Data Services.

Vertical integration: D2C + retail acquisition = Bike 4.0?

The rise of two practices over the past seven years is giving bike brands ever greater control of the retail channel.

The first of these is the establishment of direct-to-consumer sales by suppliers, either with the ability to bypass the reseller entirely, as Specialized recently announced, or using the reseller as a fulfillment mechanism (“ Click and Collect” or C&C), as Trek pioneered in 2015 and has since been adopted by the rest of the Quadrumvirate, and a number of other brands besides. To learn more about C&C, click here.

The emerging Bike 4.0 model is one where the dominant players are billion-dollar-plus companies that partially integrate the supply chain through a combination of (2) D2C sales strategies and (3) buying retail bicycle stores in strategic markets.

Either way, the bike brand makes the sale and pockets the consumer’s money. Whether the supplier shares part of the profits with a retailer is out of the question: in all cases, these are literally direct-to-consumer sales.

By bypassing the retailer via D2C or C&C, suppliers partially integrate the vertical market, removing the retailer from the transaction, dealing directly with the customer, controlling every stage of the sale and, depending on the retailer’s arrangement, putting all or part of which would have been the dealer’s profit in his own pocket.

The second integration strategy has been to co-opt the role of the concessionaire by simply buying up retail businesses, integrating the concessionaire’s revenue into the parent/supplier revenue stream. Neither company shares acquisition data, but Trek has been buying bike shops for years and now owns what’s estimated to be a few hundred outlets, while Specialized has followed suit at a rapid pace, according to industry watchers.

In August 2021, Dutch company Pon Bike Holdings purchased the chain of eleven Mike’s Bikes stores in Northern California. Two months later, Pon announced its intention to acquire the Dorel Sports Group and merge it into its own family of brands. The acquisition took place in January this year and creates a conglomerate with nearly $3 billion in global sales. It remains to be seen if Pon will continue to buy retail bike shops as part of an ongoing strategy.

Remaining Quadrumvirate player Giant has repeatedly announced its intention to stay out of retail, although it is making C&C sales. As Giant President John “JT” Thompson told me in an email exchange in March: “We’re not in the retail ownership game, period! … We’ve determined that our best path to the consumer is through competent and energetic retailers (LBS).

All of the above suggests that a general definition of the emerging bicycle 4.0 model is one where the dominant players are billion-dollar-plus companies that partially integrate the supply chain through a combination of sales strategies. D2C and buying from retail bike shops in strategic markets.

The Bike 4.0 Challenge

If the first rule of sale is to make it easy for the customer to own your product, the 4.0 scenario succeeds. Riders can buy bikes online, at a company-owned and nominally single-brand store, or at an independent bike store with all the value-added services that come with that relationship. With the Specialized model, they can even choose the level of assembly of their new bike.

Will partial supply chain integration allow a few dominant players to control the market enough to end more than four decades of perfect competition? It really depends on how big of a role the company-owned stores are going to play in the long term and the revenue generated from the various direct-to-consumer initiatives. Regardless of Specialized’s D2C project, six years of Click & Collect hasn’t been able to advance direct-to-consumer sales. And, whether the era of bicycle 4.0 has two dominant players or three (or even four), the market will ultimately decide its success or failure. Like always.