Wheels of change in bicycle retailing - large bicycle chain stores enter the industry; includes related article on domestic manufacturers of bicycle parts - Enterprise - Industry Overview

Nation's Business, Feb, 1996 by Michael Barrier

Small retailers are a major force in the bicycle business, accounting for more than half of the $3.5 billion in annual sales. But competition from discount stores and mass retailers is forcing many independent dealers to rethink the way they do business.

Around 6,600 specialty bicycle dealers-most of them very small businesses-handle most of the higher-quality bicycles, those carrying price tags into the thousands of dollars.

Discount stores and other mass merchants sell far more units but at much lower prices.

Although most bicycle dealerships-about 85 percent, according to the National Bicycle Dealers Association (NBDA)-are still single-location operations, the retail bicycle industry is flirting with its own version of the dramatic changes that have occurred in many other retail industries in recent years.

In industry after industry where small, specialized, single-location stores were long the norm-think of office supplies, toys, personal computers, consumer electronics, books-large, well-capitalized retail tail chains have seized command.

Nothing comparable has yet happened in bicycle retailing; the largest chain, Performance, Inc., based in Chapel Hill, N.C., began in 1982 as a mail-order dealer and now has only 33 retail stores in addition to its catalog operation. But Performance hopes to grow into a national presence.

"We've been described by some of the financial community as a `category killer,'" says Performance's founder and chief executive, Garry Snook. The term category killer refers to the designation given to companies such as Toys R Us and Home Depot, which have become dominant in their retail categories. "But because we're in a niche," Snook says, "we're a category killer in a 5,000-square-foot box, unlike a Home Depot in their huge boxes."

His average store's sales "are probably about three times what the average bike retailer's sales are," Snook says. (According to the NBDA, that average retailer has sales of around 360,000 a year.) He envisions having at least 200 stores eventually.

A chain like Performance, whose merchandising is generally similar to that of other successful chains, blurs what has been a sharp distinction between mass-merchant sellers of inexpensive bicycles and specialty bicycle retailers.

The most critical difference between the mass merchant and the specialty bicycle shop is not price but service-before the sale, when the small retailer assembles the bike, and after the sale, in repairing and maintaining the bike. Typically, only the specialty retailers are set up to provide the necessary service for the more-expensive bikes.

If anything has held back the growth of chains like Snook's until now, he believes, it is this technical, complex side of bicycle retailing, which has been translated, at many small, independent shops, into an atmosphere that is intimidating to newcomers to bicycling-and even to some experienced riders.

Some specialty-shop owners are so acutely aware of this problem that they have tried to assure customers that they won't be talked down to.

Creag Hayes, owner of the two Ciclo Sport Shops (ciclo is Italian for bicycle) in Portland, Ore., has advertised as "The Simple Talk Bike Shop," for instance-even though Portland, rated recently by Bicycling magazine as the most bicycle-friendly city in the U.S., probably has a much higher percentage of bike-knowledgeable residents than other cities.

Says Garry Snook: "Our industry historically has attracted a lot of aficionados of the sport, and not people who love business." What is happening now is that Snook and a few other people are opening stores that try to combine technical expertise with the more customer-friendly atmosphere that mass merchants have encouraged consumers to expect.

One manufacturer has tried in its own way to bridge the gap between the two kinds of stores. In 1995, Specialized Bicycle Components, an established Morgan Hill, Calif., manufacturer of high-quality bicycles, introduced a second brand, Full Force, for sale through mass merchants and general sporting-goods stores.

"We realized that there are a lot of people who never, ever go to a bike shop who are shopping in this alternative channel," says Christopher Murphy, director of marketing for Specialized. By creating a new line under a separate name, he says, Specialized has been able to reach that market without damaging its

Once a customer has bought a Full Force bike, Murphy says, Specialized tries to pull that person into the specialty shops. It has set up a Full Force service network composed of several hundred Specialized dealers that will service the Full Force bikes (an 800 number for the network is on the bikes).

Jim Bellas, president and co-founder of the Bicycle Exchange, Inc., a 17-year-old, Alexandria, Va.-based firm with 10 stores, doesn't buy the whole idea that specialty shops should cede the market for low-priced bikes to the mass merchants. He says that bicycle shops should be selling bikes as inexpensive as those the mass merchants offer - unless, he adds, they ifs better for a customer to buy a bicycle at a big retail store rather than at their shop. "It isn't," he maintains.