￼Inside a nondescript warehouse perched on a hill outside Koblenz, Germany, an alarm beeps and green lights flash every few minutes. A line of bicycle frames hanging from a conveyor belt jolts forward with each buzz. Frames move down the assembly line, stopping at workstations along the way, where workers install cranks, shifters, cables, and other components. Each time the green lights flick on the conveyor sends the frames ahead. Station by station, frames are transformed into bikes, and then packed into boxes, loaded onto trucks, and sent out across Europe.
This warehouse is the home of Canyon Bicycles, one of Europe’s fastest growing bike companies. The brand has become synonymous with its innovative consumer-direct sales model, in which bikes are purchased online and shipped directly to customers. The model has proven to be successful across the globe, in part because retail prices are sometimes 25-30 percent less than those of equivalent bikes sold in retail shops.
After several years of false starts, Canyon finally crossed the Atlantic and began delivering bikes in the U.S. in August, with big plans to take a bite out of the $6 billion U.S. bike market.
It also arrived with plenty of controversy. Canyon’s business model cuts independent bike shops out of the bike buying process and, as such, will take dollars out of the pockets of U.S. shops.
It’s a controversy that extends beyond the bike industry — support local businesses or pay less online — reflecting an evolving economy, industry, and mode of commerce generally. Canyon’s executives believe it is an inevitable seismic shift for the industry.
“This is what has to come. If Canyon does not do it, it will be someone else,” Canyon owner and CEO Roman Arnold says. “It is just the right time and it is what the customer is asking for. The whole industry is changing. We are not the enemy of the industry.”
Canyon says its sales model is better for the consumer in the long run. The price tag is smaller, and the bike buying process is streamlined, the company’s executives say. Why fight the future?
Bike shop owners are not so sure.
“Canyon coming to the U.S. put a bit of fear in dealers’ minds and in the brands’ minds,” says Nelson Gutierrez, owner of Strictly Bicycles in Fort Lee, New Jersey. “Shops are thinking about what they’d have to do to combat or confront the consumer to create a better experience so they don’t buy online.”
Of course, Canyon has already driven change through the bike industry. It’s success overseas convinced some U.S. manufacturers, including Trek and Giant, to launch modified consumer-direct models in recent years. Now, the brand’s aggressive U.S. plans could create tensions between other brands, bike shops, and customers.
So, how will the bike industry work itself out? And who will be the winners and losers?
ROMAN ARNOLD LACKS THE power suit and haughty corporate speak that one might expect from the chief executive of a global cycling brand. Sitting in Canyon headquarters, the German wears a plain long-sleeve shirt with athletic pants and sneakers. He sits low in his office chair and sips a cup of tea.
“We really like cycling and we want people to have fun on the bike,” he says. “But we also want to bring new people into the sport and say, ‘Have a look, this is a cool thing you have to do.’ We want to give the rider the tools to do what he wants to do. It doesn’t matter what rider it is. We want to deliver the right bike and the right experience.”
Arnold recounts memories of racing as a teenager and young adult and how that led to a family bike business. Arnold and his father traveled to races across Europe, hauling a large metal trailer behind them. As the young Arnold raced, his father sold bike parts out of the trailer.
After retiring from racing, Arnold and his brother Franc transformed this mobile bike part business into a bike shop that quickly grew into one of the biggest Trek and Specialized dealers in Germany. The company later shifted from supplier to manufacturer of bicycle frames in the mid-1990s, laying the groundwork for the Canyon Bicycles of today.
From the start, Arnold embraced the consumer-direct model via the Internet. As Canyon grew with the online sales platform, so too did the resistance against Canyon from bike shops and dealers across Europe.
Arnold recalls one particularly frustrating struggle with Canyon’s initial expansion into France.
“There was a decree from the president [of France] that said if you want to sell a bike in France, it has to have pedals attached,” he says. The new rule blocked the sales of Canyon bikes in France since their bikes could not be packed with the pedals attached when shipped directly to consumers. It was a devastating blow to the growing company.
Canyon fought back, spending over €100,000 to reverse the order. Arnold says he later found out that the French bike dealer’s organization was behind the issue, and was trying to insulate itself from this new threat against bike shop sales.
“We had a lot of pushback in the beginning,” Arnold says. “We had to believe that what we were doing was right.”
CONSUMER-DIRECT SALES ARE nothing new to the U.S. bicycle market. Large online retailers such as Competitive Cyclist and Backcountry.com offer a huge assortment of bike components, equipment, clothing, and nutrition at low prices, a function of each company’s bulk purchasing powers. Smaller regional brands such as Franco Bicycles, Fezzari Bikes, and VeloVie also sell imported Asian frames to U.S. consumers over the web.
“The consumer-direct market has been a thorn in the brick-and-mortar retailer’s side for a long time,” Gutierrez says. Losing customers to online sales has been a factor in the steady decline in the number of independent bike shops in the U.S. According to the National Bicycle Dealer’s Association, the number has dropped over 13 percent since 2010, with an estimated 3,700 shops still operational.
There are other factors at play in this drop, of course, from the sale of bikes in big box stores to the growth of the second-hand market. Canyon executives say the statistics prove that consumers crave the service that they provide.“The industry has to leave their comfort zone,” Canyon global communication manager Thorsten Lewandowski says. “We are taking a look at what the customer really needs and not what the industry needs.”
“The industry has to leave their comfort zone,” Canyon global communication manager Thorsten Lewandowski says. “We are taking a look at what the customer really needs and not what the industry needs.”
The debate over what’s best for the consumer is intense, complex, and has compelling arguments from both sides. There are three major factors at play within the discussion: price, purchasing process, and the sustainability of the bike shop model.
Canyon’s sales model does lower prices by cutting bike shops out of the buying process. Retailers often sell an item at a 60-100 percent markup from the price they paid a manufacturer. For example, Canyon’s Aeroad CF SLX Disc 9.0 LTD bike with SRAM eTap retails at $7,500, while a comparable aero bike and build by a competitor retails at $11,500.
Of course, price isn’t the only factor in a bike purchase. Retailers argue that a shop’s follow-up service can tip the scales in their favor. Jason Fenton, owner of Halter’s Cycles in Skillman, New Jersey, says his store takes customers through a thorough bike-buying process that includes correct sizing, a bike fit, and follow-up service after the purchase.
“I think that buying a bicycle is a highly personal experience,” Fenton says. “From front to end, we find that our prices are competitive, if not better, and we give a hands-on experience that they can’t get online.”
Canyon believes it offers a better purchasing process. The age-old reputation of the grumpy bike shop employee has made its way into the mainstream, driving customers online, Canyon representatives say. Of course, that’s not the only reason why customers flock online. All industries have seen the shift. According to the U.S. Census Bureau, e-commerce sales account for approximately nine percent of all retail sales in the U.S., amounting to over $400 billion in the last year.
It’s hard to argue with the ease of clicking a button from the comfort of your home, especially when you know exactly what product you want.
Lewandowski also argues that shops can complicate this process. “Bike shops can influence the customer’s decision based on what they have available or what they may need to still sell that season,” he says. “Even if the customer knows the exact bike they want, a bike shop could try and change their mind.”
Fenton, on the other hand, believes bike shops can offer a better purchasing experience, especially for novice customers. “Lots of people buy mountain bikes online that aren’t applicable to the area that they ride,” he says. Shops provide local advice on the trails, the roads, and the terrain nearby, and what bikes or products are best suited for the area.
“People are like, ‘Great, I got a good deal and saved a couple hundred bucks or a thousand maybe,’ but their only point of contact is someone who is on the phone or on the Internet,” Fenton says.
Whether or not the traditional bike shop model is sustainable in the long run is open to debate. Canyon employees believe their model actually helps bike shops. The traditional business model between manufacturers and bike shops has created endless headaches, they say.
Inventory requirements put a strain on small businesses. A slow season or an inaccurate estimate of the number of bikes to have in stock can lead to financial anxiety, leading to the sale of last season’s bikes at a discount at little to no profit (or sometimes at a loss). When the new season’s line of bikes rolls in, the cycle continues.
Arnold says that Canyon removes all of these tensions by letting bike shops do what they do best: service.
“This will be a great chance for the bike dealer, by providing service,” he says. “He is so close to you. It’s a big chance for the dealer to service these bikes that are bought online. Canyon will bring new customers to the dealers.”
VeloNews spoke with multiple independent bicycle dealers, and the majority agreed that service holds the key to the survival of shops, with or without Canyon.
“We view it as an opportunity to essentially try to win that person back over as a customer, and hopefully get sales from them in the future,” says Brian Zeck, of River City Bicycles in Portland, Oregon.
How many shops will remain open based on service profits alone remains to be seen. The sale of bicycles still accounts for a sizable percentage of revenue. The industry has already begun to see a shift toward a service focus, with the rise of mobile bike shops such as VeloFix, Beeline Bikes, and others.
“The bike shop has so much value in terms of service,” says Matt Heitmann, Canyon’s chief marketing officer. “This is what they will always do better than we can do as a website.”
A LARGE WORKSHOP BUILT into Canyon’s consumer-facing headquarters in downtown Koblenz is lined with bikes, mostly Canyons, waiting to be serviced. The bikes have come from Germany, the U.K., and across Europe. They’ll soon come from the U.S. as well. They are bikes that shops have refused to work on because they were purchased online. It’s one of Canyon’s biggest growing pains, and the company is uneasily waiting to see if it’ll happen in the new U.S. market as well.
“Everywhere you go, you wear this scarlet letter,” Fenton says about bike customers who go the consumer-direct route. “You’ll be shunned by bike shops… We’ve seen it in the past.”
While Fenton says his shop will work on any bike that comes through the door, the service might differ between types of customers. He says his shop would not give lesser service, but it’s possible that customers who buy bikes through his shop would get preferential treatment, faster service, or more inclusive service.
Most of the shops we spoke with agreed that a flat-out refusal to service Canyon bikes is counterproductive, a missed opportunity.
“It’s very short-sighted,” Gutierrez says. “Shops should service anybody’s bike. You should never say no. You could win that customer over, and maybe their second bike purchase isn’t going to be a Canyon, it’s going to be a bike that you stock.”
Other shop owners wholeheartedly agreed that the U.S. market would likely be more open to servicing Canyon bikes. “I don’t see that flying in the U.S.,” says Jason Woznick of Fairwheel Cycles in Tucson, Arizona. “It’s just not the way things are done here. I know there are a few shops that refuse to work on department store bikes, but I think there are enough shops, it’s competitive enough, and shops are struggling enough that they’ll work on almost anything.”
Shops are rethinking how to connect with customers and how to put themselves back on the map in this new type of bike economy. Gutierrez believes shops should focus on creating a community, rather than relying on the old way of selling.
“Retailers shouldn’t be scared,” Gutierrez says. “Make it more of a communal experience and they’ll see a return on investment.”
For some shops, highlighting its services is nothing new; Canyon’s entry into the U.S. simply reiterates the importance of this component of the retail experience. Zeck, for one, encourages his staff to focus on the basics of customer service. By doing that, he’s seen success in competing with online retailers that have been in the U.S. market for years.
Canyon’s arrival in the U.S. is driving change in the industry — with a sales model that isn’t entirely new. Consumer-direct sales likely will not kill the independent bike dealer, so long as shop owners are willing to adapt.
“It’s a normal evolution,” Arnold says. “Industries develop. There will be room for everyone if we all work hard and try to adapt to the customers’ needs.”