The direct-to-consumer move has industry experts and couch pundits alike tossing out everything from valid concerns (that life will now become harder for independent bike shops) to catastrophic accusations that Specialized is singlehandedly corrupting the bike industry. (It’s not that simple. It never is.)
Specialized’s decision to sell directly to consumers is another move in a series of interconnected bike industry happenings: a proxy turf war in which Specialized, Trek, and other players such Pon Holdings try to establish themselves geographically with strategic retail shop purchases; Specialized entering its next phase of life marked by a new CEO after 48 years led by Mike Sinyard; and the Covid bike boom and resulting parts shortages as a backdrop to all of that, adding record-high levels of cash flow but even higher levels of uncertainty and stress to the bike industry.
The concerns are obviously grounded: one of the largest bike brands on the planet selling directly to consumers may leave retailers high and dry. In a time when bikes are in short supply, too, having Specialized increase its online sales makes stocking bikes even tougher than it already is, since an allotment of Specialized bikes is now being held for online sales only.
I wanted to hear some opinions directly from those affected, so I reached out to a scattering of Specialized dealers all across the US. For obvious reasons, the shop employees who are unhappy about the shift requested anonymity, but below are a selection of their comments.
Trust was a common thread among the responses. More than one dealer said it felt as if the rug was pulled from under them – that they’d counted on Specialized to continue being a substantial part of their sales, and the shift in Specialized’s business model made them very, very nervous. They don’t feel as if they were considered in the move or given enough heads up to plan for a change in their Specialized sales (though, to be fair, there have been numerous changes in sales all across the bike industry without anyone’s knowledge or consent in the last two years).
One shop said that to sidestep the awkwardness of having bikes become available online before they become available to shops, the shop recommends that its customers sign up to be notified when Specialized stock becomes available online because the shop itself can’t get them. At least then, if a customer finds the bike they want online, they can order it for click-and-collect at the shop. Another shop owner said they believe some retailers are buying bikes online from Specialized to fulfill customer orders because it’s better than keeping their customers waiting for months while their bikes appear available online. It’s embarrassing, a shop representative told me, to have customers come into the shop looking to purchase a bike they saw available online and have no means of getting it into the shop anytime soon.
Everyone I spoke with said it’s too soon to know how Specialized’s direct sales will affect the brick-and-mortar dealers.
Still, some shops that had strong relationships with Specialized prior to the move have maintained their positive relationships. Kyle McKendree, General Manager of Absolute Bikes in Flagstaff, AZ, said that the direct-to-consumer shift will be tougher for small shops than for large ones to weather. “In our industry, it seems the bigger you are, the easier it has been to adapt to supply issues and the changing demands of suppliers,” he explained. “With Specialized having different dealer tiers, large dealers like us have benefited while my friend’s smaller store has had to get really creative to survive. Different markets are also going to be affected differently.”
For small shops, losing access to an amount of product could be devastating, though, interestingly, Ian Hughes of Vielo voiced an almost opposite take in a chat with CyclingIndustry.News. The bottom line is that we don’t really know how this will play out.
For all shops, small and large, the change represents the evolving role of bike shops in general. The employees at Absolute Bikes, which has a shop in not only Flagstaff but in the ultra-touristy Sedona, are used to helping customers they’ve never met and with whom they have no existing relationship. As sales shift online, increasing numbers of customers will rely on shops only when they need hands-on service, and shops will have to adapt to that new normal.
“It adds another level of complexity as we are expected to take care of every Specialized customer. Having shops in destination locations means this is not new to us. We are constantly helping customers that we have never met before. Sometimes it’s easier and other times it’s not,” McKendree said. “But when we can make or break a customer’s vacation we try our best to help. It will be no different with D2C customers. If we give them exceptional service it will grow our business one way or another.”
It’s tough to boil the complex problem down enough to say which sales channels are best for consumers, but some valuable pieces of that problem include availability of bikes (where direct-to-consumer sales shine thanks to geographic flexibility), access to service (yet another reason we need bike shops to stay around), price (self-explanatory – things will typically be less expensive online), and the overall experience of paying for bike-related goods and services (as some riders love to visit their shop friends while others may avoid the bike shop scene at all costs.) In some cases, the benefits for companies like Specialized of direct-to-consumer sales will be passed on to the consumers in the forms of stock availability and pricing, largely because the direct sales channels grant companies more accurate forecasting data and the ability to invest more specifically in what their customers will actually want.
Another reason it may be – no, definitely is – strategic for Specialized to go direct-to-consumer is the increasing scarcity of brick-and-mortar shops through which a bike brand can sell. Securing a business relationship with a shop isn’t as simple as sending an email, becoming buddies, and selling some bikes, especially considering how much competition is out there among bike brands for retail dominance. It’s a cutthroat world, baby. But actually. Selling online, directly to consumers, sidesteps the geographic dominance issues and creates an alternate channel to the retailer buyout battle.
Rick Vosper, in an analysis piece on our sister site Bicycle Retailer, explained the situation as such:
And while many retailers are rolling with the punches and sticking with Specialized, there have already been some notable instances of retailers cutting ties with the company – and some examples of it happening the other way around, with Specialized deciding to part ways with former shops.
Alpha Bikes, a major German retailer that has operated a Specialized Concept Store since 2008, recently announced that it will switch to selling Giant products this July, spurred by Specialized’s direct-to-consumer change.
Another case study of an interesting Specialized situation happened last fall with Mike’s Bikes, a Northern Californian behemoth bike retail chain that was definitively one of the top 10 independent bike dealers in the US.
However, Mike’s Bikes sold to Pon Holdings, the Dutch parent company of numerous bike, mobility, and auto brands including Santa Cruz, Cervelo, and – as of last October’s $810 million deal – the Dorel Group, which owns Cannondale, GT, Schwinn, and much more. Though it’s hard to know where to draw the boundaries around these company conglomerates, Pon may well be the largest bike group in the world, beyond even the scale of Specialized and Trek. Here’s where the story becomes a little chaotic. In response to the Mike’s Bikes sale, Specialized pulled its brand from Mike’s Bikes stores, slashing its San Francisco Bay Area S-Works dealers by a full third. In an email sent to inform its customers of the change, Mike’s Bikes wrote of Specialized, “They later notified us that they would also be canceling the orders of over 400 customers who had bought and paid for their bikes in advance. They further informed us that as of October 31, they will no longer provide manufacturer warranty support through Mike’s Bikes for the many thousands of Specialized bikes that we’ve sold.”
Meanwhile, Pon said in a statement, “The acquisition of Mike’s Bikes aligns with Pon’s strategy to expand its retail operations in North America by acquiring premier specialty retail brands in top markets,” which seems like quite the acknowledgment of the geographic competition with Specialized and Trek. (It’s also rumored, but unconfirmed, that Specialized tried to buy Mike’s Bikes and was turned down.)
For a bit of context, Pon deals largely in the automotive industry and can claim more than 20% of the Dutch personal vehicle market share, according to its website, and has long been a leading importer and exporter of vehicles including Volkswagen and Audi. In 2017, Pon bought a chain of 10 luxury car dealerships in the US that sell – you guessed it – Volkswagen and Audi, among other brands. History repeats itself once in a while, and if we’re to learn to read the patterns, it wouldn’t be a surprise to see Pon strategically buying out retail shops and, eventually, crowding out the other brands those shops carry as it instead encourages them to focus on Cannondale and Santa Cruz. Which brings us back to Mike’s Bikes.
Soon after the split from Specialized, Mike’s Bikes reached an agreement with Giant that it would carry Giant bikes going forward. But with Pon having acquired the Mike’s Bikes and Dorel Sports (Cannondale et al.), Giant, in Vosper’s words, should be “very, very nervous.” And Specialized has definitely lost some ground.
Even if nothing happens to sour the business relationship between Specialized and a given shop, the battle for shop space and the ebb and flow of all the confounding variables mean that there’s lots of flux, and nothing seems particularly secure.
One example of such business shifts is in the case of the shop formerly known as Roseville Cyclery, now Mike’s Bikes of Roseville. Until this winter, Roseville Cyclery was a leading click-and-collect seller for Specialized in Northern California. The shop always had a positive relationship with Specialized that began when shop owner Oliver Bell bought his first mountain bike, a Specialized Hardrock, in 1987. “I’ve been a huge proponent of the brand for as long as I can remember,” Bell said. He and his wife opened their shop in 2013 and thrived by carrying predominantly Specialized and Santa Cruz. Then, the pandemic hit. Although by many counts his shop flourished – business rose 86% from 2019 to 2020 – the constant stress of managing unprecedented demand became overwhelming and exhausting, and he began to consider selling the shop last summer.
He sold it to Mike’s Bikes, which he said gives the shop access to more inventory and stronger infrastructure than ever before. “We’re going to be the same but better,” he said.
However, the shop’s business relationship with Specialized – which had nothing to do with the sale – was caught in the crossfire, and as soon as Bell notified Specialized of the sale, Specialized removed itself from the shop. It’s only business, but still a loss, arguably, for all parties.
On a somewhat related note, Specialized recently bought an office building in Auburn, CA, roughly a 20-minute drive from Mikes’s Bikes of Roseville. It appears likely that there’s a new Specialized branded store on the way.
Situations like the Mike’s Bikes story – business relationships ending not only because of the bike shop turf war but because of widespread and omnipresent upheaval throughout the bike industry thanks to the pandemic and its influx of new riders – plus the intense growth of direct-sales brands like Canyon, which plans on even more growth if we’re to judge from the fact that Canyon recently brought on a former Nike executive as its new CEO, have meant that the writing’s been on the wall about Specialized changing its sales model, some say. Throw in massive supply chain disruption and pressure to keep prices competitive with direct-sales brands… Specialized is a corporation, and god forbid, its singular reason for existence is to sell bikes. It’s doing what it takes to sell those bikes.
“Not a single manufacturer has been handling the supply and demand problems the same,” McKendree said. “So at the IBD level we have had to adapt to each one of them. It’s easier with some than others, but all are challenging. So it makes sense that Specialized wants to be able to control how they get product to the consumer. This ensures that at least part of their business will continue under their control. Being diversified in any business venture makes sense.”
Still, we’re unlikely to see many (or any) of the other establishment brands follow suit, at least right now.
Right after Specialized announced that it would start selling directly to consumers, Giant took a very different approach: the Giant Group USA sent a pointed email to its retailers, according to CyclingIndustry.News, that opened with a statement of the importance of local bike shops and strongly denounced Specialized’s decision.
“We believe strongly that no one understands a local cycling community more so than your local independent bicycle retailer,” the email reads, before skewering direct-to-consumer brands as never having had their customers’ backs and emphasizing that the customer service experiences and bike shop relationships will fall by the wayside for brands that go direct-to-consumer.
In response, along with possibly prioritizing brands like Giant that have pledged to stick with the retail model, we’ll likely see retailers shift their focus onto their offerings that cannot be found online: namely, service. The role of bike shops is evolving, and the relationships between bike shops and customers will increasingly rely on mechanical work, trail advice, and community support – in fact, the same things that the Big S critics say Specialized is killing. The key is what Bell calls “de-Amazoning,” or offering an in-store experience that far surpasses anything customers will find online.
I’m just speculating here, but with the increasing prevalence of e-bikes and with mechanical service representing a proportionally larger part of what shops do, labor prices may rise. After all, car mechanics are paid at least double what bike mechanics make, even though the jobs aren’t all that different. If we claim to value brick-and-mortar shops enough to spark this much outrage at Specialized going direct-to-consumer, maybe we should spare some money for where our mouths are and pay bike shop employees as we would pay any other luxury vehicle expert.
Perhaps paying bike mechanics real currency would serve them better than our paying lip service to our principles.