Bicycle Industry

Vertical limit | bicycle business under pressure

Accessibility used to be all that stood between a bicycle brand and a consumer. Today, it’s more complicated. Multiple business models co-exist, creating a plethora of purchasing options for consumers. It is both exciting and confronting. Every node in the supply chain, from factories to bicycle retailers, must be profitable to survive the new paradigm. But how?

In the days before any modern bicycle brand achieved significant international scale, it relied on a long supply chain to realize export market growth. This was prior to the internet pervading our lives and homes, so consumers often accepted the retail price of a foreign brand (particularly of European “origin”) at face value. After all, the consumer reasoned, it must cost a lot of money to ship product to a faraway country like Australia. We remained isolated and clueless, except for the occasional full-page ad – usually in an overpriced, air-freighted magazine from the UK or USA – alerting us to what “they” were paying “over there”.

Then the ‘Made in Taiwan’ era began. Imports from Taiwan steadily (then markedly) increased inverse to price from the mid-1990’s. A “product deflation” occurred, whereby the sticker price dropped and the specification improved year after year. Consumers noticed. Aided by the internet, they researched, travelled, bargained. Logically, ceteris paribus, someone in the supply chain was taking a haircut to achieve a lower retail price. In the beginning, it was the retailer – the guy in the front-line, often unable to demand better terms from upstream (and offline) suppliers, and hungry for cashflow.

As product increasingly became available through multiple channels, the defense from bicycle retailers that “even we can’t buy it that cheap from the wholesaler” gained traction with consumers. The wave of discontent began trickling further up the supply chain as distributors demanded better pricing terms and transparent supply conditions from their supplier. After all, why should they drop their profit margins?

Some brands were better equipped to cope with decreasing margins than others. Ironically, the very Taiwanese factories sought by foreign brands – looking to scale-up and cost-down  – for their manufacturing expertise, are in the best position to lead the shift towards “direct market” pricing structures. This is the era where competitive advantage can beat brand image to a pulp.

Over a six-part series, Cycling iQ will review twenty years of change in the bicycle industry, spanning the first days of mail-order to the present dynamic marketplace. Tomorrow, part one: ‘Blissful detachment | Export Utopia

Discussion

3 thoughts on “Vertical limit | bicycle business under pressure

  1. But what happens to the middle man?

    Posted by Josh | August 4, 2014, 05:34

Trackbacks/Pingbacks

  1. Pingback: Taiwan’s quality strategy | why your $3,000 bicycle comes from China « CYCLING iQ - November 28, 2011

  2. Pingback: Taiwan’s quality strategy | why your $3,000 bicycle comes from China « - February 10, 2012

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