How Trek is adapting to the challenges of online retail
In the past ten years we’ve seen a revolution in cycling’s retail business model with online shopping becoming a major disruptor for the entire industry. Everyone is still trying to figure out how to deal with it and we’re starting to see profit margins squeezed and efficiencies forced into the supply chain.
Lower prices, the greater availability and convenience afforded by online shopping obviously benefits consumers and the likes of Wiggle and Chain Reaction Cycles have prospered in recent years. But there’s someone on the losing end of that equation — the incumbent distributors and the bike shops.
Canyon is one of the few high-end bike brands that has been successful with its online-only sales model. Integral to the company’s success are competitive pricing and Canyon’s physical service centres in every market. NeilPryde Bikes tried consumer-direct sales in 2011 but shortly after changed to a dealer model.
However there have been many examples of online-only retailers outside the cycling industry who have found that a purely digital play is not enough; many online success stories such as Warby Parker and Bonobos, are running to open physical store outlets as well. Of course traditional retail businesses are not sitting around waiting to get eaten up. The successful ones are growing their e-commerce businesses, and Trek is on the forefront of that in the cycling industry.
This week the US-based company announced “Trek Connect”. the company’s online play to include retailers in the value chain.
How Trek Connect will work
Trek Connect is a way for customers to buy Trek bikes, parts and accessories and apparel online via the Trek website. It’s a unique model which balances the benefits for the customer, dealer, and Trek itself, at least on the surface.
Trek spokesperson Eric Bjorling told CyclingTips that the introduction of Trek Connect will mean a few changes to the way Trek retailers operate, but that those retailers still get to make a margin on any bike sold that comes through them.
“You can buy the bike directly from Trek, but you can’t receive the bike directly from Trek,” Bjorling said. “All bikes will be shipped to the nominated retailer for proper assembly, and either pick-up at the store, or many retailers can offer retailer delivery where it’ll arrive directly to your home.
“On the retail side, they will receive a percentage of the overall sale in the form of a commission. That’s true regardless of what was sold. It could be bikes, parts and accessories, apparel. Anything that’s bought from the site will be eligible for commission for that retailer.”
Trek estimates that this commission will equate to approximately 80% of what the retailer would have made had they sold the bike themselves — roughly the same minus some overheads costs. Parts, accessories, and apparel will be treated slightly differently however.
“On accessories, parts and apparel, consumers will have two options of what they can do,” Bjorling said. “When shipped to the dealer for pick-up, Trek pays the shipping, not the customer or the retailer.
“Alternatively the customer can choose to have the goods shipped directly to their home. However the transaction cost will be paid by the consumer for shipping and handling. The retailer will however receive a commission, regardless if the purchase shows up at their shop, or if they never even see the purchase.”
Trek spokesperson Eric Bjorling told CyclingTips that Trek Connect is a way for the company to ensure the longevity of the company in an ever-changing market.
“As the world has moved into a digital space and customers have become more comfortable with purchasing online, many more businesses have moved into an interactive format,” Bjorling said. “Trek has a responsibility to make sure that retailers and Trek as a brand is set up for long-term success.
“This has been a huge investment. When we look at the landscape into the future, the most successful companies in the world are going to be omni-channeled. When I say that, I mean there will be a number of different touch points and a number of ways for customers to interact with that brand. I don’t think pure digital or pure retailer will be a model that you’ll see a lot of people go to in the future. What we’re doing is making sure that we’re set up for that.
“Trek needs great retailers. It’s part of our long-term strategy to always include the retailer. This offers our retailers to play offence and offer a digital age.”
Many pundits forecast that bike shops will need to adapt and become service centres in they’re going to survive long-term. Trek sees this as a profitable part of the dealer’s business model and wants to encourage them to invest in this line of business.
“We’ve rolled out a new certified service program for our retailers in conjunction with this program,” Bjorling said. “We know that service is a highly profitable percentage of retailers’ businesses, and I think there’s a lot of opportunity still left out there for that.
“Service is a competitive advantage that any retailer holds over every online-only brand. A website can’t fix a derailleur, it can’t make a machiatto, it can’t do a lot of the things that a lot of bike shops offer these days.”
The women’s market
It’s a widely held belief by many in the bicycle industry that one of the major barriers to entry for the female market is the unwelcoming nature of the dealer network. Trek believes that its online sales portal will be key in helping them break down those barriers.
“John Burke [president of Trek] made a very bold prediction the other night and said that 50% of the bicycle sales will be made to women by the year 2020,” Bjorling told CyclingTips. “We’re on an incredible trajectory right now that the running industry experienced years ago.
“Last year we saw something like 57% of all running event finishers were female. And it’s still going up. We’ve seen that trend start to begin in our female sales. I think that the online game has a big future for female customers.
“Shops aren’t always the most welcoming places for female shoppers and we’re going to be adding a lot of online features that make the experience better for women, such as online chat and a robust customer experience.”
The Trek Connect roll-out begins in the US in September but what about other markets, like Australia? Bjorling couldn’t yet reveal a date, but Trek will be using the US as a proving ground to iron out any kinks.
Time will tell if the other major brands will follow suit.