Thieves, economic bloodletting, and other news from the week
- Let the record show that we’re putting on some bike races in June. A 4-week criterium training series just a stone’s throw from our HQ. Our foremost goal is to create an encouraging, non-intimidating means for novices to pin on a number for the very first time. And we’ve made the ‘A’ race a bit over an hour to make it good training for the fast guys.
We’ve gotta give credit to USA Cycling for making it easy & inexpensive to put on a training series (to USA Cycling that’s a technical term: ‘A training race series is a sequence of race meets of the same kind conducted on a regular basis at the same location, time and day of the week. A prize list of less than $499 per day may be offered.’) The entry fee is only $5, and basically the only cost involved is the mandatory insurance surcharge. It’ll be a lot of fun.
- Loyal readers of our What’s New section will recall that last week we were hot on the trail of the scumbag who stole one of our Pinarello Prince demo bikes. In our investigation we learned that the fraudulent order was placed from SMU; we learned that the delivery address was a ‘for sale’ (and likely vacant) house in a dodgy Dallas suburb; and we learned that the thief went apeshit with UPS trying to re-route the delivery or pick up the bike at the Mesquite, TX UPS depot.
We filed police reports galore and scoured Ebay, Craig’s List, and sites like the TXBRA to see if someone was trying to fence the bike and we found nothing. And then, in a funny twist, we got a phone call from Sarah at fellow retailer Chicagoland Bicycle. She told us she was reading our What’s New piece about the theft, then did some poking around on websites we’re not familiar with, namely Facebook. She came across the SMU Cycling Club’s Facebook website, which led her to the SMU Cycling Club’s blog, which led her to this blog posting.
One thing led to another and the SMU police soon tracked down ‘Van Khahn’ (an SMU student, no less) and secured the bike from him. So huge props to Sarah at Chicagoland and to the SMU PD. The situation we find ourselves in now is whether to file charges or not. The student in question is either the thief (felony) or was in possession of stolen goods (felony) and while the detective who helped us was doubtful that the student was indeed the thief, it’s interesting that the kid got amnesia about the details of buying the bike off Craig’s List. And suddenly the rationale of waterboarding became obvious to us.
The crossroads we find ourselves in is this: If we file charges, the investigation and the legal process could take a year, during which our Prince would be held as evidence. Or, conversely, we have the option to forget about charges and just pick up the bike. A tough call, since vengeance is sweet. But we want our demo back, so we’re trending towards just saying nevermind….
- Big news this week: The Tour of California is getting re-scheduled from February to May. We can’t see how this will be good for the race. Let’s think about what categories of Euro Pros won’t show up: Riders focused on the flat spring classics (they’re in full-on recovery mode in May); riders focused on the hilly spring classics (they’ll still be trashed from the just-completed Amstel Gold, LBL, etc); and riders focused on the Giro (since there’s a straight-up schedule conflict).
Some underappreciated factors drove a high-quality Euro field for a February Tour of California in the last few seasons: (a) Many pros en route from the Tour Down Under back to Europe can conveniently stop in California on the way back home; (b) February weather in Europe sucks, so a weeklong training camp prior to the Tour of California gives the teams awesome ROI fitness-wise for the miseries of traveling across 9 time zones.
Will you see Euro Pro teams at a late spring Tour of California? No doubt, the teams will be present. But they’ll be the low men on the totem pole. One look at the ProTour team rosters from the ’06 & ’07 Tours de Georgia (or Philly week, for that matter) will tell you all you need to know. The crowds and the courses will doubtlessly be amazing. AEG has done an astonishing job in putting on a great spectacle. But nothing can overcome geographic reality. Pro cyclists are obsessed with their routines and are as sensitive as infants to its disruption. 9 times zones and 2x 16-hour days in planes & airports will make them scream bloody murder. Big money pros won’t fly over an ocean mid-season. It just doesn’t happen. I wish I could find something good in this change, but I don’t.
- Do you remember the April Fool’s joke last year where General Motors was purportedly acquiring Specialized? It was amusing in part because GM’s stock was $22/share back then, and the joke has no legs now that GM is trading at $1.60 and stands at the brink of bankruptcy.
It’s a telling irony, then, that Specialized just announced a promotional tactic straight out of GM’s kitbag of financial hari-kari: Buy a bike, get cash back. An incentive like this, of course, isn’t symptomatic of a company working from a position of strength, and what’s doubly alarming is that Trek is doing the same thing -- Buy a bike, get cash back. Ever since October 2008 we’ve been predicting early summer bloodletting in the bike industry, and this powerful confirmation that our crystal ball is a damn good one.
Buy a bike, get cash back: What do we read into this? Bloated inventory levels at the wholesale level, plain and simple. No doubt responsible retailers spent spring 2009 cutting back the PO’s they issued to Specialized and Trek in fall 2008. Specialized and Trek walk a tightrope by relying on dealer forecasts but maintaining lengthy production leadtimes. Their ultimate goal is to keep a lean inventory, which means they get bikes into their own warehouses immediately prior to the PO ship dates issued by dealers. A fundamental presumption of lean inventory is that dealers take all the bikes they order. But when PO’s get cancelled, it’s not as though those bikes don’t get produced. Rather, they collect dust in Specialized’s and Trek’s warehouses and ultimately rot on their balance sheets. Because of this, they’ll do absolutely anything to push excess inventory out the door, including fiscally moronic promotions straight outta Detroit.
For a potential retail customer the benefit of ‘cash back’ is obvious: The retail price of that $6,000 Dura Ace-equipped bike nosedives. Trek is offering up to $1,000 cash back, and Specialized is offering $1,200. But let’s talk about the less obvious side of the equation: What’s the impact to your local Specialized or Trek dealer? It’s not so pretty. For starters, there’s a not-insignificant buy-in to qualify for the program. In order to be a ‘participating dealer’ for the cash back promotion, you are required to buy either 6 bikes (Trek) or 4 bikes (Specialized). We’re not talking middling price-point bikes here. High-end carbon fiber bikes are the only ones that qualify.
By making some safe presumptions about the typical IBD gross profit margin, the estimated buy-in for each program will be $20,000 (Trek) or $14,000 (Specialized) if the dealer brings in authentically desirable bikes (i.e. Dura Ace 7900 equipped Madone or S-Works). Once a dealer sells these bikes they are responsible for 45% of the cash back payment to the customer. In other works, the manufacturer covers 55% of the cash back, the retailer covers 45%. So for a $6,000 MSRP bike, the dealer makes a theoretical $2,100 profit (38% gross margin). The customer gets $1,200 cash back, of which the retailer is responsible for $540, or over 25% of their gross margin.
Keep in mind, ‘high margin’ IBD’s as defined by National Bike Dealer’s Association (NBDA) are shops that have a net profit of ~6. That means the average dealer, at best, is netting 2%-3%. When you lop off 25% of their top-line revenue, do you know what the impact is to their bottom line? Every dollar in lost top-line revenue gets subtracted from bottom line profit. Giving up 25% profit for each high-end unit sold is suicide.
These cash back promotions have one goal and one goal only: To flush out wholesale inventory, with virtually all benefit going to Specialized and Trek. They trade dying inventory for receivables. Given the sizes of their respective dealer bases, they are sure to rid themselves of thousands of high-end units. Many (most?) units won’t be sold during the brief cash back period, which means they’ve stuffed unneeded high-end inventory down their dealers’ throats, and they as manufacturers won’t have to back any sort of cash back since the bikes won’t get sold during the promotional period.
Promotions like these do nothing to help dealer relations, and they certainly don’t build the foundation of long term financial health for anyone involved. If you’re interested in buying a Trek or a Specialized, our advice to you is to wait a bit longer ’til they flip to the next page in the GM playbook for kamikaze finance and begin offering consumers ‘Employee Pricing.’ It’ll make $1,000 cash back look like chump change.
- More bloodletting in the US bike economy: By now we all know that Cadence closed their lavish Manhattan retail store. When it comes to business, I think we’ll all agree that dreaming big is such a buzz because, so often, big dreams fail spectacularly and they do so right in the public spotlight. Nothing is so thrilling as trying to beat the laws of probability.
It’s been obnoxious to read widespread glee at Cadence’s failure to conquer NYC. It’s as though people (we wonder if most of the haters are non-New Yorkers, BTW) would prefer a return to the early 90′s, where America knew nothing better than Mom & Pop shops that made ends meet by selling hybrids in the summer and snow blowers in the winter. For those of us who celebrate high end shit, that’s a reversal we can do without. And while we’ve had our share of awful retail experiences (there’s a Boston wine store we’ll never forget & never forgive…), we think tales of Cadence staff snobbery are overwrought, and acknowledgement of their authentic contribution to the local NYC bike race scene (was it 2 local race series they underwrote as the title sponsor?) is insufficient.
My goal here isn’t to post-mortem Cadence’s gameplan for NY. Rather, it’s to make some quick random comments about which I’d welcome feedback from the New Yorkers in the crowd: (1) I had the good fortune to spend a couple of nights at the Soho Grand Hotel earlier this year. I had a room several floors up, facing west. It was a God’s-eye view of Cadence’s physical location and it provided a dramatic visual perspective of what I’d felt as a pedestrian the few times I’d stopped in: The building was in a noose of Holland Tunnel traffic. It’s the world’s most competitive driving outside of NASCAR -- getting on & off the bridges and tunnels of NYC. Is it reasonable to expect pedestrians (or cyclists) to comfortably navigate that? From the Soho Grand’s 8th floor, it literally looked like an island in a violent sea of cars.
(2) I read somewhere that Tribeca is the wealthiest zip code in America or something similarly distinguished. And while I don’t doubt that fact, I question whether the neighborhood really held a sufficient density of cyclists. While Upper East Siders will no doubt go to some trouble to eat at Bouley or Chanterelle -- will they do the same to go to a bike shop? The bigger question, maybe, is ‘What is Wall Street?’ Don’t the titans of the finance industry actually have their HQ’s in midtown? I happened to be near the NYSE on that same NYC trip, and my gut told me that it was Epcot Center down there. It’s a fiction useful mostly for the convenience of the media -- so CNBC can show elated or distraught traders as a graphic backdrop to symbolize that day’s market performance. The real action, the real decisions, and the flotilla of big, black, bulletproof Suburbans to shuttle the Masters of the Universe -- aren’t all of those way up in the 50′s? What is Wall Street nowadays? If it’s really & truly nothing more than fantasyland, did that pre-fuck Cadence from the start?
And if we’re asking the big questions, how ’bout this: If you’re trying to build a crown jewel in a budding bike retail empire, is New York a good place to put it? For 5 months out of the year the weather is at war with your goals. Why not Los Angeles or San Francisco? Why not Portland? Why not someplace where there matrix of wealth, visibility, climate, and bike culture working in your favor? New York City -- and YES I genuflect, kiss the ring, and fully acknowledge its position as center of the universe -- it can’t maintain traditions for decent high-profile bike races, and while it has several delightful bike shops (ever been to Conrad’s?) I question whether it’s ever had a great one. No shortage of rich folks on nice bikes there. But is it a true bike town? I have my doubts.
- Rumor of the week: The sponsors of Team Astana won’t pay their rider salary guarantees to the UCI because Alexander Vinokourov (the founder of the team 2+ years ago) wants to make his comeback. He and Johan Bruyneel allegedly hate each other, and it’s Vino’s way to reserve the sponsorship dollars for his future organization -- one that’s Bruyneel-free. This is pure speculation, but it’s certainly a more interesting angle than ye olde ‘The Kazakh economy is tanking, so the sponsors won’t pony up.’
- Let’s talk sponsor ROI for a moment. Take Power Tap: They’ve reaped a ton of visibility by working with Allen Lim to get their powermeters mega-exposure with Garm*n-Slipstream and they’ve used this to give the concept of training with power mainstream legitimacy. Even though sponsorship obligations require the Garm*n riders to put 705 Edge GPS units on their bars -- not the visible-from-a-mile-away yellow Power Tap head units -- the best-loved riders on the team have been clear (via blogs, interviews, and Twitter) that they’re addicted to their Power Taps (not merely to training with power) and that provides big and broad bang for Power Tap’s sponsorship buck. Let’s contrast this with Silence-Lotto, who earned ungodly amounts of TV time in the Spring Classics with riders like Leif Hoste, Johan Van Summeren, Phillipe Gilbert, and Cadel Evans. Time and time again we saw Power Tap computer heads on their handlebars, and time and time again we saw nary a Power Tap hub in their rear wheels. Why oh why is Power Tap wasting their time (and precious sponsorship dollars) on the Belgium Boston Red Sox when there is zero authentic support on the team for anything related to wattage? It’s one thing Garm*n does right: Supporting their sponsors.
- Did I just say that, Garm*n giving thoughtful support to their sponsors? Did you catch the piece in the New York Times last week about Christian Vandevelde? We dig CVV a lot and we like his prospects at the ’09 Tour, but in case you didn’t know Garm*n ain’t sponsored by Cervélo and CVV left Cervélo-sponsored Team CSC 2 years ago. We’d prefer the Cervélo, too, Christian, but we’d be a bit more subtle about it for the sake of good relation with your current bike sponsor, Felt. And holy smokes as if your bike taste wasn’t good enough, by chance will you sell me that Mariposa? THAT is a man’s bike. I want one of those bad, bad, bad. Can you believe they bother holding an NAHBS even though Mariposa doesn’t attend?
- And while we’re on the topic of Garm*n let me profess that I had a lightbulb moment last week. As we all know, current (or maybe not?) Italian Nat’l Road champion Filippo Simeoni had a pre-Giro d’Italia hissy fit where he renounced his Nat’l Champion jersey because his 3rd tier team Ceramica Flaminia didn’t get invited to the Giro.
Though his actions he proved to be self-aggrandizing, histrionic, keener on symbolism over substance and -- have we mentioned this bonus yet?? -- he’s an ex-doper! Combine these traits with his disdain for Lance Armstrong and he seems like the Italian chimeric twin of Jonathan Vaughters. Our prediction? You’ll see Simeoni signed up for Team Garm*n for the 2010 season. The only hiccup is that he lacks any palmares in TT’s, but otherwise he looks like the perfect fit.
- 80′s pros had awesome wristwatches.
- It is always an awkward moment when a customer gives us their email address and it’s something like ‘firstname.lastname@example.org’ or ‘email@example.com.’ It embarrasses the customer. It embarrasses us.
- One of the all-time classic videos of bike race stuff on the internet. In case you’ve never seen it, it’s proof that Gerolsteiner did more than just lots of drugs in the ’08 season. They did some badass training, too.
- I may buy an iPod Touch this week. Any reason not to? A quick (and I bet very incomplete) rundown of some iPhone apps related to cycling.
- Bizarre news of the week: We sell Assos products. A LOT of Assos products. Our #1 item by volume (regardless of brand) is Assos Chamois Cream and one interesting thing with Assos’ new S5 series of bib shorts is that they come with a small sample jar of Chamois Cream to get you hooked in case you aren’t already addicted.
Why do I mention all of this? It’s because suddenly there’s apparently a freeze on Assos bib shorts and Chamois Cream, and wholesalers are verboten from shipping replenishment orders to us. Why? It’s because the FDA has taken issue with the labeling on the Chamois Cream. Mind you, there is NO safety issue with the cream iteself, but the FDA doesn’t agree with its language so they’re requiring Assos to remove all sample packs out of shorts, and to cease sales of the standalone jars of Chamois Cream. We’re uncertain about what’s disagreeable with the labeling, but we’re thankful that we’re nicely stocked up both on S5 bib shorts and in Chamois Cream. If/when there’s a nationwide shortage of either, you can rest assured that we’ve stockpiled it like paranoiac survivalists and I think we’ve even dug a hole out back and hidden an extra pallet of Chamois Cream there. Addiction can be a frightful thing.
- My co-worker and Competitive Cyclist teammate Zach Martin signed up for the Pro, 1 Joe Martin Stage Race last weekend. Being a prototypical Texan Zach is an unstoppable force on the flats, but has his problems with big climbs, and climbing is what Joe Martin is all about. Too stubborn to do the 1,2 race instead of the Pro, 1, Zach got himself time cut in the Stage 1 uphill TT since Team Bissell’s Ben Jacques-Maynes finished so fast it was like he got in a time machine and not on a bike.
Zach made big investments in time, money, and heart for Joe Martin, so we give him a big chapeau for saying fuck it and showing up for the 110 mile Stage 2 road race where he sat in to get the miles and everything was splendid except he made the mistake of crossing the finish line and he got himself a 10 day suspension from USA Cycling for violating Rule 1Q11, being a non-competitor on the course. He said it was worth it, and we think it was worth it too, though we’re still torn about what’s worse -- the fact that Zach didn’t use common sense and ride the 1,2 race, or the fact that no shortage of super-fast people traveled from all over America and got time cut after 10 minutes of racing. For God’s sake, Rashaan Bahati flew in from Los Angeles and got time cut for climbing about as fast as Zach did. We totally understand that rules exist to prevent bedlam but sometimes a race director should use discretion when it comes at the detriment of no one else.