In case you missed it, Trek has announced that they are going to start selling bicycles online. In short, customers will be able to buy a bike online, and then the bike is delivered to a local Trek dealer of their choosing. Trek will pay the local shop a “service commission” roughly equal to 80% of their normal margin on a bike sale.
I’m not a bike dealer, I’m a consumer. Frankly, I find this move appalling. Appalling enough that it makes me think long and hard about ever buying another Trek. I’m sure that Trek feels that this is the wave of the future, and that they have to compete with other brands that are selling direct to consumer. In my opinion, it is a great disservice to their dealers.
Until now, Trek has prohibited selling new bikes online. A few years ago, I found a rare trek frameset that I wanted to buy–it was a several-year-old model that isn’t produced anymore, and there was one left in the Country, at a shop in Florida. I contacted that shop, and they literally could not sell me the bike, over the phone or internet, because of Trek’s dealer restrictions. We go from that arrangement of incredible restrictions…to Trek selling bikes online directly itself.
I’m guessing that Trek’s arguments are along these lines:
Shops still get 80% of their margin.
That’s true. Shops still get 80% of the margin. *(“Roughly 80%.” Note the comment from someone indicating that they are a Trek dealer below; payments provided not as cash, but as a credit against the shop’s Trek account, 3x/year. Ouch.) But shops lose the ability to choose what products they sell. A shop may choose not to sell some closeout bikes, or may choose not to stock certain bike lines, because even at 100% of margin, there isn’t enough profit in the sale to warrant the expense of carrying that particular bike. They may choose not to sell certain bikes because of poor experiences with that model, or because they lack the expertise or interest in selling a given model or type of bike. That option is now gone. Shops have lost the ability to determine what they will and will not sell.
Shops have historically placed orders based upon knowledge of local conditions–how many hybrids, road bikes, mountain bikes, etc., that they’ll sell. That historical information is now out the window, as the shops still have to place their pre-season orders, but now they have no idea how many of their customers will place an order online, rather than through the shop. Think about it: if a shop pre-orders 200 bikes, and 10% of their customers buy online, the shop will be left with 20 extra bikes at the end of the year. It places shops in direct competition with Trek for the sale.
I’m sure Trek justifies the 20% reduction in margin by saying that it is “doing the work” of selling bikes for the shops. Frankly, that’s just Trek eating 20% of the shop’s (already thin) margins. The shop still has to market itself, still has to have sales staff, still has to have mechanics, and still has to have new bikes on the floor. The shop still has to do everything it did before Trek sold bikes online–and bear all of the same overhead and expense. If a customer walks in to buy a bike, the shop can’t say, “you can look and order it online.” So shops still have the same expense, and less revenue to cover it, because now, some portion of their bikes will be sold online, at a lessened margin. From Trek’s perspective, their investment of updating the website to add a “buy now” link is minimal. They can gobble up shop margin as corporate profit, which is pure win for them. More profit for Trek corporate, on the backs of local bike shops.
And what happens when there’s warranty work to be done? What happens when a customer (invariably) buys the wrong size bike online and has to exchange it? Who deals with all of the issues associated with buying something as particular in fit as a bicycle? Does Trek handle those online? Of course not. Those tasks go to the shop. Buying online greatly increases the likelihood that a customer will select the wrong size bike, or even the wrong type of bike. Selling a bike is a personal experience. When done properly, a shop evaluates the customer’s needs, their physical build, their desires, and their budget, and puts together the right bike for the need. There have been many times when what I’ve thought I wanted turned out to not be what I ended up getting–because I received valuable advice from my local bike shop that guided my decision. There have been many times when the fit and size I thought I needed turned out to be wrong, and local fit advice was invaluable. (For that matter, what happens with returns? A lot of shops have restocking fees, particularly on custom orders. Does the shop get stuck with an online order that is returned, or does it go back to Trek? (And if it goes back to Trek, does that mean that the shop receives, builds and delivers bike, then unbuilds and ships the bike back, and receives no income?)
Selling bikes online suggests that there is no need for that local expertise…a customer should be able to pick their own bike and fit themselves; there’s no need for an experienced, knowledgeable local contact to help with those processes. That’s just flatly wrong. I’m a pretty informed, educated bike consumer. But the more I learn, the more I value the advice and consultation from a local bike shop. So Trek increases the likelihood that customers will make bad decisions and be unhappy with their bikes, or will require extensive fit work or exchanges, and then Trek reduces dealer margins on the bikes. Trek is inventing new problems for dealers, all while reducing their margins.
Delivery still occurs through a local shop.
Yup. The local shop still has to deal with all of the issues, as described above, while earning reduced margins and likely dealing with more problems.
Service and accessories are the new markets for local bike shops.
It’s true–if you follow Bike Retailer and Industry News, there’s a lot of smart people saying that the next frontier of bike shops will be service, accessories and experience-based revenues (trips, etc.). Margins on bike sales are already thin. So I’m sure Trek is telling dealers that when a customer comes in to pick up their online purchase, the dealer can upsell with accessories and baubles.
As a customer, I can tell you that when making a bike purchase, it’s mentally easier to make one purchase than it is to make two. It’s easier for me to make one purchase for a bike, with bottle cages, seatbag, and any other accessories I want, than it is to make one big purchase for a bike, followed by a dribble of smaller purchases. It is purely a mental issue, but it is one that I suspect is not unique to me. I suspect that making the bike purchase online will reduce the amount of accessories that accompany each bike sale. Customers will come in to pick up their online purchase, and will view upselling at that point as a nuisance.
I could keep writing about this, expanding on the points above, but essentially, my view is that this hurts Trek in the long-term, as it will enhance short-term profits on the backs of its dealers, and will diminish the value of dealers as experts in their craft. When a bike is just a commodity that can be bought or sold online, what’s the difference between buying at a LBS or buying on Amazon…or Walmart? From my personal perspective, seeing a bike manufacturer dishonor the concept of a local bike shop so significantly makes me sad. I don’t buy ‘direct to consumer’ bikes (unless there is literally no other option), because I value the local bike shop, and the meaningful input that they have on the experience of buying a bike. I value the local bike shop because I want them to be there when I have a problem, or when I need service. I’ve written about that before–I see local bike shops as community partners, and as employers of people who need to earn reasonable wages. I’d much rather my dollars went to a local shop, than to a corporate behemoth. For that matter, I’d rather make sure I get the right bike, in the right size, by benefitting from local expertise and experience…than buy a bike online and get frustrated by ending up with the wrong commodity.
If this is the industry trend, then it’s a race. To the bottom. When next I’m in the market for a new bike, this is a move by Trek that will influence my decision, and will influence it away from buying a Trek. Go order a Fuel. Or a Fezzari.
Two brief notes in update: 1) I did recently purchase a bike online, for my daughter. That purchase was completed only after conducting an exhaustive search of local bike shops, and finding that I literally could not get the bike I needed for her locally. 2) I’m not a Trek hater generally. Many of my posts on here are very Trek-positive–I own 2 very high-end Trek bikes that I love, and I shop at a Trek bike shop. I do have to say, though, that of late, I’ve been questioning their corporate judgment. Between this and the recent skewer recall, which I wrote about here and here, I’m not sure what they’re thinking.