Direct seller Canyon Bicycles is coming to the U.S. In early 2017. Amazon, overseas mail order discounters, amateur club-teams have been chipping away at the Local Bike Shop's traditional business model, and Canyon's 2017 arrival is the latest concern for the LBS.
But many consumers cheer rather than dread Canyon's arrival. This German bicycle brand has had recent struggles (last year's new factory designed to speed up deliveries initially slowed them down), but Canyon has been growing 30 percent year-over-year for 6 consecutive years and that speaks to the eagerness of the customer to embrace this bike maker.
I've known its founder and owner, Roman Arnold, for better than 25 years. I was fewer than 5 years in this industry, having only just founded my own bike (and wetsuit) brand Quintana Roo when a German firm called RTI Sports began to distribute my product in that country. RTI Sports was owned by brothers Franc and Roman Arnold and top German triathlete Jürgen Zäck. At that time Roman Arnold was himself among the fraternity of local bike shop owners, building a successful if only marginally profitable (according to him) store in Koblenz called Radsport Arnold.
Roman and Franc also distributed Softride's bikes in Germany in the early and mid 90s. Since then Franc Arnold went on to found Ergon, which he owns, and he has also remained a distributor in Germany of brands like the tool and accessory brand Topeak.
Through relationships with Topeak, Syntace owner Jo Kleiber and others Roman Arnold was introduced to the world of bike manufacturing. He made bikes that bore my brand's headbadge under a license agreement, selling these Orient-made Quintana Roo bikes in Germany.
It has been my observation that every bike manufacturer covets the margins of the retailer (hence “omni-channel” strategies) and many retailers covet the manufacturer's margins. Roman Arnold was in that latter camp and making distributed bikes under license gave him a pathway to becoming a manufacturer.
I had lunch with Roman Arnold in Santa Monica just after last Autumn's Interbike show, and he told me broadly what he relates below. Because of the announcement last week of his company's date of entry into the U.S. I asked him if he'd like to answer some questions for Slowtwitch readers.
SLOWTWITCH: Canyon is the most successful consumer direct bike brand I've seen. Now you're coming to the U.S., and a lot of consumers are happy while a lot of retailers are worried. What makes 2017 the right time to come to the U.S.?
ROMAN ARNOLD: Two reasons. You've known me a long time, Dan, I'm cautious, and it's now that I'm organizationally ready to come to the U.S. Also, the market is ready for consumer direct in the U.S., It's already in the U.S., Canyon is just [used by the industry as] a proxy for consumer direct. Canyon is not the enemy of the bike industry.
ST: Why do people buy bikes from Canyon? What are Canyon's advantages?
RA: We have a really great product. That's the main reason. Over the years we've spent a lot of time on good design and on research. Here's a story. A few years ago I wanted to see my bike in the Tour de France, we sponsored Omega Pharma. We had a TT bike, but not the best bike in the peloton. The team pushed us hard, “We want a better bike, take this feature from this bike, this feature from that bike, make us a bike.” We said sorry, this is not the way we work, we will work for 2 or 3 years, make this a project, and then come out with a very good TT bike. This is why the customer wants to buy Canyon bikes, not because the bike is a little cheaper.
ST: Would the brand be just as successful if it were available through traditional sales channels?
RA: It would be a totally different story if we did it the traditional way. I think we took a big chance in the beginning to go consumer direct. Would people buy a bike that they could not try first? Remember, back when we started all the big brands were the Italian brands. When we started our business many years ago, we found the right engineers. Tour Magazine tests very much on facts. How can it be that a frame half the price of an Italian frame gets much better marks? We did it the “German” way, relying on facts, making the product better.
ST: What I sense is that the industry is focused on the price savings of a consumer-direct model, and it misses what I suspect is an equally compelling argument, which is the customer's ability to get his bike the way he wants it. Right now the business models for this, that come to mind, are Santa Cruz and Trek's Project One. Can you talk about the relative importance of mass-customization versus price competitiveness?
RA: I'd like to turn the argument a bit. Canyon won't change the whole system. The system is already changed. Do you have any idea how many German customers already buy their bike parts online?
ST: I don't know, but I think with our readers something like 60 percent buy some of their bike purchases online.
RA: Very close. Your readers are similar to Tour Magazine in Germany, and for bike parts it's close to 70 percent here. These guys don't buy their parts at the shop anymore. The reason the customer wants a Canyon, one reason is price, but the biggest is we have a great product. We aren't the dealer's enemy, we are the dealer's friend. The fitter's friend. German dealers, do you know how hard it is to find a good dedicated pro road dealer in Germany? My interest, our interest, is to make very good road high end and triathlon bikes. That's it. I'm not in the business to try to make a lot of money.
ST: About that, not making a lot of money, you and I chose an industry that isn't known for making its businessmen a lot of money. Your funding partner, TSG Consumer Partners, is a San Francisco-based private equity firm doing business in a region where big returns are expected. The bike business does not offer the upside that a software start-up does. Why did they agree to this venture, and do you think Canyon in America will satisfy their appetite?
RA: Yes, I get asked, “Roman, I don't get it, how are these two things [high-return finance partner; low-return industry] coming together?” I've been in contact with TSG for 3 years. With Canyon's growth we've gotten lots of inquiries from private equity. I'm now 53 years old, my dream is to have a global company, without the U.S. the company isn't global. So I chose a San Francisco-based firm to help me do this next step, to help me scale the business. I hope they'll challenge me, take me to the next level.
ST: What are the challenges to direct sales in the U.S.?
RA: I don't know yet. Usually before I do something I try to gather information. The U.S. customer wants a product, wants it now, and is even more demanding than German customer. In Germany answering an email in 24 hours is pretty good service. In the U.S. good service is 1 hour.
ST: What do you expect your lead times to be?
RA: Two things. We will go to the U.S. with a limited number of bikes. We're a medium-sized company, we'll have a limited stock of bikes, we'll stock all our bikes [here in the U.S.], the bikes we show on the website, so we can ship within a few days. We talked about this a little last time I was in the U.S., forecasting is a question. We want to start smaller, this is what we have to sell [in a given season], when they're sold they're sold.
ST: You won't have an assembly facility in the U.S., at least in the beginning, is that correct? What will that add to lead times?
RA: We have to have a warehouse in the U.S. It will be a final touch facility. We won't have all the same [bike] models, we'll have different models in the U.S. The goal is for the customer to get his bike in 2 or 3 days.
ST: Can you walk me through the mechanics of how a recall or warranty problem will work? Do you anticipate arrangements with local shops, or will you handle everything by mail directly with the consumer? Will you have a plan in place for things like this?
RA: We have a plan in place for things like this. The whole landscape will change. In some areas it's already changed. I made 2-week tour of bike shops after Interbike last year, many bike shops are already willing to work on Canyon bikes. They want the new business. It's an opportunity for a bike shop to focus more on service.