Trek dumps LeMond—analysis

[Publisher’s Note: What follows is an opinion piece written by a new voice we’ll feature on Slowtwitch for just such occasions as Trek’s decision to abandon the LeMond brand. The author goes by the nom de plume Padraig, and is one of the two voices of the blog Belgium Knee Warmers. I first came across Padraig when shown his exceptional analysis of Pacific Cycle’s purchase of Cannondale.]

After a 13-year relationship, Trek Bicycles has ended its licensing arrangement, effective immediately. It’s a stunning turnabout for LeMond. When Trek licensed it in 1995, the brand was in perilous condition. Since that time Trek grew the brand to $15 million in annual sales.

There’s a precursor to this event, of course, a number of them, in fact. Legally speaking, the first salvo was rather quietly fired on March 20, when LeMond sued Trek, claiming the company had failed to live up to its obligation to “exert best efforts regarding the LeMond brand.”

Of course, we all know there had been trouble in paradise since 2001. That was when LeMond was outspoken in his criticism of Lance Armstrong’s association with Michele Ferrari, a doctor attributed with devising doping techniques. That was the year of Armstrong’s third Tour de France victory, thus equaling LeMond’s record. LeMond continued to criticize Armstrong through victories four, five, six and seven.

So LeMond claims that Trek hasn’t properly supported the brand, has sought to "unilaterally wind down" the brand since 2004 and wants an injunction from ending the relationship. Trek claims that LeMond has hurt the brand with his charges against Armstrong, who continues to be associated with Trek, despite his retirement from racing. Trek also claims that LeMond has a "troubling pattern of inconsistent business dealings," according to its president John Burke.

LeMond’s claims are rather subjective and will likely be difficult to support in court. Given that LeMond’s brand was rescued from the brink of failure in 1995 by Trek and grown to $9 million as of 1998, better than it had ever done during his efforts with Calfee or Clark Kent, Trek has plenty of objective data to show that it grew the brand.

Additionally, 2008 marked the year that the LeMond brand introduced its first full carbon-fiber bicycle. At bare minimum each mold for a new size frame will run $20,000 overseas. LeMond’s Triomphe carbon fiber frame is available in 10 sizes. That’s a $200,000 investment. The Triomphe frame design features a sloping top tube and up-to-date geometry, making the bike much more appealing to the majority of the market than a bike designed around LeMond’s preference for slack seat tube angles and long top tubes. Abandoning LeMond’s geometry preferences is evidence that Trek was trying to make the brand appealing to as many people as possible.

In addition to his relationship with Trek, LeMond has a relationship with another company, LeMond Fitness, which produces stationary bikes and related equipment. He also had a relationship with Target parent PTI Holdings, with whom he had a 10 year agreement to produce and sell LeMond-branded cycling accessories. This followed an unsuccessful effort by Trek to produce a line of LeMond accessories. PTI abandoned their effort only two years into the 10-year deal. LeMond sued and was awarded $3.46 million.

LeMond’s relationships with LeMond Fitness and PTI Holdings have created a certain amount of confusion in the marketplace and Trek’s Burke alleges this hurt the LeMond brand as presented by Trek.

Why LeMond?

So why did Trek ever license the LeMond name? In 1995 there was no stronger figure in road cycling in the U.S. than Greg LeMond. Back in the mid-1990s the Trek name was, well, rather pedestrian. The brand didn’t have a strong reputation at the high end of the market. Its reputation was for producing good bikes for most anyone, rather than great bikes for the dedicated racer. That’s where the licensing deals for Klein, Bontrager, Fisher and LeMond figure. Each of these lines had indelible street cred with racers.

In less than two years Trek purchased the rights to produce products bearing the names of Klein, Bontrager, Fisher and LeMond. They were all boutique brands that could give Trek penetration in a market segment where the brand had very little credibility. It also gave Trek reach into more retailers across the country than the company previously had.

By 2002, Trek had realized a new opportunity in retailing. Rather than spreading its efforts across every single retailer in the U.S., it could, instead, concentrate all of those brands in a single, strong retailer, thereby tying up a stores-worth of lines. After all, not many stores need more than four strong bike lines. They began to squeeze competing lines out of competent retailers.

Turning Point

In his statement announcing the end of the relationship, Burke pointed to LeMond’s inability or unwillingness to temper his statements about Armstrong. Without objective evidence, LeMond’s statements were opinions, not facts, except that coming from a former Tour de France winner they were far more damaging. Burke even submitted e-mails from dealers frustrated with LeMond’s statements in the media.

Burke said, "We never discouraged Greg from speaking out about doping in cycling. We know there is a difference between attacking an issue and destroying reputations. Greg's public comments damaged the LeMond brand and our reputation with retailers and consumers."

"For years, Trek has tried our best to make this relationship work," Burke said. "And for years, Greg LeMond has done and said things that have damaged the LeMond brand and the Trek brand as a whole. His actions are inconsistent with our values—values we believe in and live everyday. And after years of trying to make it work, we are done. It’s time to sever this relationship and allow Trek to do what it does best—build the world’s greatest bicycles and provide our customers with a great product and exceptional customer service." Burke said LeMond had been family but his repeated reneging on promises not to comment on Armstrong resulted in the decision not to renew with the brand following the contract's expiration in 2010.

Burke claims that LeMond has purchased more than $2.5 million in bicycles at employee prices since 1999 with the intent to sell and barter them for his own profit. He claims this hurt the LeMond brand’s value as well as retailer income due to the lost sales. With an average per unit price of $1000, it’s fair to wonder what LeMond did with 2500 bicycles in eight years. Most folks would be inclined to open a bike shop if they sold more than 300 bikes per year.

Burke informed LeMond of the decision in fall of 2007 and encouraged him to find a new backer in the meantime. This bears repeating: Burke gave LeMond nearly two-and-a-half years to find a new home for LeMond. Instead, he sued Trek for breach of contract and asked for an injunction forcing the company to continue the relationship. Holding your business partner hostage may not be the best way to engender a motivated sales force.

LeMond has been unable to find a new home for his brand. To make matters worse for him, Trek owns all the patents, tooling and stock on the bike line. LeMond’s history is one of litigation and soured deals, whether with PTI, Trek (he was at this point once before, in 2004, but fireworks were avoided then) or real estate developer Tim Blixseth.

[Publisher’s Note: While this is evidence LeMond is not shy to litigate with his business partners, his complaints about billionaire Blixseth may have merit: one might note the recent article in Bloomberg News.]

Superfluous

Unmentioned in the turmoil is the ascendancy of the Trek brand itself. In 1998, Trek began its sponsorship of the U.S. Postal cycling team. Over the next seven years the company rode Lance Armstrong’s wave of success to seven consecutive Tour de France wins. The company grew to $700 million per year in sales and Armstrong’s fame grew the market with road category sales roughly doubling from 1999 to 2005. Armstrong’s influence on the road market was so great a term was coined to describe it: The Lance Effect.

Trek hasn’t suffered the perception of being a sub-par bike since Armstrong’s first Tour victory in 1999. It doesn’t need the LeMond name to have credibility in the high-end of the market—it’s Madone 6.9 carries an MSRP of $8249.99.

Trek has announced to dealers that the Klein line is being resurrected in the U.S. It slipped away quietly last year following several years of lackluster sales, though it has continued to have a presence in Japan where it has a popular reputation. One wonders if the LeMond Triomphe carbon fiber frames will simply be re-badged as Kleins.

While Trek has tried to dominate retailers wherever possible, there are a number of dealers across the country that carry LeMond without also being overwhelmed by Trek lines. These dealers that have used LeMond as an additional high-end line must now search for a replacement if they don’t want to sell Klein. This is an opportunity for other manufacturers to gain some new accounts, and may be the only good news in this situation.

Tragedy

There are those who dislike the Trek brand simply because of the company’s size. This is a corollary to Americans' propensity to cheer for the underdog. However, it is hard to find fault with John Burke or Trek. Burke simply asked LeMond not to attack Armstrong’s reputation. A quick scan of the cycling forums shows that a significant population sees LeMond as a “whiner” and doing more to hurt his own legacy than righting a wrong.

LeMond’s accomplishments as a racer should have been the sole basis for his reputation. It should be all we need to know of the man. Trek, for its part, should have found having two American Tour de France winners on its payroll to be an enviable position, not a nightmare replete with lawyers. Sadly, given LeMond’s history of business relationships, it is unlikely the brand will ever find another home and these lawsuits will mark the end of an era. R.I.P.

Tags: