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about a year ago

Via Bloomberg: Canyon Comes To The U.S.

Europe's Favorite Online Bike Seller Comes To The Land Of Bike Shops. Canyon Is Finally Coming To The U.S., Where Buying A Bicycle Hasn't Changed For Generations.

By Josh Petri, Bloomberg

Remember the last time you bought a bike? Doesn't matter if that happened last week or for your 10th birthday, the experience in the U.S. hasn't changed all that much since the days of the Wright brothers: Walk into your nearest shop, test ride one of the few options in stock, walk out an hour later with a new bike and perhaps a helmet. The role of dealers, much as in the auto industry, hasn't been affected by the explosion of online shopping.

In Europe, however, one company has been doing things differently. Canyon has ditched the dealer model, in which a local bike shop commits to a mass order from a manufacturer and spends the rest of the year desperately trying to sell them all, in favor of selling to consumers over the internet. The company's performance-oriented bikes, sold at relatively low prices, aren't available anywhere else.

It’s been successful. Canyon reports year-over-year sales growth of 30 percent for the past six years. “It’s unheard of for the industry,” says Frank Aldorf, chief brand officer at Canyon. The company maintains service centers in 20 countries, and its bikes have been shipped to 104 countries—just not to the U.S.  "From a business perspective, there wasn't an immediate need," Aldorf says. "We had the luxury of taking our time and thinking it through."

After years of waiting, American riders will finally be able to order a Canyon starting in the spring of 2017 (not that they haven’t figured out ways to hack the system before). Quantities will be limited at first. The German company recently announced plans to open a U.S. customer and technical service facility and disclosed the sale of a minority stake to TSG Consumer Partners.

Doing business with bike shops is what attracted the private equity fund. “We noticed that there was no online business for whole bikes,” says Blythe Jack, TSG’s managing director. “You could buy parts, no problem, but you couldn't buy whole premium bikes online in the U.S.” TSG has been building an outdoor lifestyle portfolio, with a separate investment in speciality retailer Backcountry, which owns online parts store Competitive Cyclist and discount website Steep & Cheap.

Like most bike companies, Canyon’s carbon fiber frames are produced in Taiwan1. Workers in Koblenz, Germany, finish the raw frames, adding pieces along an assembly line. It can take as little as a week for a bike to reach a customer in Europe. Aldorf expects delivery times to the U.S. to hover between two and six weeks.

Canyon is entering a market that has remained relatively stagnant since 2003, with sales between $5.8 billion and $6.1 billion each year, according to a report from the National Bicycle Dealers Association. The average independent bicycle dealer records gross annual sales of $866,817, sells 650 bicycles per year, and carries five bike brands (although a single shop generally stocks only a few models from each brand). Just under half of those sales come from selling bikes, at fairly measly margins.

Selling bikes "helps you cover the cost of existing, but [doesn't] give you any profit," says Fred Clements, vice president of the National Bicycle Dealers Association. 

Nelson Gutierrez opened his shop, Strictly Bicycles, in a small Fort Lee, N.J., storefront more than 20 years ago. He's one of the rare dealers who carries all three major American brands—Trek, Specialized, and Cannondale—although much of his business is focused on selling high-priced bikes from Pinarello, DeRosa, and Look.  “You need to create a community around your business,” Gutierrez says.

His shop moved to a larger building just north of the George Washington Bridge, along a popular route for cyclists riding north along the Hudson River. There's an espresso bar and an outdoor patio space with plenty of seating for the lycra-clad people to meet for group rides or linger while their bikes are fixed. “I’m not trying to make hard dollars from coffee,” Gutierrez explains. “Coffee and bikes go together. It makes people come into the store and not be scared of a $15,000 bike. You can stand there with a $3 espresso and not be scared.”

During a recent visit, someone clutching one those espressos ended up walking out the door with a new $1,200 bike, having first checked the price at other shops. “That’s what the internet does,” Gutierrez says with a shrug.

Trek, which like the other large U.S. bike manufacturers didn't comment on Canyon's plans, recently became the first bike company in the U.S. to experiment with internet sales. Customers can order a Trek bike online and take delivery from a local shop, which receives a cut of the sale from the company. The program has the convenience of online shopping while also allowing Trek to control its retail prices and giving the shop the chance to begin a relationship with the customer and sell them additional accessories. 

The traditional bike manufacturers rely on someone like Gutierrez to bring customers up from a kids' bike or hybrid to a pricey road bike. "Canyon is focused on the upper end. It’s only 1 percent of America that buys a bike over $2,000," Gutierrez says. "There’s not a lot of customers at that price point in America. It’s a hard target market." He points to a customer who rolled into the shop astride a high-end bike. "He started out as a commuter. I turned him into a full-blown roadie," Gutierrez says with pride. He does not have to add that it was most likely a very expensive conversion.

If Canyon peels away some of those big spenders, however, the old-school retailers will suffer a bit. "We will see some shrinkage in the number of bike shop locations," says Clements of the National Bicycle Dealers Association. The good ones will give people a reason to visit their stores instead of shopping online, whether it be group rides or espresso. Some shops may even embrace the advent of direct sales entirely and choose to focus on higher-margin aspects of the business, such as selling accessories and providing service. 

But Gutierrez isn't worried. "If [Canyon] does a lot of sales, they’re going to have to be serviced," he says. "Those customers are going to need shoes, pedals, helmets, computers. It’s not about the bike, not all the time."