cervelo nixing online sales and customers react

[Climb01742]

if you want to see an interesting glimpse into the state of manufacturer/retailer/customer relationships in the bike world today, take a read:

http://www.cervelo.com/en_us/news-blog/article/new-focus-for-cervelo-consumer-sales/2595/#comments

most eye-opening is to read the 69 comments. there's really something broken in the chain of relationships in the bike biz these days.

rightly, manufacturers are trying to control their brand and their sales.

rightly, retailers are trying to make a living, both brick+mortar and online.

and rightly, customers are trying to find someone, anyone who will treat them right.

i have no opinion on cervelo's move except that it probably hurts competitive cyclist and brendan is a pal and has always done right by me. but this is a revealing snapshot of the contentious nature of the sales chain in the biz.

over the next few years it will be interesting to see how the biz realigns itself.

[CNY rider]

My "LBS" per the Cervelo locator on their site is in Syracuse over 2 hours away from my home.
I have never been to that shop nor would I ever have reason to go there.
I do however enjoy shopping at Competitive Cyclist and if I were looking for a commodity carbon bike like a Cervelo that's where I would buy it.
Without that option I would just pick something else.

[ergott]

"This means that in 2011, you will have two ways to order your Cervélo in North America: in your local Cervélo store or at cervelo.com, but not at individual online retailers. For orders placed online, the local retailer will then arrange the delivery with you, usually directly out of their stock. Delivery options will include in-store pick up and home delivery. This gives the consumer the best of both worlds; the convenience of ordering online along with local service and support whenever you need it."

Does CC have a brick-and-mortar location?

[AngryScientist]

in conjunction with that, here's competitive cyclists take on it. very classy, as usual.

http://www.competitivecyclist.com/whats-new/the-wind-tunnel-is-not-meant-for-macroeconomic-testing.385.html

[CNY rider]

Does CC have a brick-and-mortar location?

I believe they do but that's not relevant.
They specialize in internet retail, and have a successful model for satisfying internet shoppers.
Most LBS's haven't got the foggiest idea how to do succesful internet based retailing.
Who is more likely to make me a satisfied customer: CC or the shop I've never been to 2 hours away that is now going to do "home delivery", whatever that means, for the first time?

[oldpotatoe]

if you want to see an interesting glimpse into the state of manufacturer/retailer/customer relationships in the bike world today, take a read:

http://www.cervelo.com/en_us/news-blog/article/new-focus-for-cervelo-consumer-sales/2595/#comments

most eye-opening is to read the 69 comments. there's really something broken in the chain of relationships in the bike biz these days.

rightly, manufacturers are trying to control their brand and their sales.

rightly, retailers are trying to make a living, both brick+mortar and online.

and rightly, customers are trying to find someone, anyone who will treat them right.

i have no opinion on cervelo's move except that it probably hurts competitive cyclist and brendan is a pal and has always done right by me. but this is a revealing snapshot of the contentious nature of the sales chain in the biz.

over the next few years it will be interesting to see how the biz realigns itself.

Probably in an effort to control the price, and protect the LBS, but mostly in an attempt to control the price. I think it's a little heavy handed, there are other ways to ensure the product isn't deeply discounted via MO.

Online sales are huge. LBS' need to find ways to compete, like in unique to the store items, like clothes or frames NOT found online and of course, service.

[djg]

Certainly it's a strategy that can make sense for some of their customers (end-consumers -- the riders) and some of their dealers. Equally certain is that it's the sort of thing that cannot serve all customers well. The downstream controls on distribution and sales are justified by "extras" beyond the bike that need to be paid for -- evaluation, fitting, build, support, etc., etc. Some customers want the whole bundle and are happy to pay for it. Others, who do not want or need such extras, might prefer the convenience or lower prices that can be had by mail.

It's also a strategy that doesn't serve customers who simply don't receive the extra support from their shop. I have a terrific LBS and I actually bought a Cervelo TT bike from them. Good folks, excellent support (and team sponsors). Not everybody can say the same about a convenient LBS. If I had poor local service, ordered direct from Cervelo on-line, but had to pay full retail price and drive an hour to pick up my bike from a shop with which I had no relationship . . . well, I might be pissed, but really, I might just buy something else.

Cervelo is making a move that could work very well or not. They and we will see whether the first pile of customers is bigger than the second -- or, ultimately, whether this shores up their bottom line.

[Smiley]

Back in my rep days no shops wanted to carry Litespeed cause Colorado Cyclist would always under cut them in price. So BIG deal, nothing new here. Buy a Serotta and get u some of that Concierge service. And now you can have some of your purchase price go to chairity too.

CC is right 2011 will be a tough year for Cervelo as this was an ill timed decision.

[1centaur]

Two things jumped out at me.

In the comments section, the antipathy towards the LBS was very high. While I think a lot of people enjoy buying things online for convenience and selection, they would not write, "ugh, I'd hate to go to Barnes & Noble to buy a book." If I ran an LBS I'd look at that sentiment long and hard and view it as an opinion poll. That said, there's selection bias from online readers who feel passionate enough to respond. I guess most Cervelo buyers are not actually using online sources.

The second item that jumped out was the word "usually," as in the bike ordered online would "usually" be delivered from the LBS's own stock. I think that will prove to be untrue, and I suspect both sides already know it. It is extremely difficult to balance warehouse vs. retail inventory at optimal levels if you do not have predictable demand patterns. When the retail is a different company from the warehouse, there's a conflict - neither wants the inventory but both want the sale. How do the margins get split? If the dealer gets the same margin whether the bike is ordered in the store or online, they won't be willing to buy much inventory (no more than they can sell to walk-in buyers easily). If the margin is higher for in-store ordering to encourage inventory at retail, the LBS feels pressure to optimize without piling up working capital and every store will approach that differently. Risk vs. return is a personality test as well as a rationality test. Cervelo has no clue how that will play out.

What I think Cervelo is trying for is eliminating the margin squeeze of volume discounts to CC and others while trying to extract the logistics of delivery from their dealer base and themselves that CC produced. Good luck on that latter point. Presuming MSRP is what the LBS sells for, MSRP plus FedEx for 40 miles from the LBS one won't visit to my house is a lot of money and will every LBS pack that right? Are they set up to send frames or complete bikes like CC was? I think the burden will be on the consumer to trek the 40 miles to the store they don't like to eliminate costs and uncertainties after the guy on the phone says, "well, we COULD pack it up for you for $75 and you'll just have to attach the handlebars, but we can't get it out for a couple of days because we're backed up right now, so you might want to pick it up."

I suspect that CC's Cervelo sales might have slipped lately as they introduced a lot of competitive price point carbon bikes. Simultaneously, LBS's always complain to manufacturers (and customers) that the Net's undercutting their sales. This was the outcome. It's not clear staying at CC would have been a winner either if growth is the goal. They probably had to try something, but executing it will be difficult.

[Climb01742]

Two things jumped out at me.

In the comments section, the antipathy towards the LBS was very high. While I think a lot of people enjoy buying things online for convenience and selection, they would not write, "ugh, I'd hate to go to Barnes & Noble to buy a book." If I ran an LBS I'd look at that sentiment long and hard and view it as an opinion poll.

that's what really jumped out at me. this degree of antipathy coupled with ever-expanding online sales (that's a genie that ain't ever going back in the bottle) and LBSs have a one-way ticket to dinosaurville.

if you could ever buy a car online, car dealers would be in the same boat. too bad LBSs don't have state legislatures in their pockets the way car dealers do.

[AndrewS]

It seems like Cervelo is trying to un-do a mistake it made early on: Selling online at all. While online sales are clearly huge, I think they dilute branding and effectively lower the perceived value of a brand.

Cervelo does not want to become Kestrel. The carbon market is finicky - brand loyalty is largely based on "what's hot", rather than a perception of long competence in bicycle design. Cervelo has been fortunate to receive the accolades it does and the price point it occupies considering it's a 100% made in China. That's worked so far, but just how much does it take for Blue, Focus or Wilier to unseat them in the public perception? When your sales are online, your brand becomes no more than the latest frame weight and aerodynamic numbers. But when you are an LBS brand, you can do things like make virtually the same frame for 12 years, and be lauded for it, like Trek managed with the OCLV series.

I think they are trying to increase their longevity in the market by appealing to the exclusivity of brands like Seven, IF, Parlee and Serotta who have narrower sales channels. While this may damage total sales volume in the next few years, it is a way to keep being a high end brand in the public perception, rather than an also-ran like Litespeed and Kestrel, who weren't so careful. So this move might insure slower but constant sales 5 to 10 years down the road, instead of a sell off of the brand name in 3.

[allegretto]

It seems like Cervelo is trying to un-do a mistake it made early on: Selling online at all. While online sales are clearly huge, I think they dilute branding and effectively lower the perceived value of a brand.

Cervelo does not want to become Kestrel. The carbon market is finicky - brand loyalty is largely based on "what's hot", rather than a perception of long competence in bicycle design. Cervelo has been fortunate to receive the accolades it does and the price point it occupies considering it's a 100% made in China. That's worked so far, but just how much does it take for Blue, Focus or Wilier to unseat them in the public perception? When your sales are online, your brand becomes no more than the latest frame weight and aerodynamic numbers. But when you are an LBS brand, you can do things like make virtually the same frame for 12 years, and be lauded for it, like Trek managed with the OCLV series.

I think they are trying to increase their longevity in the market by appealing to the exclusivity of brands like Seven, IF, Parlee and Serotta who have narrower sales channels. While this may damage total sales volume in the next few years, it is a way to keep being a high end brand in the public perception, rather than an also-ran like Litespeed and Kestrel, who weren't so careful. So this move might insure slower but constant sales 5 to 10 years down the road, instead of a sell off of the brand name in 3.


Ding ding ding, I think we have a winner here folks

Cervelo wants to be like the boutique brands but bigger

They will have controlled distributorship, their dealers will be profitable.

You want an S3 that starts in 56, fine, a mule is shipped to your LBS-"Authorized Dealer" for final finishing and fitment FedEx overnight. Costs less to do this than to ship and have a dealer "carry" it with how efficient shipping can be now. The dealers will not only extract top dollar, but their inventory costs can be next to nothing since they stock next to nothing and can have your frame built in 48 business hours, ready for a "fit" for more $$$

Their new R5CA is NOT MIC. If it is as successful as they hope, expect more MIUSA/MIEU models.

If the new models are good, everyone, even us, gains

[Charles M]

... Presuming MSRP is what the LBS sells for ....

That's the fun part here.

Local retail rightfully complains about the internet.

But in place of that, Local retail also constantly complain about other local retail, and I've not ever been to a bike shop that wouldnt beat the best price I brought them.

What Cervelo wanted to do was kill the one common enemy in online sellers that dont respect SRP.


Cervelo know their market share and where it's sold and they know it better than all of us do (we also may be overly sesitive to internet sales as a chat room audience...). And they're not relatively stupid. If they feel online sales were a small enough portion of their sales, they will be fine.

They're also fine in the case that they've offered deals at and ahead of this announcement that secured 2011 (one would need to be a Cervelo dealer of substance to know if that happened).


But "solving" online price problems only resolves online price problems. That's it.

[1centaur]

While this version (allegretto's) conflicts with the PR that said the bike would usually come from dealer stock, let's think about this business model.

Cervelo acts as a Just In Time manufacturer. JIT is great for the retailer IF the deliveries are crisp but DOES reflect inventory risk for Cervelo. Do they hold the bikes in Chinese subcontractor warehouses or in a North America DC? The former means high shipping costs, the latter means high inventory costs. Or, as Blockbuster tried when they were chasing Netflix's subscription model, do they use retail as the DC and ship store-to-store on Cervelo's account (messy)?

Now let's look at the build-in-48-hours concept. My impression from many LBSs is that their wrenches are booked 1-2 weeks in advance. Does a Cervelo sale somehow jump that queue? That would not be good business. So realistically, a customer comes into the LBS, sees and likes a Cervelo, and either buys something out of inventory or somehow makes the decision to buy a 56 when only a 54 is in inventory (let's pretend test rides don't exist). The order goes to Cervelo who ships from a North American DC in order to get it there in 2 days, it is built up in the next 5-7 days and the customer comes back to pick it up. Perfect transaction is 10 days apart. This loses the buy-it-now consumer and the don't like the LBS consumer, both of which CC did better for. Cervelo swaps inventory risk for margin compression. LBS is somewhat happier. Does not sound like a plan.

More likely IMO is Cervelo puts as much inventory in LBS hands as possible (a la Trek and Specialized) with the assurance their inventory will not be undercut by online sales and the promise that if they lack the stock the customer needs Cervelo will get them fast delivery. Shared inventory risk and the same margin benefit for Cervelo while losing the don't like the LBS customer.

There aren't many business model choices in the bike business. If Cervelo can think of it, Trek and Specialized have too. I'd guess Cervelo would be more likely to lean towards what works than to try something novel that the leaders have presumably rejected.

As for fitting, other brands have long been sold with a fitting included in the price. Can't see Cervelo going full price plus a fitting fee.

[Climb01742]

whatever the details are, cervelo is placing (at least a temporary) bet on a declining sales model (brick+mortar). that's like buying shares of cunard in 1960 instead of boeing.

[allegretto]

While this version (allegretto's) conflicts with the PR that said the bike would usually come from dealer stock, let's think about this business model.

Cervelo acts as a Just In Time manufacturer. JIT is great for the retailer IF the deliveries are crisp but DOES reflect inventory risk for Cervelo. Do they hold the bikes in Chinese subcontractor warehouses or in a North America DC? The former means high shipping costs, the latter means high inventory costs. Or, as Blockbuster tried when they were chasing Netflix's subscription model, do they use retail as the DC and ship store-to-store on Cervelo's account (messy)?

Now let's look at the build-in-48-hours concept. My impression from many LBSs is that their wrenches are booked 1-2 weeks in advance. Does a Cervelo sale somehow jump that queue? That would not be good business. So realistically, a customer comes into the LBS, sees and likes a Cervelo, and either buys something out of inventory or somehow makes the decision to buy a 56 when only a 54 is in inventory (let's pretend test rides don't exist). The order goes to Cervelo who ships from a North American DC in order to get it there in 2 days, it is built up in the next 5-7 days and the customer comes back to pick it up. Perfect transaction is 10 days apart. This loses the buy-it-now consumer and the don't like the LBS consumer, both of which CC did better for. Cervelo swaps inventory risk for margin compression. LBS is somewhat happier. Does not sound like a plan.

More likely IMO is Cervelo puts as much inventory in LBS hands as possible (a la Trek and Specialized) with the assurance their inventory will not be undercut by online sales and the promise that if they lack the stock the customer needs Cervelo will get them fast delivery. Shared inventory risk and the same margin benefit for Cervelo while losing the don't like the LBS customer.

There aren't many business model choices in the bike business. If Cervelo can think of it, Trek and Specialized have too. I'd guess Cervelo would be more likely to lean towards what works than to try something novel that the leaders have presumably rejected.

As for fitting, other brands have long been sold with a fitting included in the price. Can't see Cervelo going full price plus a fitting fee.


Fair enough, and perhaps that's it but

While I'm sure you know more stores than me, here in the Chicago Area you would be hard-pressed to find a dealer who will tell you he can't get your spiffy multiple kilo-buck rocket ready in a day or two if you showed up with a checkbook and the parts are reasonably accessible. At least not at the dealers I've been to and they include the usual suspects. The successful B&M's know it they don't have it soon, someone else will.

CC ran an MSRP shop. In fact what gets me about the whole bike thing is how little discounting there is as opposed to other systems.

But, heck maybe you have it nailed as to their intent. I just thought that they might be headed in the other direction with their product and corp philosophy. If they want to go toe-to-toe with TREK and Specialized, so be it...

[AndrewS]

whatever the details are, cervelo is placing (at least a temporary) bet on a declining sales model (brick+mortar). that's like buying shares of cunard in 1960 instead of boeing.
Or, it's like Trek, Specialized, Serotta, IF, Seven and all the other brands that have avoided diluting their brand name via mail order. You know, all those companies that still set their own prices, and get them.

[torquer]

Funny coincidence, I was just thinking about an unresolved problem I've had with a return sent to Competitive Cyclist, and how much easier it is to deal with a shop, with a live person (sometimes even the owner). I've certainly had my share of issues with various LBSs, but at least I've always had someone to raise them with, and if they told me to go suck eggs, fine, that still beats the radio silence CC has been maintaining.

All this over a $30 pair of gloves. Not that I expect to be in the market for a Cervelo in any case, but CC would hardly have been the first site I would have clicked on.

[Not the Slowest]

A local Boutique (now defunct) Bike shop sold only custom
or upscale bikes which generally sold for full list price. They avoided selling any bike that you could buy online. The logic from them was that "How can we stay in business and offer hands on service and lose money on every sale"?
Meaning you came in, saw a bike then ordered it from someone less for 20% less, a fair point.

Then from the manufacturer like Cervelo they may want to protect their distributors. Of course by having the bike shop assembling the bike it also preventss liablity issues from people not assembling the bikes to spec.

Now, MY QUESTION is will Bikes sold from Cervelo.com be shipped to the individual or to a store for assembly?

Will the LBS get Credit=$$$? If not why sell them at all?

[benb]

I don't know how long I have to ride for before I felt like I knew enough about myself and enough about bikes that I'd try buying a new, full price bike online. I've been riding 10 years, and had 4 road frames. Maybe when I'd been riding 2 years I might have tried it, but I've learned my lessons. :) Now components, I'll buy those online, and if you're talking a used bike, I'd buy that online.

I don't like what Cervelo is doing, cause they're screwing their online business partners who helped them along the way, but at the same time I'd never buy a complete new bike from an online retailer, especially one like CC. It just seems too risky at CC's prices.

I found the comment on the Cervelo site about R&A not allowing test rides incredibly amusing. Of course the LBS deserves to die if they won't even let you test ride something that costs so damn much. "High End" must mean "Thank you sir may I have another!" in NYC.

[EDS]

It seems like Cervelo is trying to un-do a mistake it made early on: Selling online at all. While online sales are clearly huge, I think they dilute branding and effectively lower the perceived value of a brand.

Cervelo does not want to become Kestrel. The carbon market is finicky - brand loyalty is largely based on "what's hot", rather than a perception of long competence in bicycle design. Cervelo has been fortunate to receive the accolades it does and the price point it occupies considering it's a 100% made in China. That's worked so far, but just how much does it take for Blue, Focus or Wilier to unseat them in the public perception? When your sales are online, your brand becomes no more than the latest frame weight and aerodynamic numbers. But when you are an LBS brand, you can do things like make virtually the same frame for 12 years, and be lauded for it, like Trek managed with the OCLV series.

I think they are trying to increase their longevity in the market by appealing to the exclusivity of brands like Seven, IF, Parlee and Serotta who have narrower sales channels. While this may damage total sales volume in the next few years, it is a way to keep being a high end brand in the public perception, rather than an also-ran like Litespeed and Kestrel, who weren't so careful. So this move might insure slower but constant sales 5 to 10 years down the road, instead of a sell off of the brand name in 3.

Did Trek made the same frame for 12 years?

[AndrewS]

With only minor changes, the OCLV 5500 frame was sold between 1992 and 2004, until the Madone came out. They changed carbon formula in 2001 and went to 1 1/8 and created a different formual for the 5900 for Lance. The 2004 even had DT shifter braze ons. All other major changes were to the forks, the best of which was switch to Klein's fork, also in 2001. The bikes barely changed weight, and even the 5900 only lost an ounce over the original.

And really, it's 15 years, since the 5000 frame ran until 2007, still with DT mounts.

[benb]

Changing the carbon formula or changing the fork diameter might as well be a complete redesign from an engineering aspect.

They just didn't change the external appearance much.. maybe angering the marketing folks and the LBSes that couldn't get people to needlessly buy a new bike.

[AndrewS]

Changing the carbon formula or changing the fork diameter might as well be a complete redesign from an engineering aspect.

They just didn't change the external appearance much.. maybe angering the marketing folks and the LBSes that couldn't get people to needlessly buy a new bike.
Maybe, but considering the frame looks and weighs almost exactly what it did before, I doubt it. Especially when you consider that OCLV frame head tubes are a seperate unit from the rest of the bike and may be created without affecting the rest of the design.

And they didn't seem to anger anyone when they introduced the non-round top tube Madone in 2005.

[waychel]

[snip]I found the comment on the Cervelo site about R&A not allowing test rides incredibly amusing. Of course the LBS deserves to die if they won't even let you test ride something that costs so damn much. "High End" must mean "Thank you sir may I have another!" in NYC.

R&A is one of the least customer-friendly bike shops that I've ever been to. I wonder how Cervelo's decision will affect it. I know that R&A does a pretty big volume of online sales.

[victoryfactory]

Another shop that is (was?) a big online Cervelo dealer is Excel Sports in Boulder CO.
I guess some will see this change as a part of an industry
trend that strengthens the LBS business but I have got better, more knowledgeable service and better selection/prices
over the years from Excel by phone/UPS than I have
from any LBS around here. Having said that, buying frames or complete bikes
on line is really only for very experienced riders who really know what they
want, I think.

VF

[oldpotatoe]

1 Centaur writes-"More likely IMO is Cervelo puts as much inventory in LBS hands as possible (a la Trek and Specialized) with the assurance their inventory will not be undercut by online sales and the promise that if they lack the stock the customer needs Cervelo will get them fast delivery. Shared inventory risk and the same margin benefit for Cervelo while losing the don't like the LBS customer."

Except the inventory risk is not shared, it is placed on the retailer when they are 'forced' or 'encouraged' to have high levels of inventory..since the retailer is not part of Cervelo, buys what he has. If there were 'Cervelo concept stores', partially owned by Cervelo(not likely) then the inventory risk is shared but surviving retailers own their inventory and hope they sell it at MSRP(which is normally low at about 35%). Discounting at all means they lose $.