Make Room for the Big Green Square, Part 2

Last week, we published a post discussing MEC and their relationship with the cycling industry to this point. You can find that article

here.

In Part 2, we will consider the possible consequences that the MEC-Ridley deal with have on the industry, for consumers, MEC, and the LBS

.

Price

. As we discussed in part 1, MEC has Ghost bikes priced well below the competition, so we can assume a similar pricing model with Ridley. Not so fast. Some online comparison shows that MEC isn't really significantly different than the rest of the industry. They have an Ultegra spec Helium priced about 10% more than a Felt F4 and Fuji Altimira, the same as a Giant TCR Advanced, and about 10% less than a Cervelo R3, Trek Madone 5.2, or Cannondale Supersix EVO 3. While we consider the Ridley brand to be more in line with the latter group of bikes, and when it comes to actually laying down the cash, 10% is nothing to scoff at, the point is that it is reasonably close, not thousands of dollars cheaper.

We think that there will be more than a few customers that will automatically assume that MEC will have the lowest price, just because it is MEC. As we can see this is not the case. To be fair, MEC isn't misleading anyone, or saying that they have the best deals, but, whether intentional or not, they will be taking advantage of established perceptions.

There is also the fact that MEC operates as a Co-op. This means that they are afforded special tax status that can give them a competitive advantage over regular retailers. This debate has been covered many times over the last few years, so I do not intend to get into it here, but it should be noted either way.

An important side effect from the MEC deal is that it will now be quite difficult to get a Ridley bike from anywhere other than MEC. Since the deal with MEC was direct to store, bypassing the usual channels, the Canadian distributor* of Ridley has dropped their line.

  This makes MEC a near-exclusive dealer of Ridley bikes. I spoke with one LBS (one of the first shops in Canada to sell Ridley) and while they plan to continue to sell Ridley in order to support their established customers, the lack of distributor will make it very difficult for them. Kudos to a store thinking of their customer base first, and not geting caught up in the business and politics out of their control.

*

For those who don't know, distributors operate as middle-men between manufacturers and individual shops. They operate warehouses within their region and deal with imports and customs on products.

Brand image.

We can imagine that it was important for MEC to partner with a company with a vetted reputation in order to bring legitimacy to their higher-end road and cyclocross ambitions. In this, they have definitely succeeded. Unfortunately for Ridley, image and perception is a two way street. So, if having Ridley raises MEC's status, it lowers Ridley's just the same, putting them both somewhere in the middle.

For some who are already fans of the brand, this new partnership will sting a little, likely seeing this as selling out. And, lets be honest, that is what they did: they made a financial decision. However, it is hard to fault them for it. As with Ghost, MEC offers a very enticing opportunity to a small company: physical stores, distribution, established membership, and the finances to pay for it all. It was a 'right now' decision, and we do not yet know what that means for the brand long term. It may be the case that the Canadian market is so small that Ridley felt that, globally, their image would not suffer enough to hurt the brand, while significantly adding to their revenue stream. The reward is worth the risk.

There are more than a few in the industry that do not feel the same way. Another manufacturer with a similar market position to Ridley, is rumored to have agreed in principal to a deal with MEC, only to back out of the deal once they further looked into MEC and better understood their market position. Not definitive by any means, but a telling example of how others in the industry view MEC.

In addition, there is a certain negative connotation with having your bikes available for sale online. Many manufacturers do not allow sale of their bikes online, and there is a current industry trend moving away from it (Focus is the most recent one that comes to mind) To quote the CEO of Focus:

...we’ve decided that the IBD (independent bicycle dealer) channel is the one that best matches our commitment to service and brand building. We really pride ourselves on top-notch products and superior customer service, and believe that the IBD best represents that to our consumers and their experience of the brand.”

It will be interesting to see how this deal effects these brands in terms of both public and industry perceptions, over the long term.

Target Market.

I am sure that MEC has looked at market studies and knows how cycling is growing every year, and wants a greater piece of the pie. The two ways to do that are to either sell more to your current customers, or reach out to markets you are not currently serving. Obviously, MEC wants to get a piece of the mid-to-high end road market.

In terms of their current membership, I do not think that there is a ton of pressure for higher-end (and more expensive) bikes. My experience has been that many of MEC's customers are in line with their original bike business model: commuters and entry level cyclists who hold value as a top priority. To those people, there isn't much value in a 3 thousand dollar bicycle.

So if current customers are not the target, then it is new ones. This has been MEC's strategy over the last few years in other areas of outdoor life. The have recently gone against their 'backcountry' roots and started offering products that are more suited for 'car camping', much to the chagrin of long time members. The stated goal of getting into car camping is to tap into the 'new immigrant' demographic, and get them into the store. This venture into higher-end road bikes is no different: trying to tap into people who are interested but do not know where to begin.

In my opinion, MEC's greatest opportunity lays in tapping into this potential revenue stream. Many people are intimidated by the smaller, boutique shops, embarrassed to ask basic questions or browse around. Large store like MEC can be more inviting, and easier to browse without having to commit to talking to anyone, just blend in with other customers. MEC definitely offers a low pressure sales environment.

For those already interested in cycling, or has specific ideas about what they want, MEC offers few choices, or ways to further advance your experience. They do not yet offer custom builds, SRAM or Campy drivetrains, high-end wheel builds, tri and tt bikes, advanced bike fit, etc. That is where the LBS comes in. Every major city has a range of different shops that specializes in catering to specific areas of the market, and their vast knowledge is vital in maximizing your experience.

However, in order to stay competitive, the LBS is going to have to ensure that they maintain an open and inviting environment. A recent industry report put out by the Gluskin Townley Group maintains that shops need to become more inclusive and less exclusive, inviting people into their shops in order to develop relationships and have conversations with potential customers.

The leading demographic in the criteria of new cyclists is the female cyclists. Women are fast becoming a majority player in the cycling market, and retailers are going to have to adapt to keep up. In order to do that, they are going to understand that the needs and desires of this group are different than their traditional customer base. My amateur psychology assessment of the female cyclist, compared to their male counterparts, is that they are less 'thing' focused and more 'experience' focused. What I mean is, they don't care nearly as much about the gear (bikes, wheels, components), which are just tools to get to what is important, the experience (riding, fitness, transportation). It is because of this that the female shopper is more price conscious and less susceptible to the emotional appeals of a 'really cool bike'. Your average female cyclist just wants a good, reliable bike that is a good value and looks good

(that is not to be sexist, I also care very much about my bike's aesthetics.) What I mean to say is that the average female buyer has looks/color higher on their list of desirable bike attributes than, say, racing heritage.

That is not to say the Ridleys racing heritage can't be used to enhance the 'story' of the sale.

Conclusion

As discussed with above, brand, image, and perception are very important features in the higher end bicycle market. Lets be honest, nobody NEEDS a $3000 bike. The act of riding can be achieved for much less money. Yet many of us spend that, and much, much more. Cycling is a lifestyle choice, which means we are conscious about what our choices say about us as people. MEC's success in the road bike market will depend on how they are able to sell their brand as a place for high end cycling.

Their pricing is competitive with the rest of the industry, so they offer no advantage there. So, as with the rest of the industry, the difference will come down to customer service and personal shopping preference. MEC may have an initial advantage to the 'new cyclist' demographic, but that gap will be easily closed by any savvy shop willing to work to offer an enhanced customer experience. Also, while MEC offers a breadth of product, they do not currently have the depth to serve the particular rider.

In conclusion, while MEC entrant into road cycling is important, it is not as significant as one may first think. Time will tell if Ridley gives them the edge that they were hoping for.