Whether one
looks at professional cycling, commuting, or recreational riding
(including mountain biking), these are interesting days for the bicycle
industry. While it's not a massive economic sector -- the biggest player
is about a 2 billion USD company -- bicycles are one of the few
products that are sold essentially everywhere, from the developing world
to New York boutiques. As a result of this ubiquity, bicycles can
provide some useful insights into contemporary business and economics.
Sport
As the Tour de France recently showed, cycling is an
international sport with great appeal at the professional level: great
riders have come from all over Europe, Russia and nearby nations, the
US, and now South America. Much like soccer and unlike American football
or basketball, physical stature isn't really an advantage: anyone can
take up racing. George Hincapie and Bradley Wiggins are both 6' 3" while
the great Greg LeMond raced at about 5' 9". Somewhat
counterintuitively, as Lance Armstrong realized, the world championship
or an Olympic medal can mean less, commercially anyway, than a TdF
title. Riders at the top level can earn superstar money: England's Mark
Cavendish, a former world champion and superb sprinter currently ranked
23rd in the world, was worth an estimated $8 million in 2012, while
Peter Sagan, a promising young Slovak, is reported by an Italian
newspaper to be in the running for a 4 million Euro contract for 2015.
Add in endorsements, where the big money is (cycling race purses are
tiny), and Armstrong's estimated $125 million net worth becomes
plausible.
At the corporate level of racing, Amaury Sport Organization, a
family-run company that owns newspapers and produces sporting events
including the TdF and the Paris marathon, is estimated to be a $200
million enterprise. As the Armstrong matter showed, governance in the
sport can be complex, with national teams, the global cycling body
(UCI), sponsors, broadcasters, and ASO all having various motives and
stakes in the sport. Move into extreme sports, and ESPN (via its X
games) becomes a very different kind of broadcast partner.
Bikes
On the manufacturing side, there are four major bike
makers. The field is dominated by the aptly-named Giant, headquartered
in Taiwan, which makes both complete bicycles and frames at all levels,
including road, commuter, and mountain models. The other three main
players are Cannondale (part of the same Doral conglomerate that makes
Cosco child seats and currently owns the Schwinn brand), Specialized out
of California, and Wisconsin-based Trek. Other large frame-makers are
based in Italy, Germany, Spain, and North America. The vast majority of
frames are manufactured in Asia (usually not by the company whose name
goes on the bike), though Trek still lays up some carbon-fiber frames in
Waterloo, Wisconsin. For a price, riders can get a US Trek, custom
painted, and they're gorgeous.
In components (the moving pieces that attach to the frame), Japan's
precision manufacturer Shimano has been around the longest and earned
$2.6 billion in 2012 revenues; the bicycle business is about three
quarters of that while fishing tackle is most of the remainder. The
other major player is younger: SRAM was founded by four MBAs in Chicago
and continues to be run from a business focus. In 2008, for example,
SRAM took $235 million from the former buyout arm of Lehman Brothers,
and an IPO has been mentioned of late, but not scheduled. SRAM has grown
through acquisition, most notably of the Rock Shox mountain bike
component company, and is currently about a $500 million company. In
third, size-wise if not by racing heritage, is the Italian firm
Campognolo.
Stores
At the retail level, bicycle shops are a tough business.
In much of he world, there's seasonality. Inventory is expensive, with
manufacturers having leverage over mom-and-pop shops that must buy ahead
of demand. In the mass market, big retailers like Sears enjoys volume
buying power, while in the specialty market, competition can be intense.
After 100+ years, genuine innovations are rare, and get copied quickly
in most cases. Given the component group oligopoly, sustained radical
differentiation in complete bikes is extremely difficult, but branding
effects can be significant -- hence the heavy marketing budgets,
including racer sponsorships. Not that long ago, Lance Armstrong
basically put Trek on the map. Given the carrying costs, the
seasonality, and the comparability between rival brands, bike shops must
compete on service and high-margin accessories such as clothing, racks,
tires, and so on. Here, labor economics enters the picture: lots of
bike mechanics love bikes, love riding, and work in part for product
discounts. After a time, that can diminish as a motivator, especially as
families and mortgages come into play, so employee turnover can be an
issue.
No nationwide chain of bike retailers has emerged; instead, several
regional chains include Performance Bike out of Chapel Hill (that owns
the apparently competing BikeNashbar.com catalog+web business) with 90
stores, BikeStreetUSA's 17 stores in the southeast, and Mike's Bikes' 11
stores in northern California. The economics of local bike shops (LBSs
are they're known in the US) are interesting: according to a trade
group, the roughly 5,000 LBSs in the US sold 17% of the units but
accounted for half the revenue in 2007. Big chains including Wal-Mart
and Toys 'R'Us, meanwhile, moved 73% of the units while collecting 36%
of revenues. Online retailers are plentiful, and a constant threat to
LBSs. Backcountry.com, based in Salt Lake City, has revenues of roughly
$300 million and is part of Liberty Media -- the parent of QVC, the
Atlanta Braves, and part owner of Live Nation and other media
properties: all told, an $11 billion operation. In 2011, Backcountry
bought Competitive Cyclist, with estimated revenues of $30 million in
the very high end of the market. Online retailers can offer substantial
price discounts, particularly on the high-margin items that keep LBSs
afloat.
With any bike but especially for expensive models, fit is
particularly personalized. While some manufacturers certify dealers in a
particular fitting system, the process is generally time-consuming,
whether or not a system is used. In a given frame size and system of
angles (not all 54 cm frames are shaped the same way), a fitter can:
*adjust the seat up and down
*move the seat back and forth
*tilt the saddle
*raise and lower the handlebars
*rotate the handlebars
*adjust the placement of brakes and shifters on the handlebar
*bring the handlebars closer in or push them farther out
*select pedals from several different system philosophies
*adjust the cleats bolted to the shoes that clip into the pedals
*choose different crank arm lengths to connect the pedal to the front gear, and
*work on the angle of the foot inside the shoe.
Each adjustment affects most of the others, and no two riders are
alike: body weight, body proportions and ratios, leg strength, back
tightness, neck flexibility, shoulder range of motion, balance, and
desired riding goal all vary, sometimes considerably. From a retail
perspective, the process can be a time sink -- but it's a crucial
advantage of the LBS over online retailers that have considerably
greater buying power. For their part, the online retailers have
developed sometimes sophisticated fit calculators, liberal return
policies, and libraries of YouTube videos to counteract the local
advantage.
Global ridership
The global bicycle market has so many local
nuances it's difficult to generalize. One trend is toward off-road
cycling in beautiful parts of the developing world as a form of tourism;
pedal taxis and farm produce haulers still constitute a major segment
worldwide. In China, bicycle use is declining as automobiles gain market
share. For our purposes, the more salient development is the rapid rise
of bicycle commuting in the US. The numbers are moving off of a small
base: Portland, Oregon leads the US with 4.2% of commuters using bikes,
but in Copenhagen bicycle commuting is 9 times as popular, at 37%.
Chicago has seen bike traffic increase 120% from 2000 to 2009 -- but the
former population was only .5% of the commuting public. In New York,
more people are riding, but issues related to statistical calculation
mean that most people can't agree on the numbers. Among the issues: do
you "commute by bicycle" if you ride 3 days a week? What about if you
ride to the grocery but not to work? How are people who haul their bike
on the bus counted?
Mayor Bloomberg has increased the mileage of bike lanes and
encouraged a bike-sharing program, much to some people's dismay and thus
one reason for statistical disagreement. (For comparison, New York's
public Citi Bike program has 6,000 bikes, while Paris has 14,000, London
has 8,000, and San Francisco launches this weekend with 600, helping
the total US bike-share fleet double in the past year). The relationship
between cyclists and cars can be delicate anywhere, but in a city,
tempers are often high. Cyclists are understandably fearful of getting
"doored" by a driver who doesn't look; motorists who may be trying to
drive carefully grow tired of daredevil cyclists who ignore stop signs,
harass pedestrians, and flip a middle finger at people who protest.
Similar debates are underway in Chicago, Paris, and elsewhere, where
mayors try to increase urban quality of life at the cost of vehicular
convenience.
Bike manufacturers and others are attempting to capitalize on the
commuter phenomenon. New frame shapes, tires, and seats are aimed at
this segment. Gates (the fan belt people)
has introduced a belt drive system that eliminates chain ring teeth and
chain grease, two enemies of riders wearing work clothes. The challenge
is getting the belt inside the rear triangle of the frame; chain links
are an ideal solution from that standpoint. For five years Levi's has
sold a water-resistant line of jeans that address the needs of this
population and must be doing well: they are priced at a premium and
hardly ever go on sale. Messenger bags are a staple of many companies' lines, joining the ubiquitous backpack as a default shape.
Social media
Much like runners, serious riders can be highly
attuned to workout logs, social rankings, and personal bests. A number
of online services address this set of impulses, among them Mapmyride,
Fitocracy, and Bikemap. One app that has gained traction is called
Strava. It runs on a freemium model: no ads, clean interface, GPS and
/or heart rate monitor integration. One feature allows anyone to denote a
stretch of road as a "segment," so when riders traverse that stretch
with the smartphone app running, their performance is automatically
plotted on a leader board. The Premium service allows people to slice
the leader boards more finely, facilitating comparisons within age
groups and not just overall ranking, which is standard on the free
version. Knowing the population, it seems like a safe bet that people
are paying up.
Much like the GoPro DV video camera, Strava has unintended side
effects among an outdoorsy, adrenaline-driven population. In the process
of trying to set speed records on segments, Strava riders have been
known to blow through traffic lights and otherwise disregard their
surroundings. Just as some ski resorts have contemplated restricting
GoPro cameras to try to keep outrageous stunts under control, it seems
like a matter of time before law enforcement, park management, or other
authors forbid Strava-powered virtual competitions on certain roads or
trails.
Where next?
Bicycles are made of many materials: steel, aluminum,
titanium, carbon fiber, and hybrids of the above. But all of these
materials are relatively expensive: how can entrepreneurs sell more
affordable bikes to the poorest, the "bottom of the pyramid"? Many
experiments with paper/cardboard have been tried but none have solved
the engineering and economic challenges. (See here ). Similarly, air-filled tires have their drawbacks but solid alternatives work only in particular circumstances.
At the infrastructure level, the world's growing population is
straining bicycle routes just as it stresses roads, bridges, and
airports. Given how many people ride to work in Copenhagen, for
instance, where are all the bikes parked safely, in a Nordic climate,
either in the morning or at home at night? Will mayors preserve bike
lanes or relent to the large numbers of frustrated automobile commuters?
Will more workplaces install showers to encourage ridership? (In one
office where I worked, a colleague took to drying his riding gear in the
public bathroom and that didn't work so well.) The only sure bet is
that ridership will continue to change shape; will mix pleasure,
fitness, and commuting; and will represent the ultimate expression of
efficient human-powered locomotion. Literally and figuratively, no other
mode of transportation comes close to the mechanical wonder that is
cycling.