Distribution for Electric Bicycles In 2016 (Part Three)

In the bicycle industry, the supply chain often looks like this:

Bicycle brands are often quite old. At some point in their history, they probably built their own bicycles in their own factory. And in many cases they still have that old factory and use it for some products, or for final assembly of some products.

Today, however, almost all bicycle components are made by Asian factories. And most bicycles are assembled in Asian factories that then sell those bikes to the brands. These bikes are often designed by the brands, or at least colors / graphics / features are selected by the brands and the bikes carry the head badge of the bicycle brand. The Asian factory may be invisible to the consumer and the dealer.

In some cases the bicycles are shipped as CKD kits (Completely Knocked Down) to legacy factories for final assembly.

The brand usually has a dealer network, often one that is composed of independent dealers in their second, third, or more generation. Those dealers often have a strong relationship with their community and their consumers.

To preserve this relationship between the dealer and the consumer, and between the brand and the dealer, good communications, good product quality, and good service is essential. Dealers see their customers every day, in the store, at the grocery, their children’s teachers, etc. Those customers must be kept happy. The suppliers must make that possible.

In some markets, the brand sells direct to the dealers. (USA, much of Europe). In other markets, the brand sells to a local distributor (Much of Asia, Europe) that will then resell to the dealers. That extra layer of distribution adds a layer of margin that makes a brand vulnerable to price competition. Major brands can demand a lower price from their suppliers, or demand protection from their politicians, but this lack of efficiency is a vulnerability.

There are examples of retailers that are owned by, or have contractual agreements to be supplied only by a particular brand. But this is rare, with most retailers being able to and quick to, sell whatever brand and products will work best for them.

This allows smaller brands some chance. Keeping in mind that the major brands can have better marketing, better terms, and maybe better prices, the small brand or new brand can gain some floor space and market share by being better at understanding the consumer. An example would be Pure Fix Bicycles in the USA.

Another way to reach the retailers - all of them, including the mass merchants - is through the parts and accessories suppliers. Some of these offer their own brands of bicycles, but this is usually not their main business. The sale of parts, tools, suppliers, accessories to the retailers is their main business. In this role, they do business with nearly every part of the bicycle distribution network in their markets. But…they are often limited in their ability to promote new categories of product, to provide information or service of any sort to the dealers. Marketing direct to the consumer or in support of the dealer to the consumer is not necessarily part of their activity.

Mass Merchants (and a few sporting goods or retail chains) may buy their bikes directly from the Bicycle OEM / ODM. Most of them have buying offices and staff, sometimes staff that is dedicated to bicycles. In these cases, low price and satisfactory product is needed, and the Mass Merchant often, but not always, takes the risk of product returns and the cost of carrying the inventory.

In many cases, the Mass Merchant will require the supplier to have a presence in the home market of the Mass Merchant, thus being subject to the laws of that market. Contracts that require the supplier to support the Mass Merchant, usually with severe costs tied to product returns and very long payment terms are ordinary. And anyone who is serving a Mass Merchant should be very concerned about the term “Guaranteed Sale”. Local or regional support of warranties is a normal requirement of the supplier. This causes the role of a brand to become an intermediary and support function between the Mass Merchant and the Bicycle OEM or ODM factory. This can be a good business if handled well, but is not usually what the brand manager is dreaming of.

The author expects this article to be of interest to some brand managers, some OEM factory sales people, some ODM factory sales people, and maybe others. Most of them are going to be thinking, about now: “So how can I use this information?”

Bicycle OEM factories: Find the brand managers that buy complete bikes in a box, and look for ways to serve them better than their existing suppliers. While price is an obvious issue, there are more important issues such as: Timely delivery, consistent quality, good communications, honesty, continuos improvement, unique capabilities. Show them that you can do a better job and why.

Bicycle ODM factories: Your task is the same as for the OEM, except that you are especially attractive to the brand that is new to the electric bike business or too small to support their own engineering and design team. So you should be fishing among both the major brands and the new / smaller brands.

Existing Bicycle Brands: Increase the capability of your dealers with training and marketing. Provide product that suits their needs at appropriate prices. You have a powerful position today, and are at risk of losing it. Learn how to work with the electric bicycle specialty retailers, and with internet retail in it’s various iterations.

New Electric Bicycle Brands: Working with internet retailers, developing your own relationships with IBDs, and EBSRs is essential. In some cases, a jobber may be a viable venue for you. Becoming well enough established that a major brand will buy you may be the quickest way to make money, but some of you are going to be the biggest players in the future of the bicycle industry.

In our industry, we have opportunities that have not excited in other industries for generations. We face a bright future.

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Edward Benjamin