My internet buddy Jono Lovelock posted a LinkedIn article from someone he knows / went to school with / bonked / wants to bonk about the bicycle trade in Australia and how to successfully transition local business online, but the article has rubbed me up the wrong way in the only way a “I’m a new graduate who has perfected the art of sounding like I know what I’m talking about” kind of way. Kudos for Alvin for putting it out there, but there are some points he raised (In this first installment at least) that are, well, wrong, so excuse me while I put my Guest Lecturer hat on and do some ‘schooling’. (I’m shit-stirring here rather than being condescending, trust me 😉 )
The first issue I have is the blanket statement he makes regarding the impact of mail-order on Aussie bike retail.
“large overseas Internet retailers in the UK and US were seeking new markets as theirs fell into recession. Local retailers were unable to compete as their borrowing costs and overheads were high.”
We don’t know how much of the market now or back in 2008 was/is being eroded due to mail-order, but certainly the GFC curbed the spending of many, so retailers without the figures on hand could easily attribute that to declining sales. (Although this is mostly directed at people who buy bikes for fun – I’d suggest that ‘lifers’, the sales of maintenance parts and the uber-wealthy were little effected).
In terms of mail-order, it’s only really the UK-based behemoths that appear to have made a dent in the global mail-order market. Anecdotally at least, my 25 years being directly involved in bicycle retail and wholesale here in Australia as well as selling custom bikes to people when I was doing Thylacine Cycles for 10 years tells me this. The US companies simply have not got any presence here because they haven’t figured out the freight equation. Sure they ‘offer’ freight to Australia, but unless you like FedEx walk-in pricing, you’re not going to be buying from the US – certainly not in 2008. This is slowly changing, but as of now I’d suggest the likes of Wiggle, CRC and PBK with their ‘Spend $90 and get free shipping’ are doing quite well, which segueways me nicely onto the next point –
Two broad factors encapsulate the situation rather well:
1) Geographical Location
Everybody knows Australia is far away from everybody else. But did you know that Australians are also far away from each other? The distance from Perth, the capital of Western Australia to Sydney in New South Wales is a frightening 3,938.1km via the National Highway. This stretches distribution networks and means postage is slow and costly.
Yeah except postage is not slow and costly. Like all businesses, freight is a volume game, so if you’re a decent size wholesaler, it’s not unusual say for an organisation such as Bikecorp for example when I was working with them to freight a bike to Darwin in 3 days at the cost of $25. Try doing that in America.
2) History of Protectionism
This is a tricky one. Whether it’s tariffs on imported goods, subsidies to car manufacturing, weekend penalty rates, building new navy subs, the backlash against 457 visas or Melbourne’s locally-developed A$2b train ticketing system… protectionism has always featured in our economics. While its impact on saving Australian jobs is debatable, we might have been conditioned into thinking it the Fair Go.
Protectionism happens for companies like Wiggle and CRC because they’re ‘located’ in a little tax haven called Ireland, so they’re able to sell at a lower price because they’re paying little or maybe even no tax. To top it off, they have volume, so they can buy product at lower unit costs, but just as importantly tap into the other mail/freight service that is also amazing, Royal Mail / Parcel Force. Thanks to our forefathers, the volume of mail coming too and from the UK is still massive so the route is very voluminous, efficient, and also very cost effective.
To the question of subsidies to bicycle manufacturing? We don’t manufacture anything here, so there is no protectionism at all as far as I know. Many moons ago there was a small tarriff on frames (5%) but I’m not sure that’s still there.
“Geoffrey Blainey’s 1966 book titled ‘The Tyranny of Distance’ discusses Australia’s geographical remoteness from its traditional allies and is often quoted in any trendy banter about Australia’s economic prospects.”
Yeah except fourty years on it’s now irrelevant because the way freight has evolved but also because we’re actually closer to the modern manufacturing bases in SE Asia than those in the EU. What’s interesting about ‘The Tyranny of Distance’ in a modern context, is how we’ve been conditioned to higher prices because of the historical myth. We still hear people in coffee shops complain about prices ‘because we’re so far away / Australia is soo big / it’s all just too hard / wah wah wah’ when the reality is that companies have been cashing in for decades, taking advantage of the fact that while generally costs have gone down, retail prices here have been particularly high (especially when compared to our US counterparts).
“Beyond the cost of freight, a successful large offshore online retailer would also reap such economies of scale over a small business in areas like CRM. Thus retail customers could get their goods faster with possibly better (online) service than if they did buy locally.
There’s no question that eComms have superior economies of scale which attributes to their lower sell price. However in my experience most Australian wholesalers can get anything to any bike shop in the country in under 3 days, whereas you won’t see anything from the UK in under 10. The problem with AU wholesalers is that many of them have historically run on a business model that means at certain times of year they literally have no stock because they’d rather run out than have to liquidise. The other issue many are faced with, is ‘what to carry’. Often brands have so many product lines and colourways that invariably they won’t have what a customer wants. From where I’m sitting, both of these factors are literally ‘open doors’ for mail-order to walk through. Sure, both are good short term business and money making decisions, but paradoxically they’re also downsides for the customer eComms that they can exploit.
“R had run out of ideas fighting the Internet. I suppose like many entrepreneurs from the old world, he hated it. The new world was one which appeared crowded, complex and where borders did not begin nor end. How good are sticks and stones against rockets and radar? He wished for more protectionism, but Australia had moved on.”
I think perhaps more importantly, many small business owners – and I’ve known many bike shop owners – are either too busy with the day-to-day to look strategically, struggle with the whole idea of being ‘attacked’ from a faceless competitor half way around the world, or are disenfranchised how easily customers can go from having a good rapport with a bike shop owner to cashing that in for cheaper goodies – whether it be from the next bigger, shinier shop, or mail-order.
There seems to me to be an assumption that the fundamentals of doing business have changed with the advent of online retail, but it’s only really the mechanisms that have changed. If you have a business that was initially successful but is taking a hit from eCom, then really, it’s just a matter of looking at your competitive advantages. Competing on price is not one of them.
I’m interested in reading Alvin’s next installments, but for Part 1 I can only muster a C-. I like that he’s been pro active and gone and spoken to retaillers, but I’m not a fan of the non-current historical referencing nor misconceptions about bicycle retail, which only really point to his lack of experience.
My lack of experience on-the-other-hand is as one of these old, poor, tired entrepreneurs confused and frustrated by teh intarweebs so I’m very keen to hear how he implemented eComs for ‘R’ and how it all panned out. I’m pressing the ‘follow’ button…..
Interesting for me as a Design Anthropologist of sorts with a perverse interest in retail, I kind of see retail these days as more of a tool for PR, or even as a form of visceral advertising, part of a businesses marketing-mix. Clearly it can still be profitable – apparently the Apple store in NYC is the most profitable piece of retail real estate in NYC – but I think companies should realise that making a hands-on, human connection to a brand through actual sales people in a customer experience environment is a very strong bond between the brand and the consumer, so it’s really through the experiencing of the brand face-to-face that the consumer can make the most meaningful connections. There are many ways that consumers can interact with the brand with the goal of making a lasting connection that will result in some form of loyalty, and retail will always be an important part of that.
How important is that for start-ups, or companies just on-selling a product someone else makes? Probably not as important. I’d suggest that there are more cost effective ways of getting the message out there.
eCommerce? I have virtually no experience with it, aside from as a guy with a credit card whose bought the odd thing online, which is why I’m interested in Alvin’s next installments. However one of the things I find interesting about it is again, the human element. How do you generate a rewarding experience when it’s all ‘non-corporeal’? How do you get over the limitations of the delivery method, or in other words, capitalise on your advantages and minimise the disadvantages. It’s very interesting for me especially seeing how new clothing start-ups have got around the limitations of what in the past has been very much the bastion of ‘You must try before you buy’.