Do Not Pass Go

Is it funny that one of the iconic, cultural touchpoints for Americans of several generations is a board game called Monopoly, the chief aim of which is to drive your competitors (in real life your friends) into abject penury? Now imagine the big bike companies circling the board, one the dog, one the iron, one the top hat, one the erstwhile thimble, raising rents and slowly carving up the available property for maximum profit.

If you ask Matt Stoller, what we’re seeing as the pandemic driven market storm plays out is the power of monopoly to drive smaller players and, collaterally, independent bike shops out of the game. Now, you can debate Stoller’s actual economic expertise, but the ideas he brings up in analyzing the state of play in the bike industry are not far off base, in my experience. I’d call it more of an oligopoly than a monopoly, but that’s a distinction without a difference in outcome.

For a long time, I sold custom bikes, and my customers, unlike many small custom builders who sold direct, were bike shops. We reasoned that we could sell more bikes with a cadre of informed retail outlets than we could by waiting for the factory phone to ring. I spent an awful lot of time coming to understand the things that bike shop owners worry about, and I gained a hell of a lot of sympathy for them.

Time and again, in cultivating a relationship with a shop, I learned that their big brands exerted undue influence on their spending decisions. In some shops, we were told directly that Brand X had told them they could not have us on the shop floor. In other cases, the big brand simply consumed all the shop’s “open to spend” for demo bikes, which left us with none. Even shops that really wanted to work with us, couldn’t make it go economically, because of their commitments to their “key” brand.

It was not an uncommon experience to find out that a bike company had taken possession of a shop after forcing the owner to overcommit resources to inventory. “Buy more bikes, or lose the brand,” they’d be told, and then once they’d gotten in over their heads there was little left but to turn over the keys.

Let’s back up. Because I am vilifying companies who are mostly just fulfilling the prophecy of outsourced production. When what a brand actually does is confined to engineering, design, marketing and sales, then they give up the ability to manage production effectively. They have to make long-term bets and long-term commitments to their manufacturing partners. Sales has to move all those bikes, and the game becomes how much margin can be derived from this inventory before it has to be discounted, with sales often dictated to shop owners at the national level.

Once a shop owner signs up to sell a big brand, which they usually think they have to do to take advantage of brand awareness and legitimize themselves in the eyes of the consumer, they’ve effectively surrendered control of their big picture, decision-making power.

Grow or die is the paradigm, and successful shops expand, either in footprint or in locations, usually with investment from the key brand. If you read that last sentence and inferred the fiscal jeopardy of growing on someone else’s dime, then you’re a sharp reader. Big shops open new locations near small shops and/or buy them outright. All the while the big brand gains leverage.

So we have consolidation of the big brands themselves, with major players acquiring smaller bike companies and rolling them up into vertically integrated portfolios of bike brands, and we have consolidation of shops, with chains developing and now even those chains being taken over by the bike companies (see Mike’s Bikes purchase by PON, or Spokes, Etc. takeover buy Trek). The more consolidation takes place, the faster things consolidate as brands scrap for geographical dominance and market share.

If you are a free market capitalist, then you have just shrugged your shoulders and thought something like, “the strong survive,” which is, at the very least, consistent with the world view of unregulated capitalism. But we don’t have unregulated capitalism in this country. We have anti-trust laws and the vague view that competition is good for consumers and for innovation.

Those are abstract ideas though, the big moving pieces of economic theory, and you and I live in the real world. I try (and don’t always succeed) to think long-term. I want a bike shop in my neighborhood, so I go to the neighborhood bike shop. I want small businesses to remain viable, so I go to small businesses. I hate the idea that everyone would be on the same bike, so I look for something different. I am inspired by people who have dedicated their lives to bikes, so I talk with people who have done that. These feel like investments in my own happiness, not sacrifices I’m making for abstract ideas.

Sometimes thinking this way causes me inconvenience and costs me more money. And that’s ok, because good things often do take more time and cost a bit more. Bikes are, in so many ways, my life. If there is anywhere good to put my time and money. It’s there.