E-business models and analysis

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Last updated: April 18, 2019

With between 100 and 130 million bicycles manufactured each year (Management Science, Dec 2001) the world bicycle market can be divided into low-end bicycles (below $300) and high-end bicycles (over $300). Low end bicycles include children’s bicycles and bicycles used for basic transportation.

High-end bicycles are primarily adult bicycles used for rigorous recreational activities. If we apply this notion to the domestic Australian market competitors in the low-end market would include large department stores such as K-Mart, Target, Toy’s R Us and smaller specialty toy shops. This report focuses on the high end market which comprises independent bicycle retailers. Competition at this level is rife with around 110 retail shops in the Sydney metropolitan alone and a slow emergence of online e-tailers placing pressure on driving prices down.The bicycle retail industry of Australia is quickly reaching a point of saturation. Over 9 million bicycles where imported into the country last year resulting in supply exceeding demand by almost 15% (Australian Cyclist, Aug 2003). In 2000 over 40% of the 110 million bikes produced worldwide where manufactured in China, India or Taiwan.

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This figure has increased by a further 13% as of January 2003 leaving the market flooded with bicycles. This in turn has ‘squeezed’ many retailers. While cost prices may be shrinking so to are the retail prices leaving the margins the same but with less money in the pocket at day’s end. This issue compounded with rising operational costs places increased pressure on retailers to fine tune many business processes.Unfortunately for many bicycle retailers this industry ‘squeeze’ will weed the men out from the boys. Many bike shop owners are ex-professionals, hobbyists or people who are passionate about cycling but with limited business nous.

According to the Retail Cycle Traders Association only 10% of the 860 independent bicycle retailers are making any money.Power of Suppliers and BuyersThe supply network within the bicycle industry is extremely dynamic and is probably best described as two discernible chains; bicycles, and parts and accessories (P;A). Retailers tend to align themselves to several bicycle brand suppliers while the parts and accessories market is an open stage. Power is very much in the hands of the buyer (retailer) with a plethora of choice for bicycle frames. Suppliers offer dealer programs and incentives to develop a sound business relationship. The parts and accessories chain is on the contrary a supplier powered sector.

It is not unusual to find only one or two suppliers with sole distributor rights for various products. For example; handlebars often used by triathletes are made by Profile Design which are only imported by Cassons Pty Ltd giving them total control over price and distribution channels.Threat of New Entrants and SubstitutesBicycle retail has traditionally been a high turnover business.

Lots of shops go belly up each year, but a new one is always opening up around the corner to take their place. As a business proposition it is quite attractive; own boss, selling a product that is healthy and environmentally sound, not a huge amount of capital required to start-up. From an economist’s perspective it appears to be a business with few barriers to entry. For this reason the threat of new entrants is a very likely one and will only add further crowding to an already crowded market.With an enormous level of production the choice available to the consumer is enormous. TREK bicycles famous for Carbon fibre technology is now facing increased pressure from other manufacturers experimenting with new frame materials and compounds.

The bicycle industry is driven by innovation so substitution is not only an issue for the manufacturer but it also extends to the retailers shelves.The previous section gave a general overview of the industry as it is today, it is now time to use this knowledge and look at how it affects our focal business for this report, Renegade Cycles.Direct competition exists between other independent bike shops throughout Sydney and to a lesser extent nationwide. Target, K-Mart and other department stores provide competition for Renegade Cycles only in kid’s bikes. There is indirect competition between the individual brands but the brunt of this is worn by the individual manufacturer. Another level of competition that is not directly involved but certainly affects consumer attitudes is the second hand bike market.It is perhaps important to note that cycling is a sport; just like rugby union competes for interest and following against rugby league so to does cycling. In Europe, cycling is the second most popular sport to soccer, it’s a culture, and people embrace it passionately.

This passion and culture does not extend to Australia therefore advocacy, building awareness and cycling development programs are integral to the future of cycling and bicycle retailing.As with most industries the internet has had a significant impact on the way business is conducted. From a competitive perspective most bicycle retailers have built an online presence. Some retailers have gone a step further to include an online shopping experience for customers. Renegade Cycles responded in line with most other shops by developing a cost effective solution by combining several e-business models into their website.Several competitors have pushed their entire store online; Cecil Walker Cycles in Melbourne and Dean Woods in Wangaratta are able to under-cut many competitors with pricing due to a reduction in overheads.

This has certainly made stores like Renegade Cycles review their pricing structures and significantly change customer attitudes which we will explore more closely later in this report.Bicycle retailers of Australia tend to adopt their own characteristics and appeal to particular types of riders. Cheeky Monkey is a shop based in the centre of the City and is known for servicing many of the bike couriers, commuters around town while Turramurra Cyclery in Northern Sydney’s more affluent suburbs attracts high-end road bike enthusiasts. Renegade Cycles is nested in Lane Cove and appeals to the recreational mountain biker, road cyclist and city commuter as well as kids bikes.

Also worth of mention is the stronger Australian dollar and the impact it is having on consumers shopping outside Australia. For example online merchants such as Supergo.com and JensenUSA.com sell components that are often cheaper than cost price in Australia.Characteristics of the Supply ChainRenegade Cycles relies on two main companies to supply them with their bicycles for stock. TREK Bicycles Australia supply the following brands; TREK, Lemond, Gary Fisher and KLEIN.

Bikesportz supplies classic Italian made Bianchi frames. Parts and accessories are sourced from over 100 other suppliers nationwide.With a huge number of suppliers cost of acquiring goods is significant, freight and logistics can often add 10 – 15% onto the retail price. For example if a consumer needs to replace the spoke of a wheel and the tool to perform the maintenance, the spoke would be sourced from one supplier and the tool from another resulting in duplicated shipping costs. The in-efficiencies flow into delivery time frames and poor supply of goods. Suppliers in Australia are simply importers or agents of overseas parent companies (manufacturers) who have the ultimate control of the distribution channel. This leads to frustration for the retailer who at times is left with a lengthy delay for goods delivery.

TREK Australia is still unable to supply any new Lemond and Klein frames until December 2003 having announced their launch in September.The industry is based entirely on demand to large conglomerates like TREK and Shimano. Australia makes up 2.5% of all Shimano’s after market sales and we captivate less than 7% of TREK’s sales. In other words when it comes to the pecking order Australian distributors are often left by the wayside.Interaction within the supply-chainConsidering the information age we live in the methods Renegade Cycles uses for interacting with most suppliers is bordering on archaic. Orders are placed either by phone or fax. A handful of suppliers have rolled out an e-commerce solution.

Bicorp for example allows retailers to login 24/7 and check availability of stock, place an order or track a previously placed orders. It then informs the retailer via email the order’s progress throughout the fulfillment process.Interaction between supplier and manufacturer is also weak. In-efficient supply levels, cumbersome logistic networks and poor strategic management plague the industry. For example; the importers of Swiss cycling clothing ASSOS, receive only two shipments a year.

Stock levels can be running at zero for months on end before replenishment occurs. The wholesaler – manufacturer relationship constitutes an entirely separate report to detail the inefficiencies and recommend solutions. For the purpose of this report we will look at several strategies Renegade Cycles can implement in an attempt to iron out some in-efficiencies that directly involve them.To gain a further understanding of the interaction between the channels and the movement of information, services and goods a matrix can be drawn which shows the range of channels and the channel functions of the customer buying cycle (CBC).

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