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Global online giants Wiggle and Chain Reaction set to merge

Written by Cory Benson Feb 15, 2016 7:45 a.m. ET

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Last week industry news services BikeBiz and Bicycle Retailer reported on rumors that international online bike shop Wiggle was trying to buy out their major competitor Chain Reaction Cycles. Apparently a purchase deal has now been signed, and the acquisition now will go through a vetting process with the UK’s Competition and Markets Authority to be sure that the deal doesn’t upset the cycling markets in their UK home. While the deal will take a while before being finalized, and how and how quickly the two brands will merge remains to be seen, its effects could be large on independent bikes shops around the world, many of whom have already felt the pressure from the two independently. With 2/3 of their combined sales in the EU and the rest predominantly in the US and Australia, this is just the latest in the trend towards more powerful bike industry eCommerce.

Wiggle.com & ChainReactionCycles.com

Cory Benson

4,154 articles

Cory Benson is the EU Tech Editor of Bikerumor.com.

Cory has been writing about mountain bikes, enduro, cyclocross, all-road, gravel bikes & bikepacking for over 25 years, even before the industry created some of these names. Prior to Bikerumor, Cory was a practicing Architect specializing in environmental sustainability, has designed bike shops & bike components, and worked as a bike shop mechanic.

Based in the Czech Republic for 15+ years, he is a technical mountain biker, adventurous gravel rider, and short & medium-haul bikepacker. Cory travels extensively across Europe riding bikes, meeting with key European product developers, industry experts & tastemakers for an in-depth review of what’s new, and what’s coming next.

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David

8 years ago

Great. Now everyone will be able to get dirt-cheap components, but no one will be able to service them because all the local shops have been driven out of business. Next, I bet Shimano will buy Wiggle.

Adrian

8 years ago

Reply to David

I’m not so sure I agree, buying your main competitor, means you have less competition. you can charge a higher price, for more profit. Could make things better for independent retailers if there is less pressure online.

Volsung

8 years ago

Reply to David

Autozone didn’t put garages out of business.

LBSs need to adapt instead of complaining and using guilt.

Kernel Flickitov

8 years ago

Reply to David

There have been some pretty interesting articles published by BRAIN about this very subject for the last decade or more about the emergence of the online discount shops that basically refute this notion that they are putting the LBS into extinction. On the contrary, many of the really well established shops are doing better than ever. Check your facts before posting sweeping generalizations.

nunyab

8 years ago

If this drives local shops out of business then those shops didn’t really deserve to be in business anymore. The bicycle market is dramatically changing and shops need to figure out how to not only survive but thrive in the new landscape. To be honest there are a ton of crap shops out there that don’t do as good a job serving their customers as some of the mail order shops yet many of these shops seem to have a sense of entitlement, a feeling that they are owed something that’s being taken away from them. Nothing is being taken from them, they are giving it up freely. Good local shops will not only survive but will thrive. In the end the market will sort itself out as consumers really do speak with their dollars/pounds.

David

8 years ago

I work at a great shop that is, indeed, doing well. However, when online companies and Shimano are selling products for a dollar over cost or below cost, it’s tough to make money. We do not have a sense of entitlement, rather I am expressing a dissatisfaction with some companies big business practices. Margins are shrinking because there is always a better deal online. We love bicycles and bicyclists and those are the “facts”. If giant businesses want to crush mom and pop stores because they can, you are right, we deserve it…we suck for not selling products at a price below what we can buy it for.

Burton

8 years ago

That is absolutely not true. Sure, the Internet has caused many bike shops to fold, but many other stores are surviving by shifting their orientation more toward service and repairs.

ape1090

8 years ago

Reply to Burton

If you think a bike shop can survive alone on just service…you’re wrong. Sure there are shops that do it, but they are extremely small and have very low overhead (staffing, rent, etc). Yes it is important for bike shops to evolve to meet market demand, but when the evolution forces the bike shop to essentially lose a large portion of it’s revenue generator (after market parts sales), it’s a HUGE hit. So your shop should price match right? Well there becomes a point where margins get so slim your shop either loses money or it just doesn’t make sense to price match. If a shop is going to shift their model more towards service and repairs, that means downsizing, less floor space, less staffing, because they probably can’t afford that overhead anymore. The shop owner is probably looking at moving to a smaller space, but really doesn’t want to spend or have the money to do a build out at a new smaller space, and boom – your local bike shop is gone.

Peter Herman

8 years ago

Shimano has a pretty good and strict minimum pricing policy. The big issue with pricing on Wiggle/Chain Reaction/PBK, etc. is that they’re sourcing grey market product, usually from Eastern Europe. It’s why you can’t get Performance or Nashbar to match prices on Shimano stuff from those resellers. If you’re getting your product through a well-policed pipeline, there’s very little price variation. If you’re willing to get shady on it, then sure. You can get, and deliver, a ridiculous deal. The pricing at Wiggle often approaches Shimano’s own pro-deal pricing.

Chefdog

8 years ago

Reply to Peter Herman

Shimano has no such pricing control. They protect MAP on soft goods only and there is no MAP on hard goods. The European online “wild west” of pricing is a combination of the lack of MAP, OEM parts, grey market, and European business laws.

dr_lha

8 years ago

Reply to Peter Herman

I’m laughing at this idea of Wiggle getting cheap Shimano parts from some shady Eastern European country. I guarantee you Shimano delivers these parts directly to Wiggle’s doors. It’s not like they’re driving a van full of dodgy derailleurs back from Batravia or something.

KAW

8 years ago

Reply to dr_lha

Maybe. More likely Shimano sends them straight to their massive OE accounts, and the OE places clear them out to Wiggle and co. when they realize they’ve overbought and don’t want to have old spec on their new bikes. Meanwhile bike shops can’t compete because QBP sells all this stuff for sometimes higher than it’s available for online from across the pond.

In Shimano’s defense, they’re lowering wholesale pricing to distros and those distros are also taking a hit to help local shops compete, but until they can warehouse an entire shipping container (or five) of overstock, they’re never going to be able to touch online sellers’ pricing.

Instead, as has been stated, the ones that are still alive are focusing on selling things that can’t be had for cheaper (or at all) over the internet.

Danger Dirte

8 years ago

This whole industry is interesting.

As a previous manager of a shop I would have viewed this as a huge threat. However, the reality was I couldn’t be a part of this sport if it wasn’t for the discounts I received. Everything is just so damn expensive!

After moving to a new city I started shopping at a truly well run shop and I came to realize that I wasn’t cut out for it. What it takes to run a good shop is impressive and I don’t have the people skills to pull it off. I have nothing but respect and admiration for the amount of extracurricular work the people who run the shop do to foster a strong community.

However, I really can’t afford to shop there.

Their prices aren’t ridiculous, but cycling in general is so damn expensive. These online shops allow me to keep riding. I spend what I can at my local shop, but I have no choice but to get stuff online otherwise I have to limit my ride time.

My bet is Wiggle takes over and uses economies of scale to drive their costs down. There’s more websites out there now and it’s easy to shop around while hanging out in your underwear. I’d say this merger will push prices down to undercut competitors and everyone will have to get creative.

As for LBS: rent is a big killer. Labour you don’t have much of a choice, but if you own the building your shop is in or have some other kind of unique situation you don’t have to sweat as much.

It is what it is.

Danger Dirte

8 years ago

Reply to Danger Dirte

Also, Chefdog is right about pricing on these websites: Shimano isn’t in control and, from what I understand, if they try to put limits on prices can be sued.

Frippolini

8 years ago

The LBS needs to stop competing on the selling of products. The competition the LBS:s should face should be LBS vs. LBS, not Online vs. LBS.

The LBS:s needs to sell what the online can not offer – service. Ill help the challenged LBS people to understand this concept: it is spelled S E R V I C E.

Good service require motivated, competent and service minded staff members, which requires in turn that the LBS invests in its people and starts to orient its business values and execution principles along those in most other service oriented companies. Poor customer service gives added fuel to the camp saying: “f*** the LBS, I’ll buy everything dirt cheap online and pray that I will not stumble upon the situation where I might need the help of a qualified bike mechanic”.

The overall industry trend is increasingly more complex products (di2, wireless, non-self-service-suspension-products, etc.). This in combination with a growing bike market is a BIG POTENTIAL for any LBS that invests in its staff, service capabilities, and doing their outmost to get their customers to return to them for more business.

Failing or poor performing LBS needs to look at themselves in the mirror and figure out if they are in the haul for the long run and do their homework, or to bail out and take their losses. Classic business competition theory – text book examples!

Walt

8 years ago

Shimano should just go consumer direct and be done with it. The dual pricing structures for the EU and US is just bizarre and stupid and given that most of their parts are being sold by online shops that don’t offer any value added, why not cut out the middleman?

Shanghaied

8 years ago

Reply to Walt

Eh, it’s not really true that the large online shops don’t add value. In a sense they do, but not in the way you think – they provide a valuable service to the manufacturers and not the consumers. Basic operations management theory states that you want to keep your inventory to a minimum, because products in the inventory can become obsolete (at a great speed nowadays in the bike industry too), they tie up significant amount of capital and space (which again, cost money), and they often require fairly complex inventory management systems (again, money). In addition, there’s always the problem of lot scheduling – how much to manufacture, at what time and when to switch to manufacturing another product. This is gross simplification, but in general, it is the cheapest to produce a single, uniform product for as long as possible, and this comes into direct conflict with the need to keep a low inventory level.

What large online retailers (and wholesalers, or indeed anyone buying in bulk) do is that they take on the risks associated with keeping a large inventory, so that manufacturers can make a great amount of a single product and sell larger amounts at fewer points in time, which simplifies logistics for the manufacturer. Of course bulk buyers charge a certain premium for this service, often in the form of bulk discounts. It is possible that by cutting out the middlemen like QBP or CRC Shimano can lower the price for LBS and consumers respectively, but that is not a given, the end buyer may end up paying for Shimano’s logistics costs (i.e. inventory and production scheduling conflicts) one way or another.

So although it seems that Shimano can raise profit and/or lower profit by going consumer-direct, for the time being at least, it seems that they are happy with the model they have now.

bikerhp

8 years ago

Sram is getting to restrict the shipment of their products from out side of your country zone. Example the UK website’s will not be able to ship to the USA or Performance bike will not be able to ship to Europe. This is a legal trade practice. Also customs could take your Sram product if you bought it on EBAY. I would think that Shimano is working towards this also. I would think that this would cut deep into Wiggle and CRB’s sales. I could see this being a reason they are merging. Because after Sram, and if Shimano does it, others brands will follow. BTY Sidi is already doing this with Shoes. That is why you don’t see them on these websites any more.