Switch To Omni-Channel Distribution Is Starting Now
DOETINCHEM, the Netherlands – The switch to omni-channel distribution is starting now. It’s still on a limited scale and especially taking place in markets where disruptions caused by online players have a big impact.
These markets – especially the Netherlands and UK – are forerunners for what’s to happen in all EU markets. It’s no longer a question of ‘if’ the websites of all major brands will feature virtual shopping carts for online sales but rather ‘when’ they will start.
Along with the Netherlands and the UK, in North America rapidly growing online sales are also having a big impact. Major market players see not only their sales impacted, but also their dealer relations by the aggressively and continuously advertised discount offers by webshops. It prompts them to start the switch to omni-channel.
Downside of e-bike success
Before digging deeper into the ramifications that the switch to omni-channel brings; first more on the disruptions caused by webshops in the Netherlands and the UK. Starting with the Netherlands, two newcomers stand out. They are Fietsenwinkel.nl – which stands for Bike shop dot NL – and Stella e-bikes.
Fietsenwinkel.nl was founded in 2009 as part of a company named International Bike Group (IBG). Behind IBG stands one of the investment funds of the richest man in Holland. Its subsidiary Bike shop dot NL operates by intensively and aggressively advertising the discounts it offers on bikes from renowned brand names. In addition, the company operates about fifty stores and test centers along with the webshop.
IBG is the self-proclaimed “leading omni-channel bike retailer in Europe.” Looking at its European presence outside of Holland, IBG is currently active in Denmark, Sweden and Norway, with webshops that carry the ‘HelloRider’ name.
HelloRider webshops are coming in Germany and France as these domains have been claimed. And more major bike markets like Italy and Spain are undoubtedly going to follow.
Here IBG will be applying its business model of offering local well-known brands like Kildemoes in Denmark and Monark, as well as Crescent in Sweden, along with international brands. And of course the bikes of these brands are offered with discounts of 30% to 40%, which kills the competition by local dealers.
However, the question is whether the business model of online providers like IBG is viable in the long run. In particular as it is hurting the dealer business of all brands highlighted at the named HelloRider websites. Online marketing experts have strong doubts about this business model. In particular because of the conflicting interests of these webshops and its suppliers. In the Netherlands Accell Group wanted to stop its cooperation with International Bike Group and got involved in a legal fight.
Different business model
A completely different business model from the one of IBG is applied by a company named ‘Stella’. In addition to the Netherlands, Stella is also active in Germany since October 2016, where it currently operates on a much smaller scale as in the Netherlands with only 3 so-called test centers. In Holland Stella has some 20 test centers. Distribution of the e-bikes sold through the Stella webshop also goes through some 80 demo and service vans.
Like IBG Stella is intensively and aggressively advertising its low-priced online offering in e-bikes that are exclusively branded Stella. Distribution without dealers is paying off budget-wise allowing for costly advertising campaigns. It proves to be a success formula of the company that started seven years ago and that now has a workforce of some 200 employees. There’s no data on sales by Stella but it is estimated to have crossed the 40,000 units mark.
Webshops like the ones from IBG and Stella as well as others are putting severe pressure on the traditional dealer channels. Especially as the market share of webshops is currently estimated to stand at some 25% of the Dutch market. This is volume wise; money-wise it’s bigger – due to e-bikes that retail for higher prices compared to regular bicycles.
Competitiveness of IBDs in UK
In the UK similar developments are taking place. At least this was recently noted by the country’s biggest bike retail chain. Halfords Group said that the rapid growth of online bike sales has a destroying effect on the competitiveness of IBDs, resulting in their demise.
“Our research has identified that the number of bike shops has declined by nearly 10% over the last year.”
The reason behind the big drop in the number of IBDs in the UK is the same as in Holland and probably also other countries; the inability of dealers to compete with price offers that are intensively communicated by online players.
Of course all the recent happenings in the UK and Dutch markets have been closely scrutinized by major players and acted upon. They are reacting by switching to omni-channel. But it’s too early to state that the complete bike sector in Europe is making that switch and doing that in all European markets. Here’s an overview of who is doing what on omni-channel.
Starting with the biggest in bikes in Europe – Accell Group –the company announced it would start implementing its omni-channel strategy last March.
It’s part of a refined corporate strategy, which is triggered by, as the company stated, “Rapidly changing technological possibilities and changes in the lifestyle and purchasing behavior of consumers. This new strategy comes with an ‘omni-channel’ distribution strategy which includes our current IBDs. They will continue to play an important part in our service network.”
Shimano’s Value Based Pricing
From the biggest in bikes in Europe to the biggest in P&A: Shimano. Of course their sales and distributor, as well as dealer relations, are also affected by disrupting webshops like Chain Reaction and Wiggle next to Alibaba and many, many others. This triggered Shimano to react. Starting this year, with the implementation of a new pricing strategy for, as Shimano Europe said, “responding to changes in distribution channels.” It’s called Value Based Pricing.
With it Shimano Europe is placing different criteria on defining a net purchasing price for online and offline channels. The focus for these criteria is the consumer, and the value added by the various channels and Shimano customers. The parts maker claims that it is a more honest system, which is not only focused on volume.
Shimano Europe’s Value Based Pricing strategy is also a move towards price harmonisation and creating price rest. It aims at avoiding huge price variations at various channels where Shimano products are sold.
Currently other companies are now also applying criteria for calculating the value various channels add to the distribution of their products.
Switch to omni-channel market dependently
Next to Accell and Shimano there are many other brands and companies now applying omni-channel distribution in Europe. For instance Trek, Specialized, Orbea, Mavic, Vittoria, Merida. And Giant. Giant is named separately here because Giant is handling its switch to omni-channel market dependently.
In Europe’s biggest markets Germany, France, Spain and Italy it doesn’t offer online sales possibilities. On the other hand online sales is taking place in the Netherlands, Ireland, Denmark and the UK. Giant emphasizes that all online sales are taking place with drop shipping exclusively via dealers. It’s likely that more major brands will be doing the same in the very near future. The implementation of omni-channel will take place market dependently. In particular as there are big differences in online sales country-wise. It’s said for instance that Europe’s biggest bike market – Germany – is years behind the UK and the Netherlands in online sales.
Dealers & dealer cooperatives
As said the growth of online sales has a destroying effect on the competitiveness of IBDs, resulting in their demise. However, not all of them are to disappear of course. Generally speaking the bigger and stronger ones are expected to survive. What’s interesting is that dealer cooperatives like ZEG and Dynamo Retail Group are also into omni-channel. ZEG, Europe’s biggest dealer cooperative with some one thousand member/dealers doesn’t offer all its own brands online. Bulls, Pegasus and Greenmover websites offer online sales possibilities, but Kettler and Hercules do not. Dynamo Retail Group with about 750 member/dealers offers online sales possibilities for its Bike Totaal and Profile shop formats.
All this leads to the obvious conclusion that retailers cannot close their eyes to the unfolding online sales development in the years to come. And this raises the question on what their future role is to be?
Future role of retailing
- Future role of dealers: from drop shipping to converting leads into actual sales
- Including IBDs effectively in omni-channel set-up is THE challenge
- Digitization & data mining for tracing current complex consumer’s behavior resulting in lead generation
- Will switching to omni-channel include forward integration?
- Forward integration already being applied with Experience Centers
What is increasingly becoming evident is that effectively combining offline and online sales and distribution will be the ultimate success factor for the years to come. Including dealers effectively in an omni-channel set-up is the challenge all such companies are faced with. Drop shipping is currently what lots of these companies are opting for. But what about the near future? How to go from traditional retail to customer journey?
At last June’s World Cycling Forum (organized by the Bicycle Committee of the World Federation Sporting Goods Industry in cooperation with Bike Europe) one of the presenters painted this future picture. He said that already fundamental changes in the customer journey are taking place. “It has become very complex to get in contact with the consumer. Facebook, Instagram, YouTube, Google, Spotify and lots of others are making today’s customer journey like the London Underground map. Each Underground station is a touchpoint where each consumer is taking a different direction.”
Digitization, data mining and engineering is the only way to trace this complex consumer’s behavior. It results in lead generation. Leads that offer dealers possibilities to connect to consumers that showed interest in particular products during their customer journey. Subsequently it becomes important to find out how the dealer is working with such leads on brands and products. Is he able to convert leads into actual sales? This ability is to be an important rating in making the dealer’s added value measurable. And for defining his net purchasing price.
Will dealers be able to convert leads into actual sales? What if IBDs are not? Will this lead to manufacturers stepping into retailing? Such forward integration is already being applied. For instance, with Experience Centers that have been set-up in some countries by some brands. They appeal to consumers and collect leads. Apart from the Experience Centers there are some examples of bike suppliers taking over retail chains. Such as what Advanced Sports International did in the US, with the takeover of the Performance Bicycle Chain.
Halfords in the UK
Another interesting example is what Halfords did in the UK. The chain took over online bike retail specialists Tredz and Wheelies for close to €25 million. Will others do the same for expanding their Internet reach? Whether such forward integration will become mainstream as part of omni-channel is too early to tell. But, that doesn’t go for omni-channel itself. This trend is starting now.