Chain Reaction & Wiggle guilty of "exploitation", says US store

CompetitiveCyclist.com publishes hard-hitting, numbers-up-front blog posting about Chain Reaction Cycles and Wiggle
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CompetitiveCyclist.com sells high-end bike gear. Some of its sales are being lost to overseas competitors who are "exploiting a market anomaly" and are being supplied with high-end products by suppliers who are not offering "pricing parity."

The overseas competitors are UK-based and have ruffled online retail feathers across the world.

In its latest company financials, Chain Reaction Cycles - operated by the Watson family - reported that: "The proportion of turnover generated outside the EU [in 2010] was 37 percent." This was a ten percent increase on 2009.

CompetitiveCyclist.com believes half of that turnover increase was at the expense of US bicycle retailers, including itself.

"If the same holds for Wiggle, that adds up to nearly $40 million in US exports per year….This $40 million was spent on high-end Shimano, Sidi, Continental, Vittoria, and countless other primo brands, the very sort of marquee goods purchased by American IBD's highest-value customers."

Perhaps oddly, CompetitiveCyclist.com says part of the sales success of Chain Reaction Cycles and Wiggle is because the stores are based in Europe:

"Chain Reaction and Wiggle have the advantage of buying their goods directly from manufacturers."

Er, like Shimano of Japan?

"They then leverage their savings by selling the goods in foreign markets such as the US where distributors and importers normally add a layer of markup. Because of this, the retail prices at Chain Reaction Cycles and Wiggle are upwards of 30 to 40 percent less than what you'll find in American retail stores - whether it's your local bike shop, or at Competitive Cyclist."

UK independent bicycle stores also complain about Wiggle and Chain Reaction (as do IBDs in many countries, including Australia). Chain Reaction Cycles, for instance, gets amazing delivery rates and delivery times from the Post Office in Northern Ireland. Chain Reaction Cycles is the Northern Ireland Post Office's biggest customer.

But most of the complaints about Chain Reaction Cycles and Wiggle from UK IBDs is not delivery costs or blackmail-by-Haribo, it's the cheap prices.

And CompetitiveCyclist.com says it's all but impossible to fight on price: "American retail pricing on a pair of Look's fabulous Keo 2 Max pedals is $180. Chain Reaction charges $104 for a set."

Because of volume sales, suppliers are happy to supply Chain Reaction and Wiggle:

"Whenever we ask manufacturers why they don't have global pricing parity, they plead the same case: They'd love nothing more, but they have no enforcement mechanisms," says CompetitiveCyclist.com 

"They claim that the EU has strict anti-trust regulations that prevents them from regulating MSRP or Minimum Advertised Price (MAP) and from punishing a retailer for violating pricing guidelines. 'Price Maintenance' laws in the EU are purportedly far less friendly to manufacturers than in the US, where a single advertisement for a product at sub-MAP pricing gives a manufacturer full legal right to cut off a retailer's supply of goods with no notice.

"Chain Reaction and Wiggle aren't winning in the high-end US marketplace because of a strategy. They're winning by exploiting a market anomaly. Exploitation is not a strategy. The only party capable of reversing this situation is the manufacturers who supply them their inventory. If manufacturers don't shut down this UK-USA sales channel, they're the ones that ultimately stand to lose the most. Why? Manufacturers who've already made global pricing parity a priority – including Specialized, Trek, Cannondale, and SRAM - will rapidly gain mindshare and marketshare as retailers recognize that stable pricing is a brand asset as powerful as high-zoot technology and top-dollar marketing.

"But decisive action from bike manufacturers to create pricing parity will require a focus and discipline they don't always show."

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