Wiggle's purchase of Chain Reaction distracts from growing the pie

FROM THE MARCH MAG: BikeBiz.com scooped the world on Wiggle absorbing its biggest rival. But how does the sale and its likely impact on the industry?
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THIS COLUMN IS FROM THE MARCH ISSUE OF BIKEBIZ

Three days before it was formally announced I ran with the news story that Wiggle was about to acquire Chain Reaction. Loads of media outlets quoted the BikeBiz.com scoop including the BBC, Retail Week and national newspapers. One of the nice chaps at MTB website Pinkbike.com emailed me and said it was “probably the biggest story in the history of the industry." That’s a Carlsberg “probably” but it’s certainly a story of huge interest to many, and not just in the bike industry.

It’s probable that the deal will be referred to the Competition and Markets Authority, and just as likely that it’ll pass through undigested. Why? There are a great many online bike shop competitors in the UK and across Europe, and neither the UK Government nor the EU seem to argue against such mergers – a case in point would be how EE was allowed to form from the merger of Orange and T-Mobile.

Wiggle – or, rather Bridgepoint Capital, which owns Wiggle – will want to benefit massively from acquiring Chain Reaction, a deal that was probably months in the planning. As well as improved buying power, squeezing even better terms out of suppliers, they will seek cost-savings from combining warehousing and distribution; there may be cheaper shipping costs; and there may be combined, and therefore cheaper, marketing teams. This might mean job losses in the short term but whether this is in Portsmouth, Wiggle’s new warehouse in Wolverhampton or Northern Ireland remains to be seen. (Private-equity houses don’t tend to think long-term but was one of the drivers of this deal to eventually locate the merged business in Northern Ireland? From 2018 this part of the UK will cut corporation tax from 20 to 12.5 percent.)

But will there be just one entity, a larger Wiggle and no CRC? This is relatively unlikely. A big reason for absorbing Chain Reaction Cycles is the name and goodwill built up since the 1990s; for Wiggle to ditch this would make little sense. Something that could emerge from the acquisition is Wiggle becoming more of a generalist than it already is (Wiggle is an Amazon-style generic name, and could sell anything). Chain Reaction (which has more of a bike-based name) could become Wiggle’s hardcore cycling division. Or, the existing supposed specialities of the two retailers could be amplified – Wiggle is already known as more of a road shop, and Chain Reaction has stronger roots in MTB. (Might Chain Reaction Cycles, which already has a brick and mortar store in Belfast, become a chain of “Wiggle service” stores across the UK?)

Will the combined high-debt Wiggle and low-debt Chain Reaction impact on independent bike dealers? How could it not? IBDs have every right to be worried, but perhaps with even more to fear are the bigger players, such as Halfords. The newly bulked-up competitor has roughly the same annual sales, albeit domestic and international, as Halfords’ share of the UK bike market. This is a massive threat to the current market leader. In an interview in a previous issue of this magazine, Wiggle CEO Stefan Barden made it plain that he sees growth coming not from expanding the size of the pie but from capturing market share from his competitors.

Will the merged Wiggle/Chain Reaction worry suppliers? Some will welcome it (one less account to fuss over) but many others will fret over the almost certain loss of even more margin in the new contracts they will probably have to sign. Bike and P&A suppliers are not in same dire straits as trodden-down dairy farmers just yet but there’s now a new level of uncertainty added to an already tumultuous scene. Those brands that refused to go with either Wiggle or Chain Reaction will now be more convinced than ever that that was a wise decision because a muscular “WiggleChain”, while being an efficient way to the market, will be in a much better position to impose punitive terms on suppliers – many of these suppliers will now be far smaller than the retailer they’re selling to, and in no position to haggle for higher margins.

Will consumers be all that fussed? No: most online consumers are almost wholly price-driven; their true loyalty is not to a branded online retailer but to the “price–low to high” setting on Google Shopping. And who can blame them? Plenty of bike shop staff – and bike shops – already buy from Wiggle and Chain Reaction, and they do so for deep discounts, not love.

With WiggleChain dominating online internationally, and with Evans, Edinburgh Bicycle, and now, in a smaller way, Rutland Water, dominating bricks-and-mortar sales in many regions of the UK, it’s plainer than ever that consolidation has become a key driver of our industry. Growing the pie is being neglected by almost all. This is folly. We need to be attracting new customers – creating new people on cycles – not just serving up cheaper prices and less choice to existing cyclists. Easier said than done, of course.

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i-ride.co.uk I Burgess Hill, Sussex I Competitive Salary Plus Commission I Date Published Tuesday 20th November 2018