Will the internet transform bike retailing?

On 16th February, Jim Rose of QXL.com gave a talk at eretailing2000 in London. He fleetingly mentioned Raleigh as a well-known brand now using QXL.com as a new distribution channel.

Keen to know more, Carlton Reid of BikeBiz caught up with him during the lunchbreak and interviewed him for 20 minutes on the impact the internet and sites such as QXLcom will have on independent retailers. The editor of BikeBiz conducted the interview as a freelance business journalist (which he is) and didnt reveal his day-to-day role until the end of the interview.

BikeBiz: Do you go to suppliers asking for products to feature on QXL.com or do they come to you?

JR: If you look at our business 12-18 months ago we had inventory, it was all our own stuff. The reason we bought it was so we could control the consumer experience, price, availablity, quality blah blah blah. Now less than 12 percent of our gross sale is inventory based. We do hold a little bit of inventory but thats not the model, thats a declining model. We did it out of necessity at the beginning.

If you look at it now, we still call people up but its kind of changed now because of our size. People now call us up and say lets use you as a new channel of distribution.

We just did a big thing for Microsoft a few weeks ago. 5000 copies of Encarta we moved in a couple of weeks, we made them number one in that market in terms of that kind of product. We have a cool, new age channel of distribution to move high volume of items through in a way that can really drive business results. So we see more people come to us now to act as distributors. Obviously we still call people but generally theres more stuff coming our way to get on the site, to promote it the way it should be promoted.

BikeBiz: Do you sell mostly obsolete stock?

JR: Yeh, we get that stuff [but]…take Raleigh bicycles. The bicycles we sell are the bicycles you can go on the high street and buy the same bicycle there.

Before Christmas I was buying a bicycle for my son and I went to the local high street guy. Small shop, stacked up, 20 bikes. He explained the bicycles and all this kind of stuff. For my son, who is nine, he only had two bikes in his category physically, bikes not that appropiate for him so I said to him can you get any different colours, different sizes da-di-da and he said ah, na, na, the distributors this, the manufacturers this.

£155, this bike we were looking at. So I went back home it was a Raleigh bike, by the way. So, obviously, I knew we had bikes [on the site]. I looked and we had the exact same bike, same colour everything, it was on sale on the site for £108 delivered to my house, yeh. I bought it on the site. Within four days I had the bike at my house. Ive got a small car, it saved me the trouble of borrowing a friends car to go to the high street to get the bike. I saved thirty or fortypercent and got it delivered to my home.

From Raleighs perspective they still sold the bike but someone like that guy [ie the IBD] is really going to be disintermediated. I assume £108 is Raleighs price, the bike is £155. Theres £47 in the distribution chain, assume the distributor got half and the retailer got half thats over £20 a bike wed get and we sell hundreds of bikes, that guys probably selling five a month? I dont know what he sells. Weve taken a huge piece of cost out of the distribution from the consumers perspective. For manufacturers [its the] same difference. Its a high quality purchase, they are doing the shipping so the logistics and handling costs are minimised but it really transforms the economics of that whole enviroment.

What do bike salesmen do to go forward? Become an information source? This is how it works, this is a gear lever and all that? [Internet selling] is going to have a huge impact on those kind of players.

People are going to go out of business. From a suppliers point of view, no problem whatsoever. The issue there is whos worried about distribution? Does Proctor and Gamble have a problem with Sainsburys and Boots selling Head and Shoulders?

Its just another channel of distribution.

There are even sites that have their own fixed prices. We have this wine merchant who has a fixed price site but we sell his wines at a variable price, its another channel of distribution for them.

Its very much price. Low risk, low cost, high impact, if nothing sells nothing ventured nothing gained. Theres no cost attached to it, right? Theres no warehousing, no infrastructure and moving products, six months promotional launch. Were pretty quick, we have can somebody up within 24-48 hours. We can see the response 24 hours after that, its a really dynamic environment.

BIkeBiz: What about trying things on? If youre a runner you really need to test out a pair of trainers in the shop? But what you seem to be endorsing is customers going into shops, trying the things on and then buying them five quid cheaper from the internet? If youre a retailer this is pretty upsetting. What is the future for small shops, how can they combat sites like yours?

JR: They need to transform themselves. Im actually still with you on the Nike example but you take books or CDs they are the most popular items on the internet. I personally still like to going to a record shop. I like the loud noise going on, I like seeing the pictures of the covers, and I like the experience

BikeBiz: Retail theatre…

JR: Exactly. I like that. Its not that I dont like Amazon or CDnow, its just how I like to consume. But for wine or a bicycle, Ill go on the internet because thats an inconvenience item for me to get.

Small shops need to transform, they need to have alliances with dot-coms or do it themselves. Doing it themselves is a very costly proposition.

For me a better example than Nike shoes is cars. Those guys have a got a big infrastructure, the showrooms, the people, the lighting, the look. The average car is making £175 per vehicle, thats not a lot of margin when youre selling a ten or fifteen thousand pound item. Whats happening in the US particularly is people are going to the dealer, getting the price, getting all the current information then they go on the web where there are loads of dealers on the web and say Im looking to buy a red Peugeot, with CD player, who will give me the best price? Car dealers are very much threatened in that sense.

A lot of fixed price sites are actually used as a price reference. At auctions you never really know what the price is.

Retailers are going to have it tough. A lot of those industries are highly mobile to the internet whether its bicycles, automobiles, even consumer electronics. Your camera shop or camcorder kind of guy, those guys in particular have got tough models.

BikeBiz: So retailers who trade on price and price alone, who try to out discount each other in a town, wont be able to out discount the internet or Wal-mart and have probably got a short lifespan? If youre not offering anything different youre not offering anything?

JR: Sure. Retailers need unique content, you cant get it anywhere else, or its an item thats not conducive to the internet, a fur coat or a diamond ring or whatver. Content is going to be key. And a unique service offering.

….

BikeBiz: Arent shops selling the latest stuff though and youre not?

JR: That were selling distressed inventory is a fallacy. Some of it is that kind of stuff but the majority is the kind of real stuff you can go to the high street and find.

BikeBiz: I went on your site before Christmas and it looked as though the Raleigh thing was just a Christmas promotion, that isnt so?

JR: Yes, if you go to the site today youll see Raleigh bicycles.

BikeBiz: Would you have more than one bike brand?

JR: It depends on the category. In this case, Raleigh is particularly good but if you look at travel we do seats with British Midland and British Airways and so on. On holidays we do Thomas Cook, First Choice, JMC, we have a whole range. We not going to have any exclusive relationships. Our strength is ubiquity. Well try and push Raleigh bikes because thats the only bike brand weve got but well take any bikes really. Were not just selling Thomas Cook travel holidays were selling a whole range of travel holidays.

BikeBiz: What should bike shops do about bike brands using QXL.com as another distribution channel?

JR: To say youre no longer going to stock Raleigh bicycles because they go with QXL, phew, you got me, to lose out on that whole range of stuff is crazy. You many go to another manufacturer of bicycles but if that manufacturer isnt doing something on the internet today they will do eventually.

The small retail guys have got to transform their businesses, become a service shop, a value added kind of shop, an accessories shop.

The internets not a fad, its got a huge momentum. The bicycle is very conducive to internet consumption.

BikeBiz: But arent there some product categories you like to trial out first? You know a tape recorder [picks up tape recorder] is going to tape but every bike and every car is different you need to take them for test drives.

JR: You do what I did. You go to a local guy. You get all the information on the bicycle, on how the gears work, on all the latest technology and that sort of thing, and then you run.

BikeBiz: Would you buy off that retailer there and then if hes so nice, is offering such a good service, oh sod it, no need to save ten quid Ill buy it here and now?

JR: My wifes that way. But whats happened to that guy now is my wifes gone there a couple of times. Shes bought stabilisers for my other sons bike, and a kick stand for my nine year old. I dont know what the margin is on those items relative to a bicycle but hes gotten other business from us because of the way he served us in the first place. When my sons bike breaks or my bike breaks whatever, its defintitely a case well go there. Hes now got a service relationship with us.

BikeBiz: So should he stop selling bikes and just focus on accessories?

JR: No, PC penetration isnt that high yet. What is it? 20 percent of the UK on the internet? So eight out of ten people dont have it so in the short term he should be selling bicycles. But over time he should take himself over to a service model, to be an information provider. He could even sell his used bicycles on QXL!

It also depends on the kind of bikes youre selling. If Im a real mountain biking man or some racing bikes kind of guy, Im going to want to buy from a bike shop because I want to know what kind of alloy this is, all that kind of crazy stuff.

BIOG

Jim Rose is the Chief Executive Office of CEO having joined in 1999. He is American, with a Master degree from Kellogg School of Management, Northwestern University, Chicago. He was formerly CEO at United Information Group, a wholly owned subsidiary of United News and Media. He worked for Dun and Bradstreet for six years, as a European Board Member and Managing Director in the UK, Ireland and South Africa.