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I could write a dissertation on this with strong academic and real world data showing people want less choice at the end of the day, not more. I can also put on my pretend "McKinsey" hat (hate those guys
) and show how there is also a high risk to your inventory turns when you add too much variance and choice, ultimately resulting in margin reduction, higher capital requirement needs and poorer allocation of that capital.
Remember, just because you sold something doesn't mean you sold it at a profit, or at a profit that is in excess of your WACC/hurdle rate. The right type of consultant could look at what is selling, how fast, and if there is a real reason to keep making the product (or variant).
There are easy and obvious ways to do this, like reducing the number of color skus, or cutting the number of builds in a line. This is highly unlikely to matter to the end user. Others might be harder, like actually cutting a product entirely, but again, I don't buy the "floorspace is king" idea. Its not. Making money is king. If your shit isn't the best, its not doing the company (trek) or the retailer (bike shop) any favors by sitting around, collecting dust and costing you money in one form or another.
TL;DR, Rick Rubin this shit. Just because you can make the proverbial song doesn't mean it belongs on the album. Less is more. Apple could offer 10 other variants of the iPhone. They don't. Does this mean they aren't selling as many? I don't think so.
Learn from this.
Apple currently offers 5 iPhone models with multiple sizes (up to 2) and colors (up to 6) with further options (typically 3) for storage size.
Not saying you're wrong about the approach generally, but today's Apple product portfolio is more complex than at first glance.
As far as bikes go, doesn't size drive a lot of SKUs? I'm sure manufacturers could save a lot of SKUs, engineering time, manufacturing/tooling costs, etc if they removed sizes at the lower ends of the bell curve (your 23 year old McKinsey consultant will quickly point out you sell very few XS and XXL sizes), but the decision to force consumers to switch to something that doesn't physically fit them is very different from forcing them to a different iPhone (where the underlying selection driver is aesthetics and price).
I'm 100% with you. "Curated" is what I said. Curated to give you the broadest consumer interest and best possible availability and margins is what retailers should be doing. The best retailers, in fact, can do this easily because the product they carry is subservient to the retailer's own brand - it doesn't matter what they sell because the consumer cares more about who they're buying from... but this is a rare kind of retailer.
All that said, diversity of choice matters - at least from a marketing/consumer sentiment standpoint. Even though Black mediums might be 90% of your sales you'll still get dinged/judged/whatever by consumers for not having a full select of colors. Having your high-end bike be the same color as your mid-ranged bike often drives high-end consumers off your brand because it's perceived as being stingy.
Retailers, distributors, and the brands themselves have been complaining about having too many SKUs for decades. The constant seasonal turnover, the endless marginal improvements, needless model years, etc. No one wants to do it... but time and time again anyone that tries it gets penalized for doing it. Bike customers, as a whole, seem to want it.
We're not selling to normal people here. The bike industry thrives on selling progressively more expensive bikes to same rich white men over and over and over again. We like to imagine that it's about enjoying the outdoors and the thrill of blasting down a trail but what really fuels this thing are dentists who want a newer toy than their buddy.
Treks buisness model for shops is single brand, either Trek owned or independent (but dictated to). They openly aspire to the Apple of the bike world (or whatever they latest buzzword book Burke has read this week).But being a single brand and not having a comprehensive range of models leaves you open to lost sales to the competition that fills the gaps. Despite what 'we' (as discerning mtbers) think ,the large majority of purchases are made on colour and price and don't really care what is written on the downtube.
I like how Trek frame this as 'right sizing' in their usual wall of positive noise style. When they shut their entire Uk warehousing operation (with associated layoffs) they called it an 'an opportunity for an improved office environment with more facilities for employees including an onsite café.'
an onsite cafe! “Let them eat cake” style.
they offer 4 phones per year, and sell them for many years. then they take one form and recycle it with the newest tech and sell it for a few additional years. thats not many models…
that way they maximise tooling use and reduce cost as low as possible per unit. pretty smart
Don't most bike manufacturers do the same? I'm pretty sure most models see multiple years between redesigns.
That's also sorta irrelevant when discussing how many SKUS are offered for sale at any given time.
Oh boy. I feel I need to do a Twitter Spaces on this one or we're going to step all over ourselves with miscommunication through analogies.
1) Nuance is important here. There is a point of too much variance, and a point of not enough. There is just as much an art to this as there is a science.
2) Don't take my analogies too literally unless you are willing to really critically think about this. Apple does offer a number of models and variants, but relative to their TAM its not even close. To my point, Trek offers the Fuel EX in 14 (I think??) different builds, a bazillion colors, six sizes, two frame materials and multiple wheel configurations. There are more permutations of Fuel EXs (one model) than all iPhones/variants Apple sells. If that doesn't make your head spin I don't know what will.
3) These costs eventually get passed to the consumer. Trek is in the business of making money. When they have to take a loss on a product/variant/etc, they have to move pricing elsewhere up to retain overall margin and stay in business. This may not be palatable to the market (because you are priced higher than the competition despite offering nothing better...besides too many choices).
Proof is in the pudding. Someone smart is doing this, and it will bode well for the company, I guarantee it. My "e" key is barely working on my laptop (probably a blessing or this post would be giant).
Spomer/anyone - If anyone wants to do it I'd happily host a spaces/youtube Live/whatever to have a real conversation about this and anything else business related. I like this stuff, and I like the ensuing convrsations.
If it is so smart, why did they wait until they'd missed sales forecasts for 15 months and were downsizing by 10%?
Having dealt with and worked for Trek.......there's not a lot of 'smart' going on there.
Bikes were already built, gotta get rid of the existing stock before bringing new ones in.
You pretend like all decisions at Trek are made by one person (or team) pulling at levers. That's not how companies, especially the size of Trek, work.
Unfortunately, its hard to get any company to make changes when there is little pressure to make the change. If things are good, or at least good enough, management is going to be very reluctant to mix things up. While I'd argue this type of vision and foresight is what separates good leaders from great leaders, what appears to have happened is the same thing happening at companies of all types and sizes around the country!
Margins are under pressure, the consumer isn't buying as much, refinancing any short term debt is far more expensive, inventory turns way down, competition is fierce and everything else we've already talked about in this thread ensues etc.
While its easy to sit here and go "yeah but they missed sales forecasts for 15 months" I ask you, was this the exception or the rule? I'm not saying it was okay, but I am saying we're all acting like we knew something through COVID that frankly wasn't super mega obvious in the fog of a once-in-a-100 year pandemic. EVERYONE fucked this up, not just Trek. To add, as others pointed out, we pretend the bicycle supply chain is real time; as if I can run an updated forecast and immediately halt the production of X or the supply of Y. That is not how this works. There are huge lead times on all of this stuff and huge lags with respect to any kind of decision making.
Regardless, the situation they are in "is what it is". So what do they do? They get lean, bring in real business minded people to start making some decisions and this is the result. I'd bet a lot of money this will help their bottom line with minimal impact and the consumer won't even notice.
EVERYONE fucked this up, not just Trek.
Not quite everyone. I know they took flack for it at the time, but it seems to me Shimano was one of the few companies to see the writing on the wall.
https://cyclingindustry.news/a-year-in-review-how-shimano-has-navigated…
This. The Escape Collective podcast special (also linked earlier) goes into a bit of detail on it.
Coincidentally, the logistics and supply chain management industry are undergoing the same turmoil as the cycling industry. And this is exacerbated by today's geopolitics (Russia invading Ukraine, Houthi rebels causing havoc in the Red Sea) and climate change (not enough water in the Panama Canal).
Ocean freight will continue to be more expensive and lead times will get longer. It will be much harder to accurately forecast how fast or slow one's products can get to customers' hands. I'd surmise cycling is particularly vulnerable to this as a huge chunk of its manufacturing and/or raw materials come from the Far East.
Fair. If you read between the lines what I was suggesting when I wrote "everyone" (which was hyperbole) was to say the "rule" in the industry was forecasts were wrong. Most got it wrong, with Shimano being one of the only examples of a company getting it right ("the exception")
...but then again, comparing Shimano to Trek is not totally fair. Shimano has two key tailwinds in this situation.
1) They are a more upstream company. This means they likely have less "finished goods" style inputs (in the form of components) and more "raw materials" style inputs (literal materials they use to make the components). This gives them a lot more control in that those materials are a lot more agile and can easily be repurposed from "X" to "Y" if need be, plus the lead times of getting raw materials a lot shorter/easier to manage than finished goods.
2) They don't release a new product on any cadence (right?). IE, they can keep selling whatever they want until they deem supply to be where they want it to release the next latest/greatest whatever. Yes, I know, buyers have to deal with latest/greatest so this isn't totally accurate, but my big point is nobody is expecting Shimano to release a 2024 lineup, a 2025 lineup etc.
Its a lot easier to be in the drivers seat with these two factors at play. You have an order of magnitude more control, no matter what happens in the broader market.
Here's a short goodbye video from Nuke Proof.
https://www.youtube.com/watch?v=jHa4r0q1-wg
I read that Linkedin post. Or at least the first few paragraphs. I can't believe there are people that actually communicate like this.
I was employee #2 for the SIGNA Sports United ("SSU") North American cycling business unit and signed on to build a vertically integrated network of business segments across owned retail channels, owned brands, and owned distribution. The strategic why behind all this is for another time but for now, just know that the mandate was to extend assets that were in the E.U. and the U.K. into the U.S. – and in process, set up a sustainable, long-term, and competitive business in this market. A unique value proposition for customers through a difficult-to-replicate and tailored value chain. All the classic Michael Porter stuff.
It's linkedIn and his post is just a master thesis for him to save face on what happened. Shameless self-promotion.
Some people love talking in buisness word soup to make themselves sound more authoritative
Don't underestimate his message. Creatively activated problem solvers utilizing multi-channel communication platforms are the backbone of strategically integrated cross-genre collaborative solution-finding.
It is the only true way to promote synergy.
Exactly
If we can think back a few years (nigh impossible), everyone in the bike shop talk, comment sections, etc were crapping on Shimano for not ramping up production and "being a bottleneck" for lots of brands who couldn't ship their complete builds without a chain or cassette. We all like to think we had secret esoteric knowledge (common sense) during the covid boom, but far fewer of us did than we would like to think.
It should have been pretty obvious that lockdowns would have some long-lasting negative effects on the world economy, and that the bike boom was caused by stimulus that never actually stimulates, just pulls future sales (like the Cash for Klunkers), but its more complex than that. For big boys like Trek & Giant, its an opportunity to grow market share, or at least stop the bleeding. If Specailized goes balls to the wall on ramping up during the next pandemic boom, and you'r Trek, you have two choices: Ram up to keep up, in full knowledge that its not sustainable and you'll have to deal with the aftermath of excess inventory, or let Specialized get all those sales, new brand loyalists, new people to the hobby, more S bikes at the parking lot trailhead, more S bikes in the windows of shops, etc. Its a difficult thing to figure out, and its not clear to me that Trek made the "wrong" decision.
On the Shimano not ramping up thing: Very few brands and people in the bike world are manufacturers/have experience working in manufacturing. I don't think many decision makers from the brands wanting Shimano to ramp up understand the difficulty of increasing production volume outside of very few instances. There's the large time and cost investment of hiring, training, and supervising new people to operate existing machinery on a new overnight, or weekend, shift in a factory environment where you can die if you're not aware enough of your surroundings. Once you maximize the operating time of your existing machinery and tooling (which comes with a much higher maintenance cost) with new people and shifts, then you get into the world of additional and/or newer machinery and the space and tooling for said machinery which takes a long time to amortize at the scale that Shimano already operates at...
If ramping up were lower in risk, or cost, Shimano would have done it before the "experts" even started complaining. But you don't get to be a 100+ year old company by making dumb decisions.
Whelp, I just got a legal notice that my key vendor is insolvent and in collections. I lucked out as I was getting close to placing an order with a hefty deposit. I run a very small biz in the MTB technical apparel space, 1000 unit orders are the norm. Time to either lawyer up or find a new factory.
I suspect I'm not the only one who will be dealing with a messy supply chain this year.
Our local indoor bike park BLine in Calgary is done. Closing April 30th. COVID killed their membership numbers, which never fully rebounded, and they are getting owned by the hot commercial real estate market and rising rents. You'd think it would have been a reasonably profitable place considering we have 4-6 months of legitimate off-season, but here we are.
That sucks. I hope they have one hell of a closing party!
That place looks awesome. Sucks to see.
the opposite of corporate messaging with 50:01
Who knew being stoned and doing crankflips was still popular....
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