Wiggle bought!

Sep 2, 2009
That is a bit of a simplification of what has happened (as per the standard Daily Mail article.)
Sep 2, 2009
The team kit order will not be affected.

Regarding that, I am about to receive a proposed price list, and order requirements, which I will post in due course.

The kit this year will be of a higher material quality than the one last year.

More info to follow.


Maximum Pace
Sep 13, 2010
Competitive Cyclist have been ranting, sorry complaining, about Wiggle!!!

2010 Chain Reaction audited financials here.
2010 Wiggle audited financials here.

In 2010 Chain Reaction did $173 million in global sales and earned $15 million. Wiggle did $137 million with $10.5 million in earnings. If not expertise, I can at least bring some experience to the subject: Those are big numbers, and each business reached those heights at a pretty astonishing rate. Props to both for their success.

Since they're online retailers operating in the UK, it would be reasonable to assume that these numbers are of little more than academic interest to the US bike industry. Two short sentences in the Chain Reaction financials changes that, however: "The geographic spread of sales has further diversified as the company establishes wider recognition around the world. The proportion of turnover generated outside the EU during the year was 37% (2009 - 27%)."

It's anyone's guess how much of Chain Reaction's 37% of non-EU sales are to American customers. Our belief here is that it's likely at least half. If the same holds for Wiggle, that adds up to nearly $40 million in US exports per year. Given that the NBDA approximates that the size of the specialty retail bike business in the US is $2.4 billion, one might think this $40 million is a mere rounding error. But there's a twist: 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.

The decline of the specialty bike industry in the USWhat is the UK online retailers' value proposition? Because they're based in Europe, Chain Reaction and Wiggle have the advantage of buying their goods directly from manufacturers. 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 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.

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. 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.

In studying these financials, I kept thinking that 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.

One sidenote: Some folks will read these observations and predictably assert that the price differential between Chain Reaction and the American IBD is analogous to the pricing advantage Competitive Cyclist enjoys over the IBD because we don’t charge sales tax.

But that's incorrect for three reasons: First is the cause of the disparity itself: We don't charge sales tax because sales tax rules are a function of federal law. Chain Reaction charges 33 percent less for Continental tires because Continental doesn't manage its pricing. There's a big difference between congressional legislation and manufacturer inattention. Second is the degree of the price differential. American retail pricing on a pair of Look's fabulous Keo 2 Max pedals is $180. Chain Reaction charges $104 for a set. A 70 percent discount is far more motivating than the sub-10 percent savings that comes from sales tax avoidance. Furthermore, our shipping charges offset the sales tax savings, making the bottom line cost of almost everything we sell at Competitive Cyclist identical to what you pay when you buy it at the IBD. Lastly, it's all-too-obvious that someday all online purchases will be taxed. The government loves its tax revenue, and government budgets are in a dire need of revenue. Internet sales tax is inevitability. But decisive action from bike manufacturers to create pricing parity will require a focus and discipline they don't always show. To call it a probability, let alone an inevitability, would be far too optimistic.


Maximum Pace
Jan 30, 2007
Competitive Cyclist have been ranting, sorry complaining, about Wiggle!!!
What a load of pathetic drivel from Competitive Cyclist! Pushing for price fixing to serve their own interest :mad: I didn't hear them whining when they were getting business from UK customers due to the strong pound.


Dec 1, 2011
And the ranting continues...
(its funny, he is the most educated shop owner I have ever heard of regarding exit PE multiples. I bet his real frustration is selling out at a lower multiple earlier this year to realcyclist. Also, I guess it is also easier to blame laws and suppliers instead of a less controllable element which is global foreign exchange risk)


- A foreseeable bit of bike industry M&A went down last week. Wiggle has been quite publicly shopping itself around for the last year. Given that its campaign made noise for so long without results, it was easy to conclude that no one else shared Wiggle's view of its self-worth. But last week's selling price of $281 million proved that nothing could've been further from the truth.

Students of finance will appreciate that this sum represents a 16 times multiple of LTM EBITDA, and a 12 times forward-looking EBITDA. In the post-2008 recession era, this is 18 times as freaky as when I took mushrooms in college with that gorgeous blonde with armpit hair and a most interesting Zippo lighter a groundbreaking multiple. It's far beyond the typical retail EBITDA multiple, and, except for the hottest Silicon Valley startups, it's even lofty from a dot com viewpoint.

Purportedly 53 percent of Wiggle's revenue in the previous 12 months came from international sales. Compare this to 2008 when only 2.5 percent of its total revenue came from international sales. Perhaps this was the magical datapoint which convinced its new owner, Bridgepoint, to pay such a premium. However, as I've previously documented, Wiggle wins its American business thanks to its practice of subverting "Minimum Advertised Pricing," or MAP.

MAP policies are regulations created by US wholesale distributors and directed at their "authorized" retailers. To become "authorized" retailers must agree to follow a brand's MAP policy. Simply put, if an American retailer advertises any given product for less than MAP, then it risks having its supply cut off by that manufacturer. There's a fine line here: According to the courts, it's price-fixing if a manufacturer tells a retailer the minimum selling price. However, it's not price-fixing if a manufacturer tells a retailer the minimum advertised price.

American retailers -- both your local bike shop as well as Competitive Cyclist -- have no choice except to follow these rules. To be clear, retailers neither formulate nor discuss MAP with manufacturers. Here is an example of the sort language manufacturers use with retailers regarding pricing:

"Our MAP is set unilaterally and cannot be the subject of negotiation or discussion with any dealer. It is our obligation to enforce this policy uniformly and fairly, and we must do so on our own. We cannot and will not accept any information from any dealer about prices being charged by another dealer or about possible violations of our policies by another dealer. Please do not call us or send us email about prices being charged by another dealer."

And what happens if an American retailer violates MAP?

"Manufacturer has the legal right to unilaterally cease sales of products to dealer at any time and for any reason without prior notice to the dealer. Manufacturer has unilaterally determined that it will cease to sell products to dealers who choose to advertise these products at below MAP, or in violation of our other policies."

Wiggle is keenly disliked within the US bike industry because it sources its inventory outside of the structure of the US bike industry. Freed from the rules set by American distributors, it can freely disregard MAP with no fear of being cut off.

Based on the handsome multiple it paid, Bridgepoint apparently isn't too concerned about the fact that Wiggle doesn't conform to pricing rules in a market which is crucial to its current and future financial performance. I'd suggest that it should be, as it seems inevitable that global manufacturers will shut down the UK-USA sales channel. Wiggle's end run is too much of a threat to US wholesale and retail and the American market is simply too important for these manufacturers to ignore the loophole. How important? The National Bicycle Dealer Association's authoritative "US Bicycle Market 2010" report ranks the United States first in "Estimated Market Consumption of Bicycles", with a 37.4 percent of global share. By comparison, Japan comes in second at 17.4 percent.

Interestingly, this isn't Bridgepoint's first investment in a UK company saddled with a dubious gameplan for entry into the US. New Yorkers will be plenty familiar with Pret A Manger -- the pretentiously-named British fast food restaurant that first gave a go in the US back in 2002. A fabulous article in The New Yorker outlined the challenge of attuning American palates to crayfish accompanied by shovel-loads of mayonnaise. Analogies to Wiggle abound.

Bridgeport acquired Pret A Manger in 2008. Judging by the chain's limited American expansion beyond Manhattan since 2002 it's unknown whether its transatlantic excurision was worth the bother. Although its 30+ American locations have experienced the same growth rate as its non-US stores, it's not clear whether the US operation is large enough or profitable enough to be consequential. While profits have increased company-wide in recent years, specifics about US profitability aren't easily unearthed. And Pret A Manger's future growth? One word: porridge.

Wiggle has been a formidable competitor over the years. Now, with the whiff of fried crayfish in the air, I'll admit I'm a little less worried about a future Wiggle blitzkrieg on American shores.


Maximum Pace
May 25, 2009
What this idiot doesn't realise is that Wiggle is buying direct, in bulk from the manufactures, not only that but they are buying in larger quantities than the US distributors are and believe it or not the manufacturers are happy with this.

The biggest issuer the US consumer faces are the extortionate prices the distributors are charging on import products and just like Japanese retailers some are even turning to Wiggle to purchase products for the shop as its cheaper than going through the distribution channels.