BikeExchange Scraps Kitzuma Ready-to-Ride Delivery Service

North Carolina, US

Online bike retailer BikeExchange (BEX) has announced it is scrapping the ready-to-ride bicycle delivery service by its Kitzuma subsidiary in the US, which it had earmarked to be replicated in its existing markets.

During BikeExchange’s half-yearly financial report to shareholders last week, the company declared it would not be resuming Kitzuma’s ready-to-ride delivery service, which it paused during the 2022-23 US winter.

BEX directors announced last October it was freezing the service during the slow winter months and would subject it to a financial and operational review.

“The review has now been completed and on 27th February 2023, the Directors made the decision to not restart bike deliveries,” BEX said in a statement.

It said when BEX bought bike delivery enterprise in late 2021, Kitzuma was a very high-growth business with significant potential for further growth.

“Whilst the business continued to achieve strong revenue growth post acquisition, it required significant capital investment to reach the scale required to generate positive cashflow from operations,” the statement said.

“At acquisition, the directors believed the company would be able to comfortably raise the necessary capital to fund this growth.

“However, changes in market dynamics over the past 12 months have made it much harder for BEX to raise capital. The review announced on 31 October 2022 confirmed that significant ongoing investment was required in Financial Year 2023 and beyond, and given the company’s current capital position, the directors made the decision not to restart bike deliveries.
“This decision has led the directors to fully write down the goodwill and write down the related bike delivery assets to their recoverable amount, resulting in impairment losses of $5.3 million being recognised in the first half year of the 2023 financial year.”

High Hopes for Home Deliveries

BEX paid US$3.375 million ($A4.75 million) to buy Kitzuma, declaring its point of difference – the company’s ready-to-ride bike delivery service – would unlock many opportunities for BEX’s online sales platform.

The BEX CEO at the time, Mark Watkins, said Kitzuma’s purpose-built logistics platform, including a unique racking system within its trucks, allows bikes to be transported box-free and fully built. Removing the need to unpack and assemble the bike would eliminate a significant barrier for many customers purchasing a bicycle online.

“Kitzuma will be a compelling white-glove service for retailers and brands using the BikeExchange marketplace,” Mark announced.

“The Kitzuma logistics model and technology platform is globally scalable and can be replicated by market. The primary ambition is to roll out the service across the other BikeExchange existing regions.”

But late last year, the US General Court of Justice – Superior Court Division found Kitzuma has a case to answer against allegations of fraud, misappropriation of trade secrets and other confidential information and common-law unfair competition.

A court hearing in November dismissed an application by Kitzuma founders Taylor Essick and Christopher Cosgrove to dismiss the claims by rival company Tribike Transport, which previously employed both Taylor and Christopher.

The hearing was told TriBike, founded in 2005, transported customers’ bikes to triathlons and other cycling events and had started developing a new business plan (D2C) “to pick up high volumes of bikes directly from manufacturers, refurbishers, and online retailers, and transport them — boxless, fully built, and ready to ride — directly to consumers”.

This closely matches the business model of Kitzuma, which was launched in December 2020.

Last week’s announcement by BEX, states Kitzuma’s boxed delivery and warehouse/third-party logistics services would continue to operate.

1 Comment

  1. Ben Larsen on 12th March 2023 at 10:51 pm

    Wow, the hits keep coming for Bikeexchange.

    Net loss increased from $11 million in FY21 to $14 million in the FY22 year, they burnt up most of their operating cash and even a late raise of a further $6.3 million still keeps them under significant cost pressure and the need to raise further capital in a tough market.

    The Kitzuma purchase has mired Bikexchange in a court case alleging fraud and misappropriation of its trade secrets and has now been written down resulting in impairment losses of $5.3 million yet Kitzuma Co-Founder Taylor Essick remained as CEO in North America for the company until last month.

    This is an Australian company taking on an ambitious global growth strategy but seems to have failed to build a sustainably profitable model in advance of that growth and now looks to have failed in its acquisition due diligence processes.

    We can only hope they have got a path to success and can turn around their fortunes. Since listing in February 2021, BikeExchange share price has lost 95%, falling from 26 to 0.13 cents.

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