Matt Turner is founder of 99 Bikes and Managing Director of the Pedal Group, which also includes wholesaler Advance Traders. As we documented in this related article, the Pedal Group’s latest full year financial figures show rapid growth to become Australia’s largest bicycle business, with a fraction under $200 million in sales for the financial year ended 30th June 2020. But in this exclusive interview, Matt shares updated information showing that growth has accelerated dramatically since then.
Before we get to Matt’s comments, it’s worth summarising the latest financial results, which show a quite remarkable scale and rate of growth.
Matt explained that the 2019/2020 total of 199.9 million dollars, broke down into $79 million for the pre-pandemic six months from 1st July 2019 to 31st December 2019 and $120 million for the second six months from 1st Jan 2020 to 30th June 2020.
As everyone in the bike industry knows, the last part of this period, particularly from late March to June 2020, was when bike sales really started booming as lockdowns kicked in.
But more recently, for the six months from 1st July 2020 to 31st December 2020, the Pedal Group achieved $169 million in sales.
That’s a remarkable 113% increase compared to the $79 million in the corresponding (fully pre-pandemic) six months a year earlier. $14 million of this increase was due to expanding into New Zealand, which took effect from 1st July 2020 with their acquisition of five stores and a wholesale distribution business as we documented here.
But most of the growth related to selling more product in Australia, in particular through their existing 99 Bikes stores, which were sometimes seen with queues stretching out the door during peak demand periods.
“We put a lot of effort into recruitment and growing the team sizes,” Matt revealed. “Yes, that’s a lot of costs, but has helped the sales grow pretty well.
“Most of our head count is in retail in Australia, and so we don’t skew the fact that we opened in New Zealand, I’ll give you the exact figure. For store full-time equivalent (FTE), before the pandemic to after the pandemic, a year later, we went from 322 in March 2020 to 555 in March 2021.
“That’s just retail in Australia, with not a lot of new stores. Stores went from 47 to 52 during that time.”
Doing a simple division of FTE staff per store, that works out to an increase from 6.9 in March 2019 to 10.7 in March 2020. Depending upon the mix of full and part time employees, on average that could mean a dozen or more individuals employed at each store.
Since then, 99 Bikes has grown further to 58 stores across Australia and New Zealand, but there’s more to come.
“We’re going to go from three to six in Perth over the next three to four months,” Matt revealed. “There’s one in Success, one in Morley and another one in Osborne Park.
“There’s also a new one going into Boundary Road, Braeside but we’re calling it Mordialloc.” (This road is the border between these two suburbs in outer south-eastern Melbourne).
Maximising Economies of Scale
With so many stores, the Pedal Group now has economies of scale exceeding any other Australian wholesaler or retailer. Previously they were even shipping containers of bikes direct to individual stores, but Matt explained why they’ve moved away from that practice.
“One of the things we’ve learned, and we’ve actually shifted in our business model is not to send containers direct to stores,” he said. “We used to do that quite a bit. I suppose we used to value the savings that brought. But now, all the containers get unloaded at a warehouse.
“Advance Traders still has four different warehouses around the country,” Matt continued, referring to third-party logistics (3PL) warehouses in Brisbane, Sydney, Melbourne and Perth. Most of the stock is mixed, that is, it may end up going to a 99 Bikes store or to one of their large network of independent bicycle dealers including their Bicycle Centre branded retailers. The main exception is their house brand bikes, Pedal, which are exclusively sold through 99 Bikes.
“It’s Advance Traders’ challenge to try and get those bikes into the city that they’re going to be consumed in, as much as possible,” Matt explained. “I think we get about 65% across the group. So 65% of bikes we sell into Melbourne going to the Melbourne warehouse. Something around that figure, about two-thirds.
“The challenge of going containers direct to store is that it does become very inefficient in trying to get exactly the right bikes into that store, and so, as we’ve probably got more sophisticated, we will still always send it to a central warehouse. We’ll just try and make sure we’re sending 20 bikes at a time into a store rather than one or two, but that will be the right 20 for that time.
“What has changed our mind through learnings that the space in store is actually really valuable. We don’t want to send 10 of the wrong bikes there and they just sit there for three months. We may as well try and get them into the right location.”
Another advantage of having such increasing economies of scale is that they’ve been able to grow their Pedal house-brand into covering a wide range of bicycle models and price points.
At present the Pedal range tops out at about $729 rrp (recommended retail price), with most bikes in the range being below $500 rrp.
“It’s going quite well,” Matt reported. “There’s a bit of a story behind it. One of our better guys, Craig Fitzsimon, he was running the Australian product team. He and his wife and family moved over to France about a year ago. As a remote role, it’s hard to integrate team and run a team so now he’s just focusing on that brand. I think he’s doing quite a good job.
“Yes, the brand is pretty good for us, but I’d say mostly our focus on that is just to fill a gap where we can’t really source some of those products easily through wholesalers.
“We probably do want to concentrate on the lower end and the high volume, high moving, well priced… we’re not making huge margins on it. But when we do it in volume, we’re focusing on efficiency. So we get them moving in and out pretty quick. The only way we’re expanding it is going into some electric bikes, which would be a bit more expensive.”
Having their own Pedal house brand of bikes also gives the Pedal Group the opportunity to collaborate more closely with other bike brands and suppliers.
Matt continued, “We collaborate a fair bit with Reid, in that we work with them on a lot of the Pedal bikes. We buy a lot of our Pedal bikes through them.
“Then we’ve got other people that we buy our Pedal bikes through as well. That’s a collaboration process because they’re the main contacts we use in factories. They’re producing other brands and so part of the value that they add is to say what they are doing and what they think (in terms of bike design trends, specifications, colours and graphics).
“I suppose naturally there’s a lot of collaboration without really trying too hard, it exists anyway. But in the end, you’ve also got to make your own decisions for your products so the person making those decisions is pretty important in our business.”
Overcoming Supply Chain Challenges
As every bike industry member knows, shortage of stock and long lead times have been the elephants in the room for the past year. They’re showing little sign of ambling back into the jungle any time soon.
It’s not possible to accurately compare how each Australian importer/wholesaler has coped with this challenge, but anecdotally, dealer feedback suggests that the Pedal Group has been one of the most aggressive in betting big on forward orders, sourcing new brands and keeping both their dealers and their 99 Bikes stores well-stocked. Their current bike brand portfolio available to IBD’s via Advance Traders plus 99 Bikes-only brands includes: Academy, Apollo, BMC, Cube, DK, KinkBMX, KTM, Merida, Mongoose, Norco, Pedal, Silverback and Verde.
“… the more specialist you go, then that’s where IBDs are going to be continuing to be prominent… forever, really.”
As always, Matt was very frank, both about the challenges and how they’re responding.
As to the root cause, Matt does not think that lead times are being artificially inflated by manufacturers taking advantage of the situation to force their customers to order further in advance.
“I think it’s mostly just the inability (of manufacturers) to meet demand,” he said. “They need encouragement to increase their capacity.
“It seems to continually be getting a little worse. But… I don’t know… bad news travels faster than good news! I hear about the bad news a bit.
“Stock is still coming through. But we’re still getting more and more delays and cancellations.”
Given this situation, Matt says that demand forecasting has become more problematic.
“Yes, it’s a challenge,” he said. “It’s pretty much impossible to get it right, or get it as right as we used to.
“I think the solution to it is just to accept that we’re going to be quite overstocked in some areas, and to be planning for that.
“While it’s tough, because we’ve done well and we’ve got a build-up of cash in the bank, I think as long as we’re conservative with our cash, that’s a good part about it. We can probably handle being overstocked a bit at the moment in some areas.
“We’re trying to order the best we can, but we’re going to get it wrong. We’re going to miss sales on some things we didn’t order enough. We’re going to order too much on other things. “We’re already seeing that, and then because of the long lead times, we can’t adjust our orders. It is bad, but at least we’ve done really well to be able to handle that without putting the business at risk.
“When it comes to our IBD’s, we’re trying to win business or keep their trust by taking some risk on the wholesale end, so they can benefit on the retail end. We’re saying to our retailers, ‘We want to back you up,’ and because we’re in retail ourselves, we can see how dramatically bad it would be if the wholesaler that you trust doesn’t order enough product – doesn’t take enough risk.
“That’s probably the main dynamic I see. If you’re a retailer, you’re really relying on your wholesaler to take the risk, even though it’s 12 to 18 months forecasts, you really need your wholesaler to be ordering up pretty big.
“Then as a wholesaler, it’s hard because he’s thinking, ‘Well, we’re not going to get this right. We’re going to have way too much of half our products, and probably not enough of the other half.’
“From my perspective, wholesale’s the business that takes up the most cash. It takes a lot more cash than retail. That’s where the cash risk for us is, in wholesale.”
“Our current stock situation, is two paced. There’s some product lines you’ve got too much of. They’re the other ones that obviously our dealers can order in one to two’s. Most of that is your cheaper stuff.
“But then the more expensive ones are the ones that a year ago, we didn’t order enough of. We couldn’t predict the amount of demand in that high end. We didn’t order enough and so there probably is a bit of an allocation process in the higher end. That’s where they’re screaming for more bikes still. It’ll just depend on the model a little bit.”
One sector that the Pedal Group has been testing the waters in has no pedals at all: e-scooters.
“We sold lots of models,” Matt said, but we’ve just got a bit of a dead spot with sourcing products that we’re comfortable with.
“We’ve had issues with them – a lot of them getting returned. I don’t know exactly what it was, but just some challenges with previous suppliers. We’re on the hunt for more, but it’s just a problem we haven’t quite solved yet.
“At the moment, we’re only selling in those places where it’s legal. “We’re still open-minded. Maybe we will change our minds, but that’s our stance at the moment. Part of it is because we’re not really comfortable with that supply in our product. We want to get there.
“Because we’re dictating the product they sell (referring to 99 Bikes stores), they get pretty sensitive if we’re still sending them a product that they don’t really like.”
Will There Be a Place for IBD’s in the Future?
It’s understandable that some IBD’s are concerned about the concentration of market share in the hands of a small group of ever-larger major players. They also express concern when any major wholesaler also gets heavily involved in retail.
In hardware, we’ve seen Bunnings become the category killer and many old-style independent hardware stores have disappeared. Walk into any major shopping centre now and just about all of the speciality stores are part of national chains. So as the largest player in the Australian bike industry, arguably with the deepest pockets to fund future expansion, does Matt see a future for truly independent bicycle dealers?
“From my view of the world, I just see it as 50-50,” Matt responded. “I think half will go that way and the other half won’t.
“The difference in bikes, which I think is why bikes hasn’t gone that way as much as other categories… it is a complicated product.
“It’s not a, ‘Put something on the shelf and people walk in and take it,’ kind of product or service. I suppose we do try and replicate what an IBD model brings. (referring to 99 Bikes).
“We try and be as decentralised as we can. We try to let each store have ownership… financially, and otherwise. Autonomy for decisions and those sorts of things.
“I think in an IBD where you’ve got the owner hands-on in the store, working in the store, it is always going to be pretty strong.
“I can see the advantage we have on the supply chain. Once you start doing a lot of volume, it helps having all the stores working closely together, which I imagine is how a lot of the other chains (in other industries) really become hard to compete with.
“When you’re doing volume and they’ve got a lot of buying power, with a lot of logistics and structure around their systems… obviously at the higher end, the more specialist you go, then that’s where IBDs are going to be continuing to be prominent… forever, really.