After the boom: Ray Keener talks bicycles in the 1970s and business today

Originally posted April 2012 on 16incheswestofpeoria.wordpress.com. Note: The advocacy merger mentioned at the end of this story fell through shortly after the interview was posted in 2012.

20120416-102519.jpg

In 1981, Vitesse Cycle Shop of Normal, Illinois, opened a satellite store in Peoria Heights, Illinois. I was fresh from an abortive attempt at a journalism career, and I had always enjoyed bicycles, so I signed on as a mechanic and salesperson.

I never worked for the guy who started the Normal operation, Ray Keener, but I knew he was the one who had “lit out for the territories,” and made a certain name for himself in California, most recently through Growth Cycle, the sales training, consulting and marketing company he launched in 1996.

The company’s Selling Cycling training program has been used by almost 2,000 bike shops. Ray has also produced custom programs for Trek, Specialized, Giant, CamelBak, Thule, Yakima and Mongoose and writes a column for Bicycle Retailer and Industry News. His newest training program, Ready to Pedal, is designed to help bicycle owners get more enjoyment out of the activity.

According to the Growth Cycle website, Ray “enjoys golf, bocce, cooking and ‘short and slow’ road rides on his custom magnesium Paketa, Trek Madone 5.2, Gary Fisher Hi-Fi Pro 29er, and custom Jack Koehler track bike. His around-town ride is a Scott SUB-10 with Burley Nomad trailer.”

The following interview represents his patient replies to several emails from me.

How did you get into the bicycle business?

I was a biochemist who got laid off in 1975 after Nixon declared war on cancer and all the “pure research” money dried up. I went to the bike shop that I frequented in Madison, Wisconsin, where I went to high school and college: Stella. The shop was importing Stella bikes from France and selling them at retail, which was quite profitable.

A bicycle shop was your backup from biochemistry? Was the professional job environment that bad or did your move also entail some personal journey of self-discovery?

A little of each. I had wanted to be a scientist since I was eight, and three years doing research convinced me otherwise. I was mostly a commuter in Madison, and I loved to tinker with bikes.

Bevil Hogg hired me to build bikes at Stella, then, six weeks later, he called me into his office and told me they wanted to send me to Normal, Illinois, to open up another retail outlet. So I moved three hours south down Highway 51 in March 1975, and we had Vitesse Cycle Shop open in a month.

What kind of bikes were Stella? Were they any good?

Stella bikes were well-made for French bikes at the time. The frame quality and componentry were pretty stone-age by modern standards. We sold mostly Peugeot UO-8-type bikes: steel rims, steel cottered cranks, Simplex plastic derailleurs. There were some really sweet Columbus/Campy bikes, like the SX-76, that sold well in Madison, but not so much in Normal. Bevil sold Stellas to Lee Katz in Evanston and a couple other shops.

So you bought Vitesse right after you opened the store?

By the end of the 1975 season, it became clear that Vitesse had a lot of potential, but only having one line, no kid’s bikes, no three-speeds, etc., was limiting us. So me and four of my customers, including Dale Kruse, chipped in $2000 each and bought the store from Bevil and his source of capital, Dick Burke, in September. Shortly thereafter, the Stella factory in Nantes, France, burned down, and Hogg and Burke started Trek.

Vitesse was one of the first seven Trek dealers in early 1977.

What was the retail bicycle environment like when you started?

The bike boom actually peaked in 1974, which was and still is the biggest U.S. bike sales year ever. Vitesse had no capital whatsoever. Like small northern-tier shops of today, we lived on the suppliers’ willingness to be the bank. And prayed for an early spring.

In 1975, the pro market was just starting to evolve. But not in central Illinois, although Peter Davis at Champaign Cycle was importing Sekai bikes and doing a lot more pro business than we were. Sekai was our main bike line after Stella.

How smart were you in comparison to everyone else who was in the retail trade in those days? I’ve know a few people that got into bikes for the love of the sport and only realized much later that it would have been nice to have known something about running a business as well.

None of us really knew what we were doing at first. We grossed $92,000 the first year. My partner Dale Kruse, who now runs the Bloomington-Normal airport, kept track of the money, I was kinda the front man and the mechanic.

Keep in mind, I had worked at Stella Bike Shop for all of six weeks before Vitesse. It was total on-the-job training. I never wore shoes if it wasn’t snowing. We had my friends’ artwork hanging in the store instead of race posters. We took in stray cats. But we figured it all out.

After five years of trying to talk farmers out of K-Mart bikes, I was ready for greener pastures. Leslie Bohm and Tom French really encouraged me to get out of Normal, so I sold my share of Vitesse to Chris Koos, who is now the mayor of Normal. And still owns Vitesse.

Who was doing bicycle retail right in the early days?

Cupertino Bike Shop and VeloSport in Berkeley were the shining examples, doing their own importing of Italian and French pro gear. That’s why I headed for the Bay Area in 1980, to manage The Bicycle Outfitter in Los Altos. My customers knew more than I did. Just what I was looking for!

What about Schwinn?

The Schwinn dealer in Normal, Gibson’s, also sold outboard motors and lawn tractors. We tried every year to get the Schwinn franchise, and we would have sold a lot more of their bikes. But Schwinn was really loyal to its dealers. Dare I say, unlike today? When I got to California in 1980, I asked, “So who’s the big Schwinn dealer?” They all looked at me like I was crazy. There wasn’t one!

Wait a minute. There was no big Schwinn dealer in California? I though everyone in Hollywood had a Schwinn. I know Captain Kangaroo was hawking them. What were they selling out there?

At The Bicycle Outfitter, we sold mostly Univegas, which in 1980 were still made in Japan. Our competitors were selling Miyatas, Nishikis, Centurions–Asian-made bikes that came in through Pacific ports. Brands were less important than value, which was who had the best price for a given parts spec. At least, that’s what we, the sales guys, thought was important. I still don’t know who the Bay-area Schwinn dealers were. Or the Raleigh dealers, for that matter.

It’s amazing to think of all the changes in bicycles since 1974, and yet, how 1974 still represents the high-water mark for bicycle sales.

In 1974, you were either selling US-made stuff like Schwinn and Ross, French bikes like Peugeot, Gitane and Motobecane, and the British-made Raleigh. Fuji was really the only Japanese brand with any traction. Quality definitely went up after that.

Suntour, SR and Shimano components were way better than the cheap French and Italian stuff. Japanese frames were much straighter than the European stuff, although it took a while for the Japanese factories to match the finish and aesthetics of the best Euro bikes. They did what they were famous for: copying. Look at a late-1970s Centurion, for example. Without the names on the frames, they were identical to the Stellas we were selling in 1975!

So your California customers knew more about bicycles than you did. How is it that, not only weren’t you crushed, you actually turned into an expert in retail operations?

I wanted to learn more, know more. We had eight enthusiasts in Normal, and I knew more than any of them. Our customers in Los Altos, a bedroom community for Silicon Valley, were working at National Semiconductor and Rolm and IBM. They were techies to begin with, and they loved bikes and understood them on an engineering level I hadn’t even imagined.

Jobst Brandt was the guru, he held total sway over the Wheelsmith guys, the Avocet/PaloAlto Bicycles guys–all of us. I’d call Jobst up and he’d just talk about what he knew. You’d listen for as long as you had time for.

As far as retail operations, we were all still groping our way along. Most of the shop owners were ex-racers. Dick Powell, who owned The Bicycle Outfitter, was an ex-Lockheed engineer who burned out on the military track and loved bikes and wanted a new challenge.

When was the last time you managed a store? Did you ever take another ownership position after Vitesse?

My last retail gig was co-managing Cupertino Bike Shop with Al Budris in 1984. Al now runs Sidi America. And no, I never again owned a shop, just worked for others who did.

You’ve been giving advice to independent bicycle shops for quite a while. And all during that time, while the successful shops have gotten larger, the number of bicycle shops has dropped. Is that a problem? Or simply the fallout of so many people who didn’t have the business skills and/or capital to succeed?

Yes, when I got into the industry, there were about 7,000 shops, now there are about 4,000. Most of that fallout occurred in the 1980s and 1990s; the number seems to have stabilized at around 4,000. Although as the Internet becomes a greater and greater factor, it’s hard to imagine that number won’t continue to go down.

On the other hand, compare those numbers to, say, camera stores or audio stores, whose numbers are a much smaller fraction of what they once were. The fact that bicycles come from the factory broken down and needing adjustment used to be seen as a pain in the butt. Now I think it’s clear that it kept the Internet sellers from taking over!

What were the would-be bicycle dealer’s barriers to entry in 1975? What are they today?

There were very few barriers to entry in 1975. Most of the shops, with the exception of the Schwinn stores, were small and crappy. So you could be small and crappy, too, and give them a run for their money. Also, consumers were less used to instant gratification then they are now. So you could show them a bike or a jersey you didn’t stock, order it for them, and they’d wait for it.

Today, almost every large market has more than one kick-ass dealer who would eat your lunch in terms of marketing, merchandising, volume buying, having the best brands to sell, etc. If you don’t have either strong access to capital (to open a big, good-looking store Day One) or a strong niche (fixies, triathlon, family), you can’t really expect to succeed.

I get calls all the time from people: “I want to open a shop. So-and-so said to call you.” The first question I ask them: “What brands can you get?” And if they’re not talking to Trek, Specialized, Giant, Cannondale, maybe Raleigh or the Fuji/ASI brands, I ask them to call me back when they have.

If the best brand you can get isn’t one of those, what are you thinking? It’s not just the consumer appeal of these brands, it’s the support you now get from these companies to make you a better retailer.

I’m still shaking my head between the top sales year being in the 1974, when the level of product sophistication today is higher than it’s ever been. I walk into Peoria’s Bushwhacker and I’m still wondering how there’s a market for so many high-end bikes.

It’s not really about the product. I tell people all the time, “You can’t really buy a ‘bad’ bike, so don’t worry too much about the minute differences between the brands. Find one that fits the way you want to use it, feels good to you when you ride it, and you like the color and the way it looks. Shop for a person to help you in a shop that’s close to you, always go back to them for advice about additional gear or upgrades, and you can’t go too far wrong.”

Demand for bikes in the early 1970s was more driven by the “ten-speed fad,” Baby Boomers taking up cycling, and the high gas prices. Yes, the bikes we sold were very badly suited to their intended purpose. And people bought them, and rode them, anyway. Although I would bet in today’s era of way more comfortable and easier-to-ride bikes, the average bike bought in a shop gets ridden a lot more than the bikes we sold back then.

What do bicycle dealers do better today than they did before? Have bicycle margins improved?

Is it too glib to say they do everything better? This really became clear when I did staff training clinics for dealers at Madison’s IceBike event in London last year. Dealers there are 25 years behind U.S. dealers. No training, no dressing rooms, crude merchandising, greasy hands—it was like a time machine to the past and helped me realize how far we’ve come in the U.S.

Competition has driven this to some extent. I give Trek most of the credit. Trek realized a long time ago that its success is completely tied to that of its retailers. So Trek helped its retailers get better, and it’s working.

As far as margins, yes, bike margins have gone up. Bike shops no longer lose money on every bike they sell. So profit margins for the stores have gone up as well. Average gross margins for successful stores are now in the mid-to-upper 40s, which is 10 points higher than in my day. That’s a result of higher bike margins and the fact that bikes are a lower percentage of total sales–and accessories, labor, rentals and bike fittings are a higher percentage.

How have dealers responded to the Internet? How should they?

There are a lot of different strategies. The most common is to get a SmartEtailing e-commerce website and get into the Internet business yourself.

The least effective is to get angry at your suppliers for wanting to broaden their reach to a wider customer base through selling to online stores. And to get angry at your customers for buying from those online stores.

It’s a real weakness that our industry is so enthusiast-based. Store owners want to stock and sell the high-end stuff they use themselves. Which means they’re selling to completely fickle enthusiast consumers who (mostly) care only about price and availability: both bike shop weaknesses.

What would I do? Go into the “family” business. Sell entry-level stuff to non-enthusiast consumers who need and want my expertise. If these folks stay in the sport, I have a decade of selling them stuff before they know enough to buy stuff online without your expert advice.

I’m sure the computer revolution helped your business a bit. As long as you stay digital, I’d guess it costs little to reach and correspond with your customers. And, of course, your training materials are on CD and online, too. That has to be a bit more lucrative than traveling from one shop to another to talk to mechanics between customers or right after the work day.

Yes, and it also leaves the training to the shop owner, who is usually so overwhelmed that s/he hardly ever can make it a priority. That’s one of the reasons that the big shops are getting stronger and the small shops aren’t either as successful or even staying in business.

I would say that having enough management to do a good job of things like training and merchandising and marketing is way more important an advantage for big shops than getting discounts from greater buying power.

Is the Internet the Great Satan that “mail order” was in the 1980s? Or is the market becoming so diversified that some businesses can only exist on the Internet?

For bike dealers, the Internet is a similar Satan to mail order; it’s even easier to get what you want online than it ever was from, say, Lickton’s in Chicago, our main mail-order competitor in the 1970s.

And yes, there are tons of niche products that bike shops could never hope to stock. Look at it from a manufacturer’s perspective. I get these calls all the time: “How do I get my Cool New Product into bike shops?” The simple answer is, you can’t. Try to get Quality Bicycle Products or Trek or Raleigh or KHS or Hawley or SBS to carry it.

Getting the product directly into shops is next to impossible now. Shop owners are looking to have fewer suppliers, not more. If you can’t get distributors to carry your CNP, or you can’t handle their 25-percent to 30-percent cut, then going direct online is about your only option.

In the eighties, I came to believe that my shop’s competition wasn’t the other bike stores or big-box stores in town, it was everything else that people could spend their money on.

People say that all the time, I was just hearing this from Dave Guettler at River City in Portland, who’s wildly successful, by the way. But to me, almost everyone walking into a bike shop is there to buy a bike! Are they really thinking, “Well, maybe I’ll get a 105 road bike, or maybe I’ll get a 62-inch flat-screen TV?”

I think we need to make the sport and activity of cycling more appealing by helping Bikes Belong and the LAB and IMBA and Adventure Cycling and Rails-to-Trails do their work. Make more safe and scenic places to ride. But once someone decides they want to ride, why would they consider doing something else? A $400 bike is such a better value than a $400 golf club.

Do dealers understand the connection between their business and the environment for bicycling in their communities? Or is the time commitment/potential-return equation just too weak to explore? Do you know of any dealers that are making a difference?

Oh, dealers now totally get the connection between better places to ride in their communities and their ultimate success. There are so many stories of that happening, you’d have to be brain-dead not to see the connection.

What they do about it is a totally different thing. There is a huge continuum. There are store owners who would rather sponsor a race team than support their local advocacy groups. And then there are dealers–Mike and Claudia Nix at Liberty Bikes in Asheville, North Carolina come to mind–who have basically retired from the store to focus on advocacy work.

Any thoughts on the Bikes Belong/League of American Bicyclists merger?

Bikes Belong has been a huge success. Strong funding and the industry’s best minds, the John Burkes and the Chris Fortunes and the Patrick Seidlers and the Steve Meinekes (sorry for everyone I’m leaving out) and the day-to-day leadership of Tim Blumenthal and Bruno Maier have made a huge difference in funding and construction of bike facilities nationwide.

The LAB has struggled a bit, despite the huge respect we all have for Andy Clarke at the helm. I believe the League has lacked the singularity of purpose that Bikes Belong has. The Old Guard is against bike paths. They’re more interested in getting what they want for the way they ride. Growing the sport and the activity and the industry is not their priority.

Bikes Belong is all about ensuring the future of bicycling in America. So I think the merger is a great thing, as long as the Bikes Belong agenda and its ability to leverage federal funding remains the priority, it’ll be great.