Cyclists prefer to shop for bicycle parts, equipment and clothing online and say local retailers are ripping the South African consumer off — and who can blame them, when there are savings of up to 70% to be had.
Several online stores offer such savings but Chain Reaction Cycles (chainreactioncycles.com), the largest online bike store, has quickly become a force in the local market because of its wholesale prices. The considerable price difference hints at collusion in the local industry. Johan Bornman, the owner of Yellow Saddle Cycling, estimated that low-end competitive cyclists would spend R1Â 500 a month on servicing, equipment and parts. “And I estimate they are spending about half of that online.”
Yellow Saddle specialises in wheel building and technical training in cycle maintenance. “The amount of people coming in [to Yellow Saddle] with Chain Reaction boxes is astonishing,” he said.
Bornman tends to buy 50% of products locally but is often forced to look online because some distributors will supply only to retailers with a shop front and refuse to supply specialist service-only businesses. “It’s probably because they are protecting the dealers or fear a backlash from retailers,” he said.
Bornman laid a complaint with the Competition Commission in 2008 about alleged uncompetitive behaviour by two companies — Summit Cycles in Midrand and Cape Cycle Systems in Cape Town. As a result of this, as well as an anonymous tip-off and admissions by the respondents, the Competition Commission found evidence of price-fixing by 28 bicycle wholesalers last year.
The firms allegedly colluded to set the wholesale and retail prices of cycles and accessories and also excluded competitors from the market. Wholesalers sent retailers price lists with the wholesale price and recommended retail price. The recommended retail price included a mark-up of 35% for biÂcycles and 50% for accessories.
Penalty
Oupa Bodibe, the spokesperson for the commission, said the investigation into cartel conduct had been concluded and referred to the Competition Tribunal. The commission has asked the tribunal to levy an administrative penalty of 10% on the annual turnover of each of the firms involved. Bodibe said several firms had come forward to settle and disclose information, which had caused a delay. But a formal investigation was not required for consumers to notice the disparity.
A competitive cyclist, based in Johannesburg, said there was no comparison between shopping for bicycle parts online and in-store. He ordered a bike frame from a website, competitivecyclist.com, for about R8Â 000, a similar one bought in-store, he said, would have cost R20Â 000. But, he said, local distributors were “useless” as he could not find that particular frame in the country in any case.
The service was also far better. “I can order a bicycle frame from America and have it delivered to my door in three days. At some stores I can wait three months for an order.” Should local stores go out of business, he certainly wouldn’t be shedding any tears, he said. “To be honest, I couldn’t care.”
Kayn Woolmer, a recreational cyclist, agreed that it was sometimes quicker to import than to request it from a store. He started shopping online when local retailers didn’t stock what he wanted. He now spends up to R200Â 000 a year on purchases from Chain Reaction Cycles. He also consolidates orders, like many other Chain Reaction customers, as there is no charge for shipping if the order exceeds R3Â 000.
In the market for brake pads, Woolmer priced them in-store at just under R300 a pair but instead has ordered the same pads for less than R100 from Chain Reaction cycles. He has even imported products for some bike shops — niche items that distributors will not bother to order. He also services bikes as a hobby. When it comes to savings in servicing, “cost is a big deal”, he said. He recently replaced the cassette (rear gears) and brakes on a bike and online purchases meant a saving of R300 on parts alone.
Online purchases
Woolmer admitted that it was “a bit of a schlep” when you did have a problem with an online purchase and had to send broken parts back. Predictably, there has been an exodus to online cycling shops. “It’s happened in the past year-and-a-half and it has been significant,” Woolmer said. But recently retailers had been reacting. “They have adjusted their prices on some things.”
Andrew Mclean, co-owner of Cycle Lab, the largest local retail chain for cycling merchandise and one of the 28 retailers investigated by the commission, said the perception that the South African retailer was ripping the consumer off was “simply not true”. Local distributors imported goods and had to pay duties. They then added a mark-up before selling to stores that did the same. “It’s an inevitable step in the chain,” Mclean said. “We would run at a loss if we priced it like Chain Reaction.
“We compete [in price] where we can and, when we can’t, we try to add value or to build a brand,” Mclean said. What local stores could do, he said, was offer a 30-day test drive when dealing with a local dealer. “People want to see what they are buying — touch and feel it. We also set the bicycle up for them and customise it and we provide a maintenance plan.” Cycle Lab also offered participation in its own riding club.
Mclean said that Cycle Lab was considering importing exclusive brands not found in the country to “take out a link in the chain”. He also said that consumers should consider that healthy local stores were important for the industry. “These are guys who get involved and set up events.” Healthy retail stores put money back into the cycling scene, he said.
Bike brand Cervelo Cycles, he said, did not sell to online retailers. If all brands were sold cheaply online they would put local distributors out of business. “Local agents can’t compete with large consumers like Chain Reaction. With no small distributors all over the world and just one large online client, brands would be in a dangerous situation should the website decide not to stock them.
Bornman said retailers played no major part in setting up cycling events. “Some retailers have very active in-house clubs, but in general retailers don’t organise events. That’s a separate industry. “To have a healthy retail industry, retailers must provide what the consumer needs.”
Bornman said the online trend and collusion in the industry were separate issues. “The online phenomenon has led to panic in cycling retail which, in turn, led to their attempt to collude and fix prices.”
Woolmer and others like him are unlikely to hand over money to cycling retailers any time soon. They’re sticking with the web “because the service is excellent, the prices are good and the selection, well, you can get just about everything you want”.
Price comparison
The Mail & Guardian compared the pricing of a few identical items from Cycle Lab’s website with Chain Reaction.
Look KEO 2max carbon pedals
Cycle Lab: R1 999
Chainreactioncycles.com: R1 297,55
Bell Solar Helmet
Cycle Lab: R566
Chainreactioncycles.com: R253,65
Continental Mountain King tyre (26 x 2,2)
Cycle Lab: R590
Chainreactioncycles.com: R288,14 (special offer)
Garmin Forerunner 210 (heart rate monitor)
Cycle Lab: R2 475 (10% off sale)
Chainreactioncycles.com: R2 210,75