SOLA Sport is one of the few Australian distributors that can claim a history that stretches back to 1948. But the company today certainly looks different to the one founded and run by the Guerry family for its first half century.
Bicycling Trade recently visited SOLA Sports co-owner, George Nisbet and learned more about the reasons behind SOLA Sports’ changes and their future strategy.
Bicycling Trade: You can trace your company roots right back to Atom Imports which is one of Australia’s oldest bicycle parts importers. Is that something you seek to emphasise?
George Nisbet: we are proud of our heritage and like to remind our customers Netti is, ‘Australian born and bred’. If you’re a distributor and you are looking for new brands to distribute, it gives you a lot of credibility if you’ve got a company that’s older and that’s established, versus a start-up. So it is something that we use, but I wouldn’t say it’s our USP (unique selling proposition) to the market.
BT: Do you think your dealers are aware of your company’s heritage?
GN: Yes, I think they are. Most of them still call us Netti.
BT: How long have you been involved in the company?
GN: I started in September 2010 so that makes it just over four years.
BT: What attracted you to join and how did you hear about it?
GN: This is an interesting story because I wasn’t actually looking to get into the cycling business. I actually was looking to buy a business in Australia and the finance company that I approached to assist me in buying a business actually owned SOLA Sport.
They were looking for a new CEO and someone who wanted ownership in/CFO the business. With my background in cycling and the military (Camelbak had military contracts at the time) in South Africa I was a good fit for them at the time.
BT: Was SOLA why you moved from South Africa to Australia?
GN: No. I’d already lived here in Australia for ten years. I was in wholesale distribution before this. I used to work for a company called Hagemeyer Brands and they do brand names including JVC, Smeg, Omega, Casio, Minolta.
BT: What are the key brands as you see for your company now?
GN: Our key brands are Netti, Bianchi, Cinettica and Fox. That’s where we are focused.
About 18 months ago we decided at a board level that we were looking for security of distribution of our brands. I think the bicycle industry is fraught with distribution contracts moving around between different companies. It’s very difficult to build a sustainable business with a sustainable cost base when you’ve got brands moving. So we chose to focus on the brands that we own or have long term contracts and strong relationships with and hence our focus is really Netti, Bianchi, Fox plus Cinettica, which is another brand we own.
BT: You’ve got both the Bianchi and Peugeot bike brands, which are both part of Cycleurope. At one stage Cycleurope had a stake in SOLA. Is that still the case?
GN: Yes that is the case. Bianchi actually owns a minority share in the SOLA Sport business and we distribute Bianchi as our main bike brand and also Peugeot, but only in ebikes.
BT: What is the current ownership structure of SOLA?
GN: SOLA is owned by private investors and Bianchi.
BT: When the Guerry family (who founded Atom Imports / Netti Atom) retired and sold out, investment bankers came in. Are they still involved?
GN: They’ve all been bought out. ANZ Private Equity was the majority shareholder of the business up until 2010. When I came in together with my business partners we bought ANZ Private Equity out and then this year we bought Investec Bank out so it’s a private company.
BT: It would be correct to assume that Bianchi is by far the larger of your two bike brands?
BT: How do you dovetail Bianchi and Peugeot? Are you looking for a distinct set of dealers for each brand?
GN: They are completely different brands. Because we’ve limited Peugeot only to ebikes, it’s really small in volume. We are really at the start of that curve here in Australia. Obviously there are countries overseas that are way further down the track and more advanced on ebikes.
I think the challenge we have in Australia is the Peugeot brand is more of a retro style/European style type brand, which doesn’t appeal in such a big way in our community compared to say someone like E-Motion that JetBlack distributes, which is that sportier looking bike and Specialized have got a couple of models as well.
I know Gazelle does more of the retro style and I think they are probably the market leaders. Peugeot is dovetailed in behind them, but at this stage our distribution is relatively small.
BT: What’s the story with Bianchi? What’s your strategy?
GN: We have always been very strong in high end road. Bianchi sales are the best example of what Bianchi wants for its worldwide business. 70% in dollar turnover of all of our sales are in high end carbon road bikes.
But I think what gets left behind is the fact that Bianchi also produces a really nice range of commuter bikes and a really nice range of mountain bikes. We’re trying to grow the other categories and for the first time next year, we’re actually doing kids bikes which will arrive for January 2015 trade.
BT: For years Netti was far and away the number one cycle clothing brand in Australia. But since then we’ve had the international brands arrive and many once prominent domestic brands have disappeared entirely. How have you coped with this new competition?
GN: There’s been a big move towards custom clothing. Not only with corporates doing custom, not only with bike shop doing custom, but also with the growth where people do custom kit for charity events.
So you’ve got new brands in the market which previously didn’t exist in custom. Champion System has had a tremendous growth in that area, in fact not just in cycling. They’ve done custom kit in a lot of different sporting groups.
The other factor is, with the age of commoditisation, people have taken brand names and chosen to leverage them on different categories. For example Limar made a decision a few years ago to take their helmet brand name and put it on to clothing and they’ve been fairly successful there.
Then you’ve obviously got the niche players that have come around and have grown quite strongly. Brands like Attaquer, which is new in the market and it’s very different to everything else that’s there. It’s got its own USP. It’s not to say that that’s the Netti customer, but it’s just an example.
You’ve had growth in international brands. Pearl Izumi benefits hugely by the fact that it’s distributed by Shimano. You know the good old saying, ‘If you don’t have a Shimano account you’re not a bike dealer!’ That’s quite true. I think the ease of ordering through Shimano with having Pearl Izumi as one of your items on your B2B makes it easy for shops to do business with.
Players like Rebel Sport and Amart that have traditionally been very big in clothing are important. Netti have done business with that group for over 20 years. We had a period of about 18 months where they moved the model up to Santini and Sugoi. But subsequently we are back into Rebel Sport, so that’s a good thing.
Internally for us a big change for Netti is that we used to have what we call a CMT model, ‘Cut, Make, Trim’, up until as recently as two years ago where effectively we weren’t buying clothing on an FOB (‘free on board’), because we carried a heavy amount of raw materials in different countries like Fiji, Asia and China. The recent Netti range is an FOB range. It’s way more price competitive. It’s way more margin competitive for both the dealers and us as a wholesaler.
BT: How long ago did you make that change?
GN: The biggest change has actually been in the current season. In 2015 you can see Netti’s price points in the market are back to where they should be in the market.
We sit in the ‘good, better’ segment. Our apparel is incredibly well spec’d and well styled and designed, but we recognise that the brand position is around the sub $100 price points.
BT: Let’s talk about Cinettica, because you launched that as your higher end offering. How’s that going?
GN: Cinettica is not a new brand to SOLA. In fact it was a brand that existed up until about 18 months ago, but we chose to focus our energy and attention on Netti in times gone past.
Now we have found that we have an opportunity in that premium segment to go up against brands like Santini and like Castelli and others with the more premium offer but it’s a very tight range and we’ve got quite a tight dealer base. I think we’ve got 30 or 40 dealers that we’re targeting around the country.
BT: What are the key growth areas are amongst your brands?
GN: Overall the strategy for us is ‘less is more’. So what we’ve done is really focus our wholesale business on the core brands, that is, the ones we see the most potential for.
There’s a high level of complexity in the bicycle business. You take a brand like Netti, we’re the designers. We’re the manufacturers. We get involved in the sourcing of the materials. We’ve got to find factories. We’ve got helmets in the range which we’ve got to work with.
We’ve got IBD’s and mass merchants and some online players… there’s a lot of complexity.
My view of wholesale in cycling is that there’s too many wholesalers doing too many brands and not doing the brands properly. What we’ve noticed is that the organic growth that we’re getting out of the focus on less brands has been well worth our while.
We have dedicated brand mangers for each of the brands, we have developed stand alone websites for all of our major brands that have been launced in February 2015.
So our basic philosophy is, ‘less is more’ and we do brands that we own or we have on long term contracts with strong relationships with the brand owners.
This year for example we’re made some significant inroads with Fox. We’ve launched their 40th anniversary clothing range which is something new to the market this year. We’ve also developed strong in-store POP for all our core brands and launched a test ride program for Fox and Bianchi for the first time in 2015.
BT: Overall, how many dealers do you have?
GN: We have 500 dealers on our books. It goes up and down, but Netti has over 400 and Fox has over 500, mainly because of the service side of Fox.
BT: Are you happy with your current dealer mix?
GN: I don’t know if anyone would ever say they are entirely happy, anyone in business needs to be looking for opportunities all the time.
One of the challenges we face is obviously with the majors dominating a big part of the market. It doesn’t leave room open for distribution of brands outside of those as easily as it did maybe five or ten years ago. The issue in the current environment I don’t see enough new stores opening in the right areas.
I think the barrier to entry in cycling is pretty much the capitalisation of IBD’s. Under-capitalised IBD’s are an incredibly difficult business model to deal with, because cycling is about eye candy and it’s about choice, particularly in the area of bicycles.
What we tend find is that stores that are well stocked in clothing, both deep and wide and well stocked on bicycles, get a lot more traction ongoing than stores that run out of cash flow and end up with end of season ranges and odd models and sizes and colours.
BT: A dealer would probably be surprised to hear you say, ‘I don’t see enough new shops opening in the right areas.’ What are those ‘right areas’?
GN: What I’m talking about is picking affluent areas where there is no bicycle store, across different areas of different cities.
BT: So you still think there’s potential for certain shops to open in certain affluent areas across the cities?
GN: I think so.
BT: How have you found business conditions, both in the longer term since you joined and over the last year in particular?
GN: It’s an interesting question. We’ve had really good growth in some of the brands and we haven’t had as good growth in other brands. On balance, if I go back the four years, I’d say that business has become tougher, there’s no question.
I think you fight for business all the time. Online is a factor, particularly in the non-bike area, which means you have to be a bit more aggressive on price. I don’t think margins we enjoyed four years ago are the margins that we enjoy today.
BT: What’s Bianchi’s philosophy as far as emphasis on model years or going away from model years?
GN: I think if you go back through the history of Bianchi, right up until the time of Marco Pantani, to a large extent they ignored carbon technology. Right up until the early 2000’s they were focused on aluminium. As a result they fell behind a lot of their competition and they had to play catch up.
So in the last 10 years they’ve done an extra ordinary amount of research and work in the area of carbon to try and rebuild their credibility as the world’s oldest bike brand and they’ve done that very well.
There’s two sides to this. In 2014 they launched a change of 80% of their range, which was fantastic for them from an innovation perspective, but for a distributor and for our dealer base here in Australia, it’s quite hard to absorb an 80% range change. What tends to happen is not all products get equal sunlight and so the Infinito CV, with all of its new technology and worldwide awareness, absolutely oversold anything else on the market perhaps to the detriment of other really good models.
So in that respect I wasn’t a big fan of such a big change in the model year. I do like the idea that the model year should not change. The challenge for us is that it’s not always the bike brands that drive that, it’s also the groupsets.
One of my challenges with this industry is the aggressive year model change. You can see a number of brands that have slowed down in that area and certainly Bianchi in 2015/6 have also moved away from aggressive model year changes, which has been better for us and far better received by our dealers.
It’s the same story in clothing. A lot of our dealer base don’t want us to change the Netti designs every six months or every year. That for them is a challenge. An element of consistency allows you to benefit from the investment you make for a longer period of time.
BT: So are you taking note of what dealers saying and going for multiple year models?
GN: Absolutely. I think what you have to have is a core range that is year in year out good sellers and you stick with those and you support them. Unless there’s a very strong reason to change them, you don’t. Then you introduce new product at the time when it’s right and at the right price points so that it doesn’t really compete with your core range.
BT: If you were to fast forward a decade from, today how do you think the bicycle industry would look?
GN: One is the vertical integration of brands into retail, either in a formal way or an informal way. The formal way is someone like Advance Traders and 99 Bikes, where effectively they have the same shareholder and they are basically vertically integrated into their own retail stores.
And then you get the informal example which is the major brands saying that they don’t want to own retail but effectively they control retail.
There’s always going to be room for niche players, because not everybody wants to conform to a certain brand offer or specification. The cycling industry has a very interesting angle too, which is people are individuals and bicycles are for individuals.
The example I give is: in outdoor, people buy products for families. A father and a mother make a decision to buy a tent, or they buy a camper van, or they buy something for outdoor which the family enjoys. It’s not an individual decision. Whereas in cycling someone makes a decision for themselves.
So we’ll always have individuals. We’re all different. We’ll always have the need for choice.
It’s going to be interesting to see where things go. You’re starting to see a lot of the wholesalers really focusing on their distribution capability. It’s getting tougher for everybody. There seem to be less stores to distribute through so I think ownership of retail actually almost becomes a default option in some respects. You’ve either got to face that or you’ve got to face that your brands have limited distribution.
I still firmly believe that consumers need choice. Single brand stores are great for marketing and advertising and for offering the full range of product so that consumers can research and touch and feel and test ride but I still think that consumers want choice and I still believe in multi-brand stores.
Second, I’m a firm believer in the ebikes for the future. I really am. One, because I see traffic congestion becoming more and more of an issue. I would like to see the Australian culture change to adopt cycling as a form of transport in a bigger way.
I heard a very interesting comment from an employee of Trek a couple of weeks ago saying ‘Trek see themselves as a transport company now and not as a bicycle company’, which I thought was a very nice way to put it.
I would like to see ebikes take off. One, to ease congestion. Two, to promote it in terms of health. But also because I think it brings a new consumer into our market. Some of the benefits people may not see.
I have an ebike. My father, who is 70, can go cycling with a group of guys on racing bikes on a Sunday morning because he can ride an ebike and he can stay with them and that for him is an incredible way to spend his time. 10 to 15 years ago that didn’t exist.