In 1958 Ed Scott, an engineer and ski racer invented the tapered aluminium ski pole. Fast forward over half a century and Scott Sports SA, now headquartered in Switzerland is one on the world’s leading bike companies and through its recent purchase of Sheppard Industries, one of the largest players in Australia and New Zealand
For almost 30 years Beat Zaugg (pronounced ‘be-at’) has been part of Scott Sports, for some years owning 100% of the company.
Following Scott’s acquisition of 80% what is now Sheppard Cycles, Beat recently made a flying visit to Australia, where Bicycling Trade caught up with him at Sheppard’s 2017 season launch on Queensland’s Sunshine Coast.
Bicycling Trade: What first attracted you to Scott? Was it bicycles back then or was it ski?
Beat Zaugg: It was the ski business that attracted me because I was sponsored by Scott during my professional ski career.
I was a ‘hot dogger’ skier. I did that for 12 years and five years in World Cups. So I tried to make a living out of it. But when I was 23 years old I found out that I’d never be world champion so I’d better use the energy I put into sports into business.
To be in sports you need to train a lot and it’s actually the same for business. You have to always train and learn and it’s a never ending journey.
Shortly after I joined Scott the Americans started to invest in the bicycle industry. Mountain bikes, but also with Boone Lennon for triathlon and handlebars. So I soon got involved in the bicycle industry.
I’m now 58 years old and I’ll have to work another 30 years to fulfil all the dreams and wishes I’d like to achieve in life!
BT: Going back to those early days, Greg Lemond famously won the Tour de France over Laurent Fignon by eight seconds using very early Scott aero bars. Is it fair to say that landmark in cycling history launched Scott to the public?
BZ: It helped that we hadn’t been in the bicycle industry before because when Boone came we had to be open minded to help him to realise the product. Probably if he had gone to TTT or another bar producer at the time they would just send him to hospital.
BT: You mean a psychiatric hospital?
BZ: Exactly! (laughs)
Everybody was laughing, but once we won the final stage of the Tour de France, nobody was laughing any more.
Boone Lennon helped us to be immediately recognised in the cycling industry.
Getting into mountain bikes was almost by mistake. In 1986 a guy in the US came to us and asked us if he could use the Scott brand to do some mountain bikes. His name was Grant Petersen. He also had a mountain bike brake that he was developing at that time in the 80’s. The management at that time said, ‘No you can’t, but if you help us to get into the bicycle industry you can get a better price to buy the bikes.’
He already had connections into Taiwan so he helped us to get established in Taiwan at that time.
BT: What are Scott’s divisions today?
BZ: We have cycling, we have sports, including skiing and running and then we have motor sports.
BT: Which is the biggest?
BZ: Bike by far. Bike today is around 80% of our turnover.
BT: Are you going to keep going with the other ones?
BZ: Yes! Because we never do things just because of money. We do things because of passion. If we lose passion in a sport we go out. We have done that in the past. Once we had been a key player in snowboarding, but then we had to recognise that snowboarding in not asking for innovation, it just asks to be cool and it’s hard to plan to be cool!
We just want to be in sports where through innovation we can contribute in helping people do a better performance.
BT: Can you give me any indication of your bicycle sales?
BZ: We are just below one million bicycles a year. Obviously the investment into Sheppard helped a lot to get these numbers up because the brands Sheppard is selling in Australia and New Zealand are a different price level to Scott and really pumped up the numbers.
Some of the brands we control ourselves like Malvern Star and Avanti. For the time being we have an agreement with Accell Group where we have a chance to prove that we can do a good job with Raleigh and Diamondback.
BT: By 2005 you personally owned 100% of the company, but more recently you’ve sold in a couple of stages part of the company to the South Korean company, Youngone. What was your motivation for doing that?
BZ: When I was very young I always had a dream to have my own company. In Scott I had the opportunity to do a management buyout, first with one third, then with 51% and in the end with 100%. In each stage, if you own one third or 51% or 100%, it’s different stress levels.
When you are a minority, you have to deal with your other minority shareholders.
When you have a majority of 51%, you don’t really have the majority because you still have to rely on the other shareholders.
When you have 100%, you control everything but you also have 100% of the responsibility and the weight on your shoulders!
I have gone through all the different levels. I’ve seen the advantages and the disadvantages. Then in 2013 when needed more money to support more growth, there was an opportunity that Youngone could come in based on the 10 year relationship we already had, so I chose to let a little go.
At that time I had basically invested 27 years and all my money into the company and had never taken out anything. One day you need to balance your risk profile and also make sure that it doesn’t all depend on you. I think it was a little forced because we needed the money, but also a good experience because it has opened doors to enable us to grow.
In 2013 Youngone came in with 20% and then in 2015 Youngone came in with 50.01%, I have to underline .01%! This has given us a lot of opportunity to do some acquisitions in the sports world with Dolomite mountaineering shoes, with Bergamont bicycles in Hamburg, with the deal with Sheppard. We’ve also invested in infrastructure - a new warehouse in Belgium and a new headquarters in Switzerland that we probably couldn’t do without their help.
Sometimes people think, ‘Now you’ve sold why are you still working?’ I actually work more than before. Having more also means you can do more projects and this creates even more work, but I need that. This is the drug I actually need! Projects and problems - then I grow.
BT: You spend very heavily on marketing. When you look at the Orica BikeExchange team, IAM Cycling, AIS (Australian Institute of Sport), Nino Schurter on the mountain bike and all the triathletes, you must spend a fortune on marketing?
BZ: Some of our competitors beat us with their marketing budget, probably by three times. It’s not the amount that matters. I think it’s the relationship and also a long term investment. Orica Greenedge team was a good opportunity and still really represents well our values and the lifestyle we stand for.
But I would say as much money we invest in sports marketing, we invest even more in products. Because the driving factor behind our brand is really innovation, technology, design. I’m always saying to my marketing and sales people and even the finance department, ‘Without our products, we are nobody!’ For me the core of everything we do is product.
Whenever possible I like to be involved in product development and new adventures. There are enough people who like to go to races, so I’m not really not needed there. But when there is new product, new investments to make, this is where I feel most comfortable.
BT: In November 2015 you bought the majority of Sheppard both in Australia and New Zealand. What motivated you to do that?
BZ: We have to go back a few years earlier when I got a phone call from one of our competitors, saying there was an opportunity in Australia and New Zealand because his company is basically abandoning their relationship. He doesn’t feel that it’s right and we should get in contact with Sheppard and so this put us in a relationship with John Struthers (then owner of Sheppard Industries).
We had a really good personal relationship, but I made it clear if we were to make this move then we wanted to have an opportunity at a later stage to buy into the company. So this was one of the conditions to do the move (from the previous Australian distributor SOLA Sports to Sheppard) at the time.
Then like many things in life, things are changing through globalisation. So we talked about how we can really get involved and make sure that the long term future of Sheppard is guaranteed.
Since 1st December 2015 we are the 80% owner and management and John are still in with 20%. Now we are in the process of changing computer systems, changing locations, to our future business model, which means we’ll be focused on specialty bike distribution and be one of the best in supporting dealers to grow their business.
This will probably take two or three years until we have everything in place the way we imagine this should work in the future.
BT: Now you own one of Australia and New Zealand’s biggest bicycle and parts and accessories distributors. But it’s very complex in the number of products and brands that it sells and some of these are house brands like Malvern Star and Avanti.
You already own Scott. Do you really need to have more brands in house? What’s your strategy going to be?
Bergamont and Avanti I would put on the same level, below the major players. There are some synergies and market opportunities with these two brands.BZ: To tell you the truth I don’t have a strategy! (laughs) I just have some gut feelings based from past experience. Don’t forget that at one time we also owned Schwinn Cycling in the USA. We owned Yeti, so we have a history of owning different brands.
Because a for leading brand today like Scott, you have to invest a lot in product development and marketing and you also have to have quite a selective distribution policy and this means you leave out a part of the market.
Bergamont and Avanti will not be sold all over the world in each market parallel. Some markets will be Bergamont and some markets will be Avanti.
With Malvern Star we have a historical brand that sells more of a lifestyle that is liked all over the world. Like Switzerland stands for skiing, Australian beaches is a lifestyle that captivates all over the world. I believe that we can bring the right mix of all these four brands. We can offer to the retailers in all the markets around the world solutions for different price points.
BT: There’s two things that I’m hearing from that. Number one that Malvern Star might be sold overseas?
BZ: That’s the plan, yes.
BT: The second thing is that it sounds like Bergamont and Avanti might share the same platform, like some frame platforms?
BZ: The big market in the future will be electric bikes. Bergamont already has a good platform in electric bikes. We will also allow and even encourage Avanti to take advantage of that platform.
On the other side, Bergamont could probably use some of the mountain bike platform or the road cycle platform of Avanti to sell in Germany. The car industry has shown us how industrialisation works to get the best out of your investment in product development. I’m thinking about Volkswagen with Audi and Skoda, for example. They do a great job.
To be competitive in the market place, every company in the world needs to find ways to sell more because infrastructure costs are very high. By adding other brands even Scott is taking advantage, because it creates more budget to be invested in logistic platforms, IT systems and other support for the dealers.
BT: Scott is clearly a major global brand, but in Australia it’s behind in its market presence compared to say Giant, Trek and Specialized…
BZ: The good thing about this is we are still virgin. We still have the opportunity to show what we can do and take advantage of what we have proven in other countries around the world. I prefer to be in a position to go forward then to defend my position, especially when you have the better weapons!
BT: These guys, especially Specialized, as you would know are into concept stores. Are you going to go down that road?
BZ: No. I personally don’t believe in single brand stores. I think the consumer wants to have a bigger choice than just one brand.
It’s also not fair to push retailers into having just one brand, because obviously brands go up and down.
We have no problem that there are competing brands even from our major competitors in the same store - as long as there’s fair competition.
BT: So in Australia which brand would you prefer Scott sharing a bicycle shop with?
BZ: Because then there is true competition and we’re convinced we’ll win!
We should not choose the weakest competition, because by doing so we make ourselves weak. I also think a store today cannot have more than two strong brands because otherwise their logistics are out of sync.
BT: Other brands are going consumer direct like Canyon. Or click and collect via their dealers like Trek in the USA. What are you going to do?
BZ: The world is changing. Many people have started to go consumer direct and from the consumer side there is a wish to buy direct.
We cannot just close our eyes and let everybody do what they want to do. I really believe the future in trade is that the consumer has the possibility to buy direct, but be shipped, delivered and serviced through the bike shop.
I think this is the big advantage with bicycles. Consumers need service and the shop should be really proud that they’re the only one that can do it. Shipping bikes backwards and forwards for service makes no sense.
The internet will help to open communication with the consumer. What we want or don’t want doesn’t matter. It will happen. And we, as all our competitors, will be part of that.
BT: Sheppard and before that Pacific Brands which it acquired, has a long history of doing good bicycle business in the mass market. Is that continuing?
BZ: We’ll keep the existing relationship we have in the mass.
People are asking me what I think about Decathlon. I do not wish Decathlon into any market, but at the same time I can say Decathlon has brought us many consumers that once they have been in cycling, actually grow up and look for somebody else to give them the service and the product needed to continue their cycling career.
A bicycle store, based on its cost structure, cannot sell products below a certain price point. But there are some consumers who don’t have the money to go above a certain price point. So this market has to somehow be serviced and I think it is better serviced with the reasonable product where people can get into cycling culture than only with bad product and I think there we actually do a really good job.
BT: Your website is already showing a large range of ebikes for sale. I think I’ve counted 12 models under mountain bike and 10 urban models. How is this category been going for you?
BZ: For Scott it was not an easy decision to go into electric bicycles.
It was very easy for me as a businessman, but my product managers in the beginning used all the arguments why we should not invest in this category.
We had been working with people who developed electric bikes for over 10 years and never got our feet wet. So we had an internal knowhow. We tried all the products, but never decided strategically to go into that segment.
I had to push hard. The good thing is we have gone in late, but never lost money.
Now we are catching up very fast. Again, a little by accident it helped us that the ebike market recently developed towards the mountain bike scene, because in the normal trekking or commuting scene there have been so many brands and so many price points but we just came right in when mountain bike took off.
We have an ebike engineering and product manufacture group that is outside of our mountain bike and road bike development teams, with their own staff. Next year we will have three different platforms: one with Bosch, one with Brose and one with Shimano.
The arguments that people had in the past why not to use an electric bicycle are going away once people have tried themselves. We are really convinced that, especially for the older demographic or for people who are a little overweight or have no time to train, this brings additional people to the sport.
That’s also a good thing about cycling. When we started in 1986, the mountain bike came to the market and many people said, ‘This will never be a business!’ Today it is 65% of the world market!
Then the road bike was old fashioned or you could only sell Italian frames. But then the Americans proved that there is an evolution going on and there is a new market coming.
Now electric bikes. I think innovation really drives the market.
Hopefully we can be an important part of this future development in cycling, that we bring the industry and the consumer further to new experiences.
This is why, as I said in the beginning, at least in my head, I have projects for the next 30 years!