It is Friday, and I am still not sure why there is dearth of publications covering the movements between RevZilla and Cycle Gear. The largest brick-and-mortar motorcycle retail chain, and the most influential online retailer in our industry have just come together under one roof. Boom goes the dynamite.
Intonations of this deal have been in the news space for almost a week now, and by my last count, outside of our coverage here on Asphalt & Rubber, there has only been Motorcyclist’s rehashing of RevZilla’s press release, this 64-word story by PowerSports Business, and RevZilla’s self-published letter on the topic, by CEO Anthony Bucci.
If that doesn’t say something about the current state of moto-journalism, then I don’t know what does. It is a topic worthy of its own story, but that will have to wait for another day. Instead, I am here to talk to you about business, millennials, and future of consumerism.
There has been a lot speculation about RevZilla and Cycle Gear coming together. Whether you want to get into the semantics of the deal being an acquisition, a merger, a strategic partnership, or something else, it doesn’t really matter – the effects will be the same regardless of the label.
The retail game is a competitive one, and it is constantly changing. If you do not keep ahead of the lightning-fast trends that come with selling goods to consumers, you are doomed to fall into irrelevancy.
There is a reason that revenue multiples for commerce-based business are razor thin, and it has something to do with the fleeting nature of success in this space. No better example of that can be given than RevZilla and Cycle Gear. One is Amazon, and the other is Sears.
RevZilla built its business around smart software, when online retailing in the motorcycle world was completely upside down because e-tailers also had to have a brick-and-mortar presences in just to purchase goods from the largest distributors – great example of who was beholden to whom, back then.
The space was ripe for disruption, and Auger, Bucci, and Kull were the right people for that job. The RevZilla story writes itself, and it is not worth rehashing beyond that fact that the nerds won.
Meanwhile, Cycle Gear clung to its brick-and-mortar business model, selling online only when the firm absolutely had to, in order to keep some sort of mirage that Cycle Gear was keeping up with the times.
I can only hazard a guess as to how much business CycleGear.com does each year, but I bet it pales in comparison to the $75 million a year that RevZilla reportedly pulls down (if true, consider RevZilla well-bought in the $150-200 million range).
This is not a unique story, and I am not interested in rehashing how savvy online entrepreneurs are running circles around their counterparts who are entrenched with outdated business models. I am living that story with Asphalt & Rubber after all.
What makes this business deal between RevZilla and Cycle Gear (through private equity firm J.W. Childs, just to be correct on the technical business aspects) so critical though is what it means for the two retailers going forward.
My previous comparison between RevZilla and Amazon was not made lightly. You see, RevZilla faces the same problem that Amazon currently faces. Growth through online sales can only go so far, as online retailers miss a critical component that brick-and-mortar stores have: immediacy.
Consider a scenario: you are working on your motorcycle in your garage and realize that you need an important tool or part; or maybe, you are heading out for a ride and realize you need to replace a piece of your gear before you can go. In this scenario, you have two options.
One, you can go online, find the best price possible, and wait three to five business days for your package to arrive. Or two, you make a trek down to your local brick-and-mortar establishment – likely a Cycle Gear or motorcycle dealership – and pay a little bit more, but have your item that day…when you need it.
Retail giant Amazon has figured out this problem already, and late last year the .com business created its first brick-and-mortar store in Seattle. That’s a very Business 1.0 solution to a Business 2.0 problem, but it works.
In the interest of being new, cool, and nerdy, it probably shouldn’t surprise us then to hear that Amazon wants modernize that stop-gap, and use drones to deliver our future packages, straight from local fulfillment centers who would measure delivery times being in hours instead of days.
It is in this light that an alliance between RevZilla and Cycle Gear begins to make a lot of sense, especially in the Business 3.0 state of the world: where everyone makes purchases from the ease of their voice-commanded smartphones, while their car drives them autonomously down the road, and drones carpet-bomb packages at our neighborhoods from 300 feet in the air.
In this brave new world, smart software, good technology, and expert customer service will generate the leads that local fulfillment centers will act upon in realtime. Consumers will see the happy marriage of online prices with brick-and-mortar immediacy.
The beautiful part, at least for the business people involved, is how defensible the position is to newcomers…at least for now.
Back to the matter at hand, I implore you to again remember that the largest brick-and-mortar chain just air high-fived the most savvy motorcycling e-tailer. These brands don’t need to merge in order to justify big-business investment dollars, the value resides in what their core business models can gain from each other.
Of the few publications actually awake at the switch to cover this story, their comments sections are filled with consumers bemoaning the inevitable death of RevZilla’s customer experience, a notion that is grounded in the perception of Cycle Gear being the albatross around Bucci & Co.’s neck.
The reality though is RevZilla will continue to do what RevZilla does best: unparalleled consumer-facing support, branding, and experience. Likewise, Cycle Gear will continue to do what it does best: keep the lights on seven days a week.
As cynical as that is to Cycle Gear, and the people who work there (I should plug the fact that I have only met truly passionate motorcyclists working at the Cycle Gear stores that I’ve been to), no other brand could bring to the table what RevZilla needs in order to grow.
The Philadelphia-based firm would have to invest hundreds of millions of dollars to build out its own network of retail stores – an act that I should might add, which is well outside the company’s core competency. Similarly, we have seen Cycle Gear already fail at competing in the online retail space.
From a technical perspective, this should be the easier business operation to fix, but there is nothing about Cycle Gear’s business history that suggests it is capable of such a change, and as we have seen in web comments, the brand’s image has been tarred and feathered with its past incompetence.
No doubt, we will see Cycle Gear looking to shore up the tenuous foothold it has on the motorcycling retail business, but going forth its business model will surely serve another objective: being the brick-and-mortar component to RevZilla’s online dominance, with a heavy slant on local order fulfillment.
I expect the rollout of such a plan will be slow at first. Best not to rock the boat when it comes to customer perception. But the change is inevitable. This is the future of retail for the generations to come, and if one chooses to ignore that fact, then they do so are their peril.
The question though is, who will be left to compete against this “RevGear” juggernaut once the switch is flipped? This is chess. It ain’t checkers. Check.