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The Long Story Behind the Bankruptcies of Performance & Nashbar

Part 3: How the Wheels Fell Off

by John Neugent

Tech articles | Commentary articles

Performance & Nashbar Bankruptcies Stories: Part 1 | Part 2

John Neugent probably knows more about bicycle wheels than anyone else alive. Maybe more about bikes as well. He's spent his life in the bike business, at every level. He now owns Neugent Cycling, a firm devoted to delivering world-class equipment at the lowest possible price. If you are in the market for a set of wheels, please, check out John's site. He really knows his stuff. —Chairman Bill

John Neugent

John Neugent

Never, in the history of business, have things changed as quickly as they did with the birth of the Internet. Major corporations now worry about new technologies that will obsolete their business, and that is not only Internet related, it is technology related. Are there any cameras today that still use film?

I happen to have personally experienced one of the disrupting factors of the Internet. I was an early adoptor and from 2004 to 2009 my business grew from a start-up to $2M in sales. Everything was going straight up, there were no bad times. Then something funny happened, and one of my contacts at Performance told me and I didn’t listen. He said “The problem with the Internet is there is only one Internet.”

As other competitors entered the Internet I was about to find out what he really meant. Within four years my sales went from $2M to $1M, as competitors entered the market.

Marketing changed in a matter of months. I would run display ads on Velonews.com. In 2004 a 100x300 pixel ad cost me $1K a month for being on their “front page” all month. By 2010 that same space would cost me $10K a month for being on it 10% of the time. But it got worse. Remarketing ads, those nasty ads that follow you around and now are on pretty much every web page, took over.

All of these changes were happening almost instantly. Performance, who had a very capable management team, adapted quickly. One of their tactics was to focus more on brick and mortar bike shops, thinking there’s only one Internet but bike shops are local. The problem was that not only was their Internet business being hammered like mine, but brick and mortar bike shops were being decimated too. One foot in quick-sand and you can get out but with two you’re in trouble.

If your sales are crashing and you are trying to figure a way out, the best thing to do is cut overhead. But Performance had committed to owning a lot of retail store-fronts so it was not so easy to cut overhead. Luckily I did, and it was painful but necessary.

There’s a human factor in business, that many people in management, even good managers with good training, never deal with head-on. That is that people are not logical. Not only customers, but people in management. If they were, business would be simple. Some people base a bike purchase on color. My ex-wife based a car purchase on color, and management is no different. People base decisions on emotion and then rationalize them to make them feel logical.

Companies normally have a cushion built in to adapt changes over time. You make a change and see if it works, and if it doesn’t you change it again. But when changes become instantaneous it reduces the number of chances you have to get it right. People understand prototyping products, but you really need to do the same with not only marketing, but all aspects of your business. It’s trial and error because logic only goes so far.

But what were the changes that affected Performance? They’re pretty easy to point out. The proliferation of the Internet, Amazon, and other online competition. But one of the biggest is the globalization of retail. Until recently, each national market was pretty much a separate entity with different pricing and costs. The Internet changed that. Now anyone’s market is global. In the bike industry, we now see companies from the UK selling consumer direct in the US at pricing that is about wholesale in the US. Some brands enforce pricing but the laws vary in each market so most brands feel it’s almost a whack-a-mole type of process.

Looking at this globally, there are a lot of good things that happen. People in third world countries can work themselves out of poverty, but it comes at a price. A price paid not only by companies and employees but also by their customers. Despite the complaints of bike shops, Performance, Bike Nashbar, and SuperGo, were good for most consumers, and now their services are either gone or changed forever. It’s the price we pay for the Internet and technology.

Performance & Nashbar Bankruptcies Stories: Part 1 | Part 2

John Neugent was was one of the first to establish quality hand building in Taiwan around the turn of the century. He now owns Neugent Cycling, a firm devoted to delivering world-class equipment at the lowest possible price.