$12,000 Tour de France bikes are impressive, but Canyon will need to sell lots of 'meat of the market,' sub-$1,000 bicycles if it's really going to succeed in the US, one industry observer says.

The Aeroad of Alexander Kristoff of Katusha, one of two WorldTour teams that Canyon sponsors at the Tour de France. Daniel McMahon/Business Insider

Finally, Business Insider spoke with Todd Grant, the executive director of the National Bicycle Dealers Association, a nonprofit that promotes the interests of bicycle retailers in the US.

Daniel McMahon: You have a close-up look at the US bike industry. What's your take on Canyon's coming to America?

Todd Grant: Canyon's model is no longer unique. Two or three years ago, when conversations were out there about whether Canyon was going to come to the United States, the model of selling direct to consumer of a brand such as theirs — a brand that is as wide and deep, where you can get very inexpensive to very expensive, and you can get quite an assortment. There were really no brands out there that were doing it at the time. So the conversation was, 'What would it look like for a big brand like that to get involved?'

Then, awareness of this brand was extremely low. You'd have to be a European cycling enthusiast to know what the brand was. So fast-forward to today, there are a slew of brands that are using a similar direct-to-consumer model as well as using mobile service as a point of sale to get directly in front of the consumer, at their home or business — wherever it is that they connect.

So the model, in some way, has become more complex, rather than less complex. An example of a brand that was selling direct before was Motobecane. They have a long name in cycling, and there's awareness about their name. They sold direct to the consumer, and the consumer would bring the bike into the bike shop to get the work done — really no different from Canyon, only a smaller brand. The points of distribution have changed because of mobile service entering the market. That's allowed more brands to get into this, 'Well, we're not going to use the bike shop' to reach the consumer.

McMahon: So is Canyon a threat?

Grant: Canyon today it's definitely a threat. I say that not because the brand has enough awareness in the United States today to make an instant impact — where the volume of bicycle sales really is — but the brand, from a logistics and investment perspective, may be in that place where it'll take a few years from them to tough it out, to establish that business model and assure the consumer that the expectations are being backed on the quality of the build and the follow-up service they're going to be expecting.

Canyon does not have a lot of room for hiccups there because, I believe, their earliest customers, their earliest adopters, are going to be folks at the higher end who already have a certain expectation of what's going to be delivered to them. A bike with a discount is not going to be enough if it isn't what the customer had as an expectation in the bicycle.

Their threat, I think, is that it's so linked to so many other brands, their ability to market over those other brands, and to show something that is a unique proposition to their brand in the marketplace, and selling direct. So other than Canyon making more money off it, they really have to convince the consumer that it's the way to go. And they're not just competing against brands, like, say, Fuji, which has a pretty complete brand that you can buy through Performance or buy through a mobile service. Brands like Raleigh you can definitely buy online. But Canyon has to get into that space and create the value proposition against them, not just the existing bike stores, and that's going to be difficult to do because it's not just brands: They have to get in there against major online competitors, like Competitive Cyclist, Backcountry.com, and Performance as an online provider.

When you start going down this list of people who are capable of presenting more brands at discount, they have to figure out how to compete against them, or setting up with them. But those discounters are not usually interested in competing with a brand at the exact same price.

Take a Competitive Cyclist. They can make custom all the time. They can go buy 300 frames from somebody on a frame close-out and buy 300 sets of wheels on close-out and buy 300 groupos on a close-out, and they build their own special bikes that are unique to them. They're always value-built kits, at any price point. That's what Canyon's going to have to compete with, and they're going to have to compete with nimble companies, like Niner, which is a high-end, smaller brand. They don't work on model years [as Canyon does]. They change their bikes as technology and consumers demand. It's a different world than just competing with the IBDs [independent bicycle dealers].

Now don't get me wrong, as an IBD representative, we have our concerns about this type of a model because we wonder what it's going to do to the other brands already dipping their toes in this water. The impact of Canyon, at least in the beginning, may be harder on the online service providers than actually on brick-and-mortar. It really goes down to companies like, say, Excel Sports, who sell online. You're going to find so much in that space that they're going to have to compete with. To me, that's the first space that they're in. If they're going to show value to the consumer who's already open to the idea of shopping online rather than the consumer who's really more predisposed to going into the brick-and-mortar store.

McMahon: How do you think this will ultimately affect retailers' bottom line?

Grant: Retailers are getting cut out and squeezed at both ends in these types of propositions. Canyon goes online and sells the bike cheap. What happens is, big brand X lowers their retail price of a bike on the floor, to be more competitive, but they don't lower the cost of the bike to the retailer, so the retailer gets a small margin on a business that in general puts very small margins to the bottom line.

So you take a business that is extremely margin-challenged, and you push the margin down because the other brands react to this, and it's the retailer, really, in the end where all the collateral damage is done — at the retail level. More store fronts may be at risk because of the margins maybe getting squeezed out. It's a real concern. That's the group that gets squeezed, the dealer itself. The dealer is part of the community. They do a lot more than just sell bikes. They part of the community fabric. And that's a loss.

McMahon: Canyon sponsors two teams well represented at the Tour de France, by far cycling's biggest event. How will big sponsorships play into its US strategy?

Grant: The problem is, the enthusiast market in the category of road bikes is the smallest market. The bikes at the high end are the fastest-declining category. It's seeing huge declines and inventory gluts and lower margins. And there is no strong feeling right now that that category is going to turn around.

So some of the great marketing that Canyon does is going right at the greatest shrinking part of the marketplace, against very established brands that people have ridden are already familiar with. The challenge for Canyon — and I know they're going to have the "If you don't like it, send it back" guarantee — but people wanting to get a Canyon really have to figure out, "Do I really want to roll the dice?" So not only is that a challenge for them, but it's also not where the money is made.

The money is in the meat of the market, so they need to get in that place where people really buy bikes, and that's getting into the Raleighs of the world, where casual riders who don't know a lot about bikes and who had a Raleigh when they were young could look up a Raleigh and find one for $600 online and already have a sense of confidence in the brand. That's where they're going to buy.

McMahon: How can Canyon succeed in this big market against the Big Two — Trek and Specialized — but also against all the other brands?

Grant: Canyon has to really end up competing across all the different price points and value propositions. That narrow [Tour de France] marketing will get them across to some people but won't reach the broad audience that I think they need to be really successful.

Now, one of the greatest strengths they have, in my opinion, is really in Blair Clark, the person they put in charge. I have a ton of respect for Blair, who's been successful everywhere he's ever been. I think he's a champion of the industry overall and truly believes that getting more people on bikes is sort of his mission — not just selling more bikes to more people. I think that Canyon made a very, very smart move by bringing in a guy like that and paying attention to Canyon on his level and really paying attention to what it is that Blair Clark is thinking about doing with the brand and looking for the hints about where we might be 12 months from now.

It'll be interesting what they do as they try to figure out how to get into that other [lower] price point and reach a much broad set of consumers. The margins are huge there, and that's where the money is really made, in those mid-tier categories. We're talking well under $1,000. That's where the huge volume of the bikes is — the five-, six-, seven-hundred dollars. And that's where the dealers used to get their hugest margins at those price points and still get good margins or better margins there.