Case
Teaching Notes
Supplementary Resources
Abstract
DreamCycles is an online retail store specializing in high-end road and mountain bikes. After nearly three years of continually growing sales, however, it was not clear whether this sales growth would be sustainable. The company was founded to address a perceived customization void in the bicycle industry. The online store allowed users to instantly configure bikes online, ensuring complete interoperability of all parts, a cost and selection advantages over competitors. As the first mover into this area, DreamCycles also hoped to create a sustainable position that would allow the company to be a long-term player in the market. Despite the early success of DreamCycles, there were major changes happening in the bicycle retailing industry.
This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2023 Sage Publications, Inc. All Rights Reserved
Resources
Exhibit 1: Bicycle Ridership Reported by The National Sporting Goods Association
(Riders 7 years and older who rode more than once a year, in millions)
| All riders and riding | 42.41 |
| Youths, 7–11 | 10.22 |
| Youths, 12–17 | 7.87 |
| All riders and riding | 42.41 |
| Mountain bike, on-road | 15.15 |
| Mountain bike, off-road | 6.78 |
Source: National Sporting Goods Association, The Bicycle Council, 2000.
Exhibit 2: Bicycle Part Diagram
Component Identification:
| 1. Brake levers 2. Cassette 3. Chain 4. Chain stays 5. Chainrings 6. Crank arm 7. Down tube 8. Fork 9. Front brake calipers 10. Front derailleur 11. Front hub 12. Front quick-release skewer 13. Front tire 14. Front wheel 15. Handlebars 16. Head tube 17. Headset 18. Headset top cap & bolt 19. Headset spacers | 20. Inner tube valve 21. Pedals 22. Rear brake calipers 23. Rear derailleur 24. Rear hub 25. Rear quick-release skewer 26. Rear tire 27. Rear wheel 28. Removable face plate 29. Saddle 30. Seat collar 31. Seat post 32. Seat stays 33. Seat tube 34. Spokes 35. Stem 36. STI/Ergo shift levers 37. Top tube 38. Water bottle bosses |
Exhibit 3: Segmentation of Bicycle Dealers by Price Points of Bikes Sold
Source: Casewriter analysis.
Exhibit 4: Bike Shop Segment Details
| Shop category | Typical price points of bikes sold | Types of bikes sold | Other products sold | Example stores |
| Mass merchant | $50~$500 | Pre-built, low performance non-branded family bikes | General merchandise and sporting goods | Walmart, Sportmart |
| Specialty | $300~$2,500 | Pre-built, branded bikes and limited customize order bikes | Bike accessories and clothing, repairs | Bicycles West, REI |
| Pro-shops | $900~$8,000 | Pre-built premium branded bikes and special order and custom fit bikes | Bike accessories, components and clothing, repairs | Elliot Bay Bikes, City Cycles, Palo Alto Cycles |
| Internet and mail order bike stores | $1,000~$3,000 | Pre-built branded bikes and pre-built premium branded bikes, some custom order bikes | Bike components, bike accessories and clothing | Colorado Cyclist, Excel Sports |
Source: Casewriter analysis.
Exhibit 5: Specialty Bicycle Retailers by Sales Categories
| Estimated Percentage of US Specialty Bike Retailers by Annual Gross Sales | |||
| 1995 | 1996 | 1997 | |
| $250 k or less | 46% | 40% | 18% |
| $250 k–$500k | 28% | 34% | 33% |
| $500 k–$1M | 17% | 20% | 24% |
| $1 M + | 9% | 6% | 25% |
Source: National Bicycle Dealers Association.
Exhibit 6: Net Margins and Costs of a Typical Bike Shop – 1999
| Pretax net margin | 4.2% |
| Cost of doing business | 37.7% |
| Gross profit margin on retail bike sales | 36.0% |
| Gross profit margin on clothing | 43.0% |
| Gross profit margin on other equipment and hard goods | 48.1% |
Source: Bicycle Retailer and Industry News, 2001.
Exhibit 7: Revenue Splits for the Average Bicycle Dealer
| Category | % of Revenue |
| Bicycles | 48% |
| Parts and accessories | 37% |
| Repairs | 8.2% |
| Rentals | 1.1% |
| Other | 3.9% |
Source: National Bicycle Dealers’ Association, 2000.
Exhibit 8: Background on the Triathlon Market
| Membership Activity (full-year licenses) | ||
| Year | Members | Annual Growth |
| 1993 | 15,937 | - |
| 1994 | 15,194 | −5% |
| 1995 | 15,620 | 3% |
| 1998 | 16,461 | 5% |
| 1999 | 19,060 | 16% |
| 2000 | 21,341 | 12% |
| 2001 | 29,886 | 40% |
Source: USA Triathlon, 2001.
| Approximate Education Range of Multisport Athletes | |
| Completed High School Only | 7% |
| Two-Year School | 7% |
| Four-Year School | 40% |
| Graduate School | 28% |
| Post Graduate | 18% |
Source: USA Triathlon, 2001.
| Approximate HH Income of Multisport Athletes | |
| Range | |
| Under–$20,000 | 3% |
| $20–$40,000 | 18% |
| $40–$60,000 | 21% |
| $60–$80,000 | 16% |
| $80–$100,000 | 13% |
| $100–$150,000 | 16% |
| $150,000–plus | 12% |
Source: USA Triathlon, 2001.
Exhibit 9: Background Information on VeloNews Subscribers
- 97.4% own road bikes, 81.9% own mountain bikes
- Average 3 road bikes owned, average purchase price of $3,067
- Average 2.3 mountain bikes owned, average purchase price of $1,722
- Average spends $3,034on cycling related purchased
- 87% of readers are between the ages of 25 and 54
- 62% of readers are between 19 and 44
- 92% have college degrees, 41% have post-graduate degrees or studies
- Average household income $106,100
- Median household income $87,400
- 90.1% gave advice in the past year on cycling related purchases
- 93.8% have access to the Internet, 84.4% have made purchases over the Internet, 36.7% have purchased a product advertised in VeloNews online
Source: VeloNews Media Kit, 200.
This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2023 Sage Publications, Inc. All Rights Reserved
