Chris Writes.

Toronto-based marketing hotshot and colleague Sean Moffitt just posted a short online interview with me that was related to my discussion at his “Mass to Grass” word-of-mouth marketing conference this past July.  You can read the interview here.

What struck me was that within hours of posting, it had already received a comment from another blogger who’d been frustrated with Specialized, starting out his comment by saying “Well this is interesting — a reader sent it to me.” Regardless of his specific critique of my employer, it merely serves to reinforce what Moffitt is constantly trumpeting on his blog: that people talk to one another, and their conversations are likely to shape their future actions and interactions.  No big surprise, I admit, but it’s always good to remind oneself of the basics now and again.

I couldn’t help but notice some perhaps misguided optimism in today’s news: Giant and Merida, two of the largest manufacturing facilities in Taiwan, announced that things are positively rosy and everything is just all aces.  I am not convinced.

Merida=blue, Giant=red, trailing 3mos

In the past 3 months, Merida’s share price is down 42%, and Giant is down 22%.  If I were a shareholder (and in the spirit  of full disclosure, I am not), I’d have a hard time rationalizing today’s news against the market we see today.  The kicker on this is one of invoice dating: They’re producing bikes in a frenzy (so they say), to appease a market that is predicted to soften over the holidays, to sell into markets that are already seeing big drops in shipping container receipts, and ultimately to end up in bike stores that were given these bikes on generously long credit terms.

Does anyone else think this sounds like an industry that could get hit with problems like the car dealerships are facing now?  Dealers full of inventory that isn’t moving (because the orders were placed 6 months prior at no cost), and the oversupply hits at a time when that inventory should move, but might not because of an economic belt-tightening (springtime). There is an assumption that bike stores in the spring will sell bikes at similar quantities/prices as to what they sold last spring.  I think that is a particularly dangerous assumption.

If it’s indeed true that they’re running at total capacity, and that Giant is bringing on another manufacturing facility to increase units further, then I think these companies share prices are probably a better indicator of what’s going on here than the earnings press release is indicating.   This seems like more of the same that we’re seeing in all kinds of sectors right now: production that isn’t looking forward to consider reduced future demand, or perhaps simply locked into an economic model that requires a certain throughput to keep the lights on.  I hope I’m wrong, but it’s just all sounding so familiar.

more images here

Hallowe’en is fun – no question. But is it wrong that I actively set out this year with a goal of crushing a friendly icon? To demolish an iconic design, to render Ronald McDonald a most unhappy meal, to create instead a fiendish ghoul that blended red and yellow with the joker mannerisms that Heath Ledger made so eerie and sinister. And in the first night, I made two children cry. One of them from about 30 meters away, on first sight.

Happy hallowe’en, everyone. I fully intend to visit as many McDonalds as I can in the next 7 days, in costume, perhaps just peering in windows. Hopefully I don’t get arrested. All in good fun, right? Right?

After spending some time in their beta test program, tonight I signed up for my public account on www.plus3network.com – a social site and business developed by my friend and past colleague Rick Sutton.  If you ride bikes, or run, or even just walk for fitness, you should take a look. The network turns every ride, or run, or walk, into a charity event that raises money for causes that matter to you.

It’s pretty simple: a corporate sponsor (in my case, the good folks at SRAM) pony up a chunk of money to give to a good cause (the World Bicycle Relief Fund).  That money is then given to the charity over time, as people like me select the Sponsor/Charity, and then ride/run/walk their way to earning the money for the charity.  At the moment, there are 13 fantastic cause/sponsor combos you can pick from, so there’s going to be something there that will tug at you, and no doubt more are on the way.

Along the way, SRAM is throwing down a little extra to have their podium spot – that’s the business end of the deal.  When I log into the plus3 website I see SRAM news and announcements, but the fact is that it’s all entirely relevant to me – I picked them, after all, so I want to know more.  It’s the ultimate in permission marketing; hopefully Seth would be proud.

This could go a million ways, almost all of them good or better than good.  I’m mostly just stoked to know that my daily lunch rides are now helping to raise money for a really, really good cause that actually matters to me, and to people like me.

So seriously. Check it out. This is going to be big.  And if you sign up for a free account (you should!), be sure to add me as a friend.

On a recent work-sponsored field trip to San Francisco, a few of the marketing crew and the industrial design crew from work shuttled up to see the Shepard Fairey exhibit at the White Wall Gallery in a typically-sketchy artist neighborhood. He’s the name behind the now famous Obama “Hope” artwork.

On reflection, I have one comment: his art makes sense to me. We’re faced with hundreds or thousands of years of art history and the significance of works is largely based on the time they were created, and the historians that tell us how important they were.  But this is important now.  Art, and to a great extent any sort of design, is mostly a subject of it’s own timing.  Fairey’s work is clearly tied to the generation I’m growing up in and with: anti-government, pro-choices, and anti-totalitarianism. It’s art that makes sense to people like me, and as an added bonus, the minimal spectrum of color and recurring themes help to really create an identifiable and totally relevant brand for his artwork and messages. Despite the fact that I’m not a huge art fan per se, I’m now a Fairey fan.  As with so many other design-based facets of life, it’s value is in direct proportion to the degree to which it makes sense to the people it’s supposed to make sense to.

My pictures from our trip here

A look at this week’s issue of the Economist, as it might relate to the bike business.  Or vice versa.

As the US economy, and the world, stare down the long barrel of a certainly-powerful economic danger, I thought I’d try to make sense of it using what I know best: bicycles.  So as the Economist points out in this article in this week’s issue, we are certainly facing a global economic crisis.  At the risk of oversimplifying an admittedly complex problem, it all comes down to the fact that banks won’t lend money to each other, and they sure as hell won’t lend to plebeians like you and me.  And then when banks do loan money, it’s at rates that are reminiscent of vegas bookies who back up their loans with kneecaps and teeth – basically, they’re demanding a risk premium to lend to each other, when historically there has been none.  As we’ve all seen, lots of banks seem to be disappearing these days.  Would you lend to one?

So, back to bikes, as I’m trying to keep this from getting too ungodly boring – the bike industry model is pretty simple.  While supplemented with in-season refill orders, bike companies sell a substantial amount of the year’s business in bikes and bike stuff to shops in a big early “booking” order that helps companies with forecasting and market trends, usually around the late summer or early autumn, and then the bike companies get paid for this big order over a generously long time (warning: that’s like CREDIT.  Danger suspected!  Blinky lights!)

To a great extent, this has already happened for the 2009 model year: most of the bikes you’ll see on showroom floors now and through the spring have already been ordered.  So, depending on how a bike company books revenue, things might seem pretty peachy right now.  But if bike shops, a classically cyclical business that tends to do poorly in the winter, have to borrow money to get through the winter – say, because christmas sales are down due to a crap economy – then we could be facing a situation very similar to what the banks face.  Shops have inventory (just like banks have inventories of bad debts, which now apparently the government might buy), but like the bad debt inventory, they may be challenged to sell it (and there’s no chance the government will offer a bail out package to buy bike shop’s bad inventory of unsellable bikes).  For sure, you can’t pay rent with a new road bike.  So bike shops may start doing what banks are doing now: hoarding the cash they do have, and reducing the amounts they pay to creditors (the bike companies).  This spring could be a very, very difficult time for bike retail.

America only?  Not likely.  Just as the USA banking problems are now spreading to Europe, so too is Europe exposed to similar bike industry risks.  As the Euro tanks (As of writing, it’s down to 1.3488), the forecasting orders placed in recent months from any USA-based bike companies are getting more and more expensive to repay.  Not to mention that the same banking industry problems, and lack of affordable credit, are now ripping through the European economies.  Just ask Germany about their $51-Billion government loan to save Hypo Real Estate, Germany’s second-largest property lender.  Sound familiar?

So this begs the question: imagine there was no credit for bike shops.  This is the most doomsday scenario, but I rather enjoy taking ideas too far when they’re still considered hypothetical.

If bike shops could only display what they could afford to purchase, and had only their sales to support the inventory of their sales floors, we’d see a few things happen pretty quickly, I suspect: shops would seem empty, sales would fall precipitously, and many would move or close due to overheads they can’t afford.  On the supply side, manufacturers would be crippled by a lack of forecasting capability, and would be forced into just-in-time style delivery.  But that presumes they’d have the inventory in stock, which they wouldn’t, because manufacturers depend on the credit from suppliers for drivetrains, components, wheels, tires, and in some cases even the frames they adorn with their brand name.  The COD model can sometimes help a single shop through a tough time while they get back on their feet, but it doesn’t seem to work well in aggregate.

Basically, the bike industry business model is krazy glued to the availability of global credit markets, and just to be sure they’re together, they’re then welded shut together in a steel box.  They’re inseparable, as the model exists today.  If the worst happens, and I hope it doesn’t, a total meltdown of global credit will vaporize the way the bike industry works within a year, and the only companies that might stand a chance of survival are those with a lot of cash in the bank, and those with a deeply vertically-integrated supply chain.  Which is probably nobody, as far as I can tell.

And I bet the bike business isn’t alone in this.