Over the past three or four months, Sarris has been working tirelessly behind the scenes trying to avoid the fate that no business wants to face. However, in the past few weeks, it has become clear that there is no other choice, as explained by Saris family owner Heather Fortune in today’s interview.
As first reported by the retailer, Saris has started some form of receivership process to sell the company, which includes bike rack products, a cycling infrastructure division, and an in-house training suite. The three components make up the Saris Cycle Group, which was formerly known as both Saris & CycleOps (plus PowerTap before it was sold a few years ago to SRAM). Sarris pointed out to the bike retailer, “We had nearly four times more stock last year, primarily on our training product, the business was great in 20 and 21, then stock filled up across all channels everywhere, both domestically and internationally on training products. internal”.
However, like most companies that experience financial problems, the reason for this is multifaceted and often a combination of factors, such as the Vice President of Sales and Marketing (and daughter of founder Chris Fortune), Heather Fortune explained in an interview with me today. Determining precisely how they are trying to purchase hardware components based on chip set lead times of over a year means that they have been trying to predict what trainers will be required in early 2022, all the way into early 2021. With no historical precedent for a sudden increase in drills The pandemic-driven interior, the basis for those predictions was poor.
The bottom line is that the company last week formally filed for reorganization under Wisconsin Chapter 128, a debt consolidation and quick sale program. This is not bankruptcy, but a near-unique alternative process within Wisconsin that aims to sell a business quickly in less than 90 days. However, this process means that Saris will not have much control over who exactly buys the company. Also, unlike a typical bankruptcy file, the debtor (Saris in this case), All debts must be paid in full. Whereas in regular federal bankruptcy courts, debts can be discharged. It should be noted that the Wisconsin process also tends to favor better state outcomes (eg job retention in the state).
As mentioned earlier, coaches aren’t the only business at Saris. The company noted that revenue is roughly split 50/50 between the coach side and the rack/infrastructure side. In truth, only the coach’s side is a problem. The cycling infrastructure side is up 20% year over year (to its best year yet), and the vehicle cycling rack business is also expected to have its strongest year to date, well beyond even a very strong 2021 (as people fled the Inside).
But the company sold everything. When asked if they were considering it, Heather Fortune stated, “We’ve looked at all of our options, and we really want to have Saris as an ongoing entity. After looking at those options, we really feel that this is the best way forward.”
Mutation without follow up:
Like nearly every indoor bike company, they settled into late 2019 with increased demand for indoor training products. Platforms like Zwift, TrainerRoad, and others were growing rapidly, and with the adoption of the software platform, so did the hardware needs. This prompted consumers to purchase trainers in droves in late 2019 and early 2020 — long before COVID surged in global and domestic demand for trainers. Going into the popular February-April 2020 time frame, many internship firms were already struggling to keep up with the demand. Once that time frame arrived, everything was ready.
With the exception of Wahoo, many internship companies already manufacture in the same region or region as their headquarters. Sarris makes them on site in Wisconsin, Elite in Italy in surrounding towns, and Tacx at their headquarters in the Netherlands. The same is true of TechnoGym, and at that time also Kinetic. However, while local construction has many advantages, it does not remove supply chain constraints. The vast majority of segments come from Asia, and all of these companies rely on it.
In response to the Spring 2020 surge, training firms are quickly out of stock. Consumers shouted. It’s easy to forget the power of cyclists everywhere’s shouts of training companies to make more trainers faster. So, with manufacturing resuming, internships companies have done just that. They ramped up additional assembly lines, built new plants, acquired competitors with manufacturing capabilities, and even went into production 24/7. And for a while, it worked. Sure, there have been delays, but by late 2020, you can generally find smart trainers if you’re walking around enough. Maybe not the exact model you want, or the exact price, but most models were quite possible to find.
It was around that time that companies had to start trying to figure out their future stock. With the demand for coaches came the demand for everything else related to consumer goods. Which in turn increased the chipset run times, and in the case of Saris, their set chip lead times were now at 1+. Sarris found herself in early 2021 trying to figure out what demand will look like in 2022. Will the pandemic ever end? Will demand continue to rise? Will it be the new crop of pandemic indoor cyclists who may have bought budget trainers, now looking for the premium trainers of 2022?
These were, at the time, all perfectly valid questions. And the same questions that every other company was trying to answer, too. In the end, Sarris guessed high. A year later, in early 2022, they found themselves with a huge inventory of inventory, all without any buyers.
As January 2022 settled, internship companies collectively and at the same time realized the same thing: no one was buying coaches anymore. Especially the best coaches. Sure, some companies like Garmin/Tacx were a little better at handling this, given their huge global distribution network. And companies like Elite are ramping up less during the pandemic, and even if they ramp up, they are largely using temporary workers/facility. But for Wahoo, Peloton and now Saris – that meant just a huge pile of trainers in the warehouses. And for companies like Zwift, a combination of lack of demand with the same chipset and lack of availability as Saris means basically canceling everything. And kinetic trainers? They closed and sold Magne’s trademark cover this spring for pennies on the dollar.
In the case of Saris, never in their history have they had to make time-out decisions so composed. Part of what has made them so successful so far is that the manufacturing is done on site, so they only had to consider relatively short supply/component lead times, and they could manufacture as needed. In fact, their business was set up from the start to function as a seasonal stream and flow between coaches and bike racks, enabling them to maintain full-time employees all year round. Heather Fortune noted that of the current 128 employees at Saris, 20 of them at Saris have been in manufacturing for more than 20 years.
As consumers, we saw wave after wave of sales last winter, with no better example and perhaps foreshadowing what would come from an unprecedented sale by Saris just a few weeks ago, 60% off on high quality H3 training shoes, down to $399. Speaking to Heather Fortune, she acknowledged that part of that strategy is to liquidate inventory in a way that would also raise money to reduce debt. But she also noted that they specifically chose this last June time frame to liquidate that inventory because it’s unlikely to bother retailers too much, who don’t focus on trainers or get too heavy in the summer.
Now to be clear, one cannot blame COVID for all of Saris’ problems. As one who has been keeping an eye on the industry, I would argue that an important part of the situation they find themselves in now is the lack of smart coach innovation in the 2019-2021 timeframe. As you might remember, Saris launched the Saris H3 trainer in the summer of 2019. It was good, but it wasn’t eye-catching. That’s because it was basically just a Saris H2 from 2018, with a new strap and supportive components. And this Saris H2? Well, this was literally a rebranded CycleOps Hammer 1 from 2016 in a different outer shell color. The same process has been reflected in the Saris M1/M2 mid-range trainer lineup.
While Saris has innovated largely with the Saris MP1 platform (and to a lesser extent with the Saris TD1 desk), the truth is that for many consumers, Saris hasn’t innovated much in trainers. So, while the Saris H3 smart trainer was great in ERG mode, it was hard to retail compared to other premium (and completely silent) trainers. Which is probably why the Saris H3 trainer has almost always lived in a retail condition for years.
To go ahead:
One final factor that Heather Fortune notes is that Sarris believes contributes to the sign-up fatigue at the end. Most users use a smart coach with some form of subscription system, whether it’s Zwift, TrainerRoad, etc… Heather noted that the feedback they’ve heard from consumers is that when people come out of their COVID envelope, they realize they’ve put together a subscription list Via different ways. Not just Zwift or cycling related, but Netflix, newspapers, entertainment and countless other things. This has been accompanied by signs of stagnation, and a sudden rise in inflation, leading many to assess how many subscriptions they have, and how many they are actually using. And in turn though, he decided they probably didn’t need this new coach after all. One only needs to look at the simultaneous user numbers on platforms like Zwift to really know.
Which does not mean that people will not return. they will. But right now, everyone who has been looking to buy a high-end smart trainer has done so in the last 2.5 years. The challenge for companies is to weather this recession, while continuing to innovate. Companies that don’t innovate with new products will not be at the top of consumers’ interest once they aim to buy new coaches – either in the short or long term.
Of course, developing and releasing new products in 2022 requires more guesswork than in 2020 or 2022. The chipset lead time has continued to rattle the industry, and new Saris product plans specifically, with orders for key components for new products being placed over a year now. I was late, affecting the very thing I would argue (and probably will) that the company desperately needed to attract interest and revenue: novelty.
As for Sarris and her future, they don’t have much control over it. Their hope is that by selling the entire company, they largely stay together — ideally, keeping the employee’s jobs as well. She again indicated that they expect the sale to be very fast, likely to last no later than summer. They also note that they already have an interest, and they expect that to rise as word spreads. While the number of viable suitors is much lower than it was a year ago, the truth is that internships are not going away. The roads certainly aren’t any safer, and cyclists are still spending more and more time indoors biking, not just every winter, but year-round. It will only take a company that can swallow debt in the short term, and look to 2023-2024 for more stability. Furthermore, Heather Fortune notes that their in-house trainers accessory business is still reasonably strong (like rocker plates/etc…), which indicates there is a demand in the clip from existing users to add it to their devices.
We hope that Saris as a company will find that new owner, and we can retain the players in the industry. More choice is always good for the consumer, especially when it’s one of the big choices.
With that, thanks for reading!