Owning It: Small Business

Tour de France gears up indie bike makers

Bob Woods, special to CNBC.com
Chris Froome, winner of the 2013 Tour de France, is cheered on by cycling enthusiasts who paid Thomson Bike Tours around $6,000 each to attend the 100th anniversary of the event.
John Jackson | NotStock Photography

For small businesses in the bicycle industry, this is the most wonderful time of the year. The three-week-long Tour de France is under way, which means it's prime time for selling bikes, helmets, apparel and the sundry other stuff coveted by amateur cyclists who aspire to ride like the pros.

Between live TV coverage, dedicated websites, mobile apps and social media, the Tour buzz has never been noisier. So manufacturers of high-end bikes and gear, independent bike shops, cycling media, even tour operators that cater to cyclists are peddling their pedaling products with the same fierce gusto as that exhibited by the 219 riders who started the Tour—in Leeds, England, this year—on July 5.

"Without question, when the Tour de France starts, traffic picks up," stated Chris Zane, owner of two Zane's Cycles stores in Connecticut. He opened his flagship shop in Branford in 1981, when few Americans appreciated the grueling 21-stage road bike race. Interest picked up in 1986, when Californian Greg LeMond won his first of three Tours (also 1989 and '90). Sales have skyrocketed since, from $400,000 in 1986 to $4.8 million last year.

"Then, when Lance Armstrong started winning and he became the story, it went huge," Zane said of the seven-time winner (1999–2005) who was ignobly stripped of his victories in 2012 after admitting to using performance-enhancing drugs on the Tour. "Our business went from just recreational riders to include hard-core enthusiasts training for triathlons, century [100-mile] rides, charity rides and other cycling events. For us, that equates to revenue and opportunity."

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Zane's is one of the nation's nearly 4,000 indie bike shops, which contributed about 52 percent of the $5.8 billion in retail sales generated by the entire U.S. cycling industry in 2013, according to the National Bicycle Dealers Association (NBDA).

Department, discount and chain toy stores sell mostly price-oriented products. Approximately 74 percent of bicycle units—totaling approximately 27.5 million in '13—were sold through the mass merchant channel, representing 30 percent of the dollars at an average selling price of $84. Price points at indie shops generally start at around $200, with the average at $714, though prices can range into the thousands.

"The Tour de France is a high-profile world event that relates to the road bike customer who loves and follows cycling," said NBDA executive director Fred Clements, adding that road bikes—some high-tech models command more than $15,000—represent about a quarter of the units sold by bike shops. "The Tour is perfectly timed for the heart of the riding season."

The Tour's timing propels the primary annual marketing programs for the major road bike manufacturers—including Trek, Specialized, Giant and Cannondale—all of which sponsor teams of riders in the race. "Cycling instantly becomes more visible during the Tour, and we try to give our retailers all the opportunities and resources to capitalize on that," said Eric Bjorling, brand communications director for Trek, which works with 1,800 bike shops in the U.S. (5,000 worldwide). Those stores benefit from Trek's annual summer sale during the Tour, at the same time they host viewing events and other related promotions.

It's no coincidence that Trek and its competitors introduced their 2015 road bikes just prior to the Tour, some of which their sponsored riders will be astride when the race culminates on Paris' Champs-Élysées on July 27. "Those new models are already available in our store and other Trek dealers," said Andrea Kopp, operations manager at Epicenter Cycling in Santa Cruz, California.

The strategy is to inspire rabid race revelers, wowed by seeing the latest and greatest two-wheelers on TV, to rush out and buy one. "Bikes our team rides literally come off the same production line that produces consumer models," Bjorling said, "so our customers can ride the exact same thing."

Custom bike makers at Independent Fabrication in Newmarket, New Hampshire, build about 400 frames each year.
John Jackson | NotStock Photography

That aspiration can go to the extreme: Some super-enthusiasts plunk down nearly $6,000 (plus airfare) to attend the Tour with Thomson Bike Tours, an official licensee. In fact, the company, based in Guilford, Connecticut, was launched 11 years ago after co-founder Peter Thomson, a former pro cyclist, led a group of friends to watch the Tour and ride the routes. "You're so good at this, you should start a business," Paul Rogen, who was on the trip and is the other founder, recalled telling Thomson.

"Being an official tour operator gives us huge credibility," said Thomson. "Just seeing the Tour de France logo on our website makes us stand out among dozens of competitors." It also convinces Thomson and Rogen that the $40,000 upfront that they pay annually for the rights, plus 10 percent commission on each client, is a worthwhile investment. Of the 420 passionate riders Thomson hosted last year—which included the 250 who went to the 100th Tour de France as well as those on several other European trips, each involving hundreds of miles of strenuous riding with much of it up and down mountains—nearly 80 percent were repeat customers.

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The Tour fuels the biggest annual issue of Bicycling magazine each year, thanks in large part to the many small cycling companies that buy ad space alongside the big boys. "Almost half our sales in the Tour issue come from small businesses," said publisher Zack Grice.

This year Bicycling enjoyed a 20 percent increase in ad pages over 2013, to 70 pages from 59 last year, translating to a 26 percent boost in revenue. "The magic of the Tour issue is that you have this baked-in advertising and sponsorship community for all the bike, apparel and gear companies that are supporting these world-class teams, plus the spectacle of the event," Grice said.

While they may not have the budgets to advertise in Bicycling, there is an intriguing niche of small, custom bike manufacturers that stand to gain business from the Tour. A few dozen show off their frames—made from steel, titanium or carbon fiber—at the annual North American Handmade Bicycle Show, organized by Don Walker, whose eponymous models are among them. "The show is a way to get frame builders together and help each other with marketing strategies and allow the public to see our wares," he said.

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"The Tour makes the activity of cycling look good," said show attendee Toni Smith, co-owner of Independent Fabrication, a 19-year-old company located in Newmarket, New Hampshire, that hand-builds no more than 400 bike frames and forks each year and sells them direct to customers, primarily through about 100 bike shops across the country.

That's double the output of La Selva Beach, California-based Calfee Design, which pioneered carbon-fiber bikes—today the choice of many road bike enthusiasts—back in the late 1980s. "This is an inspirational time of year," remarked sales and marketing manager Mike Moore. "It incites people to ride bikes and to think about new bikes. There's a direct connection." Moore hopes to attract buyers of its just-released Manta all-carbon frame, selling for $4,900.

"Those custom builders are riding the wave of the Tour," suggested Jay Townley, half of Gluskin Townley Group, a research consultancy to the cycling industry. "Riders looking to upgrade their bikes this time of year go beyond the Tour sponsors' bikes, and that's where the smaller guys benefit."

—By Bob Woods, special to CNBC.com