Retail and consumers

Roman Arnold: the German entrepreneur who bet big on bikes and won

There was one risk Roman Arnold was unwilling to take when he sold a majority stake in Canyon Bicycles, the German manufacturer whose bikes can set you back €8,000.

Shunning private equity firms such as KKR and Carlyle that had been circling Canyon, Arnold sold a 52 per cent stake to Groep Brussel Lambert, a Belgian investment group, in 2020 for €350mn.

While Arnold’s due diligence had satisfied him that GBL would be good owners, he could not resist taking out an insurance policy: the 59-year-old bought a handful of prized bikes from Canyon, including one used by former world champion Cadel Evans.

“I told myself: ‘OK, you never know how the new investor will be,’” Arnold says in an interview from Canyon’s modernist headquarters in the German city of Koblenz. If his relationship with GBL soured, “at least I wanted to keep some bikes that mean a lot to me”, he added.

The deal handed Canyon the resources to fund the global expansion of a company that two decades ago had defied sceptics by building a business selling premium bikes online directly to customers.

GBL, meanwhile, took control just as the bike industry emerged as a winner from the coronavirus pandemic. Sales of conventional and electric bicycles in Europe rose 7.5 per cent to a record €19.7bn in 2021, according to the Confederation of the European Bicycle Industry.

Canyon Bicycles
Canyon Bicycles is exploring how to shift more production to Europe © Tino Pohlmann

Canyon, whose sales have climbed 20 per cent a year since 2016 and hit more than €640mn in 2022, is aiming to reach the €1bn mark by 2025. The ambition is far removed from the company’s early years, which were shaped by the death of Arnold’s father shortly after he had finished high school.

The sudden loss prompted Arnold to rip up his plans. Ditching the idea of joining the German military’s sport battalion, he instead embarked on apprenticeships as a salesman and a mechanic before taking over the tiny bike shop his father had established in the family garage.

A desire to forge a life that would have impressed his late father and a passion for cycling have been his driving force rather than a desire to maximise profits, he says.

“I always did what I liked and what I thought was right,” says Arnold, who stepped down from day-to-day management of the company in 2020 but remains chair and holds a 40 per cent stake worth €340mn.

The business he inherited, then known as Radsport Arnold, quickly became a successful retailer of leading US bike brands such as Trek and Specialised, emboldening Arnold to launch his own. But his biggest gamble was the decision in 1996 to bypass retailers and sell directly to customers online.

He recalls his brother explaining that he had bought life insurance on the internet and that Texan entrepreneur Michael Dell had started selling computers via the web. An ambition to become the Michael Dell of cycling, he says, was scoffed at: “Initially, everyone told me: ‘Roman, selling bikes on the internet? That obviously won’t work.’”

Using the web as a shop window also opened the prospect of selling far beyond Koblenz, a city with plenty of cycling enthusiasts but a population of little more than 100,000. Arnold registered the domain name early with an eye on markets outside Germany.

The past few years, however, have exposed the perils of being a global business. Canyon has been beset by a shortage of key bike parts, caused by both ballooning demand and disruption to supply chains.

Arnold is convinced that over the next 10 to 15 years the bike industry will have to reduce its dependency on Asia as the chief production hub. “We need to change the supply chains, and production needs to be moved close to where the end customer is,” he says.

Canyon, which since March has been led by chief executive Nicolas de Ros Wallace, a former Nike executive, is exploring how to shift more production to Europe. Many of its bikes are assembled at its factory in Koblenz, but all the frames and plenty of parts are imported from Asia.

“We cannot move everything at once, we need to take this step by step,” explains Arnold, who sported a black vintage cycling jersey, pink sweat pants and a black Canyon baseball cap when the Financial Times met him late last year.

Most of the wheels are made in Switzerland and Canyon is examining how some frames can be manufactured in Europe. But, drawing a comparison with the rise of organic produce in supermarkets, Arnold argues that regionalising supply chains will also depend on the customer.

“If customers are willing to spend a bit more for the fact that the product is made here, and if entrepreneurs are bold enough to move production here, we can sort it out,” he says.

While supply chain shortages are Canyon’s current blight, the group has faced far more grave crises. In 2006, a carbon fork made by an Asian supplier proved flawed, prompting the recall of 7,500 bikes and a warning from a German consumer magazine that the bikes posed a “mortal danger”.

In a bid to repair the damage to the group’s reputation and avoid a repeat, Arnold decreed that every critical part, such as forks and handlebars, must be individually tested. At its Asian suppliers, Canyon operates its own X-ray machines that scan individual parts. “Each fork has a QR code, and can pull up the pictures of that part on our computers,” a safety engineer told the FT on a tour of the Koblenz factory.

That storm was dwarfed by the damage inflicted by a massive cyber attack on the company on Christmas Day in 2019.

“Our factory could not be rebooted anymore, everything grounded to a halt”, leaving the company unable to assemble or ship a bike for a month and haemorrhaging cash. “I was convinced we go bust,” says Arnold. “Fortunately, our banks kept the faith. We were very, very lucky.”

Three years on and Canyon’s ambitions appear undimmed by the near-death experience. Having been largely dedicated to producing fast, lightweight road and mountain bikes, the company has developed models better suited to urban dwellers keen to ditch their cars. Canyon wants urban bikes to account for 20 per cent of sales by 2025, up from about 10 per cent.

“This is a topic close to my heart,” explains Arnold, adding that he was encouraged when Koblenz’s mayor, a Social Democrat, promised to make the city a better one for cyclists. Once a year, he invites the mayor to Canyon’s headquarters. “I always tell him that despite some improvements, many things [for cyclists in Koblenz] are still not up to scratch.”

Canyon is also looking to prise open the American market, which accounts for less than €100mn of annual revenue. In a sign of the brand’s potential appeal in the US, basketball star LeBron James acquired a small stake in the company last July.

Arnold says that some of his best ideas have come from self-help management books, with the advice in one to always begin a project “with the end in mind” helping shape his approach to decision making at Canyon.

But after more than four decades leading the company — and having won a battle against cancer in 2016 — the entrepreneur now plans to devote some of his fortune to a charity that fosters cycling among young people.

Any trepidation Arnold may have had about Canyon’s new majority owner appears to have faded — he has even returned some of his most cherished bikes.


Business Asia
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