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BERTRAND MAROTTE

Thursday, May 15, 2008

MONTREAL -- In the exclusive world of high-performance cycling, Dorel Industries Inc. is facing an uphill climb.

Fitness-obsessed baby boomers with disposable income to burn are flocking to the high-end bike segment, paying upward of $2,000 and as much as $10,000 for the ultralightweight, high-tech precision machines that have become must-have toys of the day.

Dorel, which makes children's gear and furniture and is already a major player in mass market bicycles, sought to tap into the growing high-end segment by scooping up prestigious manufacturer Cannondale Bicycle Corp. of Bethel, Conn., in February.

But in cycling circles, Montreal-based Dorel has come under attack for its high-low strategy.

Flogging a mass market line of bikes - including the famous Schwinn brand - while selling the pricey and storied Cannondale through independent bike dealers will weaken specialty sellers, one competing high-end maker says.

Michael Sinyard, the founder and president of Cannondale rival Specialized Bicycle Components, recently sent a letter to independent U.S. bike dealers urging skepticism regarding Dorel's commitment to maintaining the exclusivity of Cannondale and its other pricier models.

Dorel's acquisition of Cannondale is "bad news" for the independent bicycle dealers channel - the only one through which the high-performance bikes are sold, he warned.

"I believe if dealers continue to sell and promote Cannondale they are strengthening this mass market conglomerate and eroding the specialty retail channel," Mr. Sinyard wrote in the letter dated Feb. 11.

He charged that Dorel subsidiary Pacific Cycle already diluted the value of top-line brands it acquired - such as Schwinn and GT - by shifting them into the mass-merchant channel. Now, he said, the Cannondale name is at risk.

In a letter of response to the dealers, Dorel's Cannondale Sports Group president and chief executive officer Jeff Frehner - who logs between 200 and 250 miles a week on one of his 15 racing bikes - called Mr. Sinyard's charges the "wild speculations and mud slinging of a competitor." He mused that "perhaps Specialized is intimidated."

His division at Dorel remains committed to innovative product development, dealer programs to increase revenue and profits, improved marketing efforts in the independent dealers channel and other measures, he said.

Specialized also apparently targeted Cannondale staffers, sending out e-mail messages to Cannondale engineers trying to lure them away. A human resources manager wrote in the e-mail, dated Feb. 5, that she would be travelling to Bethel in the next few weeks in hopes of meeting with some of the Cannondale people. News of the poaching raid appeared in trade publications online.

Dorel tried to turn Mr. Sinyard's broadside to its advantage, running an online Cannondale ad saying: "Who has the best engineers in the industry? Specialized knows. Mike Sinyard must be looking for higher standards."

The ad concludes that Cannondale's staff "can't be poached." Mr. Sinyard was not available to comment further on the issue.

In a recent interview, Mr. Frehner, 39, said Cannondale is focusing on relations with dealers. "In the last 90 days we've been doing a lot of work to solidify our position in the dealer network," he said.

"There's been a lot of back-and-forth, which didn't have to occur but it did," he added.

Dorel's chief financial officer Jeffrey Schwartz said: "We want to make it clear that having Dorel behind Cannondale means we're going to aggressively invest in new products."

Dorel created the new Cannondale Sports Group unit, which is separate from the mass-market Pacific Cycle unit, and has solemnly sworn not to dilute the Cannondale brand, Mr. Schwartz said.

But there is some convincing still to do.

The fact that Dorel is in other businesses of a more pedestrian nature - ready-to-assemble furniture, children's car seats and strollers - hasn't helped. Some critics have taken issue with the notion that a consumer products manufacturer supplying Wal-Mart can be trusted to maintain the higher standards required to design, develop and sell top-end machines.

On the Internet, Dorel's efforts to break into the high end of cycling fuelled discussion among enthusiasts.

"There's nothing hip about buying a bike from a company that also sells furniture and baby strollers," one bike chat line participant wrote.

Arden Cottle, owner of the Out-Spoke'n specialty bike shop in Lake Mary, Fla., thinks the controversy needs to be put into perspective. "This is quite silly. All of us need to be focused on running, to the best of our abilities, our companies," she said in a telephone interview. "Look at it this way: Dorel has a lot of money to market Cannondale as a label that deserves that kind of support," she said.

A big selling point is that most Cannondale frames continue to be assembled in the U.S., whereas rivals Specialized, Trek Bicycle Corp. and Giant Bicycles have theirs made offshore, she said.

"It's a better quality, nicer weld, with more patents."

DOREL INDUSTRIES (DII.B)

Close: $31.03, down 26¢

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