05/23/2013 05:43 EDT | Updated 07/23/2013 05:12 EDT

Dorel set to dip toe in retail bike business with N.Y. concept store

MONTREAL - Dorel Industries is dipping its toe in the retail bicycle business by opening a concept store on the outskirts of New York City.

The maker of Cannondale, Schwinn and other bicycle brands will open a Long Island store in two weeks to test its product and marketing initiatives with consumers.

Chief executive Martin Schwartz says the store will be a "retail innovation lab" to determine the best strategies for its independent bike dealers.

"It's basically to get closer to the consumer and see how they react to our product and see what we can do for them," he said in an interview before the company's annual meeting.

In addition to selling its full range of equipment, Cannondale Sports will offer clothing, parts and accessories. Its Guru custom bike fitting software will also be available to consumers.

The 378-square-metre store will be located near Roosevelt Field, one of North America's largest malls.

Schwartz said the store could be a model for other retail stores.

"We're not planning to be a bike retailer. Will there be a second, third or fourth store, maybe but we have no plans to be a nationwide chain of bike stores," added chief financial officer Jeffrey Schwartz.

Nor will it set up any retail stores near its most successful independent bike dealers. The concept store is located in an area where Dorel doesn't have strong distribution to retailers.

The retail concept stemmed from a retail lab Dorel built at its leisure segment's Connecticut headquarters for use by bike dealers. It led to nearly 100 U.S. dealers remodelling their stores.

Dorel, which also makes ready-to-assemble furniture and juvenile products such as child car seats and strollers, said it could entertain an interest in franchising opportunities have many of its competitors.

"It's not in our model today but that would be something we would be open to," the CFO said.

Dorel also recently opened a retail store in Australia.

Retail helps to partially offset a traditionally weak fourth-quarter by adding sales during the Christmas holiday period.

Dorel Industries (TSX:DII.B) is already selling its juvenile products directly to customers through Silfa, a partnership in South America.

Silfa operates about 73 Infanti brand of stores in Chile and Peru, up from 54 stores when Dorel bought a 70 per cent stake in the company in November 2011. An additional three or four stores will be added this year.

Latin America is Dorel's fastest-growing market, although it now accounts for about 11 per cent of its $1-billion global juvenile business, up from seven per cent in 2011.

It hopes the area's sales will increase to $140 million this year from $125 million in 2012.

"It's just a great's got ups and downs but right now the middle class is getting larger and larger and that's really our key target group," said Jeffrey Schwartz.

Dorel manufacturers car seats in Brazil and last September acquired a distributor in Colombia and Panama, which also covers all of Central America and the Caribbean. That expanded its presence in a region with nearly 130 million people.

It is also seeking acquisition opportunities in Mexico.

Meanwhile, the company said the introduction of high-priced bikes to China is exceeding forecasts despite a relative slowdown in China's economy.

Sales are relatively small, but the road bikes are gaining traction among executives, said Jeffrey Schwartz.

"In a tough first quarter, it was one of the highlights. We actually did better than expected."

Cold weather put a chill on Dorel sales in the first quarter as revenues decreased 4.3 per cent to US$594.2 million.

Anthony Zicha of Scotiabank said the slower start to the year was worse than the company had previously suggested.

Still the company expects its earnings in 2013 will exceed last year's as recreation sales recover and juvenile benefits from new product launches.

"Dorel's first-quarter results do not reflect our expectations for the balance of this year," Martin Schwartz told shareholders.

"While weather will always be a variable beyond our control, our market share in bikes is intact and growing."

Dorel has annual sales of more than US$2.5 billion and employs close to 5,400 people in 24 countries.

On the Toronto Stock Exchange, its shares closed down nine cents at C$41.05.