Strategy
The Pro's Closet: A Lesson in the Importance of Coherence
The Pro’s Closet case illustrates why growth choices, value proposition, operating model, and economics need to reinforce one another.
Introduction
Businesses, at their core, are not always rational entities; they are composed of people making decisions based on imperfect information. While decisions may seem logical in the moment, the outcomes can be unpredictable, particularly in complex markets. This article explores the rise and fall of The Pro’s Closet, a company in the cycling industry that many believed could become the CarMax of pre-owned bicycles. Despite initial promise, the company's closure highlights important lessons in business strategy—specifically, the importance of maintaining coherence in growth and operational plans. The company’s own site described its model around buying, servicing, and reselling used bikes, while The Pro’s Closet about page positioned it as a certified pre-owned bike marketplace. Bicycle Retailer later reported on the company’s closure and liquidation context, tying the outcome to post-pandemic market pressure and steep discounting on new bikes.
The Pro’s Closet provides a case study of how strategic missteps, especially in response to external pressures, can lead to the downfall of an otherwise promising business. Why did The Pro’s Closet fail to transform the pre-owned bicycle market in the way CarMax reshaped the used car industry? And why did investors lose faith in the company, especially as similar businesses like Carvana weathered similar storms? These are the questions we will explore.
The Certified-Pre-owned Business Model
At first glance, The Pro’s Closet’s certified pre-owned business model seemed similar to that of successful auto industry companies, particularly CarMax and Carvana. All three companies shared a common value proposition: providing customers with an accessible, trustworthy way to purchase high-value pre-owned goods.
It’s easy to see why investors found The Pro’s Closet to be attractive. After all, CarMax was a successful business that changed the used car industry. Carvana was a pandemic-era unicorn that soared to prominence when many companies struggled.
Using a common business model framework to break down each of the businesses, we can see just how similar the certified pre-owned models of Carmax, Carvana, and The Pro’s Closet look at a high level.
| CarMax | Carvana | The Pro’s Closet | |
|---|---|---|---|
| Customer Value Proposition | Bring the big box retail customer experience to used cars—providing US-based, enabling customers to buy a quality used car with upfront pricing | Create a seamless, transparent, used car buying and trade-in experience, giving US-based customers the ability to find and afford the right car at the right price | Enable customers to confidently buy their dream bike at a price they can afford—without the hassle and unknowns that come from shopping on Facebook or eBay |
| Delivery Model | • Vehicle Inventory
on lots • Multichannel used inventory purchasing (e.g., auctions, trade-ins) • OEM-quality parts for repairs and refurbishment • Mechanics to enable quality • Data for fair pricing • Website front end for consumers | • Vehicle Inventory
on lots • Multichannel used inventory purchasing (e.g., auctions, trade-ins) • OEM-quality parts for repairs and refurbishment • Mechanics to enable quality • Data for fair pricing • Website front end for consumers | • Bike inventory in a
warehouse • Multichannel used inventory purchasing (e.g., purchases from bike shops, trade-ins) • Quality parts for repairs and refurbishment • Mechanics to enable quality • Shipping • Data for fair pricing • Website front end for consumers |
| Profit Formula | Buy low, sell high enough to cover the cost of repairs/refurbishment and the costs of carrying inventory | Buy low, sell high enough to cover the cost of repairs/refurbishment and the costs of carrying inventory | Buy low, sell high enough to cover the cost of repairs/refurbishment and the costs of carrying inventory |
With new high-end bicycles approaching the prices of cars, even the transaction sizes were within the same order of magnitude. However, The Pro’s Closet needed to address three significant challenges in order to succeed.
- There were no established channels for used inventory purchasing, and customers would need to be willing to accept the notion of trade-ins
- Bicycle mechanics qualifications are less professionalized and largely based on apprenticeship rather than formal technical training—and there is a lack of certifications
- The bike industry lacked established data sources for pricing
A Good Plan Isn’t a Good Strategy
At first glance, The Pro’s Closet appeared to have a solid plan to address the challenges in its business model, especially when compared to counterparts in the used car industry. The company established a B2B purchasing team and developed a consumer-friendly trade-in process to source inventory. Their pricing model was gradually refined, and partnerships with high-end brands allowed customers to customize purchases, while a staff of in-house mechanics ensured the quality of the pre-owned bikes.
However, despite these operational improvements, The Pro’s Closet faced two significant challenges in the broader business environment: the global pandemic’s disruption of supply chains and a macroeconomic climate of rising interest rates.
The Unexpected Challenges
1. Pandemic-Induced Market Fluctuations
The COVID-19 pandemic created an unprecedented demand for bicycles, followed by supply chain disruptions that left retailers scrambling for inventory. Like other industries, the cycling market suffered from production delays and inventory shortages. When manufacturers eventually ramped up production, the market was flooded with an oversupply just as demand began to dwindle. The result was a highly saturated market with excess inventory and falling prices—a situation that heavily impacted retailers in the bike industry.
2. High-Interest Rates
Simultaneously, rising interest rates and borrowing costs placed additional financial strain on the industry. Retailers, distributors, and brands were forced to carry higher levels of inventory, which became increasingly costly in the new economic environment. For a company like The Pro’s Closet, which relied on maintaining pre-owned inventory, these factors created a financial burden that became difficult to manage.
Were these two things enough to cause The Pro’s Closet to shut down, or was there more to the story?
The Response
In response to the supply chain disruptions, The Pro’s Closet sought to mitigate pandemic-induced fluctuations by expanding its selection of new parts inventory. This shift allowed the company to secure deliveries and gain leverage over distributors. However, in pushing for scale, the company’s model evolved. What started as a niche player focused on certified pre-owned bikes slowly transformed into something that resembled a more traditional bike shop. Recognizing the opportunity for growth, The Pro’s Closet added apparel, accessories, and even new bicycles to its offerings.
As rising interest rates became a long-term reality, the broader bike industry began experiencing a wave of shop closures and brand bankruptcies. The pandemic’s shortages had led to a massive oversupply of bikes, and the high cost of carrying inventory, exacerbated by interest rates, crushed many retailers. By transforming into a traditional e-commerce bike retailer, The Pro’s Closet found itself exposed to the same risks as other bike shops, diluting the distinctiveness of its original business model.
This choice starkly contrasted CarMax’s historic and Carvana's contemporary choices regarding the secondary business models they built to support their growth. CarMax invested in financing to drive transactions and reduce the risk of the primary business model, while Carvana expanded its business by offering services like home delivery, improving customer access.
| CarMax | Carvana | The Pro’s Closet | |
|---|---|---|---|
| Customer Value Proposition | Create a company-specific lending platform to ensure the affordability of our products and mitigate the effects of interest rates on our balance sheets | Expand access to our services via home pickup and delivery | Expand the selection of products and our customer base by selling new components, accessories, and apparel |
| Delivery Model | • Balance sheet
strength to take on the risk of financing • Finance expertise to understand risks and upside • Sales models that could incorporate financing into the purchase structure | • Trucks for vehicle
pickup and delivery • Expand trade-in and sales policies to cover for customer returns and variability in quality | • Inventory in a
warehouse • Quality parts and products for sale • Shipping • Website front end for consumers |
| Profit Formula | Drive sales in primary model through financing terms, mitigate effects interest rates, make money from interest | Drive a higher volume of transactions through their primary business model | Traditional e-commerce retail |
The key difference between these companies lies in their strategic approach to their secondary business models. CarMax and Carvana invested in building new capabilities that complemented and enhanced their primary business models, effectively doubling down on their original investment theses. In contrast, The Pro’s Closet expanded its business based on operational synergies—diversifying its product offerings to attract new customers. While this may have seemed like a rational choice and a good plan given their existing investments, it ultimately led them away from their initial business model and strategy, which may have been the critical misstep that undermined their business.
Synergies vs. Coherence
When it comes to building a winning strategy, synergies can often be a misleading concept. Pursuing synergies tends to anchor businesses in the past, focusing on sunk costs rather than forward-looking opportunities. A more effective strategic approach starts by understanding why investors, employees, and other stakeholders believe in the business and making choices that resonate with them.
A successful strategy should be simple and coherent. As long as it’s relevant, the original investment thesis—the fundamental reason the business was attractive in the first place—must remain at the core of the strategic message. If the initial thesis proves incorrect, the entire organization must pivot toward a new, cohesive strategy. In the case of The Pro’s Closet, the company's half-transition from a focus on certified pre-owned bicycles to a more generalized e-commerce bike shop exemplified a breakdown in coherence. The resulting lack of clarity likely contributed to the loss of investor confidence.
Before The Pro’s Closet, platforms like eBay, Craigslist, and Facebook Marketplace dominated the used bicycle market, with little to no assurance of quality or authenticity. The Pro’s Closet had clear Disruptive Potential: it created a new market for Certified Pre-Owned (CPO) bikes, applying principles and technologies from the automotive sector, particularly those pioneered by companies like CarMax. In our view, this rare type of business represents the highest-risk, highest-reward scenario.
Our former colleague, Clayton Christensen of Harvard Business School, defined this in his book Innovators Dilemma as a phenomenon that occurs when you recognize your customers buy more than they need because they lack access to the right solution. Counterintuitively, the first adopters of these innovations often aren't the core customers of established businesses. However, as the disruptive offering gains traction, it can draw revenue away from incumbents focused on Core Growth, eventually disrupting and replacing them in the market.
Figure 2 shows a framework we use to characterize growth potential and risk. Higher growth potential exists as you move up and to the right. By creating their secondary business, The Pro’s Closet shifted its focus away from this high-potential, disruptive space and toward a lower-potential, more traditional e-commerce model—akin to existing retailers such as Competitive Cyclist, which were seeking turnaround capital to survive. This strategic shift reflected a retreat from the company’s original disruptive ambition.
In essence, The Pro’s Closet made a partial bet against itself. Moving away from its disruptive roots toward operational synergies resulted in a lack of strategic coherence. This change fundamentally altered the investment thesis, creating a business that was only partially attractive to venture capitalists and partially appealing to turnaround investors but not compelling to either. The result was a business that ultimately became unattractive to both groups, leaving The Pro’s Closet in a precarious position. The strategy concept is consistent with HBR’s emphasis on trade-offs and fit: a growth model works only when choices reinforce one another.
Conclusion
It’s easy to critique from the sidelines, but businesses operate under immense pressure to adapt, grow, and respond to market conditions. The closure of The Pro’s Closet reflects a broader challenge many companies face in maintaining strategic focus amidst external pressures. The key takeaway here is that coherence is essential for success. Businesses must carefully align their strategic initiatives with their core value propositions, resisting the urge to pursue opportunities that may compromise their original vision. HBR’s five-forces framing is helpful here because used-bike resale was exposed to supplier, buyer, and substitute pressure at the same time.
As we look forward, there is hope that another company will rise to professionalize and streamline the pre-owned bicycle market. The Pro’s Closet may have failed, but the potential for disruption in the cycling industry remains largely unfulfilled.