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Who eats the price reductions?

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Who eats the price reductions?

Old 07-18-19, 05:04 PM
  #1  
Sy Reene
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Who eats the price reductions?

In other words.. end-of-model-year discounting.. is it all covered by the manufacturers, or is the LBS taking it on the chin?
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Old 07-18-19, 07:11 PM
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Anyone trying to sell a used bike.
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Old 07-18-19, 07:15 PM
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I've never worked at a bike shop, but I've worked high-end retail - I would assume that it's similar, but I'll definitely admit that the places that I worked at warranted favorable terms from many of the vendors.

That said, I've seen it go both ways - it really depends. For a straight-up MSRP reduction for an ongoing model, it was pretty common to have the cost to our back stock adjusted for the next order/invoice.

While we didn't exactly have model years, but there were iterations/generations. Sometimes the pricing on discontinued stuff was adjusted, particularly if we had more than two or three in the stock room. If we were just sitting on a floor demo, why bother? Sell it for more than cost and get on with it. Other times, if we didn't have much by way of back stock, vendors would offer really favorable pricing to entice us to buy some more and then blow them out.

At the end of the day, it was all about balance - it's nice for retailers to have stock on-hand so that they can close a sale quickly (for customers, being able to walk out with something can often tip the scales in favor of making the purchase); vendors don't want to discourage that kind of commitment, so being able to offer some kind of an adjustment when we got stuck with inventory was appreciated.
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Old 07-18-19, 10:10 PM
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The shop took it 100% on the chin. Worked at a shop for almost 4-years and of the 7 manufacturers we carried during my time there they all worked the same.

Most of the manufacturers would start to clear out back channel inventory in late February / early March. So for example, if you wanted a Domane SL 6 in the less popular color (because there's usually two) in an odd size, sometimes it was impossible or very difficult to get you one after about Valentine's Day. Typically the shop would pre-plan the year in August/September and get access to the upcoming model year's lineup (specs, colors). The more you bought up front, the better the pricing. Some manufacturers require you buy X of Y.

I've worked PT boutique retail for almost 20 years, from my experience, this was all pretty normal stuff, so not specific to bikes.

Where the real deals occurred is when manufacturers would do blowout sales at wholesale before the model year transition. For example, one we brought in DA Di2 (9000) bikes from a manufacturer for a hair over $2400 and sold a half dozen of them at almost $7500. Ironically, there's a Giant Defy from 2014 in the shop that has never sold.
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Old 07-19-19, 07:14 AM
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You do realize that this -

Originally Posted by softreset View Post
The shop took it 100% on the chin.
is directly contradicted by this?

Originally Posted by softreset View Post
Where the real deals occurred is when manufacturers would do blowout sales at wholesale before the model year transition. For example, one we brought in DA Di2 (9000) bikes from a manufacturer for a hair over $2400 and sold a half dozen of them at almost $7500.
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Old 07-19-19, 08:54 AM
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Originally Posted by WhyFi View Post
You do realize that this -



is directly contradicted by this?
His message was clear and not contradictory to me. But I sought to understand his message rather than find fault with it. If you'll ponder it a bit more, I think you'll get his meaning, even if it weren't expressed as clearly as it could have been. I know it's not cool to try to understand on internet forums. It's a quirk I have.
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Old 07-19-19, 09:14 AM
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Originally Posted by Paul Barnard View Post
His message was clear and not contradictory to me. But I sought to understand his message rather than find fault with it. If you'll ponder it a bit more, I think you'll get his meaning, even if it weren't expressed as clearly as it could have been. I know it's not cool to try to understand on internet forums. It's a quirk I have.
How is it not contradictory to say that shops "took it [price reductions] 100% on the chin" and then to say that shops were offered deep discounts on upcoming closeouts?
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Old 07-19-19, 10:04 AM
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Originally Posted by WhyFi View Post
How is it not contradictory to say that shops "took it [price reductions] 100% on the chin" and then to say that shops were offered deep discounts on upcoming closeouts?
He definitely didn't word it the way I would have.

If a shop has stock leftover from purchases made early in the season, they lose out when a manufacturer drops the retail price. Purchases made late in the season(after the retail price reduction) are at greatly reduced cost,
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Old 07-19-19, 10:36 AM
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Originally Posted by noodle soup View Post
Purchases made late in the season(after the retail price reduction) are at greatly reduced cost,
Right, which means that shops aren't 100% taking it on the chin.

The question of the thread is who (LBS, distributor, manufacturer) is seeing their margins reduced with model year-end sales. If a shop has an overly-optimistic buyer, their margin may be the only one taking a hit when they have a stock room that needs to be cleared out at the end of the year. But at the same time, an LBS could be a beneficiary of discounted pricing from their vendors and the LBS might make the same margin that the normal wholesale/retail pricing affords (or greater, in that poster's example).

All of that is to say that the answer is: it depends, both from shop to shop and even bike to bike.

Or, to paraphrase: 60% of the time, the shop takes it on the chin every time.
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Old 07-19-19, 02:08 PM
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Originally Posted by WhyFi View Post
How is it not contradictory to say that shops "took it [price reductions] 100% on the chin" and then to say that shops were offered deep discounts on upcoming closeouts?
He delineated two different scenarios for the shop. The stock the shops buy at the beginning of the year is the first. If the shop has those leftover, the shop will eat the price reduction. When a manufacturer has a load of leftover bikes, they will sell them to the shops at warehouse clearance prices. In that case the shop is buying them at a reduced price. In that scenario the manufacturer eats the loss. His comment that the shop eats the loss 100% applied to the first scenario because he understood the OP to be asking about that scenario.
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Old 07-19-19, 02:52 PM
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Originally Posted by WhyFi View Post
You do realize that this -

is directly contradicted by this?
Allow me to clarify them. As others have stated, there are two scenarios in play here. You're absolutely right, I presented two scenarios and didn't transition the thoughts with an appropriate transition.

It's middle to late June (common end of year transition for bike shops.

Scenario #1 : You've got a dozen bikes from brand X on the floor, various sizes, colors and models. In the case of our shop we've had those bikes either in inventory are committed to brand X since the fall of the year before. Brand X announced earlier this morning a new model colorway and that model Y now comes with Ultegra shifters instead of 105 shifters but for the same price. A customer walks in wants the new bike that was just announced. But (because this usually happens) that new bike isn't available for 2 months. So we work to sell them the bike that's on the floor, built, ready to roll. Any concession that occurs below MSRP comes out of the shop's margin. There's no kickback or compensation from the manufacturer because they've come out with a new bike.

Scenario #2 : Customer wants model Z from brand Y in a 52cm. We don't have that bike in stock. So we have to special order it. It turns out that the bike is on closeout from the manufacturer (but that this closeout hasn't been done at the MSRP level yet) as the manufacturer is looking to purge the back channel ahead of time and entice shops to order. In this case, the shop could stand to make a better margin on a bike.

Scenario #3 : Customer comes in and wants a carbon Ultegra bike with carbon wheels but doesn't want to spend more than $3500. We know that it's impossible to get that price point from brand X. However, because of the wholesale closeout that's occurring from brand Y (mentioned in scenario #2 ), we then position a different manufacturer would allow him to meet his shopping requirements and price point. So we special order the bike for them, close a sale and still meet shop margin goals.

Scenario #3 a: The customer decides after getting the special order bike that they don't like it and the sale is not finalized, the special order bike goes back into inventory, the bike goes on a blowout sale from the manufacturer before we can resell the bike. Hopefully the margin goal is still met.

So yes, I'll maintain that the shop takes it 100% on the chin on in-stock, pre-paid (usually net-60/90) bikes. Where the shop can offset that or even come out ahead is restocking or special orders during closeout/transition time periods.

Apologies that I didn't better clarify that. Hopefully this follow up clarifies that for you.
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Old 07-19-19, 03:14 PM
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Originally Posted by Paul Barnard View Post
He delineated two different scenarios for the shop. The stock the shops buy at the beginning of the year is the first. If the shop has those leftover, the shop will eat the price reduction. When a manufacturer has a load of leftover bikes, they will sell them to the shops at warehouse clearance prices. In that case the shop is buying them at a reduced price. In that scenario the manufacturer eats the loss.
The OP is asking from the perspective of a customer. To a customer, both of these scenarios look the same: the LBS has a bike and it's discounted, period. That they look the same from that perspective is the reason for asking the question in the first place.

Originally Posted by Paul Barnard View Post
His comment that the shop eats the loss 100% applied to the first scenario because he understood the OP to be asking about that scenario.
So it was understood that the OP was asking about the scenario wherein the LBS already had something in stock prior to a wholesale price drop (as opposed to buying it at after a wholesale price drop)? If you'll ponder it a bit more, wouldn't the OP have already had his answer if that was the case?

Look, it was a poorly worded answer at best and contradictory at worst. If it were, as you say, delineated (to describe or portray something precisely), we wouldn't be having this off-shoot convo. Whatever. I'm done and the answer is still the same: it depends.
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Old 07-19-19, 04:17 PM
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Originally Posted by WhyFi View Post
The OP is asking from the perspective of a customer. To a customer, both of these scenarios look the same: the LBS has a bike and it's discounted, period. That they look the same from that perspective is the reason for asking the question in the first place.



So it was understood that the OP was asking about the scenario wherein the LBS already had something in stock prior to a wholesale price drop (as opposed to buying it at after a wholesale price drop)? If you'll ponder it a bit more, wouldn't the OP have already had his answer if that was the case?

Look, it was a poorly worded answer at best and contradictory at worst. If it were, as you say, delineated (to describe or portray something precisely), we wouldn't be having this off-shoot convo. Whatever. I'm done and the answer is still the same: it depends.
You've made it obvious that you seek disagreement and confrontation. Be well.
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Old 07-19-19, 04:53 PM
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This isn't half as bad than selling cars and trucks for a tonne and then discounting them thousands of dollars to 'blow them out'.

By ther way, they quote MSRP or manufacturer's suggested retail price, which isn't actual cost to the dealer anyway. Since bikes have a much lower margin usually, yes, I suppose the LBS eats more than a Ram dealer.
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Old 07-19-19, 06:47 PM
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Absolutely. I didn't have a lot of insight (part-time sales rep) into all of the back-end finances but my personal goals when I work there was 40% margin on bikes with wiggle room to 35%. Some bike manufacturers made that easier than others.
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