Maelochs

As for the Epipen ... we live in a free-market economy, and people can be greedy. Why shouldn't the company charge outrageous fees ... if people pay them? That is the bedrock of the free-market system.

We are outraged because ... maybe some things, like health, and education, and prisons, and politics ... shouldn't be commodified ... but no one wants to fight that fight because they will be called "Liberal" or "Progressive" ... which used to be good things ... and "Socialist" and "Communist" ...

And running even a successful bike shop is going to keep a person just wealthy enough not go get any government support when s/he retires and finds inflation and market manipulation has devalued his/her savings and investments.

Better get in soon ... I sense a lock incoming.

cthenn

As it should at this point...

StanSeven

Let's keep the thread on topic if there's more to add.

Bike Gremlin

I live in Serbia (rather poor European country) and have worked in a LBS, now wrench privately, keeping close contacts with a few LBS owners and employees, managers). The way it goes here:

Locally made bikes are sold with very little margin, for the lowest price possible. The factory recommends those prices to be used. So there's no room for a discount. If I remember correctly, the margin is between 10 and 20 %, probably closer to 10.

Foreign bicycles, like Trek, Cannondale etc. give a lot less bike for the price, because they have customs and higher taxes applied to imported goods, plus they are often higher priced from the factory. This gives some room for higher margin, but 99% of bikes sold are under 400 euros. 1000+ euro bikes - you sell a few per year.


Selling parts:
Most parts sold are the cheapest, lowest class. Shimano Tourney, or lower, or chinese made no-name parts. Very low margin (about 20%) along with low price for those. A pair of Schwalbe Kojak tyres was sitting two years in the shop because nobody wanted to pay more than 10 euros for a good tyre.

Working, service prices:
For servicing, you make some profit from all the parts you install (you're practically selling them while installing them). The fixed pay per hour mechanic gets is very low. However, the prices you can charge for labour are also very low. So if the mechanic does the job properly, which takes a bit more time (even for fast mechanics), you are working with almost 0 profit. That's why most shops cut corners and don't do quality service.

I work very small, as a second job (more hobby), which allows me to pay 0 taxes and rent (since I use my house), and with doing the service properly, I earn about 2 euros per hour, which is just around average pay in my city. But if I did it for a living, full time, with larger number of bikes, I'd have to pay all the taxes and rent, and practically work just for that, having nothing. The only way to make something from having a LBS here is to have a really big one, employing 50 people in the whole system. The small, really local bike shops are having a hard time. One opens, works for a few years, then closes. Though in recent time, hipsters popularized bicycles, I see a lot more bikes on the streets and a couple of new LBSs opened, offering fixies, and having that marketing approach - will see how they do.

Retoocs

I disagree with most bike shops cutting corners on labor. We may have bad mechanics, but we were never told to cut corners.

Inpd

The LBS is a classic middleman business. They have tremendous costs because they literally have to hold a whole bunch of stock, show case it etc. just like a car dealership.

Time will tell if manufacturers move to the direct sales approach.

wheelreason

There are all sorts of reasons why manufacturers, distributors, independent representatives, retailers, and other players choose to occupy the space they do in some or all of the chain. Efficiency, isn't one of them.

Retoocs

I don't think the large manufacturers would want to go direct sales. It forces them to hold a lot of inventory which is something they don't want to do. Right now, post Interbike, they have their orders from the bike shop. The manufacturing planners are busy buying the raw materials and components for next year's orders. For manufactures to make money, they have to minimize the number of setups in tooling they do. They plan on building one bike in one size, once per year. When you stop production to swap tooling/fixtures/etc., you are not making product, therefore not making money.

Custom building each bike on demand is not profitable on a large scale.

grolby

When sales staff time, inventory floor space* and other associated costs of stocking and selling bikes are accounted for, only in a small minority of excellently-managed bike shops do bikes account for their share of the shop's operating costs. And even then, only by a small amount, maybe 3% margin in a really good shop. The irony of running a bike shop is bikes are subsidized by other aspects of the business in a majority of American stores. Which isn't to tell anyone what to think about typical bike prices, but hopefully that makes the situation clearer. Remember, the wholesale cost isn't even close to what it actually costs a shop to stock a bicycle. It has to be ordered, it then occupies space in a box until it is assembled by a mechanic, at which point it occupies yet more valuable space on the sales floor, it has to be sold by a paid employee of the business, and the whole time the shop needs electricity, running water, etc. Maybe this business model is ultimately doomed, but that's why many shops are so reluctant to bargain. When the majority of what you're selling is <$600 bicycles, that 35% doesn't go that far to cover the expense of stocking them. It's not some weird coincidence that boutique shops dealing mostly in high-end bikes have become more common over the years and especially in high-rent cities. It's a heck of a lot easier to cover the costs of a $5,000 or $10,000 bike than a $500 bike.

*A common mistake people make is thinking retail floor space is basically free. But it's not. Bikes occupy a lot of physical space in a shop, which could otherwise be used to pack in higher-margin products at a much higher density. It's a conundrum - the general assumption is you need to have bikes for sale if you're going to operate a bike shop. But the opportunity cost for the floor space they occupy is pretty brutal.

Steamer

All the OP has to do to judge mark ups is to see how well off most bike show owners are. The answer: not very.

Caliper

How do you make your living then? Everyone's gotta make a living somehow.

The markup/margin numbers may look excessive to some people on paper, but it's like seeing someone's paycheck and not seeing their bills. If they were raking in the dough as some here think they are, you'd see many more bike shops opening up to get in on such a gold mine!

vinuneuro

I think Pepe is being sarcastic like in most of his posts. All of you have made good arguments and I've come around to your view. 'Direct sales' like Trek is doing now with it's dealers may a good solution for them. Frankly I primarily use my chosen LBS for services and small items. As a student I just can't afford to pay how much they charge for bigger $$ stuff, the difference is too much vs. online. If they were a Specialized dealer I would've bought my bike from them.

wheelreason

Sure, until you find out how much your T shirt and latte are marked up...

ShortLegCyclist

Seattle has a number of bike shops that do not stock any or very few bikes.

Their business model is repair and service first, but they can and will order new bikes for you.

Among these is the legendary Aaron's Bike Repair which is mentioned all over the Sheldon Brown site.

Aaron's Bicycle Repair, Inc.

The Polkadot Jersey Bike Shop Seattle

WRENCH bw

Another trend gaining ground in Seattle is mobile bike shops with no brick and mortar overhead.

MBR Bike Shop + Mobile Bicycle Rescue

Mobile Bike Rescue will leverage their mobility order and deliver your new Felt or Cervelo to your doorstep.

bbbean 

Really? That seems generous? When you consider the huge overhead to opening a brick and mortar store, to say nothing of interest expense and opportunity cost, that seems like a pretty slim markup to me.

Maelochs

Last I heard, the major manufacturers were indeed going to direct sales more ... not entirely, I guess, but a lot more. They decide their production runs probably a year in advance, based on what shops tell them sold the year before .... which models, which sizes. Obviously they aren't going to build individual bikes ... but why would it matter where the bikes they build get sold? The production runs have been determined a season in advance, and whether the bikes are shipped to a retailer, or sold online through the manufacturer website, the production run is done before sales begin. The two are not related.

Right now bike shops warehouse unsold inventory, and it is not very efficient---hence LBSs going out of business so often. An LBS has to pay retail sales footage price for warehouse space, in effect. The factory can rent warehouse space---or build a warehouse ion property it already owns, or can buy cheap----and still sells the bikes online at dealer retail, which means the factories, not the bike shops, make that profit margin.

Given that the storage costs are much lower, that is easy money for the factories.

I expect that most dedicated bike shops ---shops which mostly sell only one brand---will have just enough display models to show the big sellers and to give customers a quick ride on a similar bike ---similar geometry, even if it is a different model---so the shop knows which size to buy. Then to shop would place an order to the factory and once a week the new bikes would arrive---in that case, the dealer would pay dealer price and sell at retail (less whatever discounts and deals each store offered.)

If the customer wanted to go direct and skip the shop---the customer would still pay full retail, but the bike would be shipped directly to the customer, I'd imagine. That way the bike shop could afford to stay in business (less floor space for bikes (or more for different manufacturers' bikes) and thus more for high-markup merchandise) which would give the manufacturer a physical presence in areas which had a big enough customer base, and the factory could still sell to people who didn't have an LBS featuring that manufacturer in driving range.

As an example---there is one bike shop withing about 20 miles of me, and it specializes in Cannondale ... it doesn't do the volume to be a Trek or Specialized dealer as well (and I think they both demand a certain percentage of floor space for their models for an "authorized" dealer) but anyone buying more than the nearly-zero-margin beginner bikes, would know enough to search the other big manufacturers and then could order online---and probably the LBS would be more than happy to work on those bikes, money being money and all.

LGHT

I wish there where more of these "mobile shops" in my area. I love how they get rid of the overhead by having a B&M shop and pass on the savings, but buyer beware of the guy working out of his garage with no business license, insurance, etc etc. God forbid he put your fancy new carbon bike in a clamp crack it and tell you it was like that when he got it lol...

noodle soup

time to lock this thread down.

Bike Gremlin

You disagree as in terms of it being a bad policy?

Or disagree with the claim that most shops (in my city) cut corners?


As far as the policy goes - location influences the number of customers very much, then the price. Reputation of quality service is behind all that here, most people want to pay as little as possible.

leicanthrope

The only way that this could even possibly work, would be if they had enough dedicated "bike people" (i.e. most of us here) as clientele. Your run of the mill customer who hasn't been on a bike in 15-20 years, and wants an entry level hybrid to keep up with little Timmy in the park isn't as likely to want to order something out of a catalog. They were debating just picking something up at Walmart anyhow, and the extra hassle would push them back into Walmart's embrace.

nycphotography

I don't give a rats patootie about someone's bills, as that is more about their lack of discipline, planning, and management. I see no real reason to cover someone's poor fiscal management by paying more.

Yes, they have rent. Yes, they have employees. But if the sales don't cover the employees then they should have fewer employees. If the can't manage their inventory, then that's not my problem.

NOW here's the rub... most bike mfrs have gone to mostly "1 run" production, meaning the shops have to pre-order what they expect to sell, because they probably won't be able to get it later when they actually want to sell it.

This is, to me, the biggest problem in the bike business. The Mfrs are not really helping the bike shops to manage their expenses and inventory, having effectively pushed all that down the line to the LBS. This is pretty much a crap move by the mfrs. Sure it helped their bottom line, helped them with inventory and manufacturing, and helped them make more profit. But it does so by substantially weakening the bike shops financially.

Ideally, the mfrs would be the reserve inventory, and the lbs can sell and replenish throughout the annual cycle. But instead the lbs has to order a crap ton, and hope they can sell it all. Which leaves the consumer always hunting from shop to shop to find what they want in the right color and size. Which applies to bikes, shoes, clothes, etc.

It's a miserable experience for both the customer and the lbs.

Caliper

So maybe the manufacturers also don't give a rats patootie about someone's bills?


My point was that making a few grand off a single bike isn't the atrocity some think when you consider the costs of running a business. Just making a few bucks at a time selling spare inner tubes doesn't pay the rent.

nycphotography

Clearly.

But think maybe "enlightened self interest" might suggest they should?

wheelreason

^ 7th most ignorant statement I've read on the InterWeb®

nycphotography

How many "few grand" should the lbs expect to make? How many "few grand" extra should the customer be expected to want to pay?

The median family income is around ~52k/yr. Median individual income is around ~27k/yr.

The shop owner obviously wants to make more on his investment, but has to keep in mind that customers have to be able (and willing) to pay it.

A lot of this discussion comes around unrealistic asymmetrical expectations around income (which more or less permeate the US culture and are not unique to the LBS discussion).

And there is a definite utility curve here. When money is constrained, but time is available, a customer can
(and almost always will) choose to spend time to save money. Shop hard. Buy on ebay. Assemble and maintain for oneself. Etc. So how many hours would my $30k/yr ($15/hr) ass have to spend saving $1500 of that $2000 margin before it stops making sense? CLUE: A whole helluva lot of hours, that's how many.

A high end shop is really selling convenience. For customers who have time constrained and money available, the high end retailer can sell time (+ "the retail experience") for money.

But the reality is that not every low end retailer can command the high end margins. High end margins generally have to be earned through a high end experience.

I know I know it sucks to have to tell Brandon and Zeke that a black vest, an ironic hat, and a couple fixies chained out front won't make it rain $9k bike sales, but life is just tough like that.