Dan The Man

On small stuff, not full bikes (except for BD), most stores have a free shipping over $50 or some similar amount. I am always jealous when I look up prices.

ftp1020

Business revenue paid for by plastic is always taxable and leaves a precise audit trail; cash ... not so much because it doesn't always have to be officially recorded *anywhere*, except in the paper copy of your receipt.

If you run a cash business, your sales are whatever you say they are. With plastic, the banks and credit card companies (same thing, BTW) can tell the govt quite a different story than the one you're trying to sing on your tax forms.

himespau 

See now that just makes me feel uncomfortable. Sort of like the time I bought a used car from a dude and he left the price line on the title blank so I could put whatever I wanted there when I went to the DMV and had to pay the tax to register it. I'm probably the one guy who actually put in the full amount he paid.

BikeWise1

That's nice. I mean it. Reality however is that shoppers like this are few and far between. If someone asks for a deal on a bike, I ask if they've been shopping around. Usually they say yes. I ask why they haven't purchased the bike yet. It's never about the price! It's about the way they were treated, or the lack of knowledge, or often it's because someone told them about us and how we have satisfaction guarantees on bikes and our fitting services. I inquire whether the best treatment and absolute certainty that they are getting the right bike is worth something. The answer need not be spoken-it must be worth something, otherwise they wouldn't have passed up a lower price elsewhere.

Again, that's really nice. It's not the norm by any means, and if I could get banks to loan money based on my "potential" customers, we'd have it made!

The OP's question could have best been answered with "maybe", since shops vary widely in quality and personality. I really don't care if people don't want what I have to offer. Many do, and I serve them happily. I don't mind if people ask for deals, either, as long as they don't mind not getting one all the time. :-)

jediphobic

I'd rather buy my stuff face to face, if possible. I'm a poor college student, and even I don't mind spending a little extra to get exactly what I want, when I want it, and in a way that is enjoyable. I enjoy going to my LBS, even though I could probably get better deals by shopping online. Plus, those guys are pretty cool, they take care of me. It's rare I make a purchase and I don't get some minor swag thrown in free. Like a spare tube when I bought a couple water bottles and a seat bag.

Reggieb

Thank you

No he isn't.

This is pretty accurate. LBS owners should be happy (not really)! They are allowed to partake in a practice known as price discrimination, which theoretically means that you can maximize producer (or in this case retailer) surplus. This is something that can be proven with some simple economic models. However, that doesn't mean there is much surplus to be had. The fact of that matter is this: The advent of the internet has greatly reduced barriers to entry in to any market. That means larger retailers, with access economies of scale, thus: lower prices. This also means that the efficient size of retailers in several markets, has changed. LBSs are an excellent example of this. Some are going to go out of business, because of the internet. That will leave those shops that are left as those that are best able to serve their customers, and EARN a price that is higher than what one might pay online. The sense of entitlement in this thread is pretty stunning.

At the end of the day, the internet has been HUGELY beneficial to consumers, it moves us MUCH closer to perfectly competitive markets (it reduces information asymmetries). This also means that we move closer to market equilibrium, at which point economic profits (these, unlike accounting profits, include opportunity cost) are 0.

subie

Frankly I'm more than happy to pay extra to support a local store, but every time I'm in an LBS I just walk out amazed. It's not that things are 30% more, they cost literally 4-5x what you can get it online. I'm pretty sure online stores don't have 20% the overhead.

jediphobic

You're going to the wrong stores then. Mine has pretty decent prices, maybe 10% more than online. 20% at most. As long as we're talking new, and same brands in both places. Non-major brand stuff is going to be cheaper, but that's a different issue.

Some of the difference may depend on where you live. If you live in a larger city, costs go up pretty quickly. Rent is higher, commercial shipping is higher, a lot of times, utilities are higher, etc.

But, then again, I've seen shops that seem to just market to the rich crowd who don't really bother to look for better deals.

Lacking

Nope, they sell exactly what the market will support. And you can haggle on anything, think about discount clothing, yard sales, hell I'm sure some people on BF have walked away with consumer goods on the cheap. Also your comparison is not adequate. Milk can go bad, so there has to be a cost factored into every gallon of milk to cover the ones that go bad, as well as shipping and what not. A more accurate statement would be comparing bikes to cars or other vehicles and yes you do barter with them to get the best options at the lowest price. I have even bartered with at&t reps to get free credits for accessories and such if I am getting a new phone and signing a two year contract, they are going to get that money out of you some how, you just have to be ready to take everything that isn't bolted down.

Bob Dopolina 

Originally Posted by BikeWise1

BTW, Mr. Dopolina is correct in every regard.


How so? Please be specific.

It is interesting that those from other industries or with business knowledge feel certain they understand how prices are driven in this particular industry - that some academic model can be applied to explain everything - and how any money is good money to a LBS.

I feel pretty confident that there are several factors/forces that some may be missing to explain the difference in pricing and profitability between and on-line retailer and a LBS and thereby the business strategies best suited to each.

Consider that on-line sellers are not buying at the same prices as the LBS. They aren't. I'm not talking about volume discounts or favourable terms either. I am talking about completely different supply channels that lets large on-line retailers sell product for less than a LBS and at a higher profit.

Second, lower fixed costs for on-line retailers (but I think that one was pretty obvious to all).

Third, padded shipping costs for on-line retailers.

Fourth, there are other factors that are pretty minor but could be lumped in with fixed costs for the sake of argument.

These four factors alone creates a situation where, although they are selling the same products, an on-line business and a LBS are not the same business and need to operate differently. In short many are comparing a store selling apples to a store selling oranges. Both sell fruit but there are enough differences that it makes it very difficult to compare them directly.

Another example of what I am talking about: A good friend of mine lives here in Taiwan and has a very similar business to mine but in a different industry; He primarily does sourcing but has a few branded products that he exports. On paper they are pretty much the same businesses but in different industries.

Although our standard business practices are similar there are still significant differences between the industries including how differently our actual businesses need to operate and the difference in profit margins. He always has a good laugh at how ridiculously low margins in the bike business are.

A LBS has much lower margins than an on-line retailer and has less room to move on pricing for big ticket items than an on-line retailer. Although an LBS may have some flexibility to increase their prices based on their local market conditions they have very little room to decrease pricing to compete with on-line retailers who are still making a higher profit even when they sell below what a retailer has to PAY for the same item.

Oh yeah, try haggling with an on-line retailer...

bathedinshadow

Wow. Well given that 'I' started the thread and it was only a simple question about whether or not I SHOULD bargain - not the inter-workings of the bicycle business - I think it's fair for me to question things that I don't understand. You have clearly stated that though it's the "right" of the consumer to ask for a discount, that you don't really think the business should give it. Wouldn't it be beneficial if the consumer knew why? Wouldn't that require us laymen to ask questions that you oh so wise ones see as a prerequisite to even post in a public forum? It's pretty common knowledge in Vancouver you can only ride your bike around the sea wall in one direction. Being from Illinois, I wouldn't expect you to know that. I'm not trying to be rude here, but I find it very frustrating when people discourage others from educating themselves - regardless of how common you find the knowledge. I studied medicine and psychology, not business, so ease up perhaps.

Thanks again to the rest of you willing to answer my questions. It's been helpful!

Though I'm fully aware that people like to dodge tax, I guess I made the odd assumption that the bike stores were doing things legally. I mean I do live in Vancouver and there are a lot of small chinese shops. I'm fully aware of the no-tax, cash in pocket thing. I guess I just didn't think these larger businesses that have many people in their store were doing it. Kind of dumb of me considering I too am looking for a deal.

bathedinshadow

Ah yeah... something about paying full price! haha. I do want it now, and definitely before HST comes into play! That was my concern with John Henry. I will continue to ride the trails in the North Shore, so not a total loss, but I would prefer somebody with more expertise in road biking since I certainly don't have enough to compensate! I did go into La Bicicletta and test road one of the Kuota's. They unfortunately don't sell Argon. I actually asked one of the guys there how they felt about Argon, and he actually only said good things about Argon. Which speaks highly of them, if they are willing to compliment a bike they don't carry!

BikeWise1

OK, that's just a mess, but this:

Hmmm.....so the woman that came in today with shoes from "the internet" that not only didn't fit, but wouldn't even work with the pedals on her bike was "HUGELY" benefited? At least the shoes were cheap. 90% of what people in my shop say that is prefaced by "I read on the internet....." is full of incomplete or outright incorrect information. The internet is a tool that can be of use, but it isn't magic!

What? Try getting a bank to loan you money if your economic profit is ZERO.

Better yet, buy an internet bike store, undersell everyone else and see how long it takes to under without profitability. Maybe then you'll have some experience to back your theories.

bikeybikebike

So that they don't have to report it to the tax man!

bikeybikebike

Actually the bank would grant you a loan because they look at accounting profit.

CyciumX

I keep thinking to myself... that all those damn Chinese owned take-outs that only accept cash must be making a fortune not paying for their kids public schooling.

pershing

That and also Credit Card companies take a percentage of the transaction.

Back to the topic, I was in the market for my first road bike a few months ago and was waiting for the end of season clearance sale to see what kind of deal I could score. Weeks went by and I only saw very marginal discounts and every single bike I took some interest in was sold by the time I did my research/bargaining. In the end it seems my size 56cm to 58cm are the most popular models and LBS have no trouble selling them which means there is little incentive to offer any discount.

Reggieb

Take a quick look at the change in cost/passenger mile since the launch of Expedia. It has helped consumers, as it has driven down prices. Plain and simple. what you have cited is a hypothetical situation, that the internet has reduced prices over a broad spectrum of industries is a simple fact, that is easily backed up by data. I am going to bed, so you can look it up yourself if you would like.

hahaha, you left out the part about the difference between economic and accounting profits. When accouting profit is 0, you aren't making money, when economic profit is 0, your accounting profits are lower than they would be if economic profits were 0, but they are positive. That implies that as you APPROACH market equilibrium, from a state where prices were above equilibrium price, accounting profits are reduced. That which you call a mess was me trying to quickly explain a lot of economics without writing a 20 page treatise.

Sorry dude, this is econ 101, I did a quick google search, knowing that I could find notes from a Freshman level econ class, here is one from Ohio State, first line on page 7 reads:
"In long run equilibrium, all firms receive 0 economic profits..." Again this includes opportunity cost. The point of my argument is that LBS owners won't face up to the simple fact that the market is changing. You look down your nose at the individual that tries to save a little bit of money. Well, too damn bad. Profits are going to get lower as consumers have more information available to them.

Reggieb

Bingo. The point was about the reduction of accounting profits as economic profits approach 0. You beat me to the punch.

Psimet2001 

Huh???!! I think you missed the point I was making...completely.

Really??!! Because that's what you seemed to not understand when you quoted me...

There's a lot of stuff you mis-interpreted from what I have posted. You mention that I think businesses should not give discounts. Not correct......

Here's the thing....the majority of LBS owners I have known and worked with over the years have 2 things in common - 1. a love for cycling, 2. A horrible understanding of accounting or business economics.

I have watched time and time again as LBS's give discounts with the hope that it somehow helps them build their business only to wonder why they're broke when they sold everything for a profit.

You have to excuse me if I chime off in these threads - one comes along every so often and it becomes an outlet for me to vent. I am so madly frustrated with the seriously antiquated distribution system they currently have in the US.

Quick lesson for those not familiar with it. The industry and all of the LBSs in the country are run/controlled completely by 2 entities: Bicycle manufacturers and/or Distribution houses. The bigger shops - basically the Trek or Specialized shops - have signed their lives away to Big Brother. Agreements for bicycle distribution control virtually every aspect of operations that will impact the profitability of the parent organization. In then end these shops become the McDonalds of the Bicycle world. They are all independently owned, but the parents have made sure the look and feel is exactly the same no matter which one you walk into.

On the other end are the distributors. These are large wholesale organizations that only sell to established wholesale accounts - brick and mortar only.......at least that's what they will tell anyone who asks (like an actual brick and mortar that's complaining about competition). If a shop wants tubes - it has to go here. If it wants a group - it has to go here.....etc.

Both of these controlling entities have ensured 1 thing - that the LBS owner makes less and less money. They operate as a drug - a monopoly of sorts. You can't buy the product elsewhere, they can yank your account at will, they tell you an MSRP, can't technically enforce it and tell you that you HAVE to charge that amount but WILL yank your account if they even remotely feel like it.

They have enough stipulations on the front end to ensure that anyone remotely considering getting into the game will be over-leveraged with too high of an overhead structure from day 1. This starts the cycle - shop has to sell to pay the bills, can only get parts from x, y and z, has to pay the prices that these guys charge.

In general almost all of the distributors charge about the same for the same product....in the US.

In the EU the model if completely different. The same rules don't apply and you end up with shops that can now sell across borders with no issue having a completely different cost basis for the product being distributed.

Reggieb

Which ignores the simple fact that markets change over time, and if you think that concept is applicable in EVERY INDUSTRY UNDER THE SUN, then you have another thing coming. Of course the reasons that you list are WHY online stores can charge less. That doesn't change the fact that their very existence proves my point. A lot of LBS will go out of business, and that sucks (sometimes, some deserve to). And those that survive will be the shops that EARN their business in ways that online retailers can't. I live in a town with a great LBS, that is where I will go. I should also note that there are plenty of LBSs that are doing just fine and dandy. Two right here in town would never be in this thread, because they would see it as stupid. They do extremely well, because of their wonderful service.

There is a third shop here, I wouldn't be surprised or sad to see them go under. 10 years ago, people living here would have had no other choice, though, for a Felt or a Giant bike. This is the only shop in town that sells them. Those shops that WILL SURVIVE are the shops that earn the higher prices that they have to charge. That is a good thing for consumers. And of course you can't haggle with an online retailer, that doesn't even make sense. I love that people who own LBSs (I SCUBA dive, and they are the same way) think that the very fact that they have higher overhead makes them entitled to money. Earn it, and I will support you. But much like dive shops, a lot of LBSs are full of bad and pushy sales people, that lie through their teeth to you (often about the internet, and certainly about every brand that they don't carry.)

Psimet2001 

.cont...

The net result is that the only ones making money in the industry are the big houses that can go direct and the distribution houses.

The next move, in my opinion, on the owner's side, is to go direct in volume via co-op managed electronically.

Next move on the manufacturer's side is to go direct.

The future for the local is to move away from bicycles and more towards services that can not be outsourced: training, fit, performance/coaching, clubs, teams, event promotion, etc.

Bikewise has refused to acknowledge anything I write or post, etc for quite a while so honestly I'd rather give him a middle finger than reference any of his posts, but I have to agree with his assertion of the following:

Anyone spouting econ 101 is wrong. Anyone debating without doing....is wrong. All of the assumptions are based on parties making deals once the equilibriums are reached. In fact in this industry - that does not occur. Control of the deal is more important. The controlling partners in the industry will walk away instead of doing the deal. Don't agree and/or don't like it then come into this industry and dominate it. We'll all pat you on the back when you're done.

Reggieb

This is interesting, and I have seen it. In town here, there is a Specialized "concept shop" or something, it is a LBS that had an entire room converted (by Specialized) to carry ALL of their stuff. It is an impressive room, but it means that a shop which once carried Pinarello Princes (in a medium sized town in Georgia) in stock, now can only order them, and they don't carry any carbon cannondales any more, and their once large selection of Bianchis is now tiny. Which sucks.

Also, the pricing stuff sounds a lot like collusion if the distributors carry bikes from a couple of competitors...
Identifying Sherman Act Violations

Reggieb

Well, that isn't true, there are plenty of models about a market that is out of equilibrium. Your entire post, actually, lends nicely to a couple economic models.

Psimet2001 

You have no idea how many times I have thought the same, but let's face it - Every industry rampantly violates the Sherman anti-trust act. They do it "legally". They find the loophole and slide right through. This one is no different.

BTW - concept stores have provisions in their contracts that a certain % of the entire floorspace has to be only for that brand and that the mix of bikes on the floor has to meet the stated %. No different from a Ford or Chevy dealership, but sometimes this is the only dealer in town....

This is why your shop can only order. Specialized can't tell them they can't sell the other bikes but they can tell them they won't have them on the floor.