as the old joke goes...."do you know how to make a small fortune in the cycling business? Start with a large fortune"

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While the part about the profit margins may be true, to say it is essentially the LBS owners and operators who are at fault for margins in the bike biz being low is totally false.

A lot more is going on right now. For one, due to pressures brought on by population, supply & demand, demographics, and of course the disruptive power of the internet, the entire face of retailing is changing worldwide. And it's changing permanently. C'mon, no way does all of this rest on the shoulders of LBS guys.

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A lot more is going on right now. For one, due to pressures brought on by population, supply & demand, demographics, and of course the disruptive power of the internet, the entire face of retailing is changing worldwide. And it's changing permanently. C'mon, no way does all of this rest on the shoulders of LBS guys.

I agree.

When I was in the business, there were a few who seemed to get this - that things are changing. Big time! That price is not everything. There was one retailer in particular who I really enjoyed visiting. To go into one of his stores was a really great experience. He went out of his way, to make sure that from the minute that anyone who walked in the door of his stores, it was an amazing experience for that person . . even if they did not buy anything! Yes they are selling something . . . stuff, but like many businesses, it's the service that really matters.

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Steve Fleck @stevefleck | Blog

I like getting my 10-20% discounts... I'm a VIP customer :)

The story just sounds odd. I'm not in the retail industry but I don't understand how an owner could NOT know the building was up for sale, especially since the business was in a month-to-month rental agreement. Wouldn't you want a fixed rent to accommodate a potentially seasonal nature of the bike industry. His business and profit margins could also have been reduced due to being squeezed out of the industry due to the brands carried.

Kind of sounds like after running the business for almost 25 years... He just didn't want to anymore.

If you compare your local specialty shop to the Internet, and only compare them on the basis of price, color, immediate stock availability, and convenience...the Internet is going to win, each and every time.

The most important brand that we, as retailers, can sell, is ourselves.

How are we unique? What can we offer to our consumer that adds value to their overall experience? Hint: It's not competing on a price basis. Because you'll still lose. Someone else is going to be more willing than you are to give up margin. Someone else is going to be more willing to pay less.

It's about giving that customer an experience that is memorable. It's about making sure, no matter what, that they've enjoyed themselves in your store. And your store is doing what it can to give back to the community. Foster the environment. Grow the number of people who could POTENTIALLY come into your store. Are you going to capture them all? No...but you're going to capture a fair number that you otherwise would not have thought as your customer.

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Editor-in-Chief, Slowtwitch.com | Twitter

Agreed.

I am always fascinated by the business aspect behind the sport we are all so passionate about. While we all want to think this is unique to this industry, I tend to think there are a lot of similarities to other industries. The sayings used about the bike industry (small fortune/large fortune) are synonymous with many other industries. Moreover, the lines of distribution control the major aspects of what the LBS can/can't do.

Regardless, the LBS side of the business is a challenge to say the least. To provide that special experience for each person requires staffing of competent individuals, which creates an overhead nightmare. Low margins on your high dollar items doesn't help cover the bottom line, so it forces the other items to have a higher margin. I think that customer service is certainly king, but the actual service department keeps the business moving. A lot of my local tri club discounts are only on goods, not service, which I think is telling.

+1

As much as I sympathize with the low profit margins of the LBS industry, there are clearly still plenty that are doing fine. They're not making big money, but hey, in this economy, any money is better than negative money.

As much as I sympathize with the low profit margins of the LBS industry, there are clearly still plenty that are doing fine. They're not making big money, but hey, in this economy, any money is better than negative money.

Agreed. Some are, but a lot are not.

What's odd is the whole culture of discounting, has now worked it's way into a specialty business, that sells reasonably high-end gear. Everyday Low Prices may work in Wal-Mart, but it will be the ruin of a bike/tri shop, if that is all they really have going for them.

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Steve Fleck @stevefleck | Blog

I suspect don't think you've got it quite right. I'd speculate that the bulk of a lot of LBS sales and profits are not from the high-end bikes, but from much higher volume sales of lower-priced entry level bikes. Furthermore, LBSes don't make most of their money off bike sale profit - accessories and maintenance are likely just as big if not bigger. That's why those low-end entry level bikes are such great deals - they sell low so they can get you in to hopefully spend a lot more cash on other higher-margin stuff down the road.

Even with discounts, LBSes aren't close to what I consider 'true discount' prices. I can almost always beat the 15% club discount on items at the LBS simply by going on Amazon and buying the same exact item full price, or even just using an online bike shop. I'll often beat that LBS discount price by a lot, which makes me strongly suspect that the discount isn't like a Walmart discount, where you'd be hard pressed to find the same item at the same/lower price anywhere.

Any retail store has to meet a need. Lowest price is rarely the best vector to choose. I worked in 3 different bike shops in the 1970's and the margin was 35% on completely bikes as it probably still is. Selling full bikes isn't where the money is. Accessories, repairs, and services like fitting, are. I also owned a retail music store which is a near parallel to bikes in terms of market, pricing, margins etc.

LBS's stay in business by having stock on hand when you really need it, will possibly do "perk" favors like loan you a tool or do a quick adjustment on the fly. They should have a knowledgeable repair department (easier said than done) especially for some of the more complex items on TT bikes today, etc.

They offer group rides and/or clinics to build community. They may have special events after hours from factory reps or athletes.

All those types of things can provide value. Those types of things can't happen from an online purchase. Trying to have a brick & mortar store and then competing solely on price rarely works.

Yup, agree. Just making the point that 'LBS discount' as Fleck claims is far from a real discount, given that you can get lower prices than the LBS discount with no extra work at nearly any vendor, online or off.

Also not sure what you mean by 'margin' . If you're talking profit margin, 35% would be gold mine territory! IF that doesn't include all the other costs like inventoryy, rent, etc., then it would make more sense.

Gross margin from wholesale cost to MSRP. 35% is small compared to most retail items which are generally not less than 50% (retail price is double the wholesale price)

As a consumer, I use the LBS to meet my needs. However, this usually ends up being repairs or small items (bottle cage, sale clothing etc). For most items, they can't come within 50% of an internet price or 1% of selection (if counting what is in-stock). They charge convenience store prices for almost everything. Most LBS carry 2-3 brands and even ordering a high end tri bike for a test ride is like asking a nun for sex. If I have trouble with high end gadgets like power meters or electronic shifting, the mechanic usually looks at me like I'm speaking Russian. I think this is a bit different for road bikes but when it comes to tri gear, the LBS is there only when I need something rather than when I want something.

As a contrast, there are several decent shoe stores that sell at about the same price as can be found on the internet. I get all my shoes at a retail store as they offer a service (expert advice) at a comparable price. I will pay a little more to support the local economy but a 50% mark up on a chain, derailleur or 100% on gels sends me right to the internet.

Wasfast,

You must be new, or you have not frequented the Lavender Room. Lighttheir is always right! :)

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Steve Fleck @stevefleck | Blog

Not new (3-4 years) but stay well away from off topic discussions......:-)

Actually, selling full bikes is where the revenue is. Few things in the store generate as much revenue as bikes.

Service, accessories and rubber is where the profit is.

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This is true when talking about specifically BICYCLES and maybe for groupsets and wheels but I wouldnt say this is exactly true about any other accessories or parts.

To build off this, a specific example: I can buy a Garmin 310 from Amazon at $234 dollars; new from other websites between $200-250; and on ebay (refurbished) $180. My LBS, which I love and would like to support, is charging MSRP $350...I just can't afford a $100 markup like that..if the difference was smaller yea maybe I could suck it up and pay twenty bucks more..but between $100-170? No way. And from wandering through other shops, my LBS isn't the exception.
I go to the LBS when I need help fixing something I don't know how to do or lack the tools for myself..That's about it though.

Just so you're aware:

• The Amazon price you listed is below wholesale for a 310XT.
• Same with the "other websites."
• Most brick and mortar authorized dealers are bound to a policy called minimum advertised pricing, which in general is also MSRP.

Now, the 310 is now "new old stock." Generally, MAP doesn't apply there. So you could have a legitimate beef with your shop that they're continuing to charge the old MSRP when the 910 is now the current model.


Bold prediction: MAP policies will start shutting down some discount retailers. Manufacturers are recognizing the importance of the true specialty shop, and how that creates value not just for the retailer but the manufacturer as well. Retailers are the stewards of the brands that they carry; they are the representative of those brands. A customer generally complains first to the place that they bought something from.


This all goes back to my first post in this thread: as a retailer, we must create value beyond that of the purchase. The most important brand we sell is our own; what does our store stand for? How does that benefit the consumer? Only those retailers who can properly answer those questions will survive. Discounting is a strategy destined to end in failure. Brick and mortar stores simply cannot compete on price, convenience, and in-stock selection against online retailers. So, we need to change the conversation: what can we do that online retailers can't?

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Editor-in-Chief, Slowtwitch.com | Twitter

What is it that you are expecting from your LBS?

1) In order to come close to internet pricing they would have to sell the item BELOW their cost.

2) In order to have the selection that you want, they would have to have HUGE amounts of inventory: styles, sizes, colors, etc. It is extremely rare that a shop would have the floor space required to first of all show all those options, and second of all be able to sell off all those items by year end for the new stock.

3) Ordering a high end tri bike for a TEST ride? You are asking your shop to take a HUGE investment for the possibility of a sale. Everyone wants to drive a Ferrari, but to ask a dealership to order one in for a test drive without a guarantee of a purchase is very difficult. Manufacturers don't often let dealerships have demos, instead they force the shop to buy it. So unless your shop wishes to have the bike in stock regularly, it is unlikely they will order something just for a test ride. Too many people want to simply try something out without being willing to make any kind of investment to actually own it.

4) Power meters can be very finicky. To ask your mechanic to fix it can be very difficult. Often times they do not have the proper tools or know-how on how to fix it. Outside of placing magnets properly and making sure everything is adjusted properly there isn't much else they can do.

There is quite a bit more that I could go on about, but I hope I made my point.

I don't think you'll see manufacturers cracking down on Internet discounters.
My wife owns a bridal shop which is very similar to bike shops.
Her feeling is the manufacturer sells their goods at a set price so they turn a blind eye to those selling below MSRP.
What my wife's customers don't realize is if they just use her to try things on and then buy on line, at some point brick and mortar will be gone and they won't be able to try dresses on before they buy.

As it is, she gets people coming in with their on line purchases and complaining they don't fit.
I can see bike shops heading in the same direction.

The future is coffee/repair shop/fit studio. Online ordering (from shop or via customer). Only stock basics (eg, tubes) and certain clothing. BTW, Amazon will soon be going same-day delivery. I personally think this will help Americans get over the current instant gratification mentality. Service oriented business have a much higher profit margin, and are the next level. If you care about price, there is place called Wal-Mart. Then again, if you complain about Wal-Mart and shop there, take a look at who you voted for and where you spend your $$.

P.S. Of course, this won't do anything for women and sales, but that's another story. A 65% off sale on $700 handbags will cause a riot in most shopping centers...

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