ShortLegCyclist

Very interesting.

I actually avoid Trek and Specialized "factory stores" specifically because of the lack of selection and focus on house brands.

I think if I ever opened a bike shop, it would be along the lines of Aaron's Bike Repair or Wrench here in Seattle, both specialize in repair and while Aaron's will build and sell you a bike, it's far from his focus.

A friend of mine owned an independent pizza place for a while, and I can tell you that his markups were in the thousands of percents on pizzas.

They would go for $15-20 and the actual cost of the ingredients is pennies per pizza, which as with bike shops of course does not include overhead/rent/employee wages etc.

He eventually was driven out of business, as 80% or more of new restaurants are before two years in business, but he told me he was pretty sure that the local chains were paying bums to hang out in his parking lot and harrass customers and going online to write poor reviews of his place. Cutthroat business.

Noddy

I don't think that the cost of ingredients is "pennies per pizza". One source I looked at estimated the cost of making a medium cheese pizza as being $3.00 for ingredients and .60 for overhead. On their loss-leader items (the specials that get you in the door) the chains are making about a 22% markup or an 18% margin. Nobody can survive on that.
The problem with pizza parlors is that in any given town there are only so many people buying a pie on any given night. A town may support 2 pizzerias for many years then a third guy opens and all three suffer. It then becomes a game of who can lose money the longest.

Noddy

Some years ago when I was bike shopping I contacted 5 shops listed as Bianchi dealers. Two no longer carried the brand. I also called the two closest Felt dealers. Neither one carried the brand but both said they would like to. One of them admitted he was pretty much forced to focus on Trek brands only. The closest shop to me that had Orbea no longer does or a couple of other brands that are more interesting than Trek.

ShortLegCyclist

I should clarify that this was in the late 1970's, cost was probably less then but the dollar was also worth more.

Also the context of the conversation was the owner allowing us to go back in his kitchen and make our own pizzas with any ingredients we wanted and I'm sure he under-exaggerated (if that is a word) what that would cost him so that we wouldn't feel guilty about taking him up on that. We were kids, he was technically my father's friend rather than actually mine, so we went to town on making our own za's.

Noddy

Yes that's a little different. LOL!
I'm quite certain, because Gordon Ramsay and Marcus Lemonis say so on the telly, that most businesses have very little idea of the cost of their ingredients on a per-item basis whether it be flour and cheese or wood and glue.

Stucky

Cheese [real cheese] is expensive....flour and water and tomato sauce may be cheap....but there's a few dollars worth of wholesale cheese on every pizza. Not to mention the guy's electric or gas bill to run that 600* oven; and taxes! As someone who's been self-employed since I was 17 years old, I look at businesses like that, and wonder how even the best of 'em can make a dime.

ShortLegCyclist

Well, he did go out of business in less than two years, so...

Noddy

Owned and worked in several retail businesses as has my wife. We walk into a LOT of places and wonder how they are hanging on. You go to a pizzeria that's all takeout, fine, you get that - but then you walk into the place that has table or counter service and you're the only customer and you think, sheeesh, how does the owner sleep at night? Which then brings up questions about what corners are they cutting, how fresh are their ingredients, etc, etc. Sometimes knowledge isn't always a good thing.

Stucky

LOL! Yeah.....I grew-up around small business owners- It seems the average person just thinks "flour and water and tomato sauce cost practically nothing!", and would imagine the pizza-maker getting rich.....but somehow, they always fail to see the real expenses; the big ones. People think "Oh, that guy's getting rich", but those of us who know, say "That guy must be working 12 hours a day, and probably isn't bringing home $15K a year.".

Stucky

So true! I remember, even as an early teen, there was this one pizza parlor I used to like to go to when I was in the town where it was. There was never anybody in there; and it didn't look like they had any take-out business. Even then, I concluded that it must've been a front for the Mafia..... I'm sure the owner would've been better-off donning the little paper hat and handing fries out the little window at Mickey D's. I can't even imagine the thought processes that make someone keep slogging away at a place like that, for years! How depressing... The guy must come in every morning and say to himself "I just KNOW this is going to be the week that business picks up!".(The pizza was actually great.....the location bad- at the wrong end of a bustling shopping area- but the part where nobody goes; and the place looked like not so much as a napkin dispenser had been changed since the 1940's...and the owner did no promoting, and had the personality of a cat!)

It just makes you wonder....

SkepticalOne

Thank you for all the replies to my OP. (Now I'm craving pizza)

TheManShow

The only way to judge weather any business is making it is a P & L spread sheet. Markup is not a judge of sucess or failure.

If a bike shop is doing 5 million dollars a year in sales, and their operasting expenses are 5.1 millions bucks a year. Don't buy it.

bmthom.gis

For anyone really wanting to know more...
https://redkiteprayer.com/2015/07/no-...pping-you-off/

My experiences when I worked at a shop: Bicycles were anywhere from around 30-40% marked up. Clothing seemed to be closer to 40-50%. Parts and stuff have a good markup, but are usually inexpensive. That being said, most shops make their profits on service and those small parts - because let's face ti. Not everyone is going in to buy a $3,000 bike and a $2,000 carbon wheelset. Most people come in for tubes, "nutrition," service, tires, and accessories.

Those deep discounts on bikes you see at the end of the year are just to move them off of the floor so the new models can be ordered. A bike that has been sitting in either the storage area or on the floor is making the shop no money at all and is costing space.

fietsbob

Derivatives trading, on stuff you dont have to buy & hold, that's where the big money is Made.

TheManShow

Having owned a small business over twenty years, and being self employeed. It was a wonderful experence. But when the money stopped flow in, and the out go became more than the income. I shut down.

I was told the number of independent bike shops in the USA today in 2015 is 30% down from 10 years ago.

SundayNiagara

Last fall, I saw a 2015 Jamis dealer book and every dealer cost was in the neighborhood of 40% off the MSRP. Last summer, I was in a small chain store that sold Cannondale & the dealer cost on the Synapse that I was looking at was also in the area of 40% off MSRP. This leads me to believe that this is true from most manufacturers.

Sangetsu

Actually, a 400% markup is a little on the low side when it comes to jewellry. When I was a university student I worked in a jewellery manufacturing company as a silversmith, and an item which cost us $25 would retail for about $200. The most expensive pieces I put together cost about $200 for the materials (silver was about $3.5/oz. at that time) sold for about $1000 at retail. I made some jewellery for QVC and HSC, they bought they from me for $10 each, and resold them for $49.99.

A Sears Diehard Gold battery used to sell for $79.99, they were made by Johnson Controls at the time, and were sold to Sears for $18 each.

Noddy

QVC and HSC are vastly different than the retail jewelery markups that I described. Their model bears no relation to the traditional jewelery industry.

ZippyThePinhead

This thread brings to mind a couple of LBS that are local to me.

One of them has been around here for at least 25 years. In the past they sold Trek, but their volume was insufficient, so I believe Trek cut them off and now they sell other brands. On a day like today, 90-ish and muggy (for this area), the owner doesn't run any air conditioning. He just opens the doors to catch whatever breeze there is. I don't patronize this shop unless I have a compelling reason. The prices are not competitive, and a friend of mine-- who bought his bike at this shop-- brought his wheel in for truing. When he got the wheel back, there were cracks around several of the nipples, so the mechanic was apparently learning via OJT. I don't take any pleasure from seeing this shop struggle, but at the same time I can't afford to bestow patronage like charity.

The other shop opened more recently. One of the owners told me some time ago that he hadn't taken a salary for nearly a year, because the shop was struggling. This came up in a conversation about how YELP was effectively extorting small businesses, including this shop. They call him all the time and for $X per month, promise that all the positive reviews of the shop will display first. He explained his situation, and told them the figure they were asking for was excessive, and declined to pay it. So sure enough, if you look up this shop on Yelp, they come across like a bunch of evil people, when in reality they are one of the better shops in the area, at least in my experience. I trust their work, and they are my go-to people when I need anything mechanical repaired. In terms of pricing, however, all the accessories, shoes, etc., are not really competitive.

According to this, on the average, the net income from an LBS before tax was 4.2% of gross sales. So if the shop clears U$D 1,000,000.00 annually in gross sales, on the average the owner pockets U$D 42,000.00 before taxes.

As an aside, when Yelp "filtered" my positive, detailed review of the latter shop (so that it is effectively invisible), I deleted my Yelp account. I didn't want to be a party to their extortion-by-another-name.

Stucky

Retail jewelry has traditionally been, and still is 400%- but there are a lot less "retail" places these days, and a lot more discounters.

Noddy

Okay, whatever. I worked in the industry for a number of years and a close friend still owns a retail jewelry store and I can assure you that nothing in the single proprietor, the multi-unit or the massive national chain that I worked in was ever 400% but I guess your idea of "traditionally" must be different than mine since every industry source I've ever consulted talks in the terms I've mentioned in this thread.

gpsblake

People also have to consider the other big profit margin for LBS shops, and that is repairing and "tuning up" bikes. Huge labor gross profit margin in that. If they aren't having a successful repair business, they won't last.

fietsbob

" Big " in a small business like a LBS is not that big ...

himespau 

Do that in the bike business and you'll quickly lose your account with your supplier.

Stucky

Maybe if enough shops lost theoir accounts, the suppliers might start pricing more competitively, and delivering faster...... Thanks to the interweb, retail business models are evolving. Trouble is, they're doing it very slowly. Shops which are still caught-up in the old model are the ones which are doomed/already out of business. If you have a shop and can get stuff cheaper and faster online, than from your supplier, who needs the supplier? (Actually, the supplier that my neighbor deals with is already in financial trouble. Dinosaur business models are going extinct)