nycphotography

You're right. Therefore, since I have a $10k house payment, so you should send your excess cash to my gofundme.

Bike Gremlin

Big business are pushing out the smaller ones. From my experience, in my city, wrenching job done by most mechanics in shops is not too good - they have to be fast, efficient and doing top-notch work obviously doesn't pay.

Buying parts and bikes on line is often cheaper, so that leaves LBS without income on that part.

Where will that lead, we'll see. For me, I've ended up doing all my wrenching - much happier. For parts, I keep good relations with local bike shops and have regular discounts, that end up being close to on-line prices, so I buy local.

Retoocs

And this is the reason why manufacturers have moved to MAP (Minimum Advertised Pricing) so that the big business can't push out the small ones by selling cheap at high volume.

Maelochs

Possibly what nycphotography is talking about will change some as the big manufacturers go to more online sales and ordering ... where the manufacturer warehouses the bikes and services orders from a greater pool of stock.

That seemed to be what I got form an article which was linked here about ... i forget. maybe it was in the article about some major conglomerate buying out Performance Bike?

redfooj

That is correct. You shouldnt care about the breakdown of the C.O.G.S.

In this society you have the luxury of buying from B&M retail, from internet-only vendors, from near-source resellers, or even direct from obm/odm/whatever.

You can choose from those pricing options exposed to you.... So you shouldn't care nor know how much "more" is...

(From a bike retailing point of view, it isnt that much.)

johnu

Margin is what pays all our wages. No matter what line of work you are in. Your employer is marking up his prices to cover paying you.

ryaninwi

Even though this thread is going downhill fast, I'll chime in with some first hand knowledge that I have, and will use a bike I currently own as an example.

Trek Domane 5.2 - Retail MSRP $3,500, Sale prices as low as $3,000, but can be had for lower when last year's models are on clearance.

I purchased this bike for $1,750 through someone who works at Trek, and my understanding is that they are able to purchase the bikes at cost +10%.

For the sake of rough math, that puts the cost of the Manufacturer for this bike at about $1,600, possibly less if the cost +10% figure is off a bit. The bike shop is likely paying in the neighborhood of $2,275 if they are operating on a 35% mark up on the bike alone (ignoring all operating expenses), which means the Manufacturer has about a 40% mark up on the bike alone (ignoring all operating expenses). None of this seems absurd to me.

As others have pointed out, bike shops make more money on services and accessories than they do on bikes, much like gas stations make way more money on purchases inside their store when compared to profits on the actual gas sales.

Psimet2001 

In general it looks like a lot of posters here don't understand how businesses work. It's not "poor planning" that puts overhead costs where they are. It's a combination of factors.

Fact is all forms of retail have margin schedules that are close to what they need to survive or thrive based on the volume they do. Big box retail ~25%, Smaller retail shops - ~30%-40%. Small corner stores and convenience stores 50%+

A margin number without any idea of the costs associated with bringing that product into the local market for purchasing is worthless. Making judgements based on a raw number is pretty uneducated.

A contribution margin of "thousands of dollars" is meaningless if it take tens of thousands of dollars to exist as the business.

These aren't businesses that are willfully ignorantly spending piles of money on unneeded things. These are simple operating costs. It illustrates that in this country it is near impossible to operate as a small business using the bicycle retail model. The cost structure is too high. The bills I have sitting in front of me at the moment aren't inventory bills. They are taxes, unemployment, electricity, rent, water, security system, business registration fee with the state. Those bills aren't $10-$20. They are tens of thousands of dollars. You can't pay those bills only clearing 10% on a product sale.

Shop owners don't drive nice cars. They don't live in nice houses. There are not legions of good hardworking people that have spent their careers at one shop being adequately paid and able to afford retirement. Instead there are a lot of people with a lot of passion who have to listen to internet tough guys tell them to their face that they are "robbing them" because they are charging MSRP. . .......the Manufacturer's Suggested Retail Price....the price the OEM is saying they have to sell it at or they risk losing their access to the product.

Thanks to HazeT for dropping the link to my podcast on here. It's a short listen. Less than an hour. It should help you to understand what the reality of this situation is for all of the players in the bike industry. The future of the industry is NOT what it is now. There's a lot of us trying to figure out exactly what it is.

Psimet2001 

^QFT.

Margin is how you operate. Profit is what happens sometimes when you have really good AND really bad accountants.

RShantz

In the broad scheme of things, isn't what's happening to LBS's similar to what Wal-Mart did to local retailers (customers moved away from the service oriented local folks to a cheaper option that many times may have been equal or better in service). And what Amazon is now trying to do to Wal-Mart. Too me this is all just how the US economy is evolving & thus creating a wider income gap - again when you look at the really big picture. You like it if you're on the top, maybe not so much if on the bottom. However, the bottom in the US is still pretty good historically & internationally. It's just that since information is so readily available now, the bottom knows much more about what the top has & in turn what they don't have.

nycphotography

This is true, but it's also stated from a loser perspective. Thinking that my employers margin pays my wages implies that the return on their invested capital only exists to support my existence. I'm sure you didn't mean to imply that the workers are frictional drag on the business, but it is an (unintended?) consequence of seeing it from that point of view.

In my world, I try to make sure that I provide $2 of value to my employer for every $1 I am (or expect to be) paid.

Nobody owes me a living. I have to produce economic value if I expect to be paid.

Luis G.

35% margin is plenty (many industries have much smaller margins), the problem is the cycling industry is no longer as popular as before. And with changes in commerce with everyone going to the internet, the bike industry simply does not know how to adjust.
This is why many LBS are failing. Because manufacturers put most of the burden on LBS. MoQ, enforced MSRP, warranty repairs on the LBS, etc.

In my area you can make more at McDonalds than most of the LBS.

johnu

Well put! Workers need to produce or they are a drag. I've retired after 30 years of straight commision sales. Unless I made something happen, I did not get paid.

Maelochs

Quoted for truth and humor, my favorite flavor combination.

TheLibrarian

Regardless of anyone elses operating costs it's a good argument for getting a custom frame and individual components and cooking dinner yourself instead of eating out. Sorry to say the lbs might get overrun by the internet but these are massive corporations anyway. You might say look at what the local shop owner makes but the specialized ceo is doing quite alright and they make the conscious decision to not sell bikes directly and instead place the burden on the back of local shops. It's up to lbs owners if they want to do business with them. For ease and convenience I might pay $100 for it to be put together and a little to look around at bikes but when you get to 2,000- 3,000 bikes it's worth $1000 to me to (have an off brand) and put it together myself although my comfort level of 700- $1000. What am I paying... $350? The people who would buy a 3k bike don't care as much about whatever their 35% or should i say may or may not care as much or equal as i do about my 35% which has more to do with your background than your overall cash flow. 2-3 days worth of work for me to pay to have a bike put together. Likely won't take me that long although with research maybe longer as i dont normally do it, then repairing what i messed up and dealing with what I made sloppy cause thats just how i am. I think you can pay your lbs or just bike shop to put together some off brand $3,000 bike for you for i'd guess 150-$200, much better than the $1,000 markup to buy one of theirs. If the boutique brands would send me the bike in a box directly you could even get that high end brand name put together for much less. they dont do that intentionally. I'm at the point with just a few years experience i don't need to be reliant on a brand or lbs like that.

redlude97

Where do you come up with this spin? How'd you come up with $2 of value? You certainly didn't set the price of the product or services, oh yea, your employer set their margins to pay for you and their other costs.

WalksOn2Wheels

Don't know where you're getting your info and why you seem to think the opposite of reality, but that's pretty much exactly how it works. Yes, a dealer will place a stock order at the beginning of the season and will purchase a size run of what they expect will sell. For example, you can bet they will order 5 of each size in the bottom level hybrid bike they know they will sell out of, but there is no reason to buy 5 of each size of the $10K bike because that shizzle is not going to move. If anything, buy the $10K bike in a size 56 for the "ooh ahh" factor on the shop floor fully expecting to sell it for cheap at the end of the season. That depends on the local market. The shop I worked at regularly sold bikes in that price range for full price 2-3 times a month through the riding season.

As a result, while the manufacturer will generally make one massive run of each bike, they still maintain a warehouse of bikes throughout the season. People will go to the dealer and ride, say, the blue Ultegra in their size and then order the green Dura Ace model that is sitting in the manufacturer's warehouse. Happens ALL the time. You might even use the alloy model for fitment purposes and then order the carbon. And when the new models roll in, what is left in the warehouse from the previous season gets marked down. The only reason a customer would have to go to several different shops to find what they want is if they are too impatient to wait the whole 2 or 3 days it takes to get one from the manufacturer or if it's at the end of the season and that model in that size is no longer available from the manufacturer.


So you entire basis for your perception of why bike prices work the way they do is entirely imaginary on your part. Just thought you should know.

nycphotography

I got my info by actually trying to find (or order) a specific bike, in a specific color, with a specific component level.

LBS doesn't have, and can't order.

Granted I was looking only as specialized and not at trek, giant, et al. But the experience was that the mfr produces very little excess production and the LBS knows that if they don't order it up front, they probably won't be able to get it later.

They'll be able to get "something", but availability will be sparse.

This is identifiable by the "please see retailer for availability" when you pull up the bike on the mfr web site in the color and size you want. That really means "get on the phone and start calling dealers and maybe you'll find one if you keep at it long enough".

At least with car dealers, the mfr tends to know the dealer inventory and you can find what dealer has what you want. With bikes you're left with a yellow pages and a something to do with your free time.

But yeah, I'm completely out of touch with reality.

wheelreason

So damn what we with decades in the business know, you are building a reality around "How dare they run out of the one bike I want"? OK. Is there a Milenial to English translation App?

Jennifer

You can actually get discounts on current year bikes. I found that it all depends on the particular dealer you decided to purchase from. I recently built up my Cipollini RB1K road bike and the dealer gave me a 25% off discount on the frame and another 10% all of the parts I bought for it. This is a current year model. I think it all depends on the particular bike you are purchasing. The higher end bikes have way higher margins associated with them and dealers are willing to discount them more. Especially, if you are doing a complete custom bike build like what I did. The lower priced complete bikes are competitively priced with the competition so dealers usually don't have much room to discount on them. It also helps if you are a good negotiator and can persuade a bike shop into giving you a discount even though the complete bike or frame is not actually on sale.

nycphotography

Ii would mention that I have lived that experience more than once (and not looking for some edge case size), but I suspect you'd have no problem saying I was delusional every time and all I had to do was pay full retail and wait 3 days.

It's ok. BTW, your English seems fine. I don't think you need a translator. It seems your logic is going wonky someplace between the ears and and before the mouth.

Anyhow, don't mind me, as i wasn't a potential customer for your shop in the first place. I tend to prefer places interested in selling bike so long as it is for a profit, where you seem more interested in the explaining of why its better to not sell bikes unless you are making 35%.

johnu

The snowmobile market held a "snow check" period in the spring for the consumer to order what they wanted for fall delivery with a factory rebate called the snow check. They would hold consumer shows in major markets to showcase the new products and specials . Big market dealers like the one I dealed with might have 500+ sleds sold during this period. The consumer was trained to order then or risk missing a hot sled. Dealers would order dealer stock too...but not as much since his "regulars" had already snow checked. Since then, I left that sport and am not sure how big the hoopla is any more.
It was a win-win. The consumer was happy, the dealer has knew he has X amount of sleds sold. And the factory could build for demand with less leftovers.

Chandne

If the shop guys are nice and I get decent breaks on high-end bikes, I'll keep going back. If I'm spending a bunch (like the S-Works Tarmac I built) I did get the frame (Specialized was having their online sale) from a LBS but they could not match my other prices (from other shops that were selling online) so all the components were bought elsewhere. I'm looking at a new man bike (prob around $5K-$7K) and am absolutely not paying full price. Give me 20%-25% off or I'll simply buy online because I can easily get 10%-15% (plus no tax) just by asking the online shops. If I wait till Oct/Nov, it gets even easier on leftover models.

OshkoshBiker

Want to feel sick about markup/margin? Take a look at Alibaba. I know the frames are not exactly the same, but in some cases they are the same frame with different labels on them. You can buy as little as ten frames for $50 a piece. I researched one frame where it was made and traced them back to China, retail that frame cost $1200.

Meathorse

Sure. But that besides the point.