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Gray Market vs. Brick and Mortar

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Gray Market vs. Brick and Mortar

Old 12-13-11, 09:29 AM
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zatopek
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Gray Market vs. Brick and Mortar

Took my partially built Klein into my LBS recently for expert help with a problem I could not solve. The owner, with whom I've done business for about 4 years, said he'd solve the problem. As I was about to leave the shop, he asked, "Where did you get the parts for this build?" "From eBay and a few other online sources", came my reply. He proceeded to chastise me for helping drive his shop out of business by purchasing goods on the "gray market". I replied by asking him, "When did you become the f***ing bike parts police?" A calmer, more reasoned and substantive discussion of the economic issues and current state of the marketplace ensued.
I've been building my own bikes from used frames purchased on eBay for quite a number of years and buying parts, some used and some new, from the cheapest source available. The LBS owner really made me stop and think about the impact on brick and mortar LBSs that my purchasing decisions were making. Next day, I went back to the shop and thanked him for busting my chops as it made me pause. I also bought a sweet new set of handmade wheels from him that I otherwise might have shopped for online.
Others' thoughts on this topic?
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Old 12-13-11, 09:34 AM
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So, why can't he sell online like so many other bike shops do?
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Old 12-13-11, 09:39 AM
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Old 12-13-11, 09:41 AM
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**** him and his shop.
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Old 12-13-11, 09:49 AM
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I think he's bitter and needs to adapt to the current marketplace if he wants to survive. There are plenty of smart bike shop owners out there that sell locally and also sell at competitive online prices through eBay. One of my local bike shops sells several multi-thousand dollar bikes a day. They probably make millions each year. They mostly cater to the high-end buyers and racers in the area. They have a nice selection of parts, but they probably make most of their money on complete bikes and mechanical services. The smaller shop across the street, however, is probably struggling to stay in business and they seem to cater mostly towards the husband and wife looking for a pair of $700 hybrids. They have a smaller selection of parts, and they are waaaay overpriced. Who in their right mind would purposely give away their hard earned money to support a bike shop that isn't smart enough to stay in business? Then again, I don't give my money to bums on the street.

I have purchased two bikes from two separate bike shops. I've paid them $10 here and $30 there for minor mechanical services like trueing a wheel or seating a lower bearing race on a fork. These little services are what keeps them in business because it costs them nothing except a few minutes of an employees time that they will be paying an hourly wage to regardless. But I still never buy component groups from my LBS. I've gone in there and asked what they would charge me just to see what they'd say, and rather than shooting me a reasonable price they give me a maximum quote in hopes that I'm stupid enough to go for it. Sorry, but I'm not going to pay double what I can get it for online. For example, the Record group I just bought online would have cost me $900 more to buy from my LBS. I might as well go give $900 to someone who lost their job and needs it to support their family.

The fact that your LBS owner even brought it up and gave you crap for it shows that he's bitter and unable to adapt to the modern marketplace. He's blaming you and the "gray market" for his inability to survive. Not your fault bro. If he can't find other ways to bring in business and keep his shop going, he doesn't deserve to stay in business. It's called free market capitalism. In other words, everyone else out there is free to do a better job or offer better prices for the same goods and services. If they take his lunch in the process, well that's too damn bad for him.

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Old 12-13-11, 10:16 AM
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If you have not already read it, this is worth looking at - this is not the owner of a LBS griping, this is coming from a very successful online retailer (Competitive Cyclist):

https://www.competitivecyclist.com/wh...leaks.426.html
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Old 12-13-11, 10:23 AM
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Who here are actually old enough to remember using Brittanica encyclopaediae for their book reports instead of cutting/pasting Wiki?

With the advent of PVR/DVR/Netflix, video stores need to adapt. The music industry took a while after the whole Napster revolution. Same goes with the local LBS. Big box stores like Walmart will erode their bread and butter entry level bikes, and big online stores - you know who they are - will continue to take their pound of flesh on everything else.....what's left on the table, are things like custom builds, high end bike builds, repair and maintenance, and professional fitting. I think that's the big value-add that LBS' will need to grapple with.
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Old 12-13-11, 10:33 AM
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It's like the postal service. Or travel agencies, the music industry, etc.
Either you adapt, or you die.
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Old 12-13-11, 10:58 AM
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Originally Posted by zatopek View Post
The LBS owner really made me stop and think about the impact on brick and mortar LBSs that my purchasing decisions were making. Next day, I went back to the shop and thanked him for busting my chops as it made me pause. I also bought a sweet new set of handmade wheels from him that I otherwise might have shopped for online.
That speaks well of your character - nice going!

I think if most of us were a little more open to some periodic introspection we would be better off. And I'm not just speaking about where we buy our bike stuff.
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Old 12-13-11, 11:00 AM
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Glad you apologized and brought him some business. Hopefully his original chastisement was respectful, honest marketplace banter. It sounds like you might have needed it. Buying things online isn't as fun and sociable an experience as shopping at your local LBS. That social aspect is part of the value. You learned a real life lesson out there in the real world, something online experiences don't often provide us. It feels good to be human, don't it? Including your initial defensive overreaction-- to err is human.

"Grey Market," though, is a little bit of a harsh characterization. Fair enough, though, for him to make his case strongly. I would have liked to hear your debate there in the shop.
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Old 12-13-11, 11:00 AM
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The term "grey market" refers to sales channels that are legal but not authorized by manufacturers. Most stuff is not restricted from on-lines sales by the manufacturer so on-line retailing of these items isn't grey market.
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Old 12-13-11, 11:02 AM
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Originally Posted by Standalone View Post
Buying things online isn't as fun and sociable an experience as shopping at your local LBS.
Depends on the LBS and what you consider to be fun and sociable.
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Old 12-13-11, 11:09 AM
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Originally Posted by Looigi View Post
Depends on the LBS and what you consider to be fun and sociable.
My LBS is a race- and vintage-oriented college town shop with a former racer owner. It was first on Bicycling Magazine's "Top 100 Shops" in October. It has a little hipster vibe going, but is not hipper-than-thou or snobby. A good hang out place, where the ckerks and wrenches will talk junk and have a good time with you once they see you as a bit of a regular. I'm not a high-end customer, but I get treated in a very friendly way, get free/cheap stuff every now and then. I bought them all pizza last time the shop spent some time digging in the used parts boxes for me. That's what I consider sociable.
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Old 12-13-11, 11:09 AM
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I think most people are willing to pay a little bit more to support their LBS. The only question is how much more.
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Old 12-13-11, 11:19 AM
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I think if local bike shops go the way of Blockbuster video, we’ll miss them. They sponsor races and events; they give us a place to go to ask about local rides when we get to a new town and there have been plenty of times when the race is tomorrow and I need a part today. Their saving grace is that you can’t get your bike fixed online. Particularly with things like electronic shifting hitting the market, bike repairs will become more and more complex and working on them will require more specialized knowledge and tools. I wouldn’t be surprised at all if bike shops became more like service shops that do a little retail on the side, rather than the other way around
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Old 12-13-11, 11:22 AM
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Originally Posted by Standalone View Post
Glad you apologized and brought him some business. Hopefully his original chastisement was respectful, honest marketplace banter. It sounds like you might have needed it. Buying things online isn't as fun and sociable an experience as shopping at your local LBS. That social aspect is part of the value. You learned a real life lesson out there in the real world, something online experiences don't often provide us. It feels good to be human, don't it? Including your initial defensive overreaction-- to err is human.

"Grey Market," though, is a little bit of a harsh characterization. Fair enough, though, for him to make his case strongly. I would have liked to hear your debate there in the shop.
It's ridiculous for him to make his case that strongly. As others above have stated, the guy needs to adapt to the changing market. It's not like it's the OP's fault that his business is suffering; being bitter and trying to make customers feel guilty for simply saving some hard earned money is a sure fire way to run his business in the ground. Bike shop owners simply have to be creative in order to stay afloat. I know of a bike shop that also sells craft beer, fine wine and cigars. You can go in and have a seat and read a magazine, hang out for a while; they do quite well.
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Old 12-13-11, 11:32 AM
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First of all - thanks....I had nothing "better" to do today.

I live and breathe this daily. Everyone in the industry despises me because they view me as an "internet guy". While the internet guys view me as a small local shop. I spend every day trying to find a way to compete under the real terms of the industry.

You would be amazed at the common position of those int he industry. It's like they are all 50 year-olds living in a sealed box. They have little to no understanding of what current real commerce is like and just assume it is all "wild west" internet pass through sales like the "old days" in the 90's.

One of the last industry newsletters I read had a few pages dedicated to trying to convince IBD owners (LBS in BF speak) how to deal with product brought into them that was purchased from "nefarious sources". It was so upsetting to read that I physically squirmed in my seat. The industry leaders and the market/consumers are SOOOOooo far apart on this it's pathetic.

Currently the great equalizer that allows this poorly outdated form of business to continue is the fact that the bicycle OEM's themselves will not sell to the public directly. This will not always be the case, but I digress.

IBD owners have this inability to see clearly on the issue either. They see the volume of family bike sales, recognizing that this is their niche, because of the volume, and just shut down anything that contradicts that niche/model. Good for them....but they just ignored a huge market segment (not in individuals, but in volume). The roughly $300 Million in top line revenue between 2 large online giants mentioned in the article linked above back that idea up. Most shops are ecstatic when they hit $1M in sales. So...there
's roughly 300 IBD's sales wrapped up in these two sellers and the vast majority of their sales are NOT bikes, but rather accessories......

Originally Posted by Looigi View Post
The term "grey market" refers to sales channels that are legal but not authorized by manufacturers. Most stuff is not restricted from on-lines sales by the manufacturer so on-line retailing of these items isn't grey market.
Actually let me clarify a little of why this is a problem:

All of the major channels of US distribution for any bike related component have very strict and strong internet sales policies. In fact the vast majority of them explicitly state that internet sales are expressly forbidden. I should know.

The items you see on ebay, etc that use stock images are usually items that are bought by individuals who either have access to someone else's account at a distributor, or are a large distributor account as it is. Some distributors allow for direct online sales though their created front ends, but they are pretty tight on what the pricing algorithms are.

Grey market = parts sold to dealers in the UK that end up retailed into the US. Period. Ribble, PbK, ChainReaction, etc. The issue is that the OEM's have completely different pricing structures and sales structures when dealing in the EU vs US. The two have no oversight or impact on each other. As a result the selling entity can simply sell items across that boundary. So....EU wholesale gets tons better pricing than we do in the US - Fact. They are at a competitive advantage. It is not a level playing field. If it were you'd be paying more and going local more often.

As it is now......I offer tires from major manufacturers to my team members at near cost. To many they are at cost. This price usually only "Meets" pricing that they can get as normal retail from PbK. At times I have found PbK with pricing that is less than $1 from my US wholesale pricing even at US OEM discount levels. That means I usually get better pricing than most shops can get through large distributors like Q.

Net result - people who LOVE cycling and cyclists decide to become a part of the community and indulge their passion to support the local scene both in cycling and as a local business get their asses routinely handed to them without even a chance of competing. If they try to match pricing, they have to worry about their distribution channels shutting them down (you can't see it but I am giving a mental middle finger to a particular distributor right now), but if they don't they get to watch their customers call them names, look at them with disgust, and walk out the door thinking that the shop owner is greedy and isn't willing to make a deal.

OP - thanks for thinking about the issue. The real answer in my opinion is that in the long term we simply have to change the systems to allow us to compete in a way that simply works - not by artificially influencing the markets with pricing agreements, distribution rights, etc. Unfortunately with as many sellers out there as there is...these are truly commodities. Having a good conversation with a fairly good business person in their small business is ALWAYS awesome. Regardless of how one may feel about the specific issues. I encourage everyone reading this to take a minute during the down season and go talk to your local shop. See what they think about all of this. They are your community. You don't necessarily "owe" them your business - they have to earn that - but if you care about your local community you might owe it to them to hear what they think.
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Old 12-13-11, 11:41 AM
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Originally Posted by whitemax View Post
It's ridiculous for him to make his case that strongly. As others above have stated, the guy needs to adapt to the changing market. It's not like it's the OP's fault that his business is suffering; being bitter and trying to make customers feel guilty for simply saving some hard earned money is a sure fire way to run his business in the ground. Bike shop owners simply have to be creative in order to stay afloat. I know of a bike shop that also sells craft beer, fine wine and cigars. You can go in and have a seat and read a magazine, hang out for a while; they do quite well.
The model of adaptation that you suggest is certainly no radical move away from the traditional bike shop. I do know that if my shop went "upscale" that I would no longer be able to be a regular there.

Anyway, the LBS owner made the OP stop and think. Isn't the shop owner human, too? Must we worship the blissfully ignorant and coddled state of the American consumer? Sounds like the shop owner helped to explain why the online sources can so radically undersell his shop.

Another course of action is to purchase component groups that are more within one's budget at regular brick and mortar (hopefully reasonably discounted from MSRP) prices.

We're sportsmen and sprotswomen. I have this feeling that good sportsmanship involves participating reasonably in the local economy and cycling scene. That is not to say that one must never buy online, but it's only money.

If you can't afford the shop's price on a top of the line groupset, buy a cheaper one. It really won't make you any slower.

And hey, bargain a little. What's with listening to their first price, knowing it's high, and not negotiating before running to an online retailer?
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Old 12-13-11, 11:42 AM
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He can stand there and complain until he's blue in the face, but he's simply not going to be able to compete head-on with ebay, amazon and any number of big web sites.

Those companies cannot service a bike, or fit you in person. He might want to focus on those two elements.

It seems to me that he doesn't have to floor inventory if he's installing parts that others have carried in. Pure labor when applied correctly is a low-risk, high profit endeavor. A ton of shops just move gear. Very few are any good at service.
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Old 12-13-11, 11:44 AM
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I do a lot of my own wrenching, but I'll be honest- I don't know much about a lot of this stuff and figure it out as I go along. (I'm a mechanical engineer, so I can "reverse engineer" s So when I need parts, I often go to the LBS and buy them there, even though I know I will pay significantly more than I would online.

Why? Because when I'm working on a project like, for instance, building a wheel, the LBS ensured that all the parts are appropriate for my use and compatible, the spokes are the right length, etc., and when I actually got around to building the wheel they offered advice, tips, tricks, and gave my wheel a good "quality inspection" when it was complete. I didn't pay an minute of labor to them for the help they gave me, so I don't mind paying 30% more than I could have bought the stuff online for. Having the resource there is important to me. (EDIT: I looked up all the parts I used in my wheel build and the LBS was only about 10% more than online parts would have been.)

This was vividly brought home a year ago when two LBSs closed within about a month, one of which was my go-to place. I've come to realize that I appreciate having an LBS to go to and if it means I have to pay more for parts that they would be on line, so bet it. I'll pay it and not complain at all.
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Old 12-13-11, 11:44 AM
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That is one way to do online business right-- through private CL sellers and small to medium online sellers like Psimet. Super giant discount online seller or hong kong ebay is a different thing.
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Old 12-13-11, 11:53 AM
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Originally Posted by Nachoman View Post
I think most people are willing to pay a little bit more to support their LBS. The only question is how much more.
I am to a point. I try to buy most things through my local shop, but there are some very expensive parts I have sourced used through ebay because new from the shop was just out of my price range. I have also bought a few things my LBS cant get online.

If it was just about buying stuff, I would agree that the shops need to adapt or die, but bike shop is not just about getting stuff. They are a service center, and good shops are a hub for the the cycling community, hosting events, lobbying for bike infrastructure, and a lot of other valuable things. Even if they also sell online, most small shops cant compete on price with the mega retailers already there. So, how do we keep all the good things local shops do for the community, the expertise, the service shop, etc? Most of those are not money makers for a shop (with the exception of repair and service).
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Old 12-13-11, 12:01 PM
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i hate it when people talk about haggling prices at their bike shop.

i hate how many people try to get the lowest price possible.

i have no issue with paying a fair price; if i am benefiting from a transaction, i hope the other person is too.
now, if you are broke and you negotiate then i have no problem. but if you are an adult with a moderate+ disposable income,
then stop trying get production cost.
cyclists are a community, and i have no issue being part of that community. i think if you participate then you should reciprocate.
do you haggle the price of an ice cream scoop when you go out with your kids?
milk and dairy products? pizza? recreational substance?

also, the US has a mixed economy, not free-market.

if you are going to haggle the prices, then leave a tip.

you could even just walk in one day and tell everyone how much you enjoy their shop.
(yes, i know one of you thunder dolts has a crappy lbs: youre exluded)

too may people approach bike buying like car buying.

Bike shops guys do not make much money (in general, you other or same thunder dolt).
if i encounter someone who is passionate about their work, and i benefit from them, then i want to help them too.

its almost as enraging as watching a large of crowd of people watch street performers, then only 3% of people say thanks with money.
and 95% of that money is less than $1.50. bleh.
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Old 12-13-11, 12:11 PM
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The guy that sells horse drawn carriages is pissed at me because I bought a "horseless carriage."
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Old 12-13-11, 12:18 PM
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Psimet2001 
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Originally Posted by cccorlew View Post
The guy that sells horse drawn carriages is pissed at me because I bought a "horseless carriage."
Not exactly....that's simply changing technology. In that scenario a local "horseless carriage" seller would benefit from your change. In this scenario it would be more like - those who still have horses are now realizing that the guy shoeing horses is no longer in business. That guy cited sales of horseless carriages as a reason.....

...that guy's form of business just disappeared. No worries. There's still a need for shoeing horses. Someone will do it....it's just a matter of who will and how they will satisfy that need.
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