Your local bike shop needs you...
Local bike shops are packed full of expertise and enthusiasm for the sport we love. Some are at risk.
With big names like Pro Bike Kit going to the wall, and amazing consumer deals everywhere, it’s easy to see that it’s not great in the cycling trade right now.
It’s an adjustment though right? Or that’s what we keep reading.
But what does that actually mean for the little guys and what is the actual cost to you as a consumer? Is there a cost? Or are these deals just better prices, and is it about time the deals were available again? After all, as customers we don’t really remember paying full RRP for bike parts pre-pandemic, do we?
Whilst that may be true to an extent, it doesn’t take account of how unsustainable the bike shop model was back then. And perhaps doesn’t really take account of the threat to our smaller and most well-loved bike shops in the current moment, as big businesses dump inventory at unprecedented levels.
The ‘adjustment’ the big analysts and PE backed retailers speak of now means your local bike shop is even more screwed than they were back then. The full impact, not yet felt, will mean more good people will leave the industry (taking their skills and experience with them) and you will find it harder to get support for your ever more technical kit.
Whilst this is perhaps the most difficult period in recent times, to understand how we’ve got to that state of affairs, we have to go back.
Pre-pandemic, perhaps way back as far as 2012, online discounters saw the potential in selling bike parts at big volume for tiny margins. They built warehouses full of cheaply sold current stuff and in doing so - one discount sale at a time - ripped the heart out of the traditional bike trade, a heart that was sustained on a relatively modest slice of the available manufacturer margin.
To keep up, the bigger bricks and mortar chains responded - they moved to rip the heart out of their workshops, reducing teams to bare bones. Stopping almost all investment in training or tools. Price matching was common place.
And, let’s be honest, who doesn’t love getting a little bag of Haribo with a bike chain we got for 30% off, delivered to our door next day.
I’m not saying the LBS model alone was perfect. We all know of tired old bike shops, stacked full of old stock, and that all too familiar grumpy sales approach. But that 30% is the life blood for the good bike shops too. Without it, many suffered and closed and those that survive now are feeling the pressure more than ever.
What seems to surprise people I talk to (this question of where the money goes comes up a lot) is the fact that there isn’t and never was any more available (if indeed you got 30%. 26% is more common for little businesses who can’t afford to ‘buy in’).
I can completely understand that surprise, as it makes no sense.
When I moved the business back from France, I got a part time job in the local Cycle Surgery to plug the gap and keep me busy. I also figured that spending some time inside a massive retailer would give me a sense of where the margins really were. I quickly realised I was looking for the Glen-Garry leads. There was no ‘good rate card’. I quickly realised that to my surprise Cycle Surgery were (in the main) paying the same price for parts and bicycles as I already had access to.
30% doesn’t sound too bad!
So what does the bike shop do with the 30%? Surely you can make money on that margin? That doesn’t sound too bad.
Well, firstly, that assumes a bike shop can shift anything at full margin. Spoiler, they often can’t. When that margin is in the till - even in full - and netted out, it’s only worth a single digit of the original margin available.
VAT and rates, staff costs, stock, training, pre-sales, after sales, servicing, support when it goes wrong all come out of that gross margin. Then there’s your overhead.
30% doesn’t seem like so much against those costs, but this is technical retail, it’s not a simple as selling boxes. Bicycles aren’t the same as hiking boots. Or Surfboards. They’re complicated mechanical products that arrive part built, and need final assembly, careful set up, safety checks, after sales, and regular servicing.
But there’s plenty of technical retail that doesn’t grumble like this? Well, that might be true, but they get better margins to start with. Further, a car dealer doesn’t receive an Audi without the wheels on it, and air in the braking system… By the time all that’s paid for, as the bike shop and retailer, you genuinely might be lucky to have 7% net.
Out of that 7% you need to pay for your marketing, and anything else the business needs to exist, let alone grow. It’s difficult to think of any low-volume business models selling a high value item that sell and service technical products at such low net margins.
When you ask us for our opinion on which tyres to fit, we’re happy to spend twenty minutes chatting to you about your choice, and we’ll give the best advice we can based on the extensive practical knowledge we have of them. It is made much harder to spend that time, if you then save the £8 we might have made in gross margin on the eventual sale by buying the tyres we recommended on-line. We can’t get that time back. If you then ask us to fit them and set them up, it’s very difficult if we charge you the time it actually takes. So we most likely don’t. We lose out on two fronts. Is that really just the cost of doing business these days?
OK, But servicing works right, you make the margin there? Well, it’s actually the same kinda low price story.
Thanks to the High Street, customers have become used to paying £60 for a full service. £60 an hour doesn’t cover our overhead, including a skilled technician to do it, and a service done properly takes way longer than an hour, so you start off on the wrong foot with the customer. You do a good job, but every conversation you have about a bill can be undermining.
For context, a full service on one of our own supplied bikes takes around four hours. We strip the whole bike. We spend more than forty minutes to an hour cleaning a bike that might arrive in to us looking clean to the untrained eye and even longer if it’s filthy. We can’t do good work on a dirty bike. By the time we’ve checked, adjusted and set everything up to factory settings again, we could be four or five hours in on an integrated, Di2, hydro bike. It rolls out looking like and working as new.
We currently charge a premium market-rate of £80 an hour, or part thereof. There’s not much profit in that when you have an incredibly well qualified team and do the job right. When we get that rate (spoiler, we often don’t as jobs can surprise us and we won’t pass that on) it makes sense. We’re lucky that we have customers that want that level of attention and will - most of the time - pay for it. A plumber charges more than that before they get in the van.
Further, we have to justify those rates against those offered by home based mechanics who can service bikes for much nearer the prices offered by high street bike shops. You as consumers love them, and love to find one. Unsurprisingly. We use them too at busy times.
They tend to be passionate, skilled, do the work for a bit less and take their time over it. They offer good service and lots of detail but they get downward pressure on parts and labour, do deals, then quickly find themselves too close to the VAT threshold but no better off, and with VAT costs, working all the hours god sends, and a workload that ideally needs more staff. They tend to struggle on till they can’t cope anymore, and tend to go do something else eventually.
The guy in a van model stepped in for a while and the home-based mechanic found some relief and in turn more customers with a bigger catchment, but fuel and traffic to reach that customer now make that feel like murder in some areas. In the bigger urban markets where customers can pay top dollar to service top end kit, that’s now been taken over by PE backed bigger brands with fleets of vans, fancy customer friendly booking systems but the same volume approach as the discounters, with a focus on market share and simple work, not technical expertise or taking time.
Conclusion
Pro Bike Kit who had built a business selling you parts on margins that might have killed your local bike shop, then it’s reported found themselves with massive inventories, that you no longer needed post pandemic. You’d unsurprisingly had your fill of bikes and parts whilst working from home unable to go on holiday or spend on other stuff and now things are back to normal, with all the economic pressure everyone is under, there’s now way too much stuff sitting on shelves.
The slow down has been violent, and caught everyone out. We - like many others - aren’t big enough to have profited from the pandemic boom. We got busier sure, but we couldn’t get the parts and the ‘margin support’ we got when parts were scarcer only served to close a gap caused by the complete collapse of the supply chain. We sold less bikes, but essentially made full margin on them. That got us through. It didn’t buy us any lavish holidays.
The reason for writing this now, is to perhaps share why that ‘full margin’ is justified, but also to shine a light on just how precarious it is for bike shops who unlike us, don’t manufacture anything and have to supply third party parts and bicycles.
Day to day, we feel that impact but I also defend our parts and servicing model five times a week too. In our kind of business where there’s a lot of customer contact, most of our customers are good friends, they understand the value we add and I get my point across. Not everyone is in that lucky position.
Discourse in the market place focuses on supply and demand, alongside big-business press-releases that talk about ‘consolidation in the market place’. These euphemisms de-humanise the impact of these issues, and make the business of running bike shops (or small bike brands) sound like big business with the enviable rewards and necessary corporate rough and tumble that goes with that.
This is a dog whistle.
The message that the adjustment is necessary to benefit the consumer is simply not true. That message only suits the private-equity backed direct to consumer brands who want to cut out costs and sell you more boxes, directly, without the infrastructure to support your wider cycling experience.
You could argue that IF there isn’t enough margin, this and many businesses like it, aren’t really businesses, BUT when you see private equity going into models that are just as exposed to the supply chain issues we’ve seen and been harmed by in recent years, it makes our passion for an industry that doesn’t bring big rewards to us personally seem less illogical, and the modest margin’s that support our businesses - and the services we offer to our customers seem more essential. Although I guess I would say that…
If you have the means and want to keep some of the good guys in biscuits, give them a second thought before pressing ‘Buy Now’ on the big brand discount. The problem is widely reported as one of supply and demand, but the problems we’re seeing now aren’t just about the pandemic, it’s more ideological than that.
Your cash is king.