Marginal Margins

It is, after all, your livelihood....

As a rule I try to avoid reality TV shows as if they were infectious medical waste. Over the weekend the gravitational pull of Shark Tank dragged me in pulled me in because they had a segment that was vaguely bicycle related. For those of you who are not familiar with Shark Tank imagine a the humiliation of speed dating crossed with the hilarity of a Kickstarter campaign.

In the episode I watched the woman who owns kaZAM balance bikes wanted to take her business to the next level but the potential investors balked at the fact the margins she was making, 35% per unit, was too small to be attractive. Sound familiar? The investors wanted to see a 50% margin per unit, minimum.

If the business of bike shops is selling bikes then there's something wrong with the entire model as it currently stands. A lot of shops make their margins on add on sales or accessories, not on bikes. While that may work for first time buyers because they haven't acquired the years' worth of support equipment an experienced biker takes for granted like helmets, lights, tools, clothing, those sort of things.  But that model doesn't work very well for some one with a garage full of bike paraphernalia. Those high margin ad ons are only work well only if the customer has a need. No one likes high pressure sales and that's why I maintain places like Guitar Center and R.E.I  are awful places to shop.

Nothing puts me off more than an aggressive sales person, except maybe a snobby one. You know the type, some burned out Cat 3 road cyclist who ran out of talent and couldn't work their way into the pro ranks but derides customers because they aren't riding a Cervelo R5Ca.

I think in order to move forward a couple things need to be done. One is to acknowledge we work in the bike industry, not the bike accessory industry. The second is to rethink the pricing structure on both accessories as well as bicycles too. Bicycles usually are sold at about a 35% mark up and accessories are usually keystoned (read; 200% mark up from wholesale) but if you average the two out and are willing to make work with a 67.5% mark up on both bikes and ad ons that may mean the people in the service department can spend a little more time on each new bike as it comes out of the box.

The margins on a bike sale are pretty dismal especially when you have to factor in shipping costs, assembly costs, and maintenance or "service package" costs  that money has to come from somewhere and that means either directly out of the shop's pocket or the customer's so choose one. If you don't want to be haunted by visions of wheelbarrows filled with money on fire you'd better choose the latter rather than the former.

While you can take a bike out the box and have it out on the floor in about 45 minutes would you really want to ride it afterwards? How long are wheels going to last if they hadn't been properly tensioned using a tensiometer? How well is it going to shift if you don't double check the derailleur hanger with a derailleur hanger alignment gauge?  Is the front derailleur set at the proper height? Are the bearings properly adjusted ? Did you make sure the wheels are dished so the bike can track properly and you can assure the rim brakes are aligned correctly?  Is there air in your hydraulic lines? Are the air shocks inflated and rebound and damping set correctly? Did you use any carbon and alloy assembly compound  in the seatpost for bikes that have a carbon frame or seatpost? Did you use a torque wrench ? Did you do all that in 45 minutes ? Then you are a better man than I am.
 

I'm not a business major so obviously there are some bugs that need to be worked out with my proposition but I do want to get the ball rolling and have people start to rethink the entire pricing structure for the industry. That said, however, as long as the industry races for the the bottom it will never be seen as anything other than selling toys to the masses.