Friday, April 8, 2016

Troubles For The Neighborhood Bike Shop

Running a bike shop would have to be a difficult way to make a living. It's always been a "low margin" business, but in this era of widespread internet shopping it has to be tougher than ever for the little neighborhood bike shop to keep the doors open and the lights on.

Remember when the most worrisome competition a bike shop had to deal with came from Bike Nashbar, or the Performance catalog (or Bikecology, if you're a little older)? I'll bet there are a lot of older bike shop owners who think of those as the good-old-days compared to now.

Instead of a couple of mail order catalogs that offered somewhat lower prices in exchange for somewhat less convenience (like mailing in an order, and waiting a week or two for the package to arrive), there are now so many internet-based suppliers and so many choices, 24-7 ordering convenience with overnight shipping and no sales tax. And of course there are prices that undercut the lowest wholesale price the local shop can get on bikes and components.

I've always believed in supporting the local bike shop, but I was just reading an article that put their issues into a sharp focus. The article comes from Cycling Industry News. "Retail Comment: Why I've finished a long relationship with Shimano until dealers take a stand."

The commentary is from Drew Johnson, the owner of World Famous City Cycle. He starts his piece with this scenario:

"Today a friend brought in some new Shimano XTR brakes that he apparently bought online for $145 a unit . . . no sales tax, and free freight. My cost is $155 from the only US Shimano distributor."

Johnson went on to cite statistics that Shimano's sales are up 14% while sales through bicycle dealers are down 25% and dropping. What those numbers say is that internet sales are taking a bigger and bigger piece of the pie.

The commentary also touched on the problem of "showrooming" - a practice I wrote about a couple of years ago. Customers come into a shop to try on shoes then buy them online (shoes are probably one of the most commonly "showroomed" products in the bike biz). Sometimes they buy the shoes online before they've even left the bike shop by using their smartphones. Johnson estimated that 90% of the people trying on shoes in his shop end up buying them online. I have no way of knowing if that's an accurate statistic, but whatever the number, that's just flat-out a crummy thing to do. The way I figure it, if a person has no intention of buying the product from the local shop, then don't waste the time of the staff by getting their help and advice. The fact that there is a staff there to help and advise, and a physical space and inventory in which to do so, is a big reason that the price may be higher than the online shop.

It was pretty clear from the article that Johnson feels that Shimano is a major part of the problem, and says they seem unwilling to do anything about it. There are simply no controls on pricing of their products, so big online retailers are able to sell to the customer for a much lower price than what the local bike shop can get wholesale. Compare Shimano to a company like Apple which maintains a strong control on pricing. Whether someone buys their Mac, iPad, or iPhone from Apple, or BestBuy, Target, or an online retailer, the price will never vary by much -- and if one finds a price significantly lower price somewhere, it's almost certainly a sign of something fishy (such as a "counterfeit" item, or maybe a "reconditioned" item). The commentary mentions that SRAM is working on such controls, but so far Shimano is not.

For bargain-hunting consumers, in a time when bike and component prices just keep climbing, it may seem hard to see the problem (what are you saying - you WANT to pay more?), but the way I figure it, none of us is better off if a good local shop is forced out of business unfairly.

Johnson concludes his piece by saying he is going to stop carrying Shimano products (and Pearl Izumi, too, I presume, as they are fully owned by Shimano) and wants to encourage other dealers to do the same thing. Considering the huge role that Shimano plays in the bicycle market, that will be a tough thing to do -- I imagine most little bike shops would be unwilling or unable to follow that lead.

In fact, another article from Cycling Industry News also looked at the tough position bike shops are in. In "Are Retailers Afraid to Discuss the Growing Power of Big Brands?" the writer, Jay Townley, discusses the fears that many retailers have as the bike industry is controlled more and more by only a handful of really huge companies. Trek, Specialized, and Giant for bikes, Shimano, SRAM, and Campagnolo for components. If a dealer feels their agreement with one of these major companies is unfair, they are faced with a "rock and a hard place" kind of decision. When one company controls such a huge portion of the market, taking a tough stand (like dropping all Shimano products, for example) could potentially have a much more negative effect on the little shop than on the big company.

Another thing that could (or should) make bike shops nervous is the recent news that both Trek and Giant are going to start selling their bikes direct to the consumer through internet sales, using the local dealers as little more than a "point of pick-up." How long will it be before these major brands decide they don't need the local dealer at all?

Clearly, the bicycle business is changing. Fewer, but much larger, companies control much more of the market. Competition from online retailers is growing, and their business model and practices are so different from the brick-and-mortar shop that it has to feel like an unfairly stacked deck to the local bike dealer. Any bike shop that's going to survive is going to have to find a very different way of doing business in order to keep from being swept away by the changes. Bike shops have to find a way to keep themselves relevant and necessary to the bike riding public. Service and repairs are an obvious point for survival, but to thrive and not just survive, dealers will have to get creative.

What will the bike shop of the next decade be like? I just don't know - but this is probably a scary time to be a bike shop owner.


  1. Shimano and XT Brakes are talking point as of late.

    1. thanks for the link - interesting article.

  2. I see a couple of problems with my local bike shops ( there are probably a dozen within a 15 mile radius ) above and beyond what's mentioned above:

    1) They're unreliable. Say, for example, that I go in, spend some time with them, and ask them to order a part. They tell me that it should come in during their weekly shipment in a couple of days, and will call me when it arrives.

    They never call me. Ever. I don't think I've ever had one actually do that in the half dozen shops I've experienced this in. I have to call them and ask, and most of the time it is actually in, but "I don't know why nobody contacted you..."

    2) I go in, tell them that I'm looking for the modern equivalent of a commuter-ish/sport touring bike for my kid. I already know ahead of time that the Specialized tri-cross is a very good fit for the price and specs I'm looking for. When I walk in the door, I can see the exact model on the floor.

    What do the sales people do? Try to sell me a Roubaix that isn't even remotely suitable, and is three times the price. When I direct them to the Tri-cross, they respond with "Well, yeah, that might work..."

    3) I go in to purchase a 9-speed chain. They bring one out that costs over $50.00. When I tell them there's no way I'll pay that much, they reluctantly admit that they do in fact have $18 chains in the back.

    Now granted, they want to sell parts and make money. But when you're in a position where you have varieties of an item, you offer ALL of them, and then do your best to up-sell the customer by trying to convince them why the more expensive one is better. Otherwise, all you get is an annoyed customer who says "Next time I'm just going to Amazon, because I can get the $18 chain there, and I don't feel like they're trying to skunk me."

    Thankfully, a shop opened up a couple of years ago that focuses on practical bikes for everyday riding. Unfortunately they have very limited hours since there's only so much money you can make selling practical bikes, but the mere fact that it's there gives me at least some hope.

    1. I guess I should consider myself fortunate -- I have a couple of shops nearby that I feel pretty good about and am happy to support. But if those examples you mention are representative of the shops near you, then yes, that is pretty frustrating.

  3. Great topic, thanks for posting it.

    Yep, I'm right there in the middle of all this BS.

    I would point out, Shimano did just do a ~30% price drop on many products wholesale prices, which was very refreshing. What was a $120 brake a few months ago, I could now sell and get my normal margin on, for around $80. Though why I'm forced to buy pedals (only) directly from them, so unless I buy in vast bulk, no free shipping, whereas I can buy all other Shimano products through various suppliers, is beyond my reasoning, to understand.

    I don't forgive Shimano in any way, but my understanding is that, some of this arises from taxes, duties and fees not paid in Europe, but that the US puts on their goods.

    Know about the 10% tax exclusively for cassettes? A lovely bit of taxation without reasoning there....

    A quick, other side of the coin for EQ's comment about searching for a bike? Why not just walk in and say, I'd like that Specialized Tri Cross there please?

    Since shops most often employ kids, (do you know many life long cycling addicted adults willing to make minimum wage with few if any benefits at a job that is most likely seasonal?) you can expect varying degrees of expertise, bias, training, etc.

    So to do some sort of "gotcha" type shopping model is bound to not get you the answer you want.

    I heard through a friend that one of their buddies had been in my shop, and hadn't purchased a bike from me because "I wouldn't sell him what he wanted", but I remembered the fella, and he simply asked basically what you did, "I'm looking to do X, what's the best bike for that?"

    Ask that, and you're bound to get a wild variety of answers depending on a huge number of variables.

    Were he to even have said, I want carbon (which it turns out he did, but never said), what should I get, it would have been an entirely different conversation.

    I had another person hang up on me after calling to ask what brands I carried that were ridden in the TDF, to which I replied, none, but I'd be happy to sell them a nice high end road bike all the same. But that's a whole different issue....

    I stopped trying to be a big bike shop years ago, actually, I worked for one, then opened my own, and had no intentions of ever getting big. Watching various shops drown in inventory that got jammed down their throats by brands consumed with constant perpetual "growth" instead of being happy with bills paid in a timely manner, happy customers on appropriate bikes, good service work, etc.

    It's now all about units moved, out of the brands warehouse per year. However, if they catch you trying to dump two or even three year old product that you couldn't sell fast enough, for a lower than MAP price, you get your wrists slapped, or perhaps even lose your dealership, even if all your bills are paid and you do everything they ask? Nice.

    You mentions Trek doing consumer direct. Worth noting, they also allow consumers to purchase accessories ( a time honored profit center for a LBS) and have them delivered to the LBS for pick up. Additionally, if the consumer buys the wrong bike size, style, whatever, it doesn't go back to Trek, it goes into the local dealers inventory, and they take it's cost onto their books as well. The consumer can also can pay (Trek, not the dealer) to have the bike delivered within a 50 mile radius.

    I deal with Jamis, Surly, and a few other brands that allow me to buy one bike a year if I like. I don't get much help with volume pricing, but at least I don't get buried in slow moving product, only to be expected to buy more next year.

    Service is it. It's the only thing that can't be outsourced, price pressured by outside forces, etc. I also have a particular niche that I leverage the hell out of with the help of the internet, which doesn't hurt, because someone, somewhere in the world, is always riding what I fix, and will need my help sooner or later.

    1. Thank you so much for this response. I'm glad to get your perspective on this issue.

    2. MSS:

      Hey, I've been to your shop once while riding the rail trail near you! Though you're not really local, unfortunately.

      In regards to you wondering why I didn't just say "I'm interested in the tri-cross; That shop in question has hundreds or more bikes in stock, and I don't particularly pay attention to the latest models, so I approached it from the point of view of someone who really wanted to know about available options after discussing it with the presumably knowledgeable salesperson. Granted, I could have said right off the bat "Let's take a look at the tri-cross", but from the consumer's point of view that tends to be a bad idea, since if a salesperson thinks you're fixated on a particular model then they often don't explore possibly better choices.

  4. Sorry for the novel, bit of a hot button this!

    Stay small, stay lean, stay professional, treat folks well, and you'll be fine. I've seen several local shops close in the last few years due to constantly needing to order more or risk losing their account.

    Let's just hope Shimano continues to correct what they should have been taking care of years ago when all this started.

    From what I recall (I may be wrong) the cassette tax was enacted when we were given the tax write off option of up to $1000 (?) per year of we used bicycles for commuting and transportation. I could be confusing two issues though, been a while since I read about it.

  5. I am happy to pay for real service, and I have intentionally paid a bit more at a LBS when I think that their expertise or status as a brand retailer will help. For example, I think most bike electronics are simply not designed to be reliable for day-in/day-out commuters, so I have found warranty and out of warranty support to be really useful there. But, I am not a huge fan of shops in general.

    1. Limited inventory and respect for my time.
    The one in Montrose has such limited inventory that except for lubricants, they almost never have what I want, which means a drive to Stow, and that is 45 minutes away. Even then, the frequent response is, "we can order that for you." Great, and in my time-starved life, I can probably show up again in two months. Maybe. But I am in your store NOW. Or I can order online and it will show up on my doorstep in two days or less. What exactly is the LSB offering there? I suppose they can help non-internet savvy neophytes, but that is about it.

    2. Lack of real knowledge
    I have a bike on which I want to swap brake styles. Saw a tandem in the Medina bike shop that had something that appeared to be what I needed, but upon closer inspection, was an expensive kludge. I talked to the wrench about what I wanted and he basically said the kludge was my only option. Except I continued to poke around the web a bit and found a solution that, in retrospect, is relatively common and uses a well respected brake line. No kludges. People have used it with the STI model I have with great results. I told the LSB what STI model I had on the bike. The wrench was an old hand---maybe too old, I suppose. What exactly is the LSB offering there?

    3. Looking at the prices of bikes, I think the inescapable conclusion is that we pay a noticeable price to have the same head badge that (name your racer) rides in (name your favorite race). Once REI opens close by this year, I will be happy to spend hundreds less if I do buy a new bike and take them my bike once every three years when it needs work I don't have the tools to do myself. What exactly is the LBS offering here?

  6. Bikecology? We really are of the same generation!

    I also remember when Nashbar was called "Bike Warehouse."

    There are a couple of local shops I like. I try to buy from them--and, of course, give them my repair or build work when I don't have the time or tools.

    One thing I've noticed--at least here in NY--is that some of the old-style bike shops have turned into service and repair centers that sell used bikes. Those things--and accessories--seem to be where the money is for small dealers.

  7. I worked at a number of bike shops in the 1980's. Every one of them went out of business. Truthfully most of them deserved to go out of business. There was one bike shop in particular that should have made it. They did everything right. In addition to competently selling and fixing bikes they organized rides for cyclists of all levels from complete beginner to the strongest racers. They sponsored the local touring club and racing team. They also provided free support to charity rides and promoted cycling in the area. It is really all the extra stuff that makes bike shops worth supporting.