Will there be bike shops in the future in the U.S.? In my six decades in the bicycle business this has never been a more serious and relevant question. The four brutal truths – tariffs, safety, regulation and trade – weigh heavily on the entire bicycle trade this year, but that worry is compounded for the bike shop channel and its thousands of small, independent, individually owned bicycle shops in the U.S.
The chains of bike shops owned by big-name brands evolved pre-pandemic in response to the profit squeeze, and with the opportunity to purchase brought on by the emergence and dramatic rise of direct-to-consumer (DTC) retailers and brands. Today, post-pandemic, as the world enters a new era of shifting global trade and protectionism, the future of individually owned bicycle shops is challenged by the emerging economic order: Will individually owned community bike shops be economically relevant enough to receive financial support?
Being economically relevant is up to individual bike shop owners, but HPS has found in working with the National Bicycle Dealers Association (NBDA) that there are five current attributes to relevancy.
First, write a business plan and update it every month. Share it with your staff and ask for their input to improve your plan. Most bike shop owners tell HPS they have a plan, but when asked, admit it is only in their heads. In writing your business plan think carefully about the resources your bike shop has and the things you and your staff can do for your customers that your competition, including the online DTC retailers can’t provide! For example, join the NBDA and become a member of a Profitability Project Group (www.nbda.com).
Second, emphasize your service department and make it a profit center. Most of your competitors do not provide any form of product service, and in fact, send their customers in need of maintenance, repair and warranty work to you and your community bike shop peers. The NBDA recommends you plan a 60 percent gross margin for service work.
Third, leverage the circular economy. The fastest growing product category for bicycles and e-bikes in the U.S. today is previously owned, which has an average 50-percent gross profit margin. Increasing retail prices are causing more avid cyclists to seek out high-end previously owned product that is reconditioned, warranted and available at lower prices. At the same time, the major brands are trying to convince consumers to trade-in directly with them. Independent bike shop owners should promote purchasing plans that include future trade-ins, reconditioned and warranted by your store.
Fourth, negotiate everything. This means reading every agreement presented to you and negotiating every clause you find isn’t fair and equitable to your business. Do not sign any agreement or contract before requesting those clauses that are not favorable or acceptable to your business, be amended, changed or deleted.
Fifth, follow the Phillips Rule. Some of you may remember Harley Phillips, former bike shop owner and president of the NBDA. The Phillips Rule: Never sell anything in your bike shop below your cost of doing business. Harley allowed exceptions for bad buying decisions and dead or slow-moving merchandise, but in general, if your total operating expenses are 41 percent, as they were for all reporting bike shops in the 2022-2023 NBDA Cost Of Doing Business Survey (CODB), do not sell anything in your shop below a 41 percent gross margin of profit. Total operating expenses of 41 percent is too high, and not enough products, including new bicycles and e-bikes, could produce a 41-percent or better gross margin, which is why the typical Net Operating Profit reported for all reporting bike shops in the 2022-2023 CODB was a slim 4.7 percent before taxes.
This leads to bike shops taking control of retail pricing. There is no “team surcharge” or “team price increase.” There is only retail pricing from cost of goods in the 25 years that Authorized Dealer Agreements have bound bike shops to MSRP, or Manufacturers Suggested Retail Pricing.
When MSRP yielded a fair pre-tax gross margin of profit for a retailer, it was an equitable retail pricing methodology. For various reasons over the years MSRP has not, generally, yielded a fair and equitable gross margin of retail profit. Bike shops have to calculate and monitor gross and net margins of profit, as well as operating costs to make sure gross sales, gross profit, expenses and net profit goals and objectives are met weekly and monthly to make sure they are economically relevant.
It is all about TRUST. The most important question to ask is: Who will the consumer trust? It is becoming apparent that consumers place more trust in brick-and-mortar retailers that they can visit locally and in-person, so bike shops need to train and teach their staffs to win and hold the trust of customers and turn them into influencers for their local bike shop.
Bike shops always have and will continue to fill the need consumers have to not only touch and test ride bicycles and e-bikes of choice, but also to talk to experts that they trust for their knowledge and experience. There will be bike shops in the future, but they won’t be the same as the bike shop I worked at between 1957 and 1965, or the Total Store business model that took bike shops out of the back alleys and established them on the high shopping streets America and the rest of the world.
Jay Townley, Founding Partner and Resident Futurist Human Powered Solutions HPS