It's popular in some circles to forecast the death of the Local Bike Shop. Times are tough, they say. There is a huge surplus of inventory industry-wide, a lot of it on bike shop floors. In-store sales, according to data available from Circana (the organization formerly known as NPD), have shown month after month of all-time lows. Even the massive discounts currently in place are failing to motivate significant numbers of consumers to buy new bikes. And, because of all this, they say, we should be seeing bike shops failing at an unprecedented rate.
Be that as it may, in the immortal words of Howard Sutherland, founder of the Sutherland's Handbook For Bicycle Mechanics series, "One measurement is worth a thousand expert opinions." So, to find some measurements of the industry's retail businesses and whether they're failing, I turned to Christopher Georger of Georger Data Services, the guy who maintains the industry's most comprehensive list of bike shops.
Georger compiled a list of all U.S. bike shops carrying one or more of the approximately 60 bike brands his company tracks, as shown on those brands' dealer listings. (Excluded from the list were e-bike-only stores, which often show up on dealer lists if they've ever sold even just one of the brand's bikes.)
The results are striking.
As of Dec. 6, 2022, Georger's list showed 6,873 active bike shops operating in the U.S. A year later, on Dec. 7, 2023, the list showed 6,983 active shops. The difference of 110 more bike shops out of nearly 7,000 in total is not statistically significant (not quite 2%), Georger said.
The logic is compelling. Even if some unknown number of bike shops went out of business in the intervening year, they were replaced by an equal or possibly even greater number of new startups.
So much for the good news.
Twenty years of low to zero bike profits
The business model that's sustained the retail end of the industry for decades is simply no longer working, at least not for more and more marginal dealers.
Although individual bike shops may be surviving, the entire retail channel business methodology is under increasing stress.
In researching the IBD business model as it's currently implemented, I turned to my mentor and colleague, Jay Townley of Human Powered Solutions, for a review of the IBD profit centers.
"Prior to the pandemic, the NBDA's Cost Of Doing Business Surveys showed that the typical (median) bike shop in the United States did not make a net pre-tax profit on the sale of new bicycles," he told me. "This started after 2000 so it's been true for a couple of decades now. The factors were the cost of doing business and the realized gross margin on new bicycles. One went up, the other went down."
If dealers generally don't realize a net profit on bikes, how are their businesses staying afloat? Two other profit centers, Townley says, again according to the Cost Of Doing Business Surveys. These are equipment sales (sometimes also known as PA&R or Parts, Accessories and Rubber) and service. There are some other minor profit centers like apparel and used bike sales or rentals, but bikes, equipment, and service are the main three.
The IBD business strategy was 1) to hopefully break even on the sale of new bikes and 2) keep bringing customers back into the store with free tune-ups to purchase higher-margin equipment and service items, which would put the shop into the black.
Trouble is, the customers haven't been cooperating.
This is hardly a news flash, but increasingly since the turn of the millennium, consumers have been getting much of their equipment and apparel online, cutting the dealer (and the dealer's revenue stream) out of the transaction. And with the rise of high-quality consumer-direct bike tools and sophisticated how-to videos on YouTube and elsewhere, they've been doing more of their own service, too...even on e-bikes. So those two trends are cutting even further into the bike shops' bottom line.
Combine this triple-whammy loss of profitability with our currently bleak market conditions and it's no wonder at least some shops are going out of business. The business model that's sustained the retail end of the industry for decades is simply no longer working, at least not for more and more marginal dealers.
And, I'm sorry to say, that reality is not likely to change anytime soon.
Plenty of pain for everyone
The plain fact of the matter is that suppliers have whittled down their own pre-pandemic margins too, not just retailers'.
Retailers will be quick to say that the solution is to increase their margins on bikes (and equipment, too, for that matter) back to pre-2000 levels, raising suggested retail prices if necessary. But this just isn't part of the market reality.
Short-term, discounting of existing inventory has done almost nothing to stimulate consumer demand. And there are months, if not years, worth of increasingly dated inventory sitting in warehouses, with new models expected in just six or seven months. An increase in suggested retail pricing at this point would be disastrous.
Long-term, bike brands need to keep their prices at least within hailing distance of their D2C competitors to protect their share of market. And the plain fact of the matter is that suppliers have whittled down their own pre-pandemic margins too, not just retailers.' There's plenty of pain to go around for everyone.
I predict margins are going to stay low, and possibly go even lower, for the foreseeable future ... and this is true both for distributors and retailers. The only good news for the industry as a whole is that, for the time being anyway, there seems to be a steady stream of entrepreneurs waiting to take the place of businesses that fail.
