Editor's note: This blog post was written by Fred Clements, executive director of the National Bicycle Dealers Association. Clements' previous blog posts can be read on bikedealerblog.wordpress.com.
Are casual bike consumers being frightened away from bike shops because of sticker shock? Does the industry's need to appeal to a wider range of people include offering good products for less?
A lot of independent dealers seem to think so, and many are taking steps to bring in more products that won't scare people away. And while this may run counter to a basic business goal of achieving higher average ticket totals, many believe there is a downside to focusing only on those with a lot of money to spend.
While much of the evidence for a trend toward lower price points remains anecdotal, and average selling price of new bikes continue to rise, after a tough 2013 a number of dealers are aggressively looking for options. A good case can also be made that a trend toward affordability may be fueling continuing growth in the used bike market.
According to consumer research conducted by the Gluskin Townley Group (GTG), used bicycles represented $1.1 billion in sales in 2012, a number that has grown by several percentage points since 2009. Independent retailers were responsible for almost 50 percent of the used bikes sold in 2012, significantly more than private party sales. The trend toward used bikes being sold at independent bicycle stores has also been cited as a trend for 2014 in a recent GTG white paper.
One Texas store owner described his dilemma related to customer sticker shock in a recent NBDA dealer forum post. He reported that he was losing between five to 10 people a day because they were frightened at the prices being asked. His search for a new bicycle brand that would offer quality entry-level bikes for under $500 led him to bring in a new brand. He now offers $239 as the new starting price point, and reports that fewer customers are running from the store, anxiously clutching their wallets in fear.
"When customers are walking away over us not having cheap enough bikes, we are changing our game plan to include lower price points," he wrote. "Am I happy about that? Not at all. But having five to 10 people per day walk or not even come in because we do not have a price point to serve them means lost revenue. Those who survive adapt to the changing marketplace."
A Northern California dealer expressed his frustration that mainstream bike companies focus so much on the high end.
"Why aren't others supplying that market (less-expensive price points)? How much more can we abandon and remain viable?" he asked.
"There is a part of me that simply believes bikes cost too much for what they are; that there is a lot of margin someplace between manufacturer and our receiving dock that needs to be looked at in the exact same manner our customers look at us. Supporting companies offering less-expensive price points and in general less-expensive product for a given spec may be part of the process of getting more-competitive product on our floors," he continued.
"The danger is that selling less-expensive bikes, in many areas, may not be a sustainable business practice. The demand may exist, but moving toward that demand instead of targeting a niche aspect of the moderate-to-higher-end, may be a distraction," he noted.
A dealer from Mississippi who makes used bikes a fundamental part of his business focus added, "My dad likes to use an expression when he visits a business place and has a disappointing experience. He tells me he visited XYZ Store two times today, his first visit and his last visit - both the same visit. Pretty safe to say that those who walk in and immediately walk out have made the same two visits to our stores."
This store owner buys, re-conditions and sells used bikes as a way to appeal to a wider range of cyclists. But there's more.
"The secondary reason our shop offers reconditioned bikes is for the higher margin of profit they deliver. The PRIMARY reason is that I hate to say no to customers who come to me for bicycles or bicycle related services. In my case, a large and diverse fleet of reconditioned bikes allows me to say yes much more often that if I only were a brand showroom," he explained.
Continuing: "In my case the average selling price of our used bikes for 2013 was $298 and the average price of our new bikes for that same time was $540. Being able to offer a quality choice at 45% less than I could with only new options gives me an incredible advantage. It also allows me to prove to my more affluent new bike shopper just how well our new bikes hold their retail value as we often resell bikes we sold new for up to 80 percent of the bike's original new price."
A dealer from North Carolina volunteered that selling used bikes has been a great way to address sticker shock in his market. He wrote, "Lots of people in my area want to get into cycling, but aren't willing to pay a lot to see how well they like it. In this case, a used bike is a great option and I can usually get the sale.
"The problem is keeping used bikes in stock that I was able to get for the right price. I also am short on room to store used bikes, but I'm working on that. It is something I'm trying to do better at. We recently dedicated a small section of slat wall for gently used and take off parts - aka the bone yard. Just put that up a few weeks ago and it's already been a hit, and we're pretty slow right now."
In addition to offering trade-ins with a new bike purchase, the Mississippi dealer described his process for procuring used bikes. The key, similar to the auto industry, is to buy at wholesale and sell at retail.
"I check Craigslist first thing every morning and periodically throughout the day," he explained, "to see if there are used bikes for sale by individuals that you could make reasonable offers on and get at a 'wholesale' price.
"Using all my precaution measures against buying stolen bikes, I get several a week off the local Craigslist. Not only do I get good replacement stock, with each purchase I make off CL, one less used bike is available in my market for resale outside of my store. Not suggesting any other dealer use this strategy, just explaining that it has worked well for me.
"When I respond to a CL ad I always introduce myself by name as a local shop owner. I compliment them on their bike and confirm that the price they are asking is a fair retail price. Then I gently offer them a wholesale price should they prefer a quick and sure sale over waiting for the lunatics and tire kickers that may or may not show or may show only to offer an insultingly low price. Many of the bikes I buy are bikes they purchased new from me - they just never thought of asking us if we bought bikes.
"A surprisingly large number of folks accept the wholesale offer for an instant sale. And some are selling their old bike to put together funds for a new bike. In those cases we offer a higher shop credit price over our cash price," he explained.
Lower prices may not be the answer for everyone or every market, and if a dealer can achieve a superior average selling price and also have a successful business, who's to argue? But in a world with increasingly price-oriented consumers, a narrow customer base, and with continuing price competition from new sources, intentionally moving down market is a strategy that may be worth examining.
