Price Fixing Specialized - query

bomberesque

guilliano just a Q; what do you mean by paying VAT Twice?

My understanding is that VAT only gets paid the once on any given good or service (certainly this is the case where I live ... and collect/pay VAT as a company)

guilliano

Shops pay VAT on the price they pay, then pass on VAT on the price the consumer pays..... at least as far as I am aware

yoohoo999

Shops pay VAT on the products they buy from the suppliers, this is input tax (unless the product is exempt or zero rated).

Shops then essentially act as a VAT collector for HMRC. They charge VAT on their products and pass that VAT on to HMRC, this is output tax.

This assumes of course that the business is VAT registered (highly likely for a bike shop) and they can therefore reclaim the input tax from HMRC.

Therefore HMRC only receives tax ONCE on any particular product. Conveniently for HMRC, this is most often the highest amount they could receive for that particular product because the cost of the transaction is at its highest between shop and consumer (as opposed to supplier to shop).



As for the compeition issues. There are a number of key things you need to consider here, some are commercial issues and others are legal issues.

As far as an LBS goes, the price which the product is supplied to the shop is generally calculated as a result of the RRP. Therefore the manufacturers/suppliers know how much margin a shop will have to make on a product and how much they need to make, therefore prices are calculated to meet these margins.

For those of you who have no experience in running a business, the actual net profit your company would make from buying a product from a supplier at full supply price and selling at RRP is not much. You would be very surprised.

An LBS which buys 50- 100 units from a maunufacturer/supplier each year will be unlikely to have secured much in the way of a discount and therefore really needs to be selling as close to possible to the RRP in order to make the necessary profit.

If you happen to be a buyer for CRC for example, their purchasing power is far greater and they can secure units for much lower prices due to negotiation with the suppliers. Add this on to their lower running costs than LBS's, they can sell for a much lower price and still make the same margin as an LBS selling at RRP. Hence the price differences.

If you are a mid-sized LBS and you knock 10% off the RRP of all stock as a general rule (in order to appear competetive and attract business), but you are still secruing the same payment price from the supplier as your competitors, then you are going to make less profit, simple as that.

It is arguable that by selling for a lower price across the board you will attract more customers and sell more products, thus evening out your over all net profit, however this is a risky practice since some goods will need to be discounted anyway (as a result of becoming an older model or being a crap colour etc) so you need to ensure that these deductions are supported by you recovering maximum yield on the products that should sell well (ie getting full RRP for popular bikes).

Merlin can offer such good deals at times because they will be in constant negotiations with suppliers to pick up specific lines of stock at discounted prices. It works for Merlin because they have a substantial reputation in the marker for this and they know they will be able to shift them. A local LBS could never do this. It might sell 50 out of 500 XT cassettes for examples and then has to seriously discount once the new model comes out. This slow throughput in stock and low recovery cause MASSIVE cashflow problems and therefore an LBS would never take that risk.

Larger businesses often negotiate far better credit terms and therefore have less of a cashflow issue, so can take bigger risks on larger orders.


If you are an LBS, you have to consider that setting up a shop is not just a case of picking up a few brochures and ordering the stock you want. This is especially true with premium priced products where the brand reputation has to be protected. A great example of this is Oakley. Oakley have extensive requirements that a shop must meet in order to sell their stock and restrictions on movements from their RRP. Burton snowboard are equally prohibitive. They get extremely pissed off if you discount their stock mid season. This give off the impression that the brand is not selling well and damages their premium image. Therefore they could quite simply refuse to sell any more stock to you. I've acted for a number of suppliers who have had their fingers burned by selling Burton stock on eBay mid season. This harms their US/Europe divide on pricing and is a big problem for them. This is also the reason why US shops are not allowed to take international orders for Burton.

LBS's are not fixing prices, they are trying to remain competitive and solvent in extremely challenging times. This means trying to extract full RRP as much as possible (or in some cases even more) or reducing your prices in line with your competitors to ensure you don't end up with unsold stock at the end of the season.

theblender

UK bike distributors provide retailers with a RRP, the bike shop can sell the bikes at whatever price they want, it's up to them. Most bike shops sell at full RRP because its the only way to maintain a sensible profit to cover the cost of buying the stock, paying the rent/rates/taxes/utilities and paying the staff.
Bike shops are not making huge profits from bike sales, just reasonable ones for the business owners to earn a reasonable living and keep the business afloat.

Customers are not being ripped-off if they buy at full RRP on a bike, it's how business works, its how the LBS survives.

If you can't afford the bike you are after, save up a bit more or buy a cheaper model, or use finance/cyclescheme etc.

What pisses me off as a retailer, is online bike shops advertising current year models at discounted prices when they haven't got the stock. (I always call the shop advertising if a customer asks me to price match, to ensure the correct bike in the correct size/colour etc is in stock and ready to roll....in most cases it isn't and I usually get told they had sold out ages ago)

I could discount all the bikes in my shop all the time if I wanted, but I would be out of business very quickly if I did.

However, I do have some reduced 2009 models in my shop, but I'm not telling you what, because that would be free advertising on the forum, so tuff titties.

yoohoo999

+1

you've echoed my post above, nice to see some LBS input to the thread.

MrChuck

supersonic wrote:

Just because shops are selling at RRP is not conclusive evidence of price fixing. I think the reason of this thread is that the OP wants a deal and can't find one ;-) Many seem to think RRP is always more than we should pay.

Given the enormous popluarity of the Spesh Hardrock and Rockhopper, there is no way I would sell for any less if I had a bike shop! Because I know I will sell them

+1

It's all back to this perception that anything less than a discount is a rip-off, and I wonder if outfits like CRC haven't helped to foster it.

As supersonic says, there's no reason for a shop to sell something to anyone at a discount when they are confident they can sell it to somebody else for the full price- they've already bought it from the distributors so why minimize their margin?
Of course they might be willing to do it in certain circumstances but that would obviously be discretional.

alfablue

Yoohoo, thank you for your thorough explanation, it all makes sense, as I have said previously, I do not believe LBS's are colluding with each other to fix prices, and that I appreciate that unless they are selling very high volumes they won't be able to afford discounting, however, surely this bit:

A great example of this is Oakley. Oakley have extensive requirements that a shop must meet in order to sell their stock and restrictions on movements from their RRP. Burton snowboard are equally prohibitive. They get extremely pissed off if you discount their stock mid season. This give off the impression that the brand is not selling well and damages their premium image. Therefore they could quite simply refuse to sell any more stock to you. I've acted for a number of suppliers who have had their fingers burned by selling Burton stock on eBay mid season.

is exactly the sort of manufacturer/distributor price fixing I have been talking about? "restrictions on movements from RRP" and "simply refuse to sell any more stock to you" if true, are illegal price fixing methods.

Earlier in the thread I quoted the issue with a major sunglasses brand, coincidentally, the one you name, and coincidentally, I was told this by a Bristol LBS :shock:

theblender

Oakley price fixing is bullsh*t.

I sell Oakley in the Bristol LBS I work in. I can sell at whatever price I like with no comeback from Oakley.

Oakley even sent out a letter to all dealers a few years back clearly saying that the RRP price list is just that, an RECCOMMENDED price, and we are free to sell at whatever price we like.

...But, Oakley are a premium brand, and you will not find many stores selling 'em off cheap.....again, if you can't afford to buy them, choose a cheaper brand.

...and once again, I very recently had some old models to clear, were sold for 50% off rrp, but new models like Jawbones sell at RRP as they are a highly desirable, premium product.

If Oakley, or any other of my suppliers for that matter, restricted trade with me for occasional discounting, I would take my business elsewhere, just like you guys can do to your LBS if you don't want to pay the asking price.

alfablue

That's good to hear, theblender. I was told this a few years ago (about Oakley) maybe around the time they sent the "RRP letter" out - maybe they had been suffering some unfounded comments, or maybe having their collar felt . . . At least, the competition on Oakleys is now healthy!

yoohoo999

theblender wrote:

Oakley price fixing is bullsh*t.

I sell Oakley in the Bristol LBS I work in. I can sell at whatever price I like with no comeback from Oakley.

Oakley even sent out a letter to all dealers a few years back clearly saying that the RRP price list is just that, an RECCOMMENDED price, and we are free to sell at whatever price we like.

With the greatest of respect, I think you either don't own your own shop or if you do, you haven't done so for very long.

You say that you "work in" an LBS and then you also refer to it as your own? Which is it?

The reason I ask is because it was VERY well know among everyone who had an account with Oakley in recent years that there were account restrictions.

But of course, its one thing saying it's contrary to competition law, its something entirely different to actually fall foul of the commission.

Oakley were under the OfT's spotlight from 2003 under the specific complaint that:

Oakley (UK) Limited had entered into agreements with its retailers to fix the retail price of Oakley sunglasses

The OfT made preliminary findings that:

Initial price surveys that were carried out when the investigation began indicated that there was a culture of not discounting below recommended retail prices, with a significant number of dealers stating that Oakley did not allow them to do so.

However, as is often the case with the OfT, they run out of cash and can't justify their own policy priorities. They dropped the case in 2007 after Oakely pooed their pants and made a dramatic show of telling everyone that they could sell at whatever price they wanted.

They would have been hung, drawn and quartered if it was not for the fact that the OfT could no longer justify the resources:

In order to progress the case to an infringement decision to a sufficient standard and defend such a decision, would require the investment of significant further OFT resource, in terms of staff time and costs.

In light of this and the OFT's other case and project commitments, the OFT has therefore decided that at this stage it would not be a good use of its resources to pursue this case any further and has concluded that it should focus its resources on other prioritised areas currently under investigation.

I can only link you to information in the public domain, but you should be able to find everything you need here:

http://www.oft.gov.uk/advice_and_resources/resource_base/ca98/closure/Oakley

Oakley were price fixing, the OfT just didn't get round to demonstrating it. Same old story. It's still a problem with many, many brands. The OfT is woefully under-resourced.

I was involved in this from a legal perspective at the time they were under the spotlight. Good to see they are behaving a bit better but to be honest, IMO it would seem rather unjust that they avoid the Commission's blows. 10% of annual turnover would have been their penalty. Might have taught them a lesson.

crimsondynamo

I want a Spesh Command Post (RRP £250) for £125, but the LBS won't do the deal. Call the cops!

Seriously, this price fixing chat is classic sales patter. If you tell the punter that discounts aren't allowed on the product he wants, then he won't continue to "shop around" he'll buy from you there and then.

As mentioned earlier, Edinburgh Bike C0-op have loads of Spesh stuff on sale at the mo' (just not the command post )

djames77

theblender wrote:

UK bike distributors provide retailers with a RRP, the bike shop can sell the bikes at whatever price they want, it's up to them. Most bike shops sell at full RRP because its the only way to maintain a sensible profit to cover the cost of buying the stock, paying the rent/rates/taxes/utilities and paying the staff.
Bike shops are not making huge profits from bike sales, just reasonable ones for the business owners to earn a reasonable living and keep the business afloat.

Customers are not being ripped-off if they buy at full RRP on a bike, it's how business works, its how the LBS survives.

.

I do agree with what you’re saying to a point - you have to maintain certain margins for staff and overheads etc... But take today, i have been to two stockists of spesh bikes. The first is in one of the midlands most premium retail spaces, they have a huge store which i reckon costs the best part of £200,000 per annum. They only sell spesh bikes, no other brands. They were happy-ish to discount on a 2010 bike, only £20 mind. The second shop i visited was in a run down part of the west midlands, small shop, and limited stock. As i know people in the area with similar sized shops i reckon the rent is around £15 - 18,000 per annum. Now, this dealer would apply a discount but only around the same as the larger store. What they did offer though was free helmet and lock, which makes the deal worth while

However, i understand from this dealer the "net profit" in a bike is around 24 - 28% giving substantial room for LBS's to move on price. Net profit on accessories is even greater i am told.

Most retailers work on a 66% gross margin, although when it comes to clothing and accessories this jumps massively. For instance, the t-shirt you might buy in Gap for £20 has been bought for 12p (fact)

alfablue

yoohoo999 wrote:

The OfT made preliminary findings that:

Initial price surveys that were carried out when the investigation began indicated that there was a culture of not discounting below recommended retail prices, with a significant number of dealers stating that Oakley did not allow them to do so.

However, as is often the case with the OfT, they run out of cash and can't justify their own policy priorities. They dropped the case in 2007 after Oakely pooed their pants and made a dramatic show of telling everyone that they could sell at whatever price they wanted.

They would have been hung, drawn and quartered if it was not for the fact that the OfT could no longer justify the resources:

In order to progress the case to an infringement decision to a sufficient standard and defend such a decision, would require the investment of significant further OFT resource, in terms of staff time and costs.

In light of this and the OFT's other case and project commitments, the OFT has therefore decided that at this stage it would not be a good use of its resources to pursue this case any further and has concluded that it should focus its resources on other prioritised areas currently under investigation.

I can only link you to information in the public domain, but you should be able to find everything you need here:

http://www.oft.gov.uk/advice_and_resources/resource_base/ca98/closure/Oakley

Oakley were price fixing, the OfT just didn't get round to demonstrating it. Same old story. It's still a problem with many, many brands. The OfT is woefully under-resourced.

I was involved in this from a legal perspective at the time they were under the spotlight. Good to see they are behaving a bit better but to be honest, IMO it would seem rather unjust that they avoid the Commission's blows. 10% of annual turnover would have been their penalty. Might have taught them a lesson.

This is very interesting, Yoohoo. So in this case, what the LBS told me about Oakley was probably correct. Of course, the OFT now looks toothless and may well encourage others that they will be untouchable. Sounds like it gave Oakley the necessary kick up the backside though, but like many things in life, people won't believe it could happen to them . . .

alfablue

crimsondynamo wrote:

I want a Spesh Command Post (RRP £250) for £125, but the LBS won't do the deal. Call the cops!

Seriously, this price fixing chat is classic sales patter. If you tell the punter that discounts aren't allowed on the product he wants, then he won't continue to "shop around" he'll buy from you there and then.

As mentioned earlier, Edinburgh Bike C0-op have loads of Spesh stuff on sale at the mo' (just not the command post )

It may be classic sales patter, but it is also a risky thing for salespeople to say, with the Oakley case cited above, the evidence the OFT was using were such statements made by shop owners, plus a survey of prices. So, whilst it may often be merely sales patter, sometimes it may not be, and may indicate there is some price fixing such as has been alleged regarding Oakley.

supersonic

"Most retailers work on a 66% gross margin, although when it comes to clothing and accessories this jumps massively. For instance, the t-shirt you might buy in Gap for £20 has been bought for 12p (fact)"

Most bikes are a lot less than that.

Andy B

40% max margin on bikes in the bike shop I worked in, until it closed down last October.

if we had a 66% margin the shop would still be in business.

The Northern Monkey

supersonic wrote:

TowerRider wrote:

Thought so and interesting replies.

I actually emailed 2 asking why the fixed rrp prices and asked them to tell me why I should buy from them but not even a polite reply. I rang up one supplier who has many branches and they said they were not allowed to sell them below rrp and I went into look Bike shop who sells Raleigh and he said they can't sell spec because dealer within 10 miles.

Slightly off topic but as mentioned above (thanks) the sale starts tomorrow and is this a silly question?
Which would be the best buy if both are £400, Hardrock Pro Disc 09 or Rockhopper Disc 09? I thought (little knowledge) the Rockhopper.

The Rockhopper.

Isn't RRP just that though? Spesh sell very well - shops may have no reason to sell at any less!

+1. why should shops reduce the price if they sell well anyways..

Keeping the price up may also help the shop sell stock of bikes that they don't sell much of and have an excess stock....

snig

£200,000 seems very high for a bikes shop rent?

its hard for me to get my head around LBS,I asked in mine for a xt cass they said it would have to be ordered in at a cost of £75! ok if they had to carry stock of xt cass then ok put the price up a bit but I can order in myself and get it delivered to my door for £40! £35+ profit on 1 part to me is too much.so they lost the sale and I've ordered in myself.

supersonic

Some big online retailers can sell OE stock cheaper than the LBS can buy in the product!

The online retailer will make a tiny profit but sell loads.

snig

I understand that but the LBS cant be paying more than £40 for the part? I would have been happy to buy it at my LBS for say £50-55 but having to wait and then go pick it up and pay £35 more!

supersonic

We don't know though!

SDK2007

I phoned Orange bikes UK earlier enquiring about a discount on the Alpine, they refused to budge on the RRP.
I can’t afford the bike at RRP

ILLEGAL PRICE FIXERS !!!!

:P

alfablue

Hilarious :P

yoohoo999

supersonic wrote:

"Most retailers work on a 66% gross margin, although when it comes to clothing and accessories this jumps massively. For instance, the t-shirt you might buy in Gap for £20 has been bought for 12p (fact)"

Most bikes are a lot less than that.

the actual net margin for a mid sized LBS on a mainstream bike will be lower than most people think.

once you take off lease/insurance/staff/utilities etc of an LBS the difference to an online only retailer is staggering. Staff costs and a decent shop location are the biggest drain on profit.

Even in a strong economy, an LBS with enough turnover to employ, say, 3 full time staff and 3 part time staff, will not being making its owner(s) rich by any stretch of the imagination.

As much as I like to support my LBS, I'm also aware that buying something like an XT cassette is FAR cheaper from Merlin.

The difficulty also arises in respect of shop opening hours. I work all week and can't visit the shop. I'm always busy at weekends or out riding.

Why make the trip over to a store which sells the part I need for £75 when I can order it sitting at my desk and have it delivered to my office the next day for £39?

There are some parts/clothing/accessories, and of course bikes themselves, that I would always want to actually FEEL in the store and will pay the premium for that priviledge. However, for everything else, why spend more?

supersonic

If you don't need the benefits of a bike shop (which you may not if you know your product) then I do the same, buy online.

There will always be a place for these items though - those who have chain and cassette replaced instore, those who need one on the day etc. Some shops may even fit for free.

djames77

Finally I have decided on a bike and put a deposit down.

Went to yet another spesh dealer today and got the 2010 rockhopper comp for £750 with £80 thrown in on top to spend on helmet / lock etc..! It certainly seems you can do deals with certain shops, guess it al comes down to the owner

Just hope i can remember how to ride now!