Profit margins on bikes

p1tse
p1tse Posts: 694
edited October 2012 in Road general
I'm not here to say bikes are expensive, as I appreciate manufacturers have to make a profit, local bike shops have to make a profit and cover overheads and salary etc.

But I was just looking through some online bike places and see some 2012 models on sale at 40-60% off. I assume LBS still make a small margin, but am amazed as this means mark up at rrp is quite high?
Wanted: Cube Streamer/Agree GTC Compact / Pro/ Race : 53cm

Comments

  • pastey_boy
    pastey_boy Posts: 2,083
    Sometimes it is just about getting your money back.
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  • Any chance of a link to these 60% off bikes please??
  • nicklouse
    nicklouse Posts: 50,675
    p1tse wrote:
    I'm not here to say bikes are expensive, as I appreciate manufacturers have to make a profit, local bike shops have to make a profit and cover overheads and salary etc.

    But I was just looking through some online bike places and see some 2012 models on sale at 40-60% off. I assume LBS still make a small margin, but am amazed as this means mark up at rrp is quite high?
    most shops make very little on bikes.

    lots of online Sales places dont actually have anything to give you for your money as they are just scams.

    often the Legit ones will buy up Excess stock from makers/distributors and even shops and sell them on providing the warranty themselves.

    if it looks too good it normally is.
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  • p1tse
    p1tse Posts: 694
    Any chance of a link to these 60% off bikes please??
    http://www.wiggle.co.uk/felt-f4130-athena-2012/

    Example, but don know anything about ot
    Wanted: Cube Streamer/Agree GTC Compact / Pro/ Race : 53cm
  • TakeTurns
    TakeTurns Posts: 1,075
    I work at a nationally well established bike shop in the UK. They have competitive prices and price match other stores/sites. So their prices are "fair". As staff, the discounts we can get on bikes can be up to 50% depending on the brand. This is not the price at which the company gets the bikes at from the manufacturers -it's merely a staff discount.

    Bikes and other equipment are expensive too. The prices have shot up in the past decade along with everything else we buy. The increased popularity in cycling hasn't exactly helped either. It's the simple demand and supply principle and the consumer surplus (willingness of people to pay).

    However this won't be the same for small bike shops. They aren't able to take benefit from economies of scale like the larger firms. In the end, it's the large firms being greedy, but we can't complain because almost every firms' main objective is profit maximisation.
  • smidsy
    smidsy Posts: 5,273
    I work with a guy who used to be a frame builder at Raleigh. In 1984 they started to look at costs of in-house manufacture v buy in fron china and then the sums were - In house build of frame £20, buy a frame from china including all taxes,duites etc £8.

    Obviously this is nearly 30 years ago but you get the basic point - bike frames are relatively cheap to make.
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  • lostboysaint
    lostboysaint Posts: 4,250
    They're very good. But you need to offset that against the small volume sold (relatively), the overhead required etc.

    Don't forget that there's a substantial distributors mark-up as well. But I'd argue that given the commitment that they have to make (how much stock they order months, sometimes years, in advance without knowing the vagaries of the market).

    Bikes are ludicrously expensive, as a bike parts. As the Hope guys said, they can buy a Gas Gas motorcycle trials bike with an engine and stuff in it for £4k and they are a very low volume producer. Someone's coining it in somewhere............
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  • Velonutter
    Velonutter Posts: 2,437
    When I was buying my C59 (150 Anniversary edition), my LBS wanted to sell it to me for £3295 + £179.95 for the seatpost which they would have purchased from Windwave and that was discounted as well from the £3795 + £195 RRP.

    I managed to get it from an Italian Bike shop via a mate for £2400.

    When I told my LBS how much I had got it for he said that if he had sold it at that price he would have only made a couple of hundred on it, instead he made nothing cos he didn't get the sale.

    I'm a business man and I work on the basis of 20% on something is better than 50% of nothing, greed is prevalent everywhere.
  • diy
    diy Posts: 6,473
    All this really says, is that retail is not a straight forward as you think.

    Most products will have a premium phase and a sell off phase. During the premium phase where demand is high and supply low, you will make big margins. During the sell off phase its about clearing stock.

    Its quite possible to make 20% margin on a bike and still have 60% discount. Its also possible for the distributor, to use rebates to enable dealers to sell below cost and still collect a profit.
  • BigLights
    BigLights Posts: 464
    I had an interesting chat with a senior bod at one of the big national chains a while back. Much to my surprise he was adamant that they don't really make huge money on bikes...that's just breakeven (including paying for overheads) on the actual bikes. Where the big margins are is on the rest of the kit - helmets, gloves, lights etc which they assume they will also sell. He compared it to pubs...where they will often sell the food for breakeven to tempt the punters on the assumption you will also buy at least a pint.

    But I have no hard evidence to back any of this up.
  • in actual fact shops only make 30-35% I work in LBS
    MADONE 5.2
  • I've been trying get a business plan to work to open my own LBS - it seems that whilst the gross margins appear relatively high (25% typically), the low volume cancels it all out when you throw in operating overheads. Kit and accessories are much higher, but of typically lower value. Unless they happen to be in a real cycling hotspot, it seems the only real way for an LBS to stay afloat on the labour charges for servicing. Indeed, an LBS down here only does servicing now.

    What's more interesting for me is which end of any given range is a loss-leader for the manufacturer. If you look at cars - the halo models like, say, the BMW M3 usually make no money for either dealer or manufacturer. They serve to pull people into the showroom who will then buy a 320d (which is profitable). However, the relative price difference between the two is quite narrow, whereas the underlying cost to build is hugely different.

    On a bike though, things are a bit different - there shouldn't be too much absolute difference in base cost because there's only a small number of components. There will be a difference in material cost between ally, carbon and titanium, and a difference in production cost for the materials in question.

    Even if it costs double, or even triple, to make something in carbon than it does ally, then by rights if the supply chain can make profit on a £500 Trek 1.1 then this suggests a cost-to-build of £300, and a Madone 6.9 (or whatever number it was this year) would have cost £900 to make. Even If a Madone 6.9 has a build cost ten times that of a 1.1, that's £3,000 against an RRP of £6,000. It would be logical to assume that either the entry-level stuff is a loss-leader (which would be commercial insanity), or the top end stuff is either massive margin or disproportionately expensive to make.
  • Given that nearly everything to do with bikes is imported and the British pound has suffered a 30% devaluation in recent years, then bike related expenditure is bound to increase. Then you factor in the 'fashion' element and the increase in popularity of cycling in G B, not too hard to spot an inflationary trend.
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  • its even worse for tight arse mavic, they only give a margin of 20% on everthing.
    MADONE 5.2
  • verylonglegs
    verylonglegs Posts: 3,954
    BigLights wrote:
    I had an interesting chat with a senior bod at one of the big national chains a while back. Much to my surprise he was adamant that they don't really make huge money on bikes...that's just breakeven (including paying for overheads) on the actual bikes. Where the big margins are is on the rest of the kit - helmets, gloves, lights etc which they assume they will also sell. He compared it to pubs...where they will often sell the food for breakeven to tempt the punters on the assumption you will also buy at least a pint.

    But I have no hard evidence to back any of this up.

    The senior bod doesn't know the pub game from what I hear, it is the other way round...the margins on food are why more pubs are turning to it to survive. The profit from flogging a plate of sausages and mash for £8-9 is way more than anything on beer.
  • A lot of pubs now do 50p margin on a meal but much more on soft drinks and beer - how many offer nights and two for a tenner meal offers have you seen recently? (sorry Londoners but your not representative of the whole county on that one)

    I've heard the pound has lost 30% talk over the last couple of years but if you look at the charts it's been reasonably stable against the dollar And risen since 2007/2008 against the euro - look at the price rises in a high volume bike like the boardman team carbon since 2010 (20%) and its not the exchange rate - more likely an increase in labour and material costs I the far east - general inflation?
  • diy
    diy Posts: 6,473
    Costs of 100 to 150k year 1 start up means you need to sell around 5-8 bikes a day assuming you are aming at bikes which start at 500 quid up. I can think of better returns and lower risks fr that money
  • FSR_XC
    FSR_XC Posts: 2,258
    If you stock a £6k bike, which takes up space in your shop & you sell maybe 2 of in a year, compared to a £500 bike of which you sell 2 a week, why should you not expect to make a decent profit on the more expensive one. After all they need to make a significantly bigger initial investment in buying something that could take a lot of time to sell.

    Economies of scale mean that the £500 is actually better value for money. It stands to reason that it costs a lot less to produce 1000 items a time, compared to 1 or 2.

    If you have the buying power to order sufficient quantities, you get it cheaper. If you then retail it at the same price as the LBS, you make more profit. If you discount it, you make similar profit to the LBS, meaning people avoid their 'more expensive' LBS to buy online / from bulk retailers, therefore they sell more.

    So buy from discounted stock or LBS?
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  • FSR_XC
    FSR_XC Posts: 2,258
    BTW, I wish we got 50% margins on our products!
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  • jamLCFC
    jamLCFC Posts: 197
    Don't loose track of the overall margin chain and the way that will effect pricing. The bike manufacturer sells to the distributor who then sells to the retailer who sells to us. My understanding is that the margin works along the lines of manufacturer sells at 25% to distributor who then makes 35% to the retailer who then enjoys 35%plus out to ourselves. So it can offer the potential for great discounts all through the chain to move volume of stock at the end of year for example. If all the parts of the chain reduce price by 10% each then that's a healthy discount at the customer end. If you then add to that things such as potential exchange rate gains ( or losses) then this cold also be passed onto the customer.

    If you want to test he margin % just look at the businesses that offer the 'direct sell model' and calculate how much cheaper they are than the distributor model...is it about 35%?

    My thoughts would be that he bikes are profitable but nowhere near as much as the parts and clothing side of things but then again I only ride them. :D
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  • When I was in the trade, mark up on a bike was 61% (in our shop). Accessories are typically doubled up.

    Larger shops that sell (buy) in higher volumes will start to qualify for extra discoiunts on the trade price of bikes (& parts/accessories) for example committing to say 300 bikes of the new 2013 model year in the first 3 months in 2013 or whenever they are realeased might get them an extra 10% off of the trade price. If the rrp is fixed like it often is with big brand names this is purely extra margin for the shop, wheras with the un-franchised brands the shops are not obliged to sell at the rrp necessarily & can pass on the saving to the public & drive sales that way.
  • A lot of pubs now do 50p margin on a meal but much more on soft drinks and beer - how many offer nights and two for a tenner meal offers have you seen recently? (sorry Londoners but your not representative of the whole county on that one)

    I've heard the pound has lost 30% talk over the last couple of years but if you look at the charts it's been reasonably stable against the dollar And risen since 2007/2008 against the euro - look at the price rises in a high volume bike like the boardman team carbon since 2010 (20%) and its not the exchange rate - more likely an increase in labour and material costs I the far east - general inflation?

    Velvetytoast, sorry but as a finance bod I feel the need to correct your slightly inaccurate comment on currency trends.

    The euro was stable for some years against sterling into early 2007 , averaging roughly 1.48 euros to the pound.
    by 2009 it had dropped to around 1.10 ( it nearly hit parity briefly), before appreciating this year to around 1.25.

    the dollar started 2007 at 2 $ to the pound, but fell to as low as 1.40 in early 2009 ( only for about 3 month though) before settling ( in a widish range, to be fair) around 1.60.

    This means that import costs from europe will have risen, in like for like terms, by about 15% compared to the stable pre 07/08 crisis levels. However, import costs should actually be 10-15% cheaper for UK companies now than compared to 2009-2010.

    By contrast, for companies importing in usd ( dont forget, with many asian currencies pegged or trading in a tight range to the usd, this means this covers asia as well as the US), import cost rose by at least 20% into 2009, and have stayed relatively stable since ( in a comparatively wide range).

    To conclude, although prices for our bikes will now be higher than pre 2008 bikes in part due to currency fluctuations, as per above, any increases from 2009 cannot be blamed on this- in fact italian imports, for example, should be slightly cheaper, all else stripped out. I think that higher prices are due to general inflation here and throughout the world, in wages, raw materials, energy costs, etc... But also because of big growth in the take up of cycling by a certain type of person. The MAMIL! ( yeah, i'm one of them, sorry)
  • russyh
    russyh Posts: 1,375
    What's more interesting for me is which end of any given range is a loss-leader for the manufacturer. If you look at cars - the halo models like, say, the BMW M3 usually make no money for either dealer or manufacturer. They serve to pull people into the showroom who will then buy a 320d (which is profitable). However, the relative price difference between the two is quite narrow, whereas the underlying cost to build is hugely different.

    On a bike though, things are a bit different - there shouldn't be too much absolute difference in base cost because there's only a small number of components. There will be a difference in material cost between ally, carbon and titanium, and a difference in production cost for the materials in question.

    Even if it costs double, or even triple, to make something in carbon than it does ally, then by rights if the supply chain can make profit on a £500 Trek 1.1 then this suggests a cost-to-build of £300, and a Madone 6.9 (or whatever number it was this year) would have cost £900 to make. Even If a Madone 6.9 has a build cost ten times that of a 1.1, that's £3,000 against an RRP of £6,000. It would be logical to assume that either the entry-level stuff is a loss-leader (which would be commercial insanity), or the top end stuff is either massive margin or disproportionately expensive to make.

    I dont know a great deal about bike shops being a relative newbie, but i know plenty about the motortrade. From my experience and what is written by some here its much the same. Dealerships make very little margin on new cars. In fact front end profit on most models including high volume product is pretty much zero. The profit from new cars come from Volume rebate off of the manufacturers. The main profit centre for most dealerships is the service, parts and bodyshop departments. In fact when i worked for one particular large volume manufacturer margins on the cheapest car (at the time £5k ish retail) were 3% of the base price (pre VAT, deliver, reg fee etc. which usually bought the base price to about £4k) this gave about £120 front end margin, you then need to take away your PDI and valeting cost, salesman commision etc. etc. so on the high volume models you ran at a front end loss! (loss leaders) but even on the high priced stock a dealers margin very rarely broke £1000. Its slightly different on premium brands, but still not great. Hence why the delaerships pre register so much stock. They need to hit the numbers to achieve volume rebate.

    At a guess i would think this is why the larger chains can do such big discounts. They need to sell the stock to achieve some kind of volume rebate or extra margin.
  • TKF
    TKF Posts: 279
    For what it's worth, Evans made £38m GM on sales of £94m

    Wiggle £23m GM on sales of £87m

    Chain Reaction £44m GM on sales of £136m

    Ribble £3.5m GM on sales of £12m
  • diy
    diy Posts: 6,473
    It would certainly look like this market is too controlled if these clams are true. It would seem like there is some attempt at price fixing going on