FOUND THIS IN ANOTHER THREAD...... Margins in the bicycling industry � Fritz Pienaar and Andrew Mclean Fritz Pienaar Welcome everyone, thank you for attending this meeting. First of all I would just like to say that this meeting is not aimed at the wholesalers, but the wholesalers do play a part and it them that created the concern that retailers are not making enough money, and that this leads to their accounts not being paid. I would just like to say that everyone agrees in principle with raising the margins in the cycling retail industry, we have support from many retails, whom have phoned or contacted me personally to say that they are behind the decision and that it�s time something like this occurs. Ie. Bowman�s, Hatton cycles Wholesalers all agree in principle that this is needed. Andrew Mclean The urgency of this meeting means that we should have had it by July of this year. Everyone agrees that our industry is not healthy at the moment, we�re simply not making enough, and the margins are too low. Times are tight; there is never a right time to introduce higher prices. We can continue to moan about the industry, we got the smallest margins in the sporting industry. This is something that�s in our power to change and rectify, so that we don�t battle to cover expenses and pay our suppliers. Yes there have been previous meetings that have just simply fizzled out, nothing has come of it. The summer time all goes well, we make some money, then winter time comes and the urgency of this matter becomes apparent again. The one complaint is that there are too many retailers, yes this is true. Shops should not under cut each other, as we�re doing ourselves in at the end of the day, if now gives discount no one will shop around, then it�s up the each shop�s service and relations with their customers which will set them apart. We should perhaps look at ways to structure the industry in the winter, which would draw more feet, perhaps by introducing a �Cape Epic� stage race in the winter? This could stimulate margins. As a strict analysis bike shops are a bad investment with no return on investment. Ie. A Shop with 3million in stock would be a bad investment to buy at the stock from that shop, as it would be more lucrative to invest in a bank. Fritz Pienaar Our South African cycling retail industry is not on par with international standards. Ie. America has about a 75% Bike margin and a 100% accessories margin. Barney Treger Retail shops in his industry make atleast 60% retail shops margin �> staff -> equipment Fritz Pienaar I propose a 7-8% Gross increase for accessories from 50% - 75% Margin. And a bike margin increase from 35% - 50%. The only way we can do this is by all agreeing and uniting with the price increase, and getting the wholesalers to back this decision and help us by providing the new suggested retail price to the retail shop who they supply, and advertise that price to the public. Many of you are concerned that this is some form of price fixing, it isn�t and this is not illegal. By any means it could be seen as price fixing from the suppliers that we need to sell at only 35% margins. As it is at the moment you cannot sell over the suggested retail price, because people will simply go buy their goods somewhere else. Shops that offer discounts are seen as discount shops, we cannot change how they sell, but If we increase the suggested retail prices they will still under cut us but at a higher margin. Andrew Mclean If the retailer is strong (higher margin) Improved shops More Profit Better trained Mechanics & Staff If the retailer is weak (low margin) Forced to become wholesalers Back door -> Front door scenario (goods sold out the back door at discounted prices)?or ie. Import �Grey� Shimano products, sell those with legal products and up the margin to 40% Bad cycle shop, which in turn means everyone has loss (wholesalers too) Retailers have the power, they have the choice to stock higher profit bikes and support those wholesalers. This means that they can pay their rent, salaries, overheads and suppliers. It�s your choice as retailer to stock items from suppliers, if your wholesalers does not support the new margins, then you can choose to stock only from those that does. Forcing that wholesaler to comply with the new margins and suggested retail pricing. We all have different interests eg. Golf, Jet Skies etc. But most of our passions come from the cycle industry, which we want to see grow. We can create a sustainable healthy industry, the King pins in major areas agrees, that higher margins are needed to create this. We need your co-operation and support to introduce this on the 1st October 2008 Support wholesalers and retails, the bigger shops will apply pressure to the wholesalers and the wholesalers will in turn enforce the new retail prices to the smaller shops. Question: Can we not creep bike prices up over time so that there is not such a dramatic price hike? Answer: The quicker this happens the better it will be for everybody. Barney Treger In my experience the retail cycling industry does not make sense, compared to the rest of the retail sporting industry the margins are simply too low. Fritz Pienaar There is sufficient time to change stock pricing and change price tags. The industry is expecting a price increase already with all the 2009 stock, which is coming in at around 20% increase on average. In 2002 we experienced a similar price increase with the rand dollar, when the rand was at it�s lowest, we were a new shop, and we had some of our best sales over the years in that time. Top end bikes were still bought regardless. Instead of a R6000 LX bike you will buy a Alivio bike worth around about the same money, they will just buy a �cheaper� bike. We can do this, without any upsets if we all do it at the same time. We can start in Gauteng and it will in time spread through the whole country, with help of the Wholesalers, increasing the suggested retail pricing and supplying their customers with price lists showing the new suggested retail amounts. The retailer will remain committed to the wholesaler if the wholesaler supports this margin increase. Retailers: Only support those wholesalers who support the 50% margin, if they are reluctant, they will soon change. Why stock less profitable bikes? Questions & Concerns: Eben Venter New bike shops are opening up everywhere, some of my own customers are opening bike shops, for them and their friends, and worst of all then I hear that my suppliers are now supporting them. We need to create a alliance between retail shops and our wholesalers, if we look after each other it�s more healthy. New shops that spring up all give discounts etc. Shops that spring up online are killing our industry. Fritz Pienaar Online shops seem so cheap etc, but it�s actually a schlep: Products lost over mail that you order Shipping problems that they ship or deliver the wrong stuff There�s always hidden costs You sit with warranty issues (warranty void as grey product) No support Time, usually you need something because something on your bike is broken or you need something replaced, it�s a whole lot of time to waste, to save a few rands. Internet Competition creates concern, People do research on the web, and then consolidates buys with some friends, yes this is causing some problems. Andre Mclean The percent of business you loose is actually very small. As an example Cervello�s oversees online pricing is almost identical to it�s retail pricing. A Shop will not make it in business today if it does not sell Shimano. I often refer to Steven (Shimano) as the God Father. Shimano is in the favoured position to regulate support on retailers. Steven can choose who to supply and whom not. Passion is why we make profit, can you run your business at 35% mark-up? Most businesses run at 100-200% mark-up. Fritz Pienaar Chris Willemse Cycles? Well he has no stock, he tries to undercut everybody, with only about 10% mark-up. In my eyes the internet shopping is only there as a convience, Steven from Shimano does not supply him, and he has to import everything himself. Derek Edwards Do we need a suggested retail price? Fritz Pienaar Wholesalers can then enforce a suggested retail price. Weed-out dealers that piss-off others by under cutting. Eben Venter The timing for this margin increase could not be worse, in the east material costs are up, last year 07-08 this increase would have been better suited. Compared to 08-09. 35% is low yes, it should go up, but a 50% margin hike is too quick? Fritz Pienaar Internationally they sell direct from brand owner to retailer. How can prices still be inline, when we have wholesalers? Marko Concerned that not all Wholesalers will com onboard� Andrew Mclean Michael (Dragons) as example would be force to come onboard if you only stock from wholesalers who support this initiative. Zoon Cronje (Silverback) How do you then get rid of old stock, if current years stock prices are increased aswell? Why not only up new stock from 2009? Fritz Pienaar (FPC) 2009 bikes are up 20% already if all the margins increase then current stock will still be cheaper than new stock items for the following year, which is already an incentive for the current stock to be sold faster. Also how do you know who has what stock when, and sits with a lot of 2008 stock, then people would rather buy from him. All margins should increase on all items 1st October 2008. Charl Theron (FPC) I get a email with a list of all bike that Merida have in stock once a week, with suggested retail pricing. William Tyson (Thule) Suggests that why don�t wholesalers drop the discount if retailers don�t pay ontime. Fritz Pienaar A lot of wholesalers already do this, and it�s seen as a penalty if retailers don�t payontime. Andrew Mclean We need to create reputable stores not discount stores. As far as shops like Cajees are concerned I would embrace another 8 Cajees around my store in Fourways, because you only ever buy one bike from them and then you learn and move on to bike shops who have reputable service, advise etc. Discount Sores They are run like businesses Want to make money They can only sell by giving discount Have no after sales / service Clients shop around Reputable Stores No Discount Club Members only Value adds; club etc After sales Bike fitment Professional Servicing Barney Treger Wholesalers should supply less retailers (Be selective to whom they supply) Overtime wholesalers will weed out unpopular retailers You will be selling less units but your profit will increase Andrew Mclean It�s very important to stick to these mark-ups. There are 180+ Retail shops and on the 1st October 2008 Fritz Pienaar Cycles and all Cyclelab�s in the country will start with the new Margins. Jacques Maritz If I can negotiate a better deal from my suppliers that�s my �cream� -> which I then put away from the winter days. Fritz Pienaar Incentives to have settlement account paid should be worked into the pricing of those items, it should be seen as a incentive or late payment penalty. Not Savings or discount. Mike Bradley We�re her to make money, labour has more mark-up than bikes, sell your labour. Steve Meltzer Why we deal with accessories and not bikes is plain, parts and accessories have more margin, bikes don�t. It�s a tradition that bike�s always had a 35% mark-up. It will be very good for trade if retailers made more money. Retailers should focus to service customers 100%. Shimano had production issues, we don�t carry stock, it�s not a easy game, the economy has been tight with a 45%. Turnover is down. Andrew Mclean The entire industry is to benefit from this. Steve Meltzer Customers from East London complained because there was a new bike shop that opened up, but it was professionally run etc. The other bike shops moaned. How do we differentiate between certain accounts to new stores? How do we discern between shops who take us for a ride, and those that are good bike stores. Fritz Pienaar Does everyone agree? Is there any retailer or Wholesaler who disagrees? Barney Treger We should just look into possible legal implications? Perhaps seek some legal advice?
