I was refering to this: Hi everyone, I was never a member of this forum and was asked to join and comment on this discussion - I cannot believe that it generated so much interest. To put everything in perspective ? I will need to give you quite a lot of info, so here goes: The idea of increasing our retail margins did not come from me or Andrew, or even from bicycle retailers, but the suggestion came from some of the major wholesalers who felt that the industry needed some structure and regulation -similar to the motor industry. Most of the major wholesalers (26 wholesalers) came together in March of this year to try and form this association with some of the goals below: ? Appeal to government to drop import duties on bikes, helmets etc. Import duties are taxes levied to protect local manufacturing of which there are none at the moment. This would bring prices down and make cycling more affordable to the public. ? Increasing the suggested retail prices on bikes which would allow more margins for retailers. Stronger retailers would pay better, hire better staff, have better looking shops and ultimately provide a better front for the supplier?s brand. ? Appoint independent auditors to do audits of existing and new shops to establish if they are financially strong enough to service their account or to open new accounts. This wholesale association never materialized as the wholesalers could not agree on the point concerning the import duties. Some wholesalers see the duties as their competitive advantage and don?t pay duties by importing frames and components in separate containers and assembling it locally. They can then add 15% to their price and make more profit and still be competitive with other brands that have to import their bikes as complete units. I agreed with the wholesale association and wanted it to succeed. I also think that the customer are being screwed by wholesalers who enforce 15% duties (without having local manufacturers to protect), to have a competitive advantage on other wholesalers. I was surprised to see these wholesalers ?comments on the forum and saying that they have the customer?s best interest at heart ? what rubbish!! As said before ? The association unfortunately did not materialize! Most of the reputable retailers wanted this to materialize as we really needed the duties to be dropped and needed to make bigger margins etc. Andrew and I had a few meetings to try urging the wholesalers to go through with the association, but it was in vain as some wholesalers refused to meet and talk with other players in the industry. I then contacted some of the major retailers and scheduled a meeting to discuss some of the points that was of concern to me. This was not a closed meeting and I invited all the Gauteng wholesalers and retailers. Yes All (Cajees included)! We did discuss amongst other points the margins in the retail industry. We asked someone (outside the retail industry) to take the minutes and send it to the dealers present. This was not meant for this forum and was sent to dealers who attended the meeting and had the background on what was said. Dealers needed to read through it and advise on changes of inaccurate facts. The posting of the minutes on the forum might be a good thing, because you are now able to see what margins we really make and what we aim for. There were plenty of reasons why we needed to have this meeting ? here are some of the facts:<?: PREFIX = O /> ? We work on a mark-up of 35% on bikes, groupsets, shock and some accessories, which allows for a profit margin of 26%. We then often have to discount around 5% to club members, customers shopping around etc which now leaves us with a profit margin of around 21%. Retail shop is also not cheap to run with overheads easily reaching of 150K ? 200K per month (R50K rent, 70K salaries etc) This means that the typical medium sized retails shop has to reach a turnover of around 800K ? 1million p/m to break even. This is in an ideal world if you don?t take theft , future servicing of the bikes, build-up and preparation costs etc into account. These margins are unheard of in a retail industry and in every other industry (except the car industry), retailers work on margins of at least double that. International bike shops also work on more than double these profit margins. ? It cost around 2 ? 4 million to open a retail shop and we need to run it as a business, meaning we need to try and make a profit. We all started in the industry because we were passionate about cycling and not because we were clever business people and saw an excellent opportunity. I (and many other shops like me) would be able to make more money if we could sell the business and invest the money. Believe me ? you don?t want the likes of Andrew leaving the retail industry, because it is a crap investment. He builds bike parks, run clubs, gives the sport amazing publicity on TV and organizes events etc. ? Retailers have always been dictated to by wholesalers who suggest retail prices, but they only allow us these small margins. We cannot sell for a higher price than advertised, so shops often die a slow death. We asked wholesalers to either not advertise these prices or to advertise prices which allows us a higher margin. We did not force anyone to stick to these prices and did not dictate to anyone, but we did explain to them that they would be more profitable if they don?t discount. ? Shops go under every Winter and this puts huge strain on our industry as the wholesalers lose money and then have to increase prices to remaining retailers to make up for the loss. These shops dump the stock on the market at wholesale prices to limit their losses, which in turn hurts the remaining retail shops. I can understand that customers get emotional about the pricing of bikes and equipment ? especially when you think that the retail shops are ripping you off. I am sure that you now would agree that this is not the case. The suggested price increase would not have been excessive and would have averaged at around 10%. I believe that this would make shops more profitable allowing them to serve you (the customer) better by employing better staff, having more stock, better looking shops, better mechanics etc. We had over 50 retailers / wholesalers present at this meeting and all of them agreed that the retailers needed to increase profits. We gave these dealers the opportunity to vote for what the increase should be and the end result will probably be in the region of a 3.5% increase. We were not trying to fix prises, but rather get away from price fixing. At this stage wholesalers take the margin they want and then advertise a retail price which is too low for retailers to make a living. We have to stick to the price that is advertised which means that the prices are fixed and we cannot decide what margin we want to make. I don?t believe that prices will increase in this process. The major wholesalers already committed to ordering huge quantities of bikes and they have to sell all their units, so they would have to start lowering their margins when the customers start voting with their wallets and buying online or not buying as many bikes. The bottom line is that you are not being ripped off by the retailers and not one retailer in SA are making huge amounts of money through retail shops. We need some restructuring to stay in business and serve you better. Stop worrying about the prices going through the roof, because that will never happen. Ride for the love of the sport and don?t be so worked-up and negative about something if you don?t have the facts. Regards, Fritz Edited by Fritz Pienaar - 23 Sep 2008 at 1:44pm
