Canyon discontinues direct sales to South African market

[Danger Dassie]

6 hours ago, DonatelloOnPinarello said:

 

Sorry to chip in here, but I have to correct both of you. As an logistics consultant and supply chain analyst, Working in the bike industry, I think I can provide some unique insight, while I having breakfast in Macau, and waiting for what will be a rather unpleasant 47 hour ordeal to get back to JHB…. But you can all thank me later when in about 3 weeks time you are again able to buy some Shimano goodies for your bikes from your supplier of choice.

Canyons business model would never work in SA, but not for any of the above reasons.

Duty on bikes in general, including Canyon is 15%, levied against the CIF (Cost/Insurance/Frieght) price of the bike. Essentially that’s the total purchase price, as delivered to a customs port in South Africa. But every single bike you buy in South Africa is subject to this duty. You just don’t realise it, because it’s already factored into the price on the sticker in the bike shop. The only other tax/add on is VAT, but again, that applies to every other bike sold in the country as well. 
 

You could argue that the shipping cost for mainstream brands is lower because they buy in bulk, but that is also not really true. Bikes are bulky, and expensive to ship. The slight saving they make by bulk shipping is completely wiped out by warehousing and distribution costs locally.

So the price you pay for a canyon consists of: CIF + 15% Duty + 15 Vat

The price of the bike you buy at the LBS consists of: CIF + 15% Duty + local wharehousing + distribution + dealer margin + 15% Vat

(depending on the sales model, there might also be a local distributor/agents margin. But in most cases this is worked into the ex factory price. At least for Spez and Trek and Scott, who all have proper brand representation locally. The others handled by “middlemen” it’s a free for all, and local distributors totally screw the entire supply chain. No wonder Spez/Trek at least are so dominant in the market. Trek is getting there, having only recently gone this route) 

But essentially the Canyon shouldn’t be costing more because of shipping or duties. Those apply equally whether you buy the bike from cyclelab or you import it directly yourself. And granted the exchange rate is reasonable on the day you buy your canyon, then your total cost would have been comparable to local prices for the other brands.
 

When I bought my spectral in 2018, it was very favourably priced, in fact it was a bargain compared to the similar options available locally at the time. Granted I took delivery of my bike in Germany and “smuggled” it back as check in baggage, so I skipped shipping and duties, but I had to pay German VAT at 19%, which I didn’t get back at the airport, because I had ridden the bike in the alps on that trip, so it was used by the time I left the EU, and my excess baggage fee to fly the bike on Air France was 150Eur or something. So all in very close the what I would have paid in VAT and Duty if I had shipped it to SA.

The problem with Canyons business model in South Africa is the South African. They failed to understand South African consumer behaviour. A DTC distribution model will not work for luxury goods in South Africa, and even more especially bikes. Whether you guys on this site believe it or not, you are the minority of the cycling consumer in South Africa. Who follow cycling religiously and know about canyon because you watch world cups and grand tours etc. The typical consumer has probably never heard of red bull tv, and might maybe watch a bit of the TdF, but only because it gets a bit of coverage on the mainstream news, and he doesn’t want to sound an absolute fool when he meets up with the rest of the C group for the Saturday club ride. South African Consumers are also extremely image conscious, what they buy is more about impressions, with very little concern for value. So there’s just no way they going to buy a Canyon, that is essentially an unknown brand here, even if it offers much better commented etc at the same price as a known local brand.

If you buy a S-works, you don’t need to explain your choice to the mates. They will all be wowed by the sticker alone. Same goes for a new pro-Caliber. Or a Spark 900 RC Team. Your mates know it’s the bees knees, and they have seen it on the floor in the shop, and know what the sticker price is. But a Canyon you would need to explain/justify, and that kinda defeats the point here. An upper middle class South African with with a decent credit score, is a sales managers wet dream. The smart marketing folk from the car industry cannot makes sense of our spending habits, same goes for consumer electronics and so on. So to imagine it would be different with cyclists was a oversight from Canyon. We are a relatively small market for Specialised for example, but we sell more s-works bikes as a percentage of all units sold than any other market. I rode SANI in 2017 with the German supply chain manager for Specialised. He was astounded at the number of epic Pro and S-works models, and also the fact that’s almost everyone taking part was on a carbon dual sus of relatively recent vintage. In Europe that simply wouldn’t be the case, at what is essentially a sportiv/social race. Europeans, although having superior spending power, are much more value conscious, and much less concerned with vanity. 

Without a retail presence with storefronts in major retail spaces, there is no way to build the brand awareness needed to become “cool” in SA. Canyons impressive trophy cabinet doesn’t matter to the target market in SA. 
 

Then there is the fact that South Africa is still not really a e-commerce nation. Covid has changed that in a big way, mainstream e-commerce has a long way to go still. I know 30somethings that still use travel agents to book their holiday flights because they are afraid to put their credit card details into a website. Last weekend at a friends place for a few beers, we decided to get a few pizzas. Next thing my mates ask if I wanna drive with him? Perplexed I ask why we don’t just use Uber eats. He says he has never used it, and doesn’t know how. This is after the lockdown of last year when for the longest time it was almost the only way to get take aways. So I say, no problem, I will order. No, he insists, he is happy to drive, and besides he likes chatting to the staff while he waits. On the way to pizza perfect, we chat, turns out he has also never used an Uber either. This is a 37 year old senior manager in a large marketing company, who also travels (locally) at least extensively. So I ask what he does if he needs a taxi, like at the airport or whatever? He uses those guys that Harrass you at the arrivals terminal. Says he trusts them more. At least he knows who his driver is. He is a cyclist, earns close to 2mil ZAR a year. And even though he isn’t the kind to buy a bike based on its “street cred” alone, he is definately not going to be buying R80k + bike, from a website, with zero personal interaction. He may be an extreme case but there’s a lot of people in the target market for top end bikes, who are just like him. We don’t shop online if we don’t have to. 
 

And then lastly, Canyons main market is the EU. As previously mentioned, Europeans are much much more value conscious than South Africans. Labour is also very expensive. So people tend to DIY a lot more wherever they can, especially with regards to hobbies. So cyclists will be a lot more willing to work on their own bikes. Have some tools, and would be more than happy to buy a bike that arrives in a box and they have to build it themselves. Here, a large amount of riders don’t even lube their own chains. Because a wash and lube costs R150.00, and a service costs R500 odd rand. In the EU, a standard service would cost 65-70 EUR. 
 

So buying a bike that’s arrives flat pack in a box when spending R80k plus, that just doesn’t appeal to a South African buyer.

 

So when you consider all that, it’s actually easy to see why it may just not be worth it for Canyon to continue to service a very a marginal market in South Africa. But it’s not because there’s a problem with the model. The model just isn’t right for our market. 
 

The one thing that I do think is wrong with Canyons business in terms of servicing ROW locations, is that they are choosing to distribute from their German HQ. They claim that the raw frames are sent to from Asia, and then finished in the German factory, before assembly and testing, but I don’t buy that, if they were doing half of the value adding they claim to be doing in Germany, they would be allowed to ship the bikes with a German country of origin stamp, and they don’t. If they could claim Germany as origin, the bikes would be able to ship to most of the world duty free, or at worst with 5% duty. However, now they are shipping from their factory in Taiwan, into Germany, where a 15-20% duty is imposed, and obviously added to the total cost, and then when you order the bikes to South Africa, or the US, and now even the UK, they are again knocked with a 15% customs duty. If they kept all the assembly in a single plant in Asia, and shipped direct from there, they would immediately lower their ROW pricing by 15-20%, and that would make them extremely competitive. 

Sorry for the long post. Hope I haven’t bored you all to death.

Nailed it, and thanks for a quite a few extra insights. 
Just to add, I think Erik needed a lot more support on the staffing side. He pretty much handled the workload on everything from managing supply chain, customer service, marketing, sales etc .... 

So this change ultimately makes sense, at least for now. People can access the brand and Canyon can do right by Erik in the current role, plus he does have an international following so there is plenty on brand/marketing material they can plug onto their global campaigns.

I've interacted and worked with marketing/brand managers, owners and media from all over, they've all been surprised at the level of brand saturation in SA, as well as impressed with the amount of local brands and innovation locally. And generally blown away at the events, both in numbers and organisation. 
We're a strong market all things considered, but brands need to understand the market and adapt accordingly, conversely us locals need to work towards being less insular.

[6AL4V]

1 hour ago, DonatelloOnPinarello said:

Whole bikes from EU are duties at 3% currently - but for all practical purposes bikes made in the EU don’t exist
 

All other bikes are dutied at 15%

 

Canyon cannot sell you a whole bike as parts. They would get into serious trouble with revenue authorities if they did. 
 

They could essentially sell you a build kit, and that would be duty free (except for the saddle @ 45% and tyres I think 5%) then obviously vat on the total price. 

but then the bike must be shipped completely disassembled. No drivetrain component fitted not even the BB. Same for headset bearings, cables, steerer cannot be cut. It also has to be sold as a set of parts, and clearly invoiced as such, and billed as seperate items with each component listed individually. Absolutely no assembly of anything may be done before shipment.

@DonatelloOnPinarello

So to confirm the de facto document to be used when calculating duties is as follows on Page 624 of the Ordinary Customs Duty_Schedule1_Part1_09JuL2021 - is this correct?

 

 

[rock]

45 minutes ago, CraigT48 said:

So to confirm the de facto document to be used when calculating duties is as follows on Page 624 of the Ordinary Customs Duty_Schedule1_Part1_09JuL2021 - is this correct?

 

For a complete bicycle 15% on FOB value, (not CIF)

The VAT then works out to 18.75% of the FOB value

[DonatelloOnPinarello]

Yes, CraigT42

That list basically covers everything, except tires sold loose/not fitted, and also there are a handful of odd exceptions on things like saddles and grips manufactured from certain materials  that get slapped with massive duties, but this very seldom happens. 
 

The other thing people tend to get caught out by is the country of origin. It has nothing to do with where you bought it from or where it ships from. Customs assessment is preferential and non preferential origins, and is normally the country of original manufacture, but in certain special cases this can be amended by the competent authority based on value having been added in a second country.

 

But for bikes, generally, even if they are assembled in the EU, and shipped to you from the EU, the country of preferential origin remains Taiwan. So the 15% duty applies. 
 

you need to be very careful when mail ordering clothes. Most clothes are meant to be levied at 45%. But clothing actually manufactured in the EU is rated at 0 or 5%. SARS likes just seeing clothes and slapping it with the 45% rate, even if the customs invoice clearly states the origin is EU. This is especially true with brands high end brands. RAPHA, Endura, ASSOS etc. So make sure or that before you just pay the duty

[BaGearA]

[ChrisF]

9 hours ago, DonatelloOnPinarello said:

.......

Then there is the fact that South Africa is still not really a e-commerce nation. Covid has changed that in a big way, mainstream e-commerce has a long way to go still. I know 30somethings that still use travel agents to book their holiday flights because they are afraid to put their credit card details into a website.

.....

 

Yet another THANKS for an excellent post.

 

I certainly am very much part of the age group that pre-date all the this e-commerce stuff.  In my defense, I have used Uber during a business trip (cheaper and less hassle than a rental, for that trip).  I even use MrD, dont laugh, it was a big step ... 

 

Living in the Cape we are truly spoilt for choice.  Most items we need are readily available between the range of cycling shops.  For the odd project it is easy enough to get sorted between these outlets.  Even "ordering" from Bike Addict, I pick up the phone, check stock and drive through.  Sure, those Hubbers doing more projects and wanting to use more high end items the playing field quickly change ....  But then, these people know enough of the products to order in via e-commerce.

 

As for buying a bike via e-commerce .... MANY of us simply prefer to "test ride" a bike, check the fit and feel.  Even if it was a local Giant/Scott/etc, I still want to touch it before I buy. 

 

[rock]

2 hours ago, DonatelloOnPinarello said:

ut clothing actually manufactured in the EU is rated at 0 or 5%.

27% if the documents are correct for most clothing items of EU preferential origin (Vat will then be 20.55%)

[DonatelloOnPinarello]

17 hours ago, rock said:

27% if the documents are correct for most clothing items of EU preferential origin (Vat will then be 20.55%)

I think we are veering off topic here, and it’s my fault for bringing clothing into the discussion - if this doesn’t already exist, there should be a seperate thread specifically to  deal with import duties etc.

 

But I’m a bit confused how you come to this?  VAT is always 15%. We do not have variable VAT in South Africa. In the above example, assuming the applicable duty is 27%, and you bought a jacket costing exactly R1000.00, the calculation would be:

The duty would be: R1000*27%=R270.00

VAT would be: [(R1000.00+10%ATV)+R270]*15%= R205.50 - The 10%ATV value for calculating vat is only added for calculation purpose. You don’t pay it.

So, Total cost would be R1000+Duty+Vat = R1000+270+205.50 = R1475.50

 

Due to the Added Tax Value, the effective VAT rate in this instance is therefore 16.2%, but this will always change, based on the cost price and whatever duty may be applicable. You need to work out the effective VAT based on the price including duties. 

 

[Fitbull]

On 7/28/2021 at 2:57 PM, babse said:

and specialised you can actually go see and sit on the bike you want, try sizing (not wait months for shipment), and the price you see is the price you pay.

Sorry, I just never felt like Canyon was actually available in/to SA

I have never felt like a Canyon was available anywhere in the world never mind in SA! I tried ordering a Canyon for over a year but could never get stock. That was with trying to get delivery in Germany beause I travel to DE regularly for business and could have brought it back to ZA with me. I do not understand how they make any money or sell any bikes because I certainly dont have the patience to wait for a new bike for months on end having already had to pay for it up front.

[Jehosefat]

1 hour ago, DonatelloOnPinarello said:

I think we are veering off topic here, and it’s my fault for bringing clothing into the discussion - if this doesn’t already exist, there should be a seperate thread specifically to  deal with import duties etc.

 

But I’m a bit confused how you come to this?  VAT is always 15%. We do not have variable VAT in South Africa. In the above example, assuming the applicable duty is 27%, and you bought a jacket costing exactly R1000.00, the calculation would be:

The duty would be: R1000*27%=R270.00

VAT would be: [(R1000.00+10%ATV)+R270]*15%= R205.50 - The 10%ATV value for calculating vat is only added for calculation purpose. You don’t pay it.

So, Total cost would be R1000+Duty+Vat = R1000+270+205.50 = R1475.50

 

Due to the Added Tax Value, the effective VAT rate in this instance is therefore 16.2%, but this will always change, based on the cost price and whatever duty may be applicable. You need to work out the effective VAT based on the price including duties. 

 

You calculated it yourself. The item cost R1,000 and the VAT was R205.50 therefore a 20.55% effective VAT rate on the purchase price.