Ask the Trade: Are bike sales profitable enough to justify prioritised floor space?

With a steady decline in profitability on bike sales it has been suggested that the time may have come for complete bike brands to be renting floor space within bricks and mortar demo destinations. Have we reached that point yet? We ask the trade…

In the past five years how have your margins on bike sales changed?

Ceri Dipple, Twenty3c
Headline margins haven’t changed, but retained margins have definitely decreased. The discount expectation from customers has significantly increased.

Paul Kenchington, The Bicycle Chain
In a word, downward. In the last five years I’ve lost over four percentage points on my total bike sales margin. One of the key drivers of margin decline has been the visibility of pricing on the internet of old models, so if you have an old model now you can no longer sell it for full money. Reduced prices are highly visible to the web-savvy shopper. Worse still, the price stays visible even once sold in many cases in a bid for traffic.

The expansion of SKUs has meant that we’ve all got far more stock than we need, so it’s dumped by suppliers struggling with cash flow. You either go with it and clear, or hang on dangerously.

The cost of sales to be competitive is so difficult now. The whole thing has turned on its head, why is the finance company earning more gross profit than I do?

John Askham, Kinetic Cycles
We’ve been open six years now and I would say our margins have remained relatively stable. I think there are certainly more targets to hit and incentivising from suppliers in order to retain competitive margin, but we seem to be hitting them regularly and therefore haven’t really suffered as a consequence.

Mick Murphy, Mickey Cranks
Not significantly.

Do you think your net takings on bike sales have increased or decreased?

Ceri Dipple, Twenty3c
It depends if you are looking per unit or overall. Per unit, it has decreased but overall it’s increased.

Paul Kenchington, The Bicycle Chain
Two years ago I made 65 pence a bike before corporation tax. Today I make not much more. I got my overheads down 0.5%. It costs you about 30% margin to run the business and we make 30% margin. We are not making money selling bikes. The whole dynamic needs to change; a lot of brands haven’t realised this yet. If they do realise it and they do accept a different dynamic then we can all move forward. There’s a lot that needs to change, but it needs bravery from the brands.

If you went the car trade route and give your stores margin for achieving customer service levels many in the trade would decline to be involved.

We’ve become the UK agent for Allied Bikes, so this has helped give us greater profitability and a further sense of the big picture.

John Askham, Kinetic Cycles
I would say our net takings on bikes have increased. Our volume of sales hasn’t but we’re seeing excellent growth at the top-end of the sales spectrum. In retrospect, we’re probably selling slightly fewer bikes than five years ago, but our average sales price is increasing. For us, the entry-level road market (£500 – £1500) is dead and we’re happy to leave that to big box retailers who are still ploughing through warehouses of two-year-old stock. That being said, the entry-level MTB market is buoyant, as are the high-end markets across all spectrums. Typically these bikes will have lower margin and require more sales times, but on the flip-side, deliver a greater net yield.

Mick Murphy, Mickey Cranks
I’d say they’ve decreased due to oversupply in the market and online competition.