Is there any money remaining in the typical bike sale? That’s the topic of this week’s Shift Up Podcast, which draws on Jay Townley’s Cost of Doing Business Study, undertaken bi-annually on behalf of the NBDA.
A topic that we’ll be exploring further shortly, Townley and our host Arleigh Greenwald break down the true cost of selling a bike and the profitability attached to the modern bicycle sale taking into account the number of stock turns needed to sustain a typical retail store.
“You should never ever sell anything in your bike shop below your cost of doing business. Essentially, everything that you don’t make money on and that you’re spending money on totalled up is your cost of doing business,” says Townley. “The cost of doing business has come down, which is good, from over 40% of total revenue to in the 30s for most. What we then look at is what is the realised gross margin or return on the sale of new bicycles. We don’t look at what the dealer wanted to get, but what they did actually get.
“The cost of business, while it’s come down, the realised gross margin on new bicycle sales for the top performers is 35%, so for a high performance store it’s about a 1% gross profit on new bike sales. For the median store there’s still a loss of 2-3% points between the cost of doing business and the realised gross margin on the sale of new bike sales. There’s a situation where on average sales are going out at 2-3% below the cost of doing business. Dealers need to pay close attention to the key performance indicators.”
The podcast quickly moves on to discussing inventory turns, showrooming, maintaining margin against outside pressures to discount and retailers removing themselves from the traditional sales method altogether in favour of a consultancy role.
Townley further alludes that the current Cost of Doing Business study may well be the last for some time as NBDA funding for such activity dries up.
“If you can’t make a profit on it, don’t sell it,” concludes Jay.
To listen in full to the podcast hit play below or on the homepage. Further to the Shift Up Podcast, you can catch Townley’s regular business analysis columns right here on CI.N