What Do Bike Shops Want to Sell You, and Why?

In the comments section of a post from a couple of days ago, I made a remark suggesting that bike shops have financial incentive to sell bikes and accessories separately, as opposed to bikes that do not need additional accessories. I have since received emails asking to expand on that, so let me give it a try.

First, let me just clarify that my comment was intended to describe the financial reality of profit margins, and was not meant as a value judgment of bicycle shops. Bike shops need to make money, or they will go out of business - it's as simple as that. The question is, how to do that and still act in the best interest of their customer?

Consider first, that the retail mark-up on bicycles is usually less, percentage-wise, than the retail mark-up on components and accessories. The better made the bicycle, the more this is so, as production costs for that bike are high and there is a ceiling to what most customers are willing to pay.

Essentially, this means two things:

1. It is more profitable for a bike shop to stock mass-produced bicycles that allow for higher profit margins, and

2. It is more profitable for a bike shop to sell components and accessories than it is to sell bicycles

This explains why, despite the "transportation bike craze," it is still the case that relatively few bike shops stock higher-end city bicycles, especially those imported from Europe. Not only is the potential for mark-ups on those discouraging, but these bikes tend to come complete with everything, not giving the bike shop a chance to at least benefit from the sale of accessories. This provides little incentive to go through the trouble of stocking these bicycles - which is understandable from the bike shop's point of view, but unfortunate for the customer who is shopping around for a nice bike.

So, what incentive is there for bike shops to stock high quality, complete city bicycles and to be motivated to sell them to customers in leu of maximising profits by selling bikes and accessories separately? The way I see it, it is about short-term versus long-term profits - In other words, about building enduring relationships with customers. By acting in a customer's best interest - both in terms of the kind of bicycles they choose to stock in the first place, and in terms of the purchasing suggestions they make to those who walk in off the street - the bike shop is sacrificing immediate profits for the benefits of repeat business and word of mouth advertisement that could result from this customer.

I have visited many - probably most - bike shops in greater Boston at this point, and I have had all sorts of experiences. Despite there being a large number of bike shops in our area, there is only a handful that I feel comfortable in. And for the most part, that's because memories of my early bike shopping experiences remain vivid: Which shops had either ignored me, or tried to take advantage of my blatant naivité at the time - versus which shops took me seriously and acted in my best interest, despite not knowing whether they would ever see me again, or whether I would even buy anything from them in the first place. I remember, and I remain fiercely loyal to the few that did the latter.

What have been your experiences with bicycle shops in your area - Are they oriented more toward immediate sales, or toward long-term relationships?

Posted in: bicycle industry,bike shopping,local bike shops