in Bicycle Retail

The Future of Profitability

Jonathon Nunan – Better Bike Business

“Profit margins in Bicycle Retail aren’t what they used to be”

And it only seems to be getting tougher to stay profitable & viable

This presentation aims to address the key changes to the bike industry paradigm, how they are affecting bike retail and what real world strategies and investments you can make as retailers to maintain or even improve

profitability in the future.

1. What’s changed in bicycle retail and the industry more broadly?2. What challenges and opportunities do these changes offer?3. What real world solutions and strategies can I use to stay profitable?

But firstly … Who am I and what’s my back-ground?

• Australia’s Bicycle Industry Specialist Consultant at Better Bike Business

• 19 years in the bicycle industry; in Sales Management, Wholesale & Retail

• Industry commentator for leading industry titles• Race commentator • Former elite track cyclist

Jonathon Nunan

Back in the days of ‘double-up’ and ‘doable’ It’s not hard to remember when bike retail was relatively straight forward – essentially because it wasn’t actually that long ago

- before the emergence of online retail behemoths from the UK, US and Europe- before local consumers became globally price and product aware;- when rents and wage expectations were ‘doable’ - back when brands were imported through local wholesalers, who in turn only sold to bike

shops. - back when bike shops with grease on the walls and flickering fluoros, started Christmas

lay-bys in July and could expect ‘double-up’ margins on most products in the store, including on many of the bikes.

- life as an IBD was relatively straight forward and profit margins were good…

So the ‘Old Bicycle Industry’ is dead then? Yes. Dead, like dinosaurs dead

(although a few dinosaurs still seem to roam the industry).

The Internet was our asteroid. It crashed into our industry in a dramatic and not totally foreseen fashion.

And whilst it is viewed by some as a destructive force; it should instead be regarded as a necessary and broadly beneficial change agent. It was the mass-extinction event we needed to have. As we know, dinosaurs evolved into birds and other exciting, more nimble and better adapted life forms. So you either adapt or end up on a plinth in the Natural History Museum.

The New Bicycle Industry ParadigmThe supply chain model as we know it, has changed forever

 • The big bike companies are acquiring the smaller ones (or shutting them out)• Major brands & manufacturers offering direct purchase pathways to consumers • Brands looking to control or influence customer relationships and retention• Brands opening stores or controlled distribution concept models• Brands purchasing or investing in distributors• Distributors offering ‘click and collect’, drop shipping and new delivery methods• IBDs becoming effective showrooms, click and collect sites and servicing centres • Bicycle ‘Retail’ becoming a multi-channel, multi-model smorgasboard; ranging from

purely online entities, through hybrid bricks’n’clicks stores, to direct import retailers, ‘factory’ showrooms, mobile service providers, pop-up retailers to traditional bricks and mortar IBDs (yes they will still exist).

• Outsourced or off-shored sales, admin, accounts, social media management or marketing support

New Paradigm. Lower Profit?There’s no point in pretending it isn’t getting harder to be profitable.

• Globally benchmarked retail prices force down margins all along the food chain• Competition with vertical operations also forcing down price expectation• More players, more competition, also forces down prices and margins• Increased consumer confidence with online purchasing• Online retailers doing a much better job with service and delivery• Baseline costs of business have never been higher; especially rents, wages,

insurance, technology requirements (hard and soft ware)

So, the “LBS” is doomed then?Sort of, but not really…. It’s complicated.

• ‘Vacuum sealed’ 1980s bricks & mortar stores are doomed. Definitely.• There is no such things as ‘bricks & mortar’ in the pure sense anymore• But the LBS is alive and well and with exciting opportunities and evolutions• Despite the push for vertical alignment and direct pathways by bike

companies, those companies and cycling consumers will still need their LBS; perhaps more than ever

• Despite the new supply chain and the modern connected customer “Back to the Future” retail is the new pathway to success and profitability

• This is essentially a whole seminar of it’s own, but I’ll summarise briefly … As it does directly relate to the profit strategies I will discuss next …

The upsides of the ‘New Industry Paradig’And why they should help you to stay profitable into the

future

What the ‘New Bike Industry’ wantsAnd why that makes you important and potentially more profitable

• Factories, brands and distributors want a more direct line of sight and purchase pathway to consumers

• Brands want more control over customer data, retention and lifetime management • They also need to make sure their products have technical and recourse support• They still need some form of ‘showroom’ for their products• So they either set up their own retail channels; which are expensive and draw resources

and focus from their ‘day-job’. • Or they look to partner and co-invest with the established retail network; which is con-

siderably more affordable and low risk.

Welcome to the big ‘new thing’They’re called ‘shops’. And the new industry just realised they need them.

This presents a clear opportunity for retailers to have their own levels of risk and in-vestment lowered and supported by taking advantage of this willingness to co-invest.Yes, you will have to be prepared to give up some ranging, layout or marketing control in the process, but the benefits will be • lower over all stock burden, • better supply consistency and less missed sales and more traffic driven to your store • thanks to the supported marketing and communications, preferred pricing, POS and

merchandising support and shared stock risk.Other profit opportunities could flow on from the supplier push for drop shipping and territory commissions, where you will profit from sales on products you might not stock ormay have missed the sale on in the first place.

What you can do to enhance your future profitabil-ityAchievable, real world strategies and investments you should con-sider

Invest in your ‘brand’ & ‘value’Make price a secondary consideration and hold your margins

• Invest in your ‘brand’ and your perceived ‘value-add’ – this is too big a topic to cover off in a single slide, but in short, you can’t be the cheapest and neither should you be aiming to be.

• Everything about your business, its presentation, its website, communication, staff, services, inventory etc. must be about everything you bring to the customer and the transaction above and beyond just price.

• Make the purchase experience for the customer about all the other variables you can manage or influence, such as convenience, support, personal-ised service, stock supply, delivery speed, expertise, extended war-ranty, bonus products or services, recourse, ‘members’ benefits etc. etc.

• Make price a secondary consideration and you can be more profitable.

Digital & technology investmentsCRM, RFID, EDM and other acronyms you need to learn to stay profitable

• Maximise future profitability through Investing in affordable and accessible technologies such as CRM software, EDM programmes and RFID tagging

• CRM software will see that your customer data is properly managed • allow you to target and segment your customer base with the right promotions at the

right time• make sure leads and opportunities are followed through systematically and fully, to the

point of sales or enquiry completion• manage customer retention and customer lifetime management processes• EDM (Email Direct Marketing) software will help up take advantage of your hugely

valuable customer data base and report on its effectiveness• RFID technology can save you huge amounts of time, help with stock accuracy, live

reporting, just in time stock management and mobile commerce applications• SEO, SEM are more critical (compulsory) acronyms you must invest in … but you

already knew that didn’t you. Didn’t you?• Get your RMS and Accounting systems in ‘the Cloud’. This will maximise your

efficiencies, opportunities and capabilities

Invest in customer retentionKeeping the customers you already have is far cheaper than

winning the customers you don’t

• Happy customers will always be more profitable in the long run, as they value you and your products beyond just price.

• Invest in developing customer retention policies that promote regular engagement and communication; provide exclusive offers or ‘money-can’t-buy’ experiences; give first look product announcements; birthday bonuses; member discounts; referrals, rewards etc.

• Loyal customers will not only spend more with your business more often, but they will also serve as advocates for your business, which create new customers.

• Customer retention strategies, software and processes are a lot cheaper than customer push/pull marketing or advertising.

Plan for profitIntegrated sales & marketing plans are not just for big businesses

• Create integrated sales & marketing plans complete with budgets and targets • maximise your high season sales (when you can be more profitable) • improve takings during your low-seasons • better plan your inventory intake, presentation and clearance schedules • always maximising the sales of products which drive the best profit and turnover, at

the right times• clear the stock before it needs to be written down more than necessary.• Planning will give you KPIs, targets and most crucially, measurability

Research your profit opportunitiesDoing your homework on your customer base and competitors can

make you more profitable

• One of the most common strategy reports I write for my clients is what I call an “Opportunities Report”

• This report always starts with competitor research. By understanding your competitor strengths and weaknesses, it can often shine a light on the best market opportunities to take advantage of. The opportunities which can offer the best ROI and profitability.

• With retailers, I also like to look at the local demographic data. This is typically enlightening and can illustrate which bike categories, price points or brands to target, to guarantee the best return.

• Do your homework and you can adjust your ranging, communications, marketing and pricing to better suit your local market opportunities and maximise your profits.

Invest in your staffTrain and reward employees your accountant will love as much as

your customers do

Invest in professionally training, accrediting, up-skilling and rewarding your staff • For Technical Capability & Reputation – which will enhance the turnover, achievable

pricing/charging you can gain through your workshop• For Sales Performance – Professionally trained sales people will sell more full priced

and more profitable products, as well as up-sell and repeat sales.• For Customer Retention – customers will always head back to stores where the feel

the staff are professional, friendly and helpful.• For Staff Retention – staff turnover is always costly to your bottom line; whether it be

due to under performance and lost customers due to poorly motivated or trained staff; or the simple cost of job search sites, employment agency fees; and not to forget the lag time for new staff to get to know the systems, products, suppliers and customers. Staff who feel invested in, rewarded, appreciated and valued, will want to stick with you longer, care more about your business, its success and profitability

Invest in your profit centerBuild a workshop your German car dealer would be proud of

• Build a workshop that could stand alone as its own business • Unless you’re a p&a or soft goods only retailer, the workshop is the key

profit and traffic driver in your bike business. • Your workshop is also very high on the list, if not top of the list, for why

customers will come back to your store (or not). • Failure to invest in your workshop, tooling, storage, inventory, capabil-

ity, capacity, presentation or know-how, could be the difference between not just being profitable in the future, but whether you remain viable as a business.

• Any good workshop could and should be able to run and support itself independent of the retail store; so that costs, inventory, bookings, cus-tomer service and turnover are being properly managed, with a close eye on profitability and return business.

Be known for somethingOwn a category in your territory and own the profits too

• Become known as the best store for a particular category in any territory and you will always be able to be more profitable on those products.

• It will give you a strong narrative of advantage and expertise to commu-nicate and market.

• Customers will seek you out for whatever it is. • Other stores will refer business to you and be less likely to challenge you

on that category. • And once again, price will not be the primary driver of sales.

Using discounts to drive profitA ‘special’ should be the lure, not the catch.

Look at the way the nationally and globally successful retailers use discounts and specials.• They are used to drive traffic (digital or actual)• They are used to gain attention• They give the perception of the store’s value propositionBut …• The specials are the minority stock holding.• They contrast against the latest, greatest or simply exclusive products which are more profitable

and desirable.• Specials and discounts are saleable, but equally make the other products around them desirable

and saleable.• Use supplier specials to your commercial and profit advantage.• Don’t be taken advantage of. Don’t make your suppliers problem, your problem.

Expand your income streamsThere’s more to selling bike stuff than selling bike stuff

• Relying on income and profit streams purely based on the bikes and products in your store, or the services your workshop can provide, is limiting the profit potential of your business.

• Income arrows you can add to your quiver; bike hire, guided tours, tour operator sales commissions, mechanic training, coaching, bike cleaning, custom fitting, biomechanical improvements, gym bike servicing, bike storage (for commuters or people on vacation or work trips), bike bag /case hire, aero wheel hire, bike insurance sales… the list goes on.

• Don’t just be a ‘bike shop’; become a ‘bike business’.

• The future of bike retail should be a profitable one.

• But how profitable is going to depend on investment, strategy and planning.

• And don’t be afraid to ask for help. jonathon@betterbikebusiness.-com