Starting a Bike Shop
blog.priceonomics.com
blog.priceonomics.com
Full disclosure - this is who I worked for (http://www.eriksbikeshop.com/EriksHistory.aspx)
Some things about what made ERIKS so successful:
1) bike shops make almost zero money on their bikes. The margins are razor thin. They make a majority of their profit on accessories. For example, they buy kickstands for 25 cents and sell them for $12.
2) ERIKS actually used Macs in all their locations and used a custom built POS system. They only needed one IT guy who ran 8 stores when I was there (they have around 14 stores now). He said if they were using MS, they would've had to hire a bunch more support people. It helped keep costs down.
3) At first ERIK looked for lower rent, out of the way places to set up shops. What he called, "sub-prime" locations. Rent was lower, and because of their superior marketing, they didn't need a prime location to drive traffic.
4) They trained their sales staff. This was a biggie. As a new salesperson, you went through a full sales training. You were trained in sales techniques. How to close, how to get people to buy accessories, how to approach someone, how to go through the process and asking the right questions to get to a single bike to sell. By far this is really where they separated themselves from other stores. Most places would hire bike "enthusiasts" and let them casually sell a bike if a person was interested. They had a very pro-sales approach and it showed in their numbers.
5) Keeping wages low. This is probably a contentious subject for most. But as a salesperson, I made minimum wage, with a small percentage for commission. I think it was 1 or 2% of the total sales I had. By keeping the wages low and offering in store discounts and bike manufacturing discounts (which the manufacturers offer, not ERIKS) they were able to pitch potential employees that, "There's not a lot of money in the bike industry (lie), but people who work for us have a good quality of life and good perks of being a part of the bike community." By keeping wages low, they increased their own bottom line.
http://www.eriksbikeshop.com/2013-Furley-Cyclocross-Bike/PR3...
I worked at PerformanceBike (corporate - MIS) for many years. There the economy-of-scale did help somewhat when negotiating purchases from the manufacturers and I wouldn't say margins on bikes were "razor thin" but I do agree the bulk of sales were accessories and services. However, I have no insight into their current operations.
I was at Performance during several of their acquisitions such as Supergo, Nashbar and another chain in NOVA and all of those operations did have very low margins as the OP mentioned.
You also have to take into account you have to pay the mechanics to build the bikes before they go to the stores. They you have a driver and warehouse staff you have to pay to unload and get the bikes to the store, so there's some labor involved which cuts down on the margins they have.
That was the gross margin on bikes, which I'm pretty sure means (sale price - purchase price)/(purchase price). Correct me if I'm wrong about the formula.
Not included in this is 36% number is the shops cost in selling the bike, which includes,
* Assembling the bike (unpacking, assembling, getting rid of packing materials, which are substantial).
* Tuning and Selling the bike.
* Post sale service.
At least for Erik's, a big part of the post sale service was to get people back into the shop and try to sell them accessories. I don't mean un-necessary parts or work, but things like clothes, bike computers, etc..
For many shops I suspect there is not much profit per bike left after these other expenses.
Erik's stream-lined much of this process, for example most bikes were assembled at the central warehouse by a dedicated crew.
You may be thinking of markup, which is the profit dollars as percentage of cost, and is often used in retail.
A 100% markup results in a 50% gross margin.
- $300 for the steel frame (retail cromo disc-compatible frames are in the 400-500 range)
- $200 for cheap disc wheels
- $100 for the disc brakes
- $200 for the remaining components (levers, crank, seatpost, saddle, etc)
So yes, $800 seems perfect. I couldn't hope to build a bike that cheap at retail cost.
They cost $500-$1000, but you get a high quality product that will last a long time. The ROI makes a lot of sense in the long term. Unless you are the type of person that has to buy a new bike every 2 years because it's shiny.
I've almost never seen an iMac require attention after setup. When's the last time a PC tower operated by nontechnical people ran nicely without IT attention for 5+ years?
In this case, OP mentioned Erik's did have an "IT" employee. I'm guessing the IT individual's knowledge did not extend to having dedicated POS machines or understanding the concept of user profiles and group policy/rights. With cloud-based/hosted POS systems now, security concerns don't necessarily stop at one's browsing/computing platform.
The $6 usb/wifi dongle from Monoprice stays connected for weeks at a time.
As long as we're pulling out anecdotes, I've put together PC's with that service lifetime, for use in business. I've serviced brand new iMacs that don't support certain printers, or other hardware, and the users of these require very much attention indeed.
Why would their software suddenly stop working on old hardware?
Try to find a modern version of some software on OSX 10.4, for example. Development has likely frozen years ago, meaning bugs won't get fixed, security is out the window, and everything sucks forever.
Locking machines down to a POS, this would be no easier in OSX than Linux, and the premium hardware (with associated cost and limited options) makes this the opposite of thrifty.
That is perfectly possible with Windows.
As of this coming Saturday, I'll be a year into operating a coffee shop I opened with two friends. Like HB, my shop has exceeded my expectations in the first year. FWIW, here are my observations on success: If you have the best sales experience in town coupled with a great, consistent product, people will talk about you. I monitor every mention of keywords related to our shop on twitter, Facebook, yelp, instagram, tumblr, etc and after a year in operation, it's pretty clear that people value the attitude [or lack thereof] of my employees, our approachability, the quality and consistency of our product, and the beauty of our shop. In combination, these things help create and maintain a lot of positive buzz about the shop. Buzz begets buzz too. We've never once paid for advertising and instead let word of mouth and good product do the talking. First there were just tweets, Facebook mentions, and word of mouth. Then bloggers started writing about us. Then we had local press do a few stories on us. With time, all this turned into positive reputation and people outside of the city began to mention us. Recently we've received national press. We also just climbed atop the #1 ranking in yelp for coffee in Charleston, SC. Over the past year, I've made a concerted effort to keep people talking and it seems to have worked.
TLDR: If people see integrity in the ownership, quality in the product, and a pleasant sales environment, they will tell someone and they will be loyal to the brand. If you've done your job so well that you can inspire your customers to talk about you, you will grow, even if you aren't in a prime location.
Do you mind sharing what you felt were the key traffic drivers in the pre social media mention days? IOW, what drove people in your door the first 90 days of operation?
We were just in San Diego, and part of our trip was looking for a coffee place "as good as Black Tap"
Look at their biggest expenses: Real Estate, Inventory, Staffing. For a little one-man SaaS, those are all zero. And their margins: 35%, as opposed to the ~99% margins for selling software.
The only expense we have in the software world is the cost of building the product in the first place and the time away from other paying work spent doing support and maintenance. (And at most a few hundred bucks a month for hosting). Considering the you can realistically launch a working MVP with 3 weeks work behind it, and iterate out new features while in "maintenance" mode, it's really amazing how cheap and easy it is to get a profitable business going in our world.
I mean, sure, you can certainly build a software business with high expenses and low margins (take funding, staff up big, spend a year building your thing before shipping, acquire tens of millions of users with no revenue model). But the "mom & pop" model for software just blows the doors off the mom & pop model for retail.
Have they done surveys? Have they asked their customers "how did you hear about us?" Did they bring on each of those employees with sales experience? What was their onboarding process? Did they just get lucky? How far away WAS that other bike shop?
It was a fine article, but I felt it lacked real details.
The article seems to have been written by an outsider that has absolutely no idea how bike shops work. Bicycles themselves are loss leaders -- they make very little profit there. Their money is made from upsell, service, and repeat customers. The margins stated in that article do not reflect my experience. Not by a long shot.
Of the many shops I worked at, very few things made them truly successful:
1) Love, Time, and Knowledge: Easy peasy. know your shit. The best shop I worked at was owned and run by a guy that started the store at the age of eight. Yes, EIGHT. He sold chains and tubes out of his parent's wallpaper store. I live 3000 miles away and still recommend that shop.
2) Location: The worst shop I worked at was on the richest street in a popular tourist destination. It didn't matter how bad the service was or that there was another better shop a mile away. Foot traffic was the only thing that kept (and keeps) them in business.
3) Niche: This only works if your expertise is in a specific type of cycling. The biggest source of failure is that (a) you didn't know as much as you thought or (b) there was another specialty shop that's too close.
4) Outside interest: Someone (usually a company) gives you boatloads of money no matter how bad you do. One shop I was employed at was a BRAND landmark. That shop lost money every month for decades, but it didn't matter; they still sold more BRANDs than any other brand in that city combined. It was a brand recognition issue that was probably considered a marketing cost.
In the end, there's a common industry joke I heard many times: Q: How do you make a million dollars? A: Take two million dollars and start a bike shop.
The article, which I enjoyed, uses the word "impossible" 2-3 times in this context. I do not think that word means what you think it means - it's not impossible to ask at point of sale "How did you hear about us?" and record that. Or even have short survey forms for people to complete while they wait (you'd rather people didn't wait; but to the extent that they are they'd rather fill in info to enter a competition or similar than be bored.)
I disagreed with pg's distinction about startups v real world businesses at the time, and this is part of the reason why - assuming the different types of new businesses are worlds apart because one needed $250k to launch and another didn't.
It's the size of the possible exits which does. Huckleberry Bikes cannot scale to a billion dollar exit in seven years. The sorts of businesses which PG considers startups can. That's why they are attractive to investors.
My contention is that a startup is any early stage business that intends to grow. And that they all have things in common, regardless of whether their vision is billions or thousands. They may move through that stage at different speeds - eg, in particular relation to your raising capital point. But drawing a day one distinction based on vision - not reality - increases risk of failure.
The difference between it and a startup is that my equity stake could never have made me Fuck You Money rich. Sure the company was growing - I was employee #3. Less than two years later when I left there were six and the value of the company was about double. That's the way small businesses grow.
If we had raised $1,000,000 there would have been few good ways to spend it. The differences between small businesses and startups are important if one's goal is to have a startup. It's a distinctly different goal than owning a business.
Hmmm, I guess there's already people working on systems using cameras, face detection and recognition, and linking them to records of faces previously in the store (pr eben passing by), and to cash register sales (and credit card identities)?
I find the idea bth fascinating and creepy.
And I'm now wondering how many stores I walk into are doing it already? What're the chances that most big casinos don't already have something like this automatically alerting customer service when whales arrive (and security when card counters arrive)?
Big casinos have crazy video surveillance but I think there's still a lot of humans in the loop. They've got the budget for it, after all.
Of course, the easiest way to track people and their purchases is to sign them up for the store loyalty program and offer them nominal discounts. Works for grocery stores, at least. Bike stores are trickier. Fewer repeat customers.
(I used to work at the University of Chicago, and took the Red Line to the 55th St. bus. I only had my shoes stolen on the Red Line once, and only watched a high speed chase come to an end with guns-a-blazin' while waiting for the bus once... but I'd still consider that a sketchy neighborhood.)
Waiting at the Redline stop, I only knew one person who was brave enough.
source: http://en.wikipedia.org/wiki/United_States_cities_by_crime_r...
I have never been to Stockton, but you are right that the crime rate there seems surprisingly high. The cops blame it on the drug cartels. The city is fairly poor (median income 35k) and filed for bankruptcy last year. I'm not sure what the problems are there, but I'm fairly sure bored kids are not near the top of the list.
Incidentally, there is something distasteful about criticizing a city you've never even visited. Especially when you live in a much whiter and richer area. I grew up in a poor area that I'm sure many here would have looked down on. You can have pride in where you live without tearing other people down.
Lets wait to see how twitter and square bring the area up in 2 years.
It's bad, but I would say its notoriety comes more from the fact that it's so bad relative to the neighboring blocks. Walk two blocks and you're at the Westfield mall / Union Square.
Startup idea or two? Don't mind if I do.
- http://www.ekahau.com/solutions/retail.html
- http://www.nearbuysystems.com/solutions/in-store-analytics.h...
And here's some additional coverage of that space in the media, with regards to car dealerships:
- http://online.wsj.com/article/SB1000142412788732478440457814... (google URL and click for HTTP Referer if you get paywalled, but I don't think you will)
[1]http://www.fastcompany.com/3004781/google-analytics-real-lif...
Seems like Google could do this quite easily. Provide a WiFi service that customers in-store would auto-sign into, that way they can tell if a customer visiting the store has been exposed to any mention of the shop online. I imagine only Google or Apple, or maybe Facebook, could do this because of the sheer amount of information they tend to have on peoples browsing history and location tracking ability.
Sizing between the brands is notoriously fickle and it's impossible to know if one brand will fit just right while another brand you can't even fit your thighs into the pants. For example, Chrome fits me really well, while Rapha doesn't fit at all. SWRVE on the other hand is only sold at 4 stores in the city (Huckleberry Bikes is one of them, the other three are MissionBike, BoxDog and PushBike). While I haven't been to HB, I have been to PushBike and MissionBike Co, and both have a very very limited selection and sizes of SWRVE clothing. The only non-cycling company that has decent stuff is Lululemon. I'm shocked that in a city like SF that has lots of cyclists, that it is so hard to find good biking clothing.
Given the growth of urban cycling, I'm honestly surprised no one has noticed that you could create just a store that has an excellent selection of fashionable everyday cycling clothing.
I hope the guys at HB are reading this, because I plan on going by there to see if their clothing selection is any better than PushBike and MissionBike Co.
https://www.google.com/maps?q=&layer=c&z=17&iwlo...
Looks like Midtown rags to me.
In Vancouver it's a short stroll from Tiffany's to East Hastings. Rocks are bought openly in both places.
- Provide a nominal discount with a coupon code "goog" so you know users came from Google. Or you can do a printed coupon with a tracking code embedded. I see coupons all the time for bike shops like Valenica and American Cyclery.
- Just ask how people heard about you. Most people will tell you because making up a story is harder and it'll be natural since your sales associates are so personable.
In terms of why the location works, my best guess would be because the mid-Market area is becoming gentrified as more and more startups move in and rents rise and young professionals with disposal income will pass by the store on their way to work.
There are some other great shops in town, Box Dog for instance, but their access to commuters is probably better than any other shop in town.
http://forum.slowtwitch.com/gforum.cgi?do=post_view_flat;pos...;