Whoa, that's startling. I always thought bike shops made tons on bikes. You're telling me this bike costs almost $800 even when the parts are bought in bulk?
http://www.eriksbikeshop.com/2013-Furley-Cyclocross-Bike/PR3...
http://www.eriksbikeshop.com/2013-Furley-Cyclocross-Bike/PR3...
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.
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.
- $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.