Author Topic: How to start a bikeshop

Paul Smith SRCC

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How to start a bikeshop
« on: April 10, 2006 »
Mathematically speaking, if a LBS can turnover 10,000 per week at 30% profit margin across the board, it will return an annual gross profit of circa. 150,000. Rent and rates are 50,000. Is it possible for a bike shop to turn over this kind of money? Perhaps I should ask Paul Smith.

Well as I am him (this is when you say you didn't mean me) then I will give you my ten pence worth.

That kind of turnover is possible, if you sell mainly mid-high end items then naturally that is very different interms of volume to a shop that caters for the lower end. In general terms that level of business, stocking shall we say Trek/Specialized price range (by far the two best selling brands) will require a full time mechanic, manager/owner and two/three more additional staff.

In my opinion local business is by far the best way to build up your customer base in terms of stability, especially if the staff are experienced and high quality. Experienced staff are worth their weight in gold (yes I know I would say that), as they will sell the correct product, giving the customer the best chance of enjoying their purchase, which gains their confidence in you, the result being that they will then come back again and again. Of course the reverse is true as well, poor advice with wrong purchase may put the customer off cycling altogether and it will also put them off your shop.

One area that I think is very difficult for a new shop is the availability of the best lines, you may simply not be able to get the items you want, I have had applications for staff vacancies by some who want to work for us simply because we have virtually unrestricted choice of products, enabling us to cherry pick all the items we believe to be the most suitable for the customer; nothing worse than trying to sell a product that you do not have complete faith in. On a not dissimilar note and I have to say personal one, I do not believe in commission sales, as I think this encourages staff to try and clinch a sale for what may not be the most suitable item; you can make money out of customers time and time again, but you will only 'rip them off' once. I believe you should look for the long term custom over the short term sale every time, a view often not shared by some, especially those on commission!

Another ever growing sector is 'Mail order', many now run a website to advertise their shop, the site can normally offer a mail order service as part of the package. However for it to be an asset to you a website will take a lot of maintenance, plus if you decide to promote the mail order side then the lines that sell can vary greatly from what you would normally sell in the shop. Another pitfall in that area is that the business can be inconsistent, this time last year you may have been able to get a great end of line deal which resulted in good sales, these only last as long as the stock does, these offers may only come your way every so often as you are generally buying some one else’s mistake so they can not be relied upon. You really need to look at mail order almost as a separate, yet complimentary business, staff levels will need to be increased to cope with the additional tasks, they will need different skills to the shop floor staff, new products will need to be considered, advertisements take a lot of time and thought, it can reap rewards but it will come at a cost.

Of course those regular to this Forum will no doubt mention the high profile Mail Order Specialists who operate from out of town less expensive premises, they make their profit not only with end of line special offers but by cutting margins and making the shortfall up with high turnover; many of these greatly exceed £520'000.00 a year. Like everything there are good and bad points relating to this. Part of me takes my hat off to them, some run very cleaver websites and provide a very efficient service, if the customers know what they want then of course it is they who in the short term win; with a cheaper purchase. From a business point of view these specialists, at the moment at least, appear to be making a small fortune.

Long term there is a negative consideration that is a concern, one being that there are many Local Bike Shops that will now not stock an item if the supplier has sold them to a discount specialist. Naturally this applies mainly to items bought by enthusiasts, who of course have the enthusiasm to search for items on the internet, as such they are often well aware of the price differences. The longer term effect of this is poor availability, this is before you take into consideration that it is far healthier for a manufacturer to have 10 of their products in 20 shops as apposed to 80 in one, already we are starting to see this happen to what are very established brands, some of I which  fear will not survive. I am not sure what the answer is, the web and the discount specialists that go with it are here to stay.

Mail order of course is aimed in the mid range and upwards enthusiasts sector, there are many good service based bike shops that exist who specialize in the less expensive market that are less effected by mail order. Parents want their Children to try bikes before purchasing, many want their bikes serviced by skilled mechanics and be served by experienced, knowledgeable and helpful staff, shops like this will always exist. The shop Pip described though appears to be in the higher end of the market, this is the market most effected by the world wide web, I am not saying that it is all doom and gloom but you will struggle to maintain your 30% margin by running one of these unless you are in a cash rich town centre, you will be very unlikely to sell a popular high end item with out the customer asking if you price match.

Well I said my ten pence worth but I gave you a bit more, of my own money as well as it is now 8.00pm, I guess I had better go home; by bike of course.