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.
Please could you (or someone knowledgable) expand on point 2? Why would a MS based system require more maintenance? I am a longtime Mac user, and don't see why a windows setup would be more complex - it would seem easier to do as there would be more options, but what am I missing?
Thanks.
- Virus cleaning
- Some idiot accidentally installs 25 IE toolbars
- Windows update breaks everything
- Wifi drivers decide to stop working
- The thing won't POST one day until you remove and reseat the RAM. Not an MS issue, but common on cheap hardware.
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?
I think the key here is non-technical users. I know many users who have fairly recent Mac hardware that stayed on Snow Leopard because of Rosetta. I cringe to think how many similar users were affected by issues such as the recent Java browser vulnerabilities but no longer receive support for that version of OS X.
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.
Thanks. My work experience would confirm the 'non-technical user' thought. We're mainly Mac based with the odd PC. The PCs are usually on the brink of death due to crapware that someone thought to install. The Macs seem to avoid this, in part perhaps because to the users are so unfamiliar with the system that they don't try to install the crap.
Wifi modules, just like DVD lasers, eventually burn out. Usually it manifests itself in dropped connections after a period of time. I've got an old Linksys WRT54G that can't keep the wifi on for more than 20 minutes.
Five years, hell three years out the mac hardware is obsolete and unable to use the newest OS. I hope your software is still supported on the old hardware! How is your custom POS developer going to test for that by the way?
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.
> Five years, hell three years out the mac hardware is obsolete and unable to use the newest OS. I hope your software is still supported on the old hardware! How is your custom POS developer going to test for that by the way?
Why would their software suddenly stop working on old hardware?
Edit: it's common for OSX to drop support for old hardware. It's also common for software to improve overtime with upgrades and bugfixes. Developers don't want to support old software indefinitely, unless you can do so with newer tools on newer hardware. Simply researching the limits of legacy systems is a massive waste of time, supporting them is a nightmare.
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.
An MS-based system doesn't necessarily require more maintenance. PerformanceBike ran on NCR/Fujitsu(I forget which) POS registers for some years before being replaced with a Windows-based POS system (Datavantage). There were also backend Windows PCs that handled functions such as corporate communications or printing in-store signage. Besides hardware replacement from the vendor(similar to how you might have HP/Dell hardware replacement), Performance managed to support the stores with only one dedicated MIS engineer until they had expanded to 60+ stores. Granted, the backend/POS programming was handled by developers. Additional resources were available if necessary such as facility networking changes provided by overlap of other MIS staff as well.
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?
Pretty close. ERIKS is still is one of the biggest Specialized dealers in the country. I was told by several people (the Specialized rep, ERIK himself and several buyers who worked in the corporate office) they clear maybe $50-$100 per Specialized bike they sell.
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.
I also used to work for Erik's (dinkytown location).
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.
In many cases. the LBS(local bike stores) are at the mercy of the bike manufacturer.
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.
According to the article, gross margins across the retail bike industry are 36% on bikes. However, the cited article says that's about what it takes to break even as that has to cover all your operating costs.
These are not your Huffy brand bikes you buy at Walmart for $100 a bike.
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.
> Macs in all their locations and used a custom built POS system.
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.
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.