The Cost Of Doing Business

by | Sep 14, 2022 | Uncategorized | 0 comments

The National Bike Dealers Association released their survey on the cost of doing business from 2020-2021. Unfortunately it seems that record profitability in the US market was more of a freak occurrence than a continued trend.

There was a period of record profitability though and we have some idea of why. So I think the question deserves to be asked. Would the trends appear different if the industry looked different? The obvious answer is yes, trends will always look different based on different industry models. But what changes can actually be made to increase the profitability of the industry? Maybe not to the levels seen in the survey but as an average over time.

The NBDA is an American organisation so there is a degree of inference here. The UK and US industry are not exactly the same after all. But they also aren’t entirely dissimilar, we can take the findings of the NBDA to look at our own industry.

How Profitable Was 2020-2021?

It’s no good to know whether this period was an anomaly or part something we can look forward to if we don’t know how profitable it actually was. Well the short answer is very.

Most shops’ net profit tripled. This is actually where the benefit was felt most. Regular sized bike retailers. For larger retailers there was still a huge profit increase at double the profit but not as much of an increase.

To put it in context these are record numbers for the survey. Fred Clemments who used to be the executive director of the NBDA was quoted as saying:

“They’re record numbers going back as far as we’ve been doing the studies, which is since 1999.”

That’s pretty big news.

Also it’s worth noting this is based on median profits not averages. By taking the median profits of stores rather than the average it prevents anomalies. So one very unfortunate store that only sold a bike a week in this period wont pull the average down. Either will a shop selling out it’s stock everytime more arrives.

What Made It So Profitable?

Well it might be surprising but one of the things that made it so profitable may have been supply chain issues. The greatest margin for retailers according to the survey was not new bikes or electric bikes, but used bikes.

New bikes were the fifth most profitable, one step above electric bikes. This might not have been because people want used bikes so much as it was harder to get new ones. Used bikes -including electric bikes- had the best gross margin at 50%. With supply chain shortages and increased demand the value of those bikes increases. New bikes and second hand bikes are able to be sold at higher values. Second hand bikes are cheaper to acquire though.

Cheaper to acquire is key here. Yes there was more interest in bikes but that doesn’t explain the level of profitability. What really let business become more profitable in this period was lower operating costs.

It’s pretty obvious when you think about it, lower operating costs means less bikes are needed to turn a profit. Add that to increased demand and being able to sell a product with a much higher gross margin and supply chain issues look like a blessing in disguise.

What Can WE Learn From This?

Well obviously we’re not going to suggest manufacturing a new supply chain crisis to take advantage of. So what else is there to be done? Cost saving. Increased sales are great but they also rely on factors out of our control. We can influence it sure but at the end of the day we’re relying on consumers.

Cutting costs isn’t the same. We are able to drastically reduce cost of operations by making changes to the industry. Most importantly we can do it without reducing the quality of product for the consumer. As a bonus we can do it while making the industry greener.

That’s right, reshoring. Reshoring production and assembly to the UK cuts down on shipping costs and import tariffs. It also reduces the cost in time, having a much more efficient and reliable supply chain keeps cash flow consistent. Consistent cash flow means you don’t need to spend money you don’t have yet.

Another way of cutting costs though is just like the US market did in 2020-2021. Used bikes. Even though you’re selling them for less you’re cutting out the production, assembly and shipping costs. That’s what gives them such a great gross margin. They also allow the industry to set up a circular economy. Allowing bikes to be used until the end of their life even after their owners move on and upgrade.

There’s plenty of other ways to cut operating costs. But the main thing to remember is that it’s important to do it correctly. Sure it’s more profitable to sell cheaper bikes at the same price but it’s not right to do and consumers will notice. There are ways we can cut costs where we, the consumer and the environment benefit.

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