What I’m about to suggest comes from a place of love and best interest for all concerned.
Bicycle retailers would be better off if they allowed their suppliers to clear old stock directly to the public.
Walk around the warehouses of most wholesalers in the bike industry and roughly a half to two-thirds of the stock you see will be old, discontinued or deadlines; literally millions and millions of dollars worth of dead stock. They offer it to you of course, through endless clearance emails and top of the sample-bag rep pitches. In the end, you cherry pick the most saleable stock and leave the bulk of it to the wholesaler to dust and move around on forklifts.
You don’t really care what they do with it after that; as long as they don’t try and do something dastardly like, SELL IT TO THE PUBLIC!!! Bastards! How could they do that to you? Undermine your business, selling old stock to your customers, which they had already offered to you at or below their landed cost, but you didn’t want. Cancel your account with them. Ban their rep from your store. Put all their stock in the discount bins. Run around howling at the moon and cut off your baby to spite your bath water… or something like that.
But take a deep breath and actually think about it for a moment. Bicycle retailers would actually be much better off if they allowed and indeed, supported their suppliers selling off old stock directly to the public. And here’s why;
- It would actually reduce discounting across the industry
Remember, your reference point as a retailer is wholesale pricing. The consumer’s reference point is retail pricing. 30-50% off RRP is a bloody good deal to most consumers. As a result, discount levels would actually be reduced or stabilised by allowing distributors to clear old stock directly and in a controlled manner.
- It would stop their problems and bad decisions becoming yours
Stock doesn’t sell for lots of reasons. Whilst many of those reasons aren’t the fault of the wholesaler, the majority of them are. Why make their poor decisions or problems yours to deal with? Why not focus your resources, time and energy on the ranging, purchasing and marketing decisions they got right?
- The brands and products you stock will actually hold greater value
Nothing pollutes your inventory’s profitability like being surrounded by discounted random stock all the time. You always want to have some specials, but they should be just that; ‘special’. Leaving the distributor to clear all the old ‘crap’ will actually help you to build and maintain brand and product value with your customers.
- Wholesale prices would become more competitive
Thanks to your suppliers not having to burn vast swathes of their stock holding every year at or below what they bought it for, they won’t need to build the end of season discounting into their costings; which they do. Hence they’ll be able to wholesale products from the get-go at lower prices. Which could help partially bridge the online pricing parity gap.
- Margins would improve
If wholesalers and retailers were having to discount less and products were holding greater value with consumers, both wholesale and retail (net) margins would by right improve across the board.
- Better cash flow for everybody
Clearing the millions of dollars of old and dead warehouse stock more efficiently would significantly improve the cash flow issues for distributors; And with a higher proportion of retailers’ spending being allocated to products with higher dollars in the till return and sales frequency. Their cash flow would also be improved.
- Domestic ranges would better reflect the international ranges
With cash in the bank and shelves less blocked up with old inventory, importers would have less reason to hold new ranges and products back, as they often do. Hence domestic ranges in local IBDs would more likely reflect the full range and options of international markets.
- New ranges would be available sooner
For the same reason, new ranges would also be available sooner, as there would be much less reason to hold them back.
- The suppliers and brands IBDs rely on would be in a better position to support retailers and invest in their business
That greater cash flow and improved net margins, would also allow suppliers to invest more in their retail partners, through increased staff resources, merchandising support, marketing co-investment, store fit-outs etc. etc. Just imagine an industry that worked with and for each other more. Just imagine.
- Suppliers would be less inclined to become your competitor
There are plenty of examples of wholesalers (and brands), who through the prolonged frustration of lack of support from retailers, to either range their products, or help them clear their old stock, decided to become retailers themselves; either directly or indirectly. So let them clear that old stock and they will be a lot less inclined to go down that path.
Think I’m on to something; or do you think I’ve spent too much time over the years glueing tubs to track wheels? Looking forward to hearing your thoughts on my proposition.
Australia’s Bicycle Industry Consultant & Commentator
6 Comments Add yours
Some very good points there, earlier this year I was at a distributor trade day and overheard someone ask to see the bargain basement – I didn’t even know there was one so I tagged along for a look. well what a siht(?) hole it was behind the scenes! There were rows of pallets and crates stacked up so I thought “ooh might be some good stuff here for me” but on further inspection it was as you said piles of obsolete junk and cheapo bikes, much of which had obviously been there for years judging by the dust and age. Virtually nothing was remotely usefull to me and I couldn’t help thinking why don’t they clear it out on Ebay or give it to one of the recycling charities? Oh and if I was their accountant I be kicking someone up the backside for having so much money and space tied up. While I’m at it I would also be looking at the staff/tools (one way to describe them 😉 ) that are responsible for building the bikes before going out to shops!
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Thanks for your comment. Yes, it is quite an eye opener when you get to see just how much old stock wholesalers (and manufacturers) are holding at any given time. You start to get an idea of just how much capital and space is held up in our industry by dead stock. Freeing much of that capital and space up would certainly have flow on benefits for everyone up and down the chain. And yes, I most definitely agree with your comment about staff. Apart from a handful of exceptions, the bike industry’s woes are largely tied to lack of investment in people. That simply has to change. Cheers, Jonathon; Better Bike Business
1. The bike business is flat and has been for some time. Every sale that is made direct is a sale not made in a shop.
2. The achilles heel of your argument is that it presumes vendors won’t simply accumulate more crap if they managed to get rid of the crap that have. They didn’t find themselves in that shape in the first place due to good decision making.
3. 30-50% off? That’s, magically, the shop’s margin. The vendor is still making their full margin. When a vendor sells direct at 20% off retail, that is taking a shop’s margin and using it to wage war against a shop. The vendor, on the other hand, makes their full margin and then some. I’d bet that’s quite addicting, and as a retailer I believe I’m justified in my skepticism when my vendors assure me that their flash sales are to “generate interest in the product” (one among many howlers I’ve heard as to why the product I’ve bought and paid for is suddenly and substantially depreciated).
4. “prolonged frustration over lack of support from retailers” – pretty sure competing with retailers isn’t the answer to this. On the contrary, it’s likely to exacerbate the issue.
5. “So let them clear that old stock and they will be a lot less inclined to go down that path.” – so after having great success selling direct, they will somehow be discouraged from selling direct? I believe they’ll see it as a new lifeline and will brag about their new strategy using consultanty words like “omnichannel”.
6. “lack of support from retailers” – many of those retailers are overloaded with crap they can’t move either. I’ve no interest in buying 5 more widgets when the last 5 I bought are still on the shelf. But somehow, that is twisted into “lack of support”.
7. “new ranges would also be available sooner” – why is this stated as if it’s always a good thing? New ranges are, more often than not, fictional upgrades. Bikes with the same frameset, same groupset, and same equipment are dramatically depreciated when the “new range” – featuring a new paint job – is released. WHY? We market like we are in the furniture business and treat our product as if we are in the electronics business, when instead we should be marketing like we are in the electronics business and treating our product like we are in the furniture business.
8. “If wholesalers and retailers were having to discount less and products were holding greater value with consumers, both wholesale and retail (net) margins would by right improve across the board.” – discounting never, ever leads to “products holding greater value with consumers”. There are numerous examples that show this is folly within the bike industry. Zipp wheels hold value…why? Partially because Zipp is so effective at making sure its products aren’t discounted. Apple products hold value…why? Because Apple tightly controls the perception of value among its customers by not offering discounts and managing its supply chain tightly. Discounting results in commoditization, not specialization. You’re looking at an Escher drawing and convincing yourself the water flows uphill.
…and then there is this:
“That greater cash flow and improved net margins, would also allow suppliers to invest more in their retail partners, through increased staff resources, merchandising support, marketing co-investment, store fit outs etc. etc. Just imagine an industry that worked with and for each other more. Just imagine.”
Or maybe, greater cash flow and improved net margins will allow suppliers to invest more in their direct-to-customer initiatives and web presence. I’ll bet the farm that will actually be the result.
Vendors, like shops, need to focus on the three Ps – product, promotion (marketing), and profitability. Nail those, and everyone wins. Unfortunately, with troubled vendors you’ll find excess effort and resources were spent on the first two. Lots of people in the bike business (vendors and shops alike) have a business plan about as cogent as Southpark’s Underpants Gnomes.
There exists no bike industry, and no cyclists, without shops. No cyclists means nobody for vendors to sell things to. If a vendor wants to sustain itself, it should commit itself to making sure its shops are profitable.
Make no mistake, shops must also do their part to be good, reliable partners for its vendors and good sources of wisdom and inspiration for its customers. Shops must be the grass roots creating cyclists. And shops must operate in a fundamentally sound way as businesses. In my opinion, what you are proposing makes it harder for shops to sustain, not easier. So I must respectfully say, no thank you.
Firstly, I want to thank you for taking the time to really read through my article and make such a detailed, considered and informed response and indeed, retort. It almost goes without saying that a business like Tri Shop didn’t become the success it is by accident. Would love to visit the store one day.
Yes, there are certainly inherent flaws and ‘real world’ banana skins in my proposition. For my suggestion to work, it would require a less cynical industry that actually understood itself as an interdependent ecosystem and not just some parasitic and indeed sometimes, cannibalising food chain.
For my ideas to have actual legs, the industry would finally need to be comfortable with the idea that someone might be allowed to make a profit and that profitability, positive cash flow and regular liquidation of dead inventory, actually benefits the whole supply chain. This suggests the concept that one bike business’s success, isn’t necessarily another’s failure or lost opportunity.
My suggestion does presuppose a certain level of industry Darwinism, sensibility and self regulation. It supposes that distributors will choose responsibility to both the brands they represent and the retail customers they supply. It also assumes they would only directly clear genuinely ‘dead’, discontinued or obsolete stock to end consumers.
The bike industry is certainly at a nexus point across many fronts. Manufacturers, Brands, Distributors and Retailers all need to decide how, where or indeed, if, they fit into the traditional bike industry paradigm. Perhaps more manufacturers should become brands (as Giant and Merida did); or maybe those brands should become distributors (like Trek and Specialized); and then perhaps those distributors should become retailers (e.g. Giant); and maybe more retailers would be better off if they took control of their own supply chain? (i.e. Reid Cycles). Or perhaps the traditional supply relationships are still the best for the industry and the consumer, but just need some re-working, updating and professionalising?
Your statement about there being no bike industry without bike shops is a really interesting one. Maybe you’re right. ‘Shops’ of course are no longer necessarily defined or constrained by bricks and mortar; and online retailers are starting to open shop fronts, show rooms and customer contact spaces. Does anyone care anymore about who owns the Giant shop, or the 99 Bikes store, Evans Cycles or indeed, Tri Shop? And do consumers care about how the goods got into those stores, or who earned the profits? Do they just care about fair price, great product, choice, support, service and recourse? I certainly hope so.
Again Trent, I really appreciate your thought provoking response and the well argued challenges to my article. I look forward to hopefully hearing more feedback and insights from you going forward.
Kind Regards and have a great Christmas, Jonathon Nunan, Better Bike Business
Are we taking something very simple and making it much more complex than it really is?
The problem is that suppliers (and retailers do this too) hold onto inventory too long. “Slow” movin inventory isn’t marked down soon enough, or by a great enough amount, to move it through normal channels. Why? Because nobody wants to take the hit on the books. Write it down and somebody is responsible for a loss. Keep it in the warehouse and it just sits there, holding its book value while steadily declining in real value until something desperate has to be done.
This happens because nobody wants to experience pain. We want to avoid bad news as long as possible, and then, when it becomes serious enough, you invent a new way of getting rid of it, by selling direct, and possibly not even taking a hit on margin. So what’s wrong with that?
What’s wrong is that without pain, there’s less incentive for product managers to really get things dialed in, because they know it’s going to eventually sell through a direct channel. Without pain, the consumer is trained to wait for the product to end up on Groupon or The Clymb. Without pain, there’s little incentive not to over-produce.
If a supplier believes they no longer need the brick & mortar infrastructure, if they feel they can do everything they need on-line, then fine, don’t string us along, just make the change and move on. But if a supplier sees the brick & mortar infrastructure as adding value, then let’s stop pretending that discounted direct-to-consumer plays don’t do serious damage to the ability of that infrastructure to stay in business.
Mike Jacoubowsky, Partner
Chain Reaction Bicycles
Brick & Mortar retailer in Redwood City & Los Altos, California
I absolutely agree with you that the bike industry can so often be its own worst enemy and that failing to deal with sell through or retention of aged stock is a self inflicted wound brought about by poor management, planning, purchasing, sales strategy, sell through management, staff training etc. etc. And again I can’t disagree that just like retailers, distributors and their suppliers need to feel the pain of their own mistakes and more importantly, need to learn from those mistakes and strive to improve their planning, strategy, support and implementation.
All that aside, the industry can’t allow log jams that seriously inhibit the viability or health of co-dependent businesses. A certain amount of industry Darwinism is definitely healthy. We’re seeing the benefits of that across the bike industry right now. But Darwinism does rely on some part of the species or genus adapting and evolving. We can’t all become extinct for Darwinism to be a good thing.
A clot might form in the leg and may eventually flow up to the brain. Should we just cut the leg off? Or maybe the head? Or perhaps better that we break down or remove the clot and allow the blood to flow freely through the whole system again?
8th grade biology class analogies aside, you’re right again about brands and distributors needing to decide very clearly about what their pathway to market is going to be and what their relationship with IBDs and the consumer will look like as a result. The fact is, things have changed massively over the past ten years and will continue to do so. The manufacturers, brands, distributors and retailers are all genuinely anxious, confused and conflicted in equal amounts about the shifting barriers and fluid ground rules. Scary for some. Exciting for others.