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December 15, 2017
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  • Vitaly Gashpar

    You paint the EU MAP analysis with too broad of a stroke. It’s is far more nuanced and contains many exceptions. If Shimano wanted to, they could easily clean up their EU channels, but they would likely have to give up millions in revenue. An authorized dealer chain is one such exception to the EU MAP restrictions. You don’t see MacBooks shipping from the U.K. at half price, right?

    • Rick Vosper

      Or, to your point, Specialized or Trek (or many other brands). But thanks for bringing this up.

      • Vitaly Gashpar

        The other part of it is that many components sold at deep discounts are obtained as OEM parts from factories that don’t end up using them on frames. Or purposefully over-order with the intent to resell. That’s a much tougher hole to plug.

        • Rick Vosper

          Another good point, and thanks for raising it.

          The movement of most kitting and assembly to Asia has almost eliminated the kinds of stock overages that made large-scale OE gray marketing a big deal a decade ago. The exception, of course, is OE components delivered for in-country assembly, so it may be more of an issue in the EU and other markets than the USA or Canada.

          I haven’t seen a lot of OE-packaged components for sale via the big discounters, although Price Point blew out a bunch just before they shut down operations.

          • GFK

            Grey marketing of OEM “overstock” is still a problem in the European market for many brands.
            The problem is that some of the big internet vendors have strong enough capital backing that they can effectively coerce OEMs into over buying with the offer to hoover up the over stock. The risk of discovery to the OEM is, as you say, relatively low.
            The real problem that all of this generates is one of product and end-user support. Warranty, an authoritative advice service, technical education for the retail sector all cost money and time to deliver in a market that is selling an increasingly complex product at margins that in reality are probably not sustainable.
            End users are the first to rejoice at a low cost component but in many cases are affronted when they have a problem and are faced with difficulty in getting that problem resolved. They don’t usually blame the retailer, with whom their contract actually rests but the brand, who in a good many cases would really rather it’s product was not being sold so cheaply.

            • Dave

              In the case of both Wiggle and CRC before their merger, they went a step further and became OEMs themselves.

              • GFK

                That was possibly the case with some component manufacturers but not all. In other cases we have seen both online and bricks-and-mortar retailers engaging in buying activity that both they as the buyers and their source, as the sellers, know to be contrary to the supply contracts of the sellers.

  • Great piece. Really fills in some of the blanks for us bike shop employees who feel like Shimano hates us.

  • Nice to see you on cyclingtips Rick! IBD’s face getting screwed pretty much from every angle these days, this is just another one. But while they all complain (and rightly so) the best ones concentrate on the stuff they can control – the quality of the service work they turn out. The founding of http://www.probma.org/ is a good move in this direction as proper assembly and adjustment of ever more complicated machines is tough to outsource via the ‘net.

  • lowlander

    Nice to see Vecchio’s getting some, admittedly subtle, CT love.

  • Brands can control who they sell to and for what price. Some cycling brands effectively manage their sales channels internationally to avoid their products from being significantly cheaper in some regions – this supports their subsidiaries / wholesalers and dealers.

    Online customers have an advance when there are price discrepancies but not necessarily a disadvantage when the prices are relatively consistent globally – this provides a greater motivation to purchase locally. Source Ninja says, “It’s just typical lack of Shimano communication,” and it is also a legacy of the company structure and of deals which are very hard to change.

    Bike dealers need to look to the brands – and not complain about wholesalers, customers or (online) competitors when it comes to pricing and the ‘unfair’ playing field. There are a lot of successful bike shops who are competitive, popular and profitable – it can be done.

    • GFK

      This is not strictly true in all markets – once title has passed from a manufacturer to a distributor, where that product ends up may or may not be governed by a series of contractual obligations. In some cases, a distributor may not be allowed to sell into specific markets, may havea single market only open to it, or may not be allowed to sell the product on without first, say, assembling it into a bicycle. In other cases there may be no such restrictions and in that case, the distributor can sell into whatever market they choose, at whatever price point. The manufacturer may choose to make their displeasure known and may seek to adjust the terms of future sales to counteract that activity – but that can be an extremely difficult path to follow and in the short term may well lead to drastic loss of turnover … and that doesn’t even take account of distributors or other buyers, like OEs, who may simply choose to flout the contractual rules to which they have signed up.

  • Rob Davis

    I believe that many bike shops are living in the past trying to operate in 1970 and 1980 manners. I’ll gladly pay a reasonable local purchase markup as long as they’re getting things I need and get it to the shop at least as quickly as I can acquire it via internet order. MAP pricing is there to support the margin for the middle men (distributors). I think the bike shop reinventing themselves to be destinations supporting riders is the path to success. The most important person in my bike shop is my mechanic. I’ve built a relationship with him and we discuss the work to be done and what’s next.

  • Saeba R.

    “covered in the first week of any accounting course: For any manufacturer, profit equals the difference between what it costs to make your products and what you sell them for.”

    Actually that’s not what Profit is. That’s margin or markup.

    You learn that in an accounting course :)

  • Gman993

    There are also other reasons why the large online retailers (OLR) are typically more competitively priced than most local bike shops (LBS) including:
    1 The large OLR buy considerably more product than most LBS so are able to negotiate much better prices. You would be surprised just how little stock most LBS’s buy
    2 The large OLR typically pay COD where as most LBS want VERY long payment terms and many do not even pay within those terms (typically 30-90 day terms)
    3 There are additional costs to a supplier to service a LBS including sales reps (who are typically paid commissions), as well as providing point of sales materials. The large OLR simply deal directly with the supplier (without additional sales rep costs) and also actively promote the suppliers products to their client database without the supplier needing to provide expensive point of sales materials.
    4 The big OLR typically mark up their prices by less than half the markup sought by most LBS. With the large OLR also having a lower cost base (for the reasons above), when combined with substantially lower markups (markup being a % of cost base) this translates to the online sellers being much more competitively priced that the most LBS.

  • Dave

    Where bike shops have continued to succeed, it’s because they add value.

    You can’t lose to the online retailers if you’re in a completely different race.

  • William P

    Good article Rick but you fell way short in answering the primary question – the cost of components. From your article – “Depending on where you live, the plain fact is that your local bike shop is likely paying a far higher price for its Shimano components than the online retailer.” This is how mail order has operated for the last 45 years that I’ve been in competition with them. Back in the 70-80’s it was the race teams over ordering Campy grouppos and selling the excess to the US based mail order firms. Then it was some major US based bicycle brands buying at OEM pricing and selling their excess to mail order. Now it’s the overseas retailers getting classed, by Shimano, Sram, etc as an OEM and paying dramatically less for the same parts, than what we retailers pay. I don’t object to a company offering quantity discounts but give the retailer a fighting chance to possibly buy at the same level.

  • Mickey McMook

    How do you know that Wiggle / CRC are buying with GBP, Rick? These are big companies with expert financial people who are more likely buying Shimano in USD, as they certainly hedge their currency. So your statement “UK reseller still has to spend more GBP to buy product from its source, wherever that source may be” is probably wrong.

    • Dave

      I called out this shaky assumption when CT jumped on the Brexit hysteria bandwagon a couple of months ago. There’s no way that Wiggle-CRC would be sitting around waiting to become a victim of the GBP’s ups and downs.

    • Mike Williams

      I agree they are likely currency hedging the GBP and keeping separate dollar and Euro accounts.

      • Dave

        If you and I are able to think of it, you can bet that the leadership of corporations with hundreds of millions of will be able to think of it too.

  • Mike Williams

    Here in Canada the LBS’s have another disadvantage…they need to buy components (not tires and the like though) from the 2(?) exclusive Canadian distributors who the manufacturers sell through. Not only does this mean that their prices are based on the re seller discount off of the manufacturers MSRP but, and in 2016 this is a big but, these distributors use a paper catalog (a binder full of their wares). I try to buy from my LBS but I go in to look for a part (last time was a chain ring) and they spend 15 minutes flipping through the binder looking for one (assuming they even start with the distributor who carries the product)…if they find it I get quoted MSRP. Five (5) minutes on CRC or Jenson and I can find the same product at 25-40% below this price…OK I need to wait 3 weeks to get it but that is only 1-2 weeks more than waiting for the LBS to get their shipment. Some of them have figured this out and they will quietly advise me to go look online.

    • JCJordan

      We have a similar problem here in Australia but with only one distributer. They also add fuel to the fire as they generally never have any of the smaller or less ordered parts in stock and can take months to get it in.

  • Pete

    I’ve worked in bike shops in Australia for four years, and in that time I’ve concluded that Shimano takes the piss out of the Australian market: their prices are high and their stock levels are terrible. You have a much better chance of finding a part online (CRC usually), and you’ll often get it cheaper than Shimano Australia’s WHOLESALE price. I understand that there are complicated legal and market forces at play here, but surely a huge company like Shimano has the ability to manage their distribution structures so that they’re not screwing over the local bike shop.

December 15, 2017
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