While brick-and-mortar retail has enjoyed a resurgence as the COVID-19 pandemic finally wanes, bike shops face the same challenges in the years ahead as they battled in the previous two decades. Giant online retailers, more D2C brands and shrinking margins make your local bike shop’s survival far from guaranteed.
Some shops will make it. Some won’t.
Disclaimer: We’re talking about bike shops here, but these same principles apply to any “offline” retailer.
How Can Bike Shops Survive?
There are plenty of encouraging bicycle industry statistics that should be comforting. The US bicycling industry was reached a valuation of $59.33 billion in 2021 and should see an 8.2% CAGR through 20230. The growth is focused primarily on road bikes and eBikes, though a substantial share of long-term industry growth will include municipal and privately-funded bike share fleets in urban centers.
Cycling’s Fastest-Growing Segments
Road bikes generated over 40% of total revenue in 2021 and will carry a similar share in 2022. It’s worth noting that the industry classes gravel bikes and cyclocross bikes in this segment, reflecting the nearly decade-long growth in popularity for this sub-sectors of the sport. The fastest-growing segment, however, is the cargo bike. Revenue from cargo bikes, which include both eBikes and non-motorized models, increased 22.3% as a car replacement or car substitute in many parts of the US.
Looks pretty rosy, doesn’t it? The real shift is where these sales are transacted.Related: Trek Farley 5 Review
Offline Bike Sales vs Direct-to-Consumer Bike Sales
One of the main roles of a bike shop for decades has been to serve as an exclusive dealer for specific brands. Bike shops were in-person sales outlets for global brands, complete with the same sales incentives, licensing agreements and contracts as an automotive dealership.
That model is almost extinct. In 2021, 50% of all bike sales were in person; 50% were online. Online direct-to-consumer bike sales are expected to increase at 10% CAGR from 2022 to 2020. That means 2022 will have been the first year online bike sales outpaced sales from bike shops.
Direct-to-consumer bike brands like Fezzari, Alchemy, Ribble and Canyon vie with online retailers that sell bike brands also available in many bike stores, like Niner or Raleigh.
Direct-to-consumer sales don’t account for a more hybrid approach.
Buy Online, Pick-Up in Store
Specialized, Trek, Kona and most major bike brands now offer the option to purchase a bike online direct from the manufacturer and have the bike shipped to the closest dealer. Buy a Trek online, for example, and it will ship to Brick Wheels. The bike shop gets a small cut of the sale to account for building the bike, but the incentives vary by brand.
What Margin Do Bike Shops Make?
According to an online poll in 2022, the average bike shop margin on a new bike is 36%. On a $2,000 bike, that’s a profit of $720. Even a 10% discount on MRSP cuts the margin to just $520. (Editor’s Note: We once ran the average margin of new bike sales by the manufacturer, including discounted bikes. One year, the average margin on Salsa bikes was 11%.)
In Q4 of 2022, the bike industry saw a glut of supply that caused shops to offer steep discounts to get bikes off the sales floor. Some brands were even charging bike shops for inventory even if the shop asked not to take delivery.The most vulnerable spots of any supply chain are at each end. For retailers, the only thing worse than having too little inventory is too much; taking delivery often triggers the 30, 60 or 90-day terms that require payment. Taking a gravel bike in December that needs to be paid for in March means you’re going to be making credit payments on that order in a lot of situations.
How Do Bike Shops Make It?
The bike shops still around in 2030 will be the shops that focus less on new bike sales and more on service, online sales and rentals. Here’s one way to do it.
Know Who Your Competition Is
The real competition in cycling isn’t the other bike shop across the street. (In Traverse City, McLain, Brick Wheels and City Bike Shop have thrived thanks to the fast food model.
The customer these shops lost isn’t the one that walked across the street. It’s the hundreds or thousands of customers that bought a bike, a part or clothing without visiting any local bike shops at all. Ecommerce sales have eclipsed $735 billion for the year as of Q3 2022 and are expected to grow by 19.7% in 2022 YoY.
Don’t guilt customers for buying online. Sell online. Many local shops are investing in online sales to meet changing customer needs. Cycling-specific ecommerce platforms have proliferated and CMSs like Shopify have also made it easier to sync physical and distribution inventory at the shop level.
Follow the Margin
There’s more to a bike sale than the initial margin. Many riders return to the shop for repairs, parts and gear. The normal retail margin for a bike isn’t enough to drive long-term success. Instead, bike shops may be better off by limiting inventory and leaning on special orders and online sales from the manufacturer. This strategy greatly reduces costs, lowers outstanding or floating debt and even frees up floor space for higher-margin products, event space, or, you guessed it, coffee shops. Clothing, repairs and rentals offer a higher margin with lower upfront costs without the investment of a $60,000-$100,000 minimum bike order.
Get Women (and Kids) on Bikes
One UK study found that the average male made roughly 25 trips by bike in 2019. In comparison, women commuted by just 10 times. Due to increased marketing, gender-specific bikes and general awareness, more women are riding than ever. The number of women riding monthly in the US is expected to increase at a CAGR of 8.2%.
That creates a persona for shops to think about and serve: women using cargo and electric bikes to commute. Of course, riders of any gender benefit from having access to a wide selection of commuter bikes, but this persona is growing at the most consistent rate.
Be the Community
Jeff Bezos isn’t going to stay late after closing hours to fix your bike. Local bike shops that build strong relationships in the community and go the extra mile earn local support. Sponsoring events, fundraisers, and races and partnering with local non-profits allows shops to become a part of the fabric of their community.
One of the common complaints in any retail situation is customer service. Local shops differentiate themselves from online retailers and each other with exceptional customer service. The days of the cynical, stand-off-ish bike shop dude are over. Shops need to invest in professional employees that understand the product line and provide friendly service – and sometimes, fast. One of the most frustrating experiences at a bike shop is waiting around for help on the sales floor or at the register. Shops with the right floorplan and design make it impossible not to get help.
Shop employees also need to combine their in-store skills with digital tools, including setting up ways to answer questions from customers online. The best way to reach customers is to let them reach you, whether it’s email, messenger or text messaging, bike shop employees will become virtual shopping assistants.
Bike Shops Need to Shift Gear
By offering online sales and in-store pick-up, focusing on higher-margin goods and services and making products more accessible in more ways, bike shops are going to make it. Expect to see bike shops leaner (less inventory, smaller footprint) and more closely integrated with other income sources (coffee shops, breweries, even AirBnBs) to diversify revenue. Traverse City is lucky to have several bike shops that already check these boxes, but there are always new opportunities to improve.