Killing the Goose That Lays the Golden Egg

Recently, my customer Ron asked me to make some changes to his new Trek bicycle. He wanted to swap out the rear derailleur to a long cage Ultegra 6800 (MSRP approximately $105), change the cassette to an 11-32 (MSRP also around $105) and throw on a chain. He asked me if I could match the prices that he would pay on the Internet. I was honest with him; one of his prices was lower than my wholesale price, the other would have given me a two dollar profit. He proceeded to buy the parts online and I installed them for him. In a world so taken by e-commerce, how can I fault a consumer for seeking out the best prices online? I cannot. Aside from product warranties, which tend to become complicated by purchasing overseas, the consumer has little to lose and a lot to save. I do not see this customer as my enemy. No, the “enemy” is elsewhere.

Presently, there is a huge disconnect in our industry. A customer can go online and purchase goods at a price that my wholesalers cannot sell to me! Shimano, for example, has a price of $100 MSRP on Part X. Let’s say my wholesaler charges me $63 for this part, a markup of fifteen/twenty percent from the manufacturer. I will pay to have it delivered, so it probably owes me somewhere south of $67 by the time it arrives at my door. Can I sell this part for less than $90? If I want to continue paying rent, paying employees, paying my suppliers, and keeping a roof over my family’s head and food in their bellies, the answer is, quite simply, no. If Shimano, SRAM, Campagnolo, or any other manufacturer advertises an MSRP of $100, sells it to wholesalers for $55 who sell it to me for $63, how can an online entity sell it for $65? OEM (original equipment manufacture) pricing, quantity discounts, VAT (value added tax), and exchange rates  all might have something to do with it, but the terribly disappointing  answer is — no one really knows for sure. 

Original Equipment Manufacture is a fancy name for componentry that is sold to bicycle manufacturers such as Trek, Specialized, Bianchi, etc., for the express purpose of ending up on their complete bikes. The price of OEM is significantly less than even the best wholesale price. Even though this equipment is sold specifically for new bike manufacture, somehow this product finds its way into mainstream online retail (also known as grey market) and makes a mockery of retail pricing. If a company is able to buy a massive amount of some product, they are often able to receive a deeper discount on said product, similar to OEM pricing. These huge quantities require significant storage space and a far-reaching customer base to unload product — both of which almost all brick and mortar bike shops lack. Aside from grey market and purchasing discounts, it is interesting to look at differences across borders. VAT, or value added tax is, for all intensive purposes, a much higher version of the sales tax we pay here in the States. In England, for example, it is 20%. Lucky for American consumers, the tax is typically only charged when the item is purchased in the country it is being sold – in other words, American consumers don’t pay it. 

At the end of the day, it’s hard to say how much these variables play a part in online deals. The truth is, regardless of how they do it, the problem remains.  

I don’t need to mention the adversarial atmosphere that’s created between consumer and retailer, do I? In addition, the retailer feels confused and neglected by manufacturers who appear to talk out of both sides of their mouths. Manufacturers have suggested retail prices on which they base their wholesale pricing to shops, MSRP. Then, they sell to companies who degrade pricing structures, altering perception as to the value of an article. It may come to a point where bike shops will hesitate to keep anything in stock, other than the basics. 

If there is one thing I think we can be sure of, it is that all of this will damage the industry. The number of bike shops across the country will diminish as owners find other ways to make a living. This also has the effect of producing a larger number of riders who install their own parts, some of them not very well. Cycling could end up poorer when all is said and done.