How to Run a Profitable Bike Shop Archives - National Bicycle Dealers Association

How To Run A Profitable Bike Shop – Free eBook

NBDA — Fri, 30 Oct 2020 19:11:18 +0000

Running a profitable retail store is the goal. It’s also difficult—just consider the churn today in retail outlets. Many try; many fail. Somewhere in the middle are a majority who get by and a smaller percentage who generate solid profits. Even the definition of what’s profitable can be up for debate. Partnerships, business structures, salaries, and where to apply the profits play into the profitability equation.

This eBook written by David DeKeyser will help you analyze your business and determine how you are currently doing and how to run a profitable bike shop.

David DeKeyser and his wife Rebecca Cleveland owned and operated The Bike Hub in De Pere, Wisconsin, for nearly 18 years. In 2018, they sold the business and real estate to another retailer based in a nearby community. David now writes the Positive Spin series on Bicycle Retailer and Industry News and he writes articles for the NBDA’s blog, Outspokin’. David also provides business consulting through the NBDA’s P2 Consult Program.

The NBDA has been here since 1946, representing and empowering specialty bicycle dealers in the United States through education, communications, research, advocacy, member discount programs, and promotional opportunities. As shops are facing never-before-seen circumstances, these resources offer a lifeline. Together, we will weather this. We at the NBDA will not waver in our commitment to serving our members even during this challenging time—but we need your support.

Now is the time to become a member as we join together to make one another stronger. Whether you’re a retailer or an industry partner, your membership in the NBDA is one of the best investments you’ll make this year.

Learn more about the benefits of being a member and join now.

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Is Success as Simple as Following a Game plan?

NBDA — Mon, 17 Aug 2020 23:16:51 +0000

Is being a success as a bicycle retailer as simple as following a proven gameplan, or “recipe for success”? Could it be that simple? If you think about it objectively, the answer is arguable, yes. Look at some major retailers who, over time, develop a tried and true formula, and leverage that to incredible heights. Several external factors can upend even the best-laid plans. Still, by merely following the basic rules, you will dramatically reduce your chances of failure and set yourself up for the best outcome.

Set Realistic Goals

The importance of setting and working towards goals is universal in the business world. Yet, many bicycle retailers who are struggling will have no defined goals other than getting the day’s repairs done and helping the next customer through the door. Without goals, you are similar to the ship floating adrift in the sea rudderless and without power and ill end up wherever the winds and currents want you to go. Goals do not have to be aggressive or include things that don’t make sense for you and what you want your business to be, but they will keep you on track to be the store you wish to operate. Goal examples can run the gamut from wanting to open more stores, become profitable, or have less employee turnover. When a goal is identified, you can begin to develop the plan to reach it. Most businesses’ most basic goal revolves around top-line revenues, which is always the right place to start, but I would encourage you to step deeper into that and have revenues and profits be critical pieces to that goal.

Utilize All The Available Tools

At this point in history, the number of tools we have to run a business is mind-blowing. Retailers who are moving forward are always finding and implementing the use of these tools. Most will be related to the usage of your point of sales and finding ways to leverage the data that you are collecting and then acting on. The most successful retailers are making decisions based on data and using as many tools as possible to enhance the customer’s experience. Customer reward plans, targeted email marketing, online scheduling, and the ability to buy online and automated notifications of the repair completion or special order arrivals, are the hallmarks of a modern retailer. On the backend, the software is making it simple to get a snapshot of your business’s financial health at a moment’s notice and allows you the realtime ability to make decisions that will guide you towards profitability.

Understand That Data Is Critical To Decision Making

Many retailers still, unfortunately, make too many decisions based on their assumptions and preferences. Ordering based on personal assumptions happens for at least two reasons. The buyer doesn’t trust their data because they haven’t done a good enough job of gathering it carefully, and second, they have preconceived notions that the data may be at odds with, and personal feelings are hard to overcome.

Be Open To Changing Directions

I love hearing stories from retailers who have had to pivot at some point in their business’s evolution. Retailers that have been around for a few decades often look very different than when they started. The winds of change will undoubtedly blow at some point in a business’s life cycle, and the ability to recognize and act on those changes will be paramount to not only survive but also long-term success. Check out this article on pivoting in business to see if you fit any descriptions of when it is time to pivot.

Don’t Get Lost In The Minutiae.

Not “seeing the forest for the trees” is a severe issue for any retailers. Becoming so wrapped up in the day to day and minute to minute operations can have disastrous consequences. Being too busy is a simple fact of life for many smaller retailers that they will be called upon to wear every hat, but they need to recognize those times when they may need to address something even more significant than changing the next flat tire. Being too involved can apply to the retailer who has stepped too far into “working on their business” mindset, and hasn’t worked IN their business in quite some time. Be aware at all levels of your business, so you always have a clear view of what is happening.

For help becoming more profitable, check out the P2 Project, a peer to peer, networking group, that members overwhelmingly feel has improved their business, or for more information on the P2 Consult, program contact David@NBDA.com or P2 Consult.

Learn more about the benefits of being a member and join now.

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Are Used Bikes A Quick Fix For Inventory Woes?

NBDA — Mon, 17 Aug 2020 23:05:28 +0000

Utilizing Your Current Customers To Supply Your Inventory Needs.

With the current inventory situation, the bicycle industry (and many others) are experiencing; used bikes could be a great source of the product to offer. With the brisk sales of bikes beginning to slow somewhat, many suppliers’ inventory levels are still virtually non-existent. The best option may be to search for quality used bikes in your business’s price points most needs.

How To Find Good Used Bikes

Your customers may be the best source of used bikes and the easiest to reach. Emailing your customer base and letting them know what bikes and what price points you are looking for may drive those with seldom-used bikes back to you to unload their bikes. You may also want to try posting ads on social media sites and Craigslist. The goal is to drive the sellers to you who may not have been looking to sell, but a simple way to clean out the garage may give them the nudge they needed. Just be very clear about what you are looking for regarding brands, age, condition, and price points.

Alternative Cash Flow Generator Tool With Used Bikes

Some companies specialize in used bike “drives” if you will. These used bike drives are an exciting concept and are relatively painless. Primarily, you advertise people to bring their bikes down on a specific day or weekend, and the company will buy anything they bring. Then the company writes you a check, and the sellers get the amount as a gift certificate to your store. The bike drive is a great way to generate cash flow and sales without the hassle of having to deal with the used bikes themselves. Chad Pickard, the owner of Spoke-N-Sport with two locations around Sioux Falls South Dakota, expects to generate about $40,000-$50,000 dollars in upfront cash with his sale in late July. Customers have gift cards that can only be used in his stores, “securing future purchases” in Chad’s words. Gift cards are always an excellent way to ensure those future sales and gift cards have an added, but unintended benefit in that many take quite a while to be redeemed, and a percentage will never be seen again. Here’s an interesting article that looks at gift card statistics – “what happens to unused gift cards.”

How To Value Your Used Bike Purchases

The most straightforward tool and the one most retailers will use is Bicycle Bluebook. Ensure that you are carefully evaluating the bicycle for any repair work it may need and adjusting pricing accordingly. The margins can be pretty good if you do an excellent job with the initial evaluation and pricing.

Protecting Yourself

Protecting yourself is a consideration when buying used bikes. First, if you are using your customer database to pull trade-ins, you will probably have very little reason to worry. The biggest thing to do is log the customers’ driver’s license and the serial number of the bike and have the seller sign a document that states the bike is theirs to sell—requiring a receipt while ideal may be pretty hard to produce for many people.

Words by David DeKeyser

Learn more about the benefits of being a member and join now.

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How to Run a Profitable Bike Shop

NBDA — Mon, 03 Aug 2020 22:15:32 +0000

When you want to learn how to run a profitable bike shop, you listen to a person who has actually done it. In this episode, Scott Chapin of Marsh & McLennan interviews David DeKeyser, former owner of The Bike Hub in De Pere, Wisconsin, and author of the Positive Spin series on Bicycle Retailer and Industry News magazine. David discusses how he built a successful and profitable bike shop and shares tips on what he thinks other bike shops can do to build their profitability.

About David DeKeyser

My name is David DeKeyser and my wife Rebecca Cleveland and I sold our highly profitable bike shop in DePere Wisconsin on 2/28/19.

We owned the shop and commercial real estate for 18 years and were profitable every year we were open. Prior to owning The Bike Hub I had been with Stadium Bike in Green Bay for 10 years and spent the last 5 years there as the General Manager of three stores. I and the eventual buyer of The Bike Hub tried to purchase that business, but could not come to terms. After being involved in a company with multiple stores and for two years an off-site spring sale I had ideas about running a business aimed at profitability and a great customer service experience. In 18 years we never ran a spring/summer/fall sale etc. we resisted the urge to open another location successfully many times as well. We wanted to have a certain quality of life and engineered that into our decisions on how the business was run.

The unfortunate part about all of the above was my wife and I had always held our desire to live in the Western USA in check to own and operate our business. We knew that eventually, we would relocate, and for various reasons, the timing became right for us to sell. Based on our profits, and prime retail spot it was a fairly seamless transition to sell to my old partner and competitor. We have since relocated to Fruita Colorado.

I have a streak in me that makes me question things and ask ‘what if’ and ‘why’ on a regular basis. I experimented often with things in our business always aimed at being as profitable as possible while delivering a great customer-focused experience. The phrase that did and still does drive me crazy is do you know how to make a million in bicycle retail? Start with two!â€ I feel many in our industry view retail as a noble cause, but do not feel it is a great way to earn a living. I believe and know first hand that bicycle retail can provide a great living, perhaps better than many retailers realize.

Support the show

David DeKeyser

Thu, 8/20 11:48AM • 41:28

SUMMARY KEYWORDS

business, profitability, buying, people, shop, charge, bike path, bike, years, rates, labor, discount, sale, margins, lease, customers, thought, Wisconsin, point, retailers

SPEAKERS

David DeKeyser, Rod Judd, Scott Chapin

Rod Judd 00:10

You are listening to Bicycle Retail Radio brought to you by the National Bicycle Dealers Association.

Scott Chapin 00:17

Hello, this is Scott Chapin. And we are going to conduct one of the first Bicycle Retail Radio shows. For those of you who don’t know me, I’m run our bike shop insurance program and other insurance programs. I’m worked for Marsh & McLennan, and a proud partner and of the NBDA for many years and I am going to be interviewing David DeKeyser, former owner of the Bike Hub. He and his wife Rebecca Cleveland had owned that for many years and I’ve actually David was a client of mine for quite a while and I always thought it was really interesting in our conversations, discussing sort of the business practices and now that he has more free time, he gets to do things like this. So, David, you want to just talk a little bit about your, your background, how you got into the bicycle industry, and then how you ended up owning your own shop for many years?

David DeKeyser 01:23

Well, I was hoping you weren’t gonna ask me a first question that could take an hour to a day answer.

Scott Chapin 01:29

I’ll give you a little much less than an hour.

David DeKeyser 01:32

Okay, I’ll try to make it as quick as possible that I grew up racing BMX bikes in the early 80s and then transitioned to mountain bikes, and I think it was my freshman year in college at the University of Wisconsin Green Bay. I started working at a bike shop and just kind of fell in love with it. After college, started working full time and within a few years We were trying to friend of mine and I were trying to buy that business. After about 10 years of that, it just, it wasn’t panning out. So my wife and I decided to open up the bike hub in Superior, Wisconsin. And we ran that successfully for 18 years. And we sold it in February of this year.

Scott Chapin 02:23

Fantastic. And I’ve actually read a few of the articles that you’ve recently posted or written. And it was kind of interesting how you had definitely had a succession plan in and I’m wondering when you sold the shop, how long have you actually been thinking about and planning for that or did it happen really quickly?

David DeKeyser 02:48

I would say probably 10 years, so about seven or eight years into the business. My wife and I had always had a desire to live in the western United States someplace in Green Bay, Wisconsin is obviously not that it’s colder and darker and wetter and all that stuff. So about eight years into the business, we actually went through the process of trying to sell the business a little bit and things didn’t feel right. It felt it just it, I guess, for lack of better words, it just didn’t feel right at that point in time. But when we kind of wrapped that up, and we decided, what do we want to do next? As far as the business, I started concentrating on profitability, because the business broker that we were working with, it became really obvious to me quickly that you are only as good as your last two or three years’ worth of financials. And if you could build that business up, then you had something to sell and you can’t sell a business that isn’t profitable. Unless you find you know, the needle in the haystack type of thing. So we just really worked on becoming profitable. And in that, we started really harvesting every little bit of data that we could out of our point of sale system. And the last four to five years, we really ran the business with the intent that we wanted to sell it. And that was, you know, we were successful in the end. They’re

Scott Chapin 04:26

interesting. And did you get so we’ve had some conversations and I’ll ask you to tell a story about kickstands because I just I thought that was really interesting how, how you actually had drill-down data on that but you know, before I have you tell that little story, what resources did you turn to actually try to figure out how to become very profitable and to be able to have your books be so detailed to the nth degree of for any type of products? Service etc Did you try to figure out a lot of that on your, your own? Or did your accountant help you or tell me a little bit about how you actually became good at that?

David DeKeyser 05:10

Yeah so on the books end of things, we had an accounting firm that I had my accountant and then a QuickBooks pro advisor so I had somebody kind of on-call all the time that could log into my software and tell me if I had something goofed up but you know, the books part of it is is actually pretty easy. If you have a good accountant and a QuickBooks Bertie, we use QuickBooks Some people use something, you know, a different program. But if you have somebody that’s good, kind of watching your stuff and kind of tuning you up, you know once or twice a year before tax season, you know, so kind of late spring and then early fall it would only take a half an hour so for my pro advisor gal to go through everything and kind of make sure that it looked right for the business side to have things we use lightspeed point of sale which you know, is I’m thinking now is getting to be one of the bigger ones along with ascending. And through kind of trial and error. So you know, going back I said it took about 10 years to feel confident to sell the business and those last five years so that five years leading up to that we were really honing in on making sure that all the data that was in our point of sale was was really good. And I think it takes a while to start to understand what you’re actually looking at and pulling up reports and all of that, you know, it’s not something that happens overnight. And if you are putting in junk data, and just using your point of sale as a cash register, you’re never really going to get what you want out of it and it becomes so easy. You know, becomes second nature after a while to know what you’re looking at how to pull up those reports. But I loved to experiment, you know, with you know, we talked about the kickstands a couple of times. But you know, you would take a service item, you know, changing a flat tire or doing a tune-up and you would experiment with you know, could you get a few more dollars, could you add items on to that labor item on and that type of thing and you have little successes and you just start spreading those over, you know, the rest of your, your business, and that’s kind of how we got to that point, I think of you know, figuring out our point of sale and QuickBooks and all that was we just we made a conscious effort to really immerse ourselves in it.

Scott Chapin 07:49

So did with looking at, you know, hard goods, soft goods service, in that last 10 years of doing business? What’s sector actually grew the quickest once you started tinkering with, you know what you can charge was it the service side of that become from a growth standpoint, once you talk a little bit about that and maybe how you decided to look at that sort of carte blanche for everything that they’re doing, having a charge for that and how that really, overall affected your, your profitability on that side of things.

David DeKeyser 08:26

So I think the industry as a whole, what I always experienced was when people did tune-ups, somebody would come in and they’d get a tune-up and, you know, your say your tuneup is $50 or 75, whatever, whatever you’re charging, but then they would buy a pair of brake pads or get some new tires, you know, or what bar tape whatever it was, and nobody was charging to install the bar tape or the brake pads but if somebody came in and they just needed brake pads, we would charge him for the brake pads and in an installation fee, and even that was new Probably 10 years ago, you know, it used to be if you bought it, you got it installed for free. So we just started tack, you know, our labor skews, basically in the computer went from a couple of tuneups and like flat labor to all of a sudden there were 50 items in there and you are charging for each of those items. And it is you as anybody that’s worked in a shop can imagine it, you know, on a tune-up if you’re getting a bottom but you know, if it’s a good tune-up, you go from a $50 tune-up and, you know, 25 $30 worth of parts to all of a sudden you’re double or tripling that that repair ticket by adding these things on. The scariest part was I thought for sure people would push back at it. And the exact opposite happened. We had zero pushback and I think people are used to it. You know, if you went to the dentist or the car repair plate, you know, everything is itemized, and consumers expect that it doesn’t shock them, but in our industry, it’s just, you know, people throw everything on for free. We even got to the point where, you know, if somebody was buying a basket or something with a new bike, some of those things we would charge to install if they were, you know, hard training wheels were one of those things that were always hard. So we, you know, we started, if something took a little more time, we would, we would start tacking on a labor charge to it. So labor was the big one that opened it up to us. And so,

Scott Chapin 10:27

so that sort of you my next question you sort of alluded to, so you didn’t necessarily increase your shop rate per hour. It was it more just you’re getting more just by doing everything carte blanche.

David DeKeyser 10:41

Yeah, just making sure that we’re kind of line item and everything was the term that was always in my head as if a mechanic was going to do a tune-up, and you know, there are the items that are included in the tune-up. If something was going to be done extra, from a labor standpoint, then we charged for it and if that answers that question,

Scott Chapin 11:02

it does not do you think just in general, that a lot of shops feel that if they were to either do like you by actually individually having charges for specific service items, or just, in general, increasing their labor rate, do you think that’s that fear is unwarranted that the customer will push back? I mean, I know what your experience was. But if you talk to others and where they’ve had a similar experience, like I thought that we’d lose customers or I thought they would get upset at us or go to a different shop. How real or not real is that? Is that fear?

David DeKeyser 11:40

I think it’s a really unwarranted fear. And most of the dealers You know, when you talk to a shop, you get kind of two answers. There’s no way I could do that. My customers would push back I can’t rip them off. This is you know, everybody, all of my customers have smartphones and they know what everything costs. Well. That’s a funny argument. Several Everybody’s got a smartphone no matter where you are. And then the other side of it is the dealers that have started to implement, you know, making sure that they’re, they’re charging for things that are being done it from, from what I have experienced, I don’t think anybody’s really had much pushback. And if you do, it’s small enough that it’s, you know, it’s not going to warrant going backward.

Scott Chapin 12:24

Right. So you wouldn’t want to dictate Yeah, you don’t want to dictate your shop policies and procedures for the one half of 1% of people who may say something under their breath about the rate.

David DeKeyser 12:36

Yeah, and I think there’s a lot more that would say something under their breath about, I experience a lot of dealers retailers, that are really, really afraid that they’re going to offend that one out of 100 customers and instead of harvesting the 99 out of 100. There, they’re kind of bowing down to that one that might say something And I get and I get that it’s you know, you remember the one bad situation? You don’t remember all the good ones usually.

Scott Chapin 13:09

Right? Now, did you? Did you ever have a bike team like a lot of shops have where you fly the shop’s colors wear the jersey and you get a percentage off? Or did you? Did you just avoid doing that all together? Tell me a little bit about that.

David DeKeyser 13:27

So, my wife, Rebecca was a very avid and fairly high level, you know, regionally, right bike racer. So she, she was kind of the driving force behind the teams. And as time went on, and she kind of faded away from the racing scene. We did continue with the teams Yes, with discounts and you know, the shop flag and all that type of thing. And that was one of the biggest experiments. I think for me One of the scariest was we basically just stopped. We’re done. We didn’t do teams anymore. And all of the people that were on the teams that you thought were your best friends, they disappeared

Scott Chapin 14:15

overnight. So they are just they’re just doing it for the discount. Is that safe to say?

David DeKeyser 14:20

Yeah, I mean, we had a handful of people over the years that were on the discount program, you know, that was on our grassroots teams or mountain bike team, we had a triathlon team that we were sponsoring. There was a handful of people that I think understood what their role was in relation to the shop was to be an ambassador for our store, right? But it was such a small It was literally, I could count him on on one hand, and

Scott Chapin 14:48

so you would have been better off if you knowing what, what you eventually learned. Maybe there were three or four people who were good spokespeople. And if you were to give anything at all, just give it give them The discount because they were doing all the marketing and PR are we Yeah,

David DeKeyser 15:04

basically, you know all the referrals. So when you sponsor a team, you know, what are you really looking for, you know, the team, the racers are going to races where everybody else is sponsored, right? So they’re kind of preaching to the choir and they’re preaching to people that are in different churches, so they’re not going to come to your church anyway. So you want those per you know, the person during the week when they’re at work, and they’re a bike racer, and they’re there, you know, the person in the cubicle next to them says, Hey, I’m thinking about buying a bike instead of that person saying, Hey, I know where you can get a good deal because this is where I get my good deals. They say you want to go down there and talk to them because that’s the place to go, you know, they’re going to help you out. Price is not an issue, you know, that that shouldn’t come up. They’re sent, you know, they’re asking an expert where to go and they’re sending them to an expert. And that usually, you know, that usually doesn’t happen. So but for me, it was during this increase in labor, income. was where I started to realize that our best mechanic who is also our store manager, was doing the lion’s share of the teamwork, team mechanical work. And a lot of times that was, you know, no charge because it was somebody tubeless mountain bike tire that wasn’t holding air. I mean, he was just stuck in this time sinks all the time. And then if we were charging, it was at a discount. So I was tying up my, my best person on this discount rate business, and it was terrifying to cut it off. Because you know, you’re supposed to be, you know, that’s what you’re supposed to do if you have a bike shop is you’re supposed to sponsor racers and be involved and be, you know, part of the community in parentheses and all that stuff. And for us, as soon as we cut that off, it was a noticeable increase in our margins that you know, you can’t really so you’re able to track that right

Scott Chapin 16:57

away. I mean, how long did it take you to realize Like, oh, we would have been better off if we had never done that.

David DeKeyser 17:03

I would say, you know, so I think we stopped doing the teams in the fall of probably 2014 or something. I think it was probably by July of 2015. I could see the data right there are our gross dollars were the same, but our margin had shot up incredibly. staff was much more relaxed. They weren’t dealing with, you know, the Friday night emergency racers Yeah, yeah, yep. And I don’t have anything against racers or anything like that. I think that there are shops that probably do have it figured out but I think that if they looked at it as far as what it’s doing to the bottom line, I don’t I just can’t I can’t find the math to work for me personally. A be I just don’t know another industry that takes what should be its best customers and gives them discounts right on everything. You know, I have one of my closest friends on the fly fishing store, and he always laughed at me. He’s like, my best customers come in and buy stuff all the time. But you know, nobody gets sponsored, really for fly fishing. Yeah, you know, but so he had these great customers were in biking. It’s like they go through this progression where all of a sudden, now they’re a racer, they buy your shop jersey, and you give them a discount, and they’re your best customer.

Scott Chapin 18:24

No, and I can’t around because I used to be a sponsored racer myself. And I keep thinking about all the times the day before the race like something’s not working some like they never charged me for any of that. I’m thinking back of like, gosh, you know, that’s ridiculous and in for that, it just, it just seems strange that I would even ask that and this was, you know, 20 years ago, and now it’s like, No way like I just, you know, charge me more. charge me more to help me on Friday before.

David DeKeyser 18:55

Exactly. There’s just there are so few industries that have that mentality. We’re going to take the people that are coming in the most and start feeding them discounts.

Scott Chapin 19:06

Right. Interesting. Was your shop on a bike path? Yes. Yep. How does being on a path? I mean, was that like a pretty, you know, a fairly high dependent variable and your profitability or tell me a little bit about that because I talked to a lot of retail clients and there were like one of them that I work with, they’re about to move to a new location and it’s because they want to be buying the bike path. I’m just kind of curious what your sense of the value of being in that location.

David DeKeyser 19:37

So that’s one of the things that I never really felt like I was able to put a finger on really help other people. It’s a net positive for sure. Because you have such an incredible test ride experience, you know, somebody’s not riding around in a parking lot dodging cars. So so it’s an It’s a nice experience. We were on a very busy bike path. It’s a paved rail-trail the fox River Trail from Green Bay, way south in Wisconsin, it’s next to the fox River. So it’s you know, a lot of it’s pretty it’s in an urban area. So there’s, you know, lots of neighborhoods, so it’s extremely busy. You know, and you’d get the odd person that comes up with a flat tire or something that you know you would fix but it was so hard to quantify because it’s just one of those things that feel so good about being on that path. You know, you’re where things are happening. The flip side was the front of the store is on a really busy road. And I think that the exposure there was probably more important in the bike path, but I had a lot of people that would argue the exact opposite to me that would say that the bike path if you have a bike shop, and you can be within spitting distance of a place where people can ride it’s always going to be positive. I just don’t know how to measure it. Exactly.

Scott Chapin 21:13

Yeah, how to quantify it, but for sure from us, from our customer experience on the specific to the test, ride, and safety. It’s all it all makes sense. It just feels good. Yep. All right. So I self admittedly have a DD so I’m just jumping all over the place. And that’s just how this is going to be. So I want you to tell me the kickstand story with the buyer of you’re the individual that purchased your shop. And I think they were questioning whether or not they should be throwing in kickstands. But I just think that having these metrics is just a perfect example. So I’ll let it go from there.

David DeKeyser 21:52

Yeah, so I don’t want to give away too much here because the buyer still you know, right on it, give away any trade secrets or anything like that, but The wit I’ll go way, way back in time. So the kickstand story started. We were at a, I think I think it was like a trek event years ago. And there was everybody who gave away kickstands. When you were back in the 90s. You know it was when you bought a bike, you got a kickstand bottling cage. And you just threw that stuff in even though you had to pay for it. And we had some seminar and they brought this dealer out and he had started charging for kickstands. And this was a really high volume place. And the guy I would love to say who it was, but I don’t know I’ll get it wrong. Anyway, I think he bought a Cadillac or something based on him. You know what he had made and kickstands in a year or two. And it that always stuck with me. So we started charging for kickstands, obviously right away. So I’ve been charging for kickstand for years. And you know kickstands are now like 15 bucks or shops that you know are Getting 20 bucks for like a Greenfield kickstand. And if you’re a high volume recreational shop, you get to sell a lot of kickstands. And when we were selling the store, the buyer he hasn’t he owns another store in town and i and I think either they had been in he had recently bought that store as well. And I don’t remember if he was charging for kickstands or not for sure at that time, but I pulled up the data and it was, you know, I think he was pretty shocked at what those numbers were, especially when you go back, you know, five or 10 years do you think wow, I left all that money on the table. So to be able to pull up that information to know how to get it on on your kickstands or your grips or your you know, finish line lube or whatever it is, is so incredible because you start to see those little successes and I think that’s kind of the moral of that story. Right? is is is a CEP there are several models so that story number one charge for the things that you can which is basically everything consumers are expecting it. B track all of that data so that you can go back and see and see that success because it really makes you want to experiment with other things and kind of see what you can do. And I’m excited to see kind of what he does with the business as time goes on because you know that was exciting for him to see that. You could have success with just these little shifts in mentality and not just giving things away. Those little things that I think the general in the bike industry that people give away is where all of the hidden profits are.

Scott Chapin 24:49

Right. And did you Is it safe to say for the last 10 years have you won in the shop you in just about every situation sold? All everything at full margin

David DeKeyser 25:05

Yeah, that drove me nuts when so that’s another one of those things that you know is really common in the industry is when you’re buying a bike you get a bunch of stuff for 10% off, you know or, or even 15% off and I fought that tooth and nail you know don’t even give the person that deal and I don’t know why the bike business is still like that But you knew when somebody had been to one of your competitors who still was kind of giving away the farm on every sale so yeah, our goal was no discounts on anything, you know, the margins have gotten tighter the prices have, you know, been in business have continued to rise in the margins have kind of come down. There’s just not the room to be giving away everything to get a bike sale anymore in my opinion. So we didn’t do the discounts and we really never had an ad advertised sale and the 18 years that we own the business which could be, I think several podcasts. But yeah, we never ran a spring sale or a Summer Sale or an end of season sale or anything like that. The entire time that we were open.

Scott Chapin 26:17

Interesting. And there’s something you just said about margins profitability, it made me think of you so you did you own the real estate at your DePere location the whole time or did you end up buying a separate place or buying a place that you’d been leasing

David DeKeyser 26:40

so when we first opened up, we were in a strip mall, and we opened in March of 2001. And by about 14 months later, it would have been may of 2002. We made the offer on the on-property That we ended up buying. And that was obviously, I think, a great decision because it was on a bike path, which wasn’t even open really at that point in time. But yeah, so we, we, we rented in a strip mall and then moved just a year later to our location where the business still is.

Scott Chapin 27:20

Got it. So in my world, I review a lot of leases, mostly for the insurance and indemnification sections, but I see what the lease rates are. And I can only speculate that knowing what I see lease rates are in certain parts of the country, certain cities, that that is definitely a big problem for many retailers. I mean, what are your thoughts on is that really a determinant for profitability if you are unable to get into a position to purchase your own real estate, or what are your overall thoughts on that?

David DeKeyser 28:04

Yeah, I think that I think that this might be one of the elephants in the room as far as the industry kind of going forward is if margins continue to shrink, labor rates continue to rise. I mean, there’s an article every other week about mechanics aren’t making enough money. And I don’t disagree with that. But as a retailer, those things are all coming for your bottom line, you know, whether it’s your lease rates or the mechanics needing more money, etc. The sad part is in a lot of areas of the country it’s starting to feel like you can’t afford you know your occupancy expenses basically because Lisa Siri, they’re so expensive or commercial property is so expensive. It there’s a lot of areas of the country where it’s still in my mind a bargain and yeah, I can make a bunch of money. But I think that there’s there is some Really, I don’t have an answer to it, but I can’t imagine being someplace where you know, you’re, you’re spending an exorbitant amount of money compared to your, your peer that’s in Iowa, you know, and you’re in California margins

Scott Chapin 29:16

are the same if you’re ordering city of Hayward, Wisconsin and exactly a different Yeah,

David DeKeyser 29:22

yeah, everybody’s buying the stuff for the same price. So now when you’re in one of these kinds of the high cost of living areas, your labor rates are going to be a lot higher, your occupancy expenses are going to be a lot higher. So it’s a huge deterrent, I think, to not only profitability but to those areas being served by, you know, retailers eventually because they’re just going to kind of get priced out of the market.

Scott Chapin 29:48

So you’d recommend if, if possible if you can figure out a way to purchase your own real estate without burying yourself long term due to potential appreciation of the building. Cross lease agreements between the two different legal entities, those are all ways to help the bottom line.

David DeKeyser 30:07

Yeah, yeah, hundred percent. I think that if you have any chance to buy real estate to run your business out of I can’t really think of too many reasons why he wouldn’t. You know, I’m sure there’s something out there somebody could trip me up with but I just don’t see it, you know, because that’s not going to go away, you’re always going to have that and the beautiful part about it is that if you buy something and you can afford it today, it’s not going up your you know, your mortgage is not going to go up in price. And that was one of the things that I always kind of laughed about to myself was when we bought our property we paid our monthly mortgage payment was $600, less than I was paying in rent. And it was it wasn’t more space and you know,

Scott Chapin 30:56

that X for X amount a year and it was

David DeKeyser 30:58

it was fixed where That, you know, the lease was going to keep going up. And that’s, you know, in our market, I think we were, you know, I remember thinking $10 a square foot was kind of the going rate for good retail that was 20 years ago, 25 years ago and, you know, now these little strip malls that go up in kind of the,

31:19

the

David DeKeyser 31:20

retail ish type areas, I mean, they’re getting $25 a square foot, you know, that’s, that’s more than doubled what I always thought was the appropriate amount to pay. So, yeah, if you can buy and I think there’s a lot of areas of the country where commercial real estate is still affordable. I think we also get trapped as an industry, by people wanting to be in the best building or the best location and retail you know, I wouldn’t go in a back alley if you can avoid it, but people are going to find you a few. You know, if you have either A brand you know where they’re on the dealer locator and they punch it into their phone, they’re going to drive right to your door anyway, I just I don’t know if having to be in those best locations is really feasible in the future because the rates have just gotten so high.

Scott Chapin 32:14

Yeah, and we’re seeing a lot of, we actually are seeing a lot of the newer shops, basically say we’re not in the prime retail space, we’re a block off, our lease rates are significantly less. And we’re going to try to start out with a small, smaller footprint and make it work and they’re generally again starting from scratch. So there, they’re just trying to make sure they can get over the hump and a lot of our service-centric bricks and mortar locations, and it’s, it’s pretty interesting. And the clients that I’ve spoken to, they’re like, Well, yeah, people will go a block off, and oftentimes you have better parking too, so it’s easier to get it. Exactly. Yeah. So so with your little your internal science experiment Financial science experiment with all of the tinkering you’re doing with service and charging full retail. How great of a difference did that affect your profitability over say the last five years that you own the shop? What did it continue to improve? Or was there sort of a leveling off after you had done all these changes?

David DeKeyser 33:27

So I think it leveled off probably about five years ago, you know, as far as profitability, what we could kind of get out of it, where we were comfortable. I think we I think if we had wanted to carry on the experiment, I think we could have possibly gone up higher. But there you know, you do hit some points where you’re thinking, I don’t know if I can charge any more for this or that, you know, or you’re not going to be able to charge more for the product itself. Real You know, there are a few places where you can kind of write your own rules. But, you know, you’re kind of hamstrung by the vendors and what their advertised pricing is on things and then on labor there, there’s a certain point, you know, and going back to the beginning where I said that people aren’t surprised or at all about you their repair ticket being like line items, where they’re, they’re paying extra for the things that would not have been included in the tune-up. But there’s a point where I think, it does start to feel like you’re gouging you know, and, and, and so many retailers, I think to feel like that’s if they charge at all and that I’d argue is absolutely not the case. But those the 10 years that we had our point of sale system, and we’re working with it, the first five years were really kind of the experimentation. And then the last five years, it just, it became, you know, it just made it so much easier to run the business that then I think we were enjoying kind of the fruits of the labor, of having really dialed in the point of sale. were ordering was no longer a lot of work, you know, it becomes so easy that then I think we were just enjoying the, what the point of sale was given to us in terms of making it easier to run the business.

Scott Chapin 35:15

So would you say that for a lot of retailers, the specific changes that you did, it’s really going to be kind of specific to the market or type of products, but you have to kind of create your own own recipe for profitability is or do you think you’ve done is gonna follow suit for just about

David DeKeyser 35:36

anybody? I think what we did and there’s a lot and I’m not the only guy that that did this, I didn’t kind of invent this wheel. There’s a lot of really savvy retailers out there a lot smarter than I am. It’s basically you get away from the discounting. You know, it’s kind of is one of them you know, there are all these little areas that you do you get away from the discounting, you start charging for things you Get the employees behind it, you know where, I mean, you can have an employee that wants to throw on everything I did a mechanic once that every time he did a basic tune-up, he had the drive train off the bike because it was dirty. And you know, it’s like, they didn’t pay for that. But it’s dirty. You know, see? Yeah, you can’t do that. So you just have to get the employees behind it, where they’re not, you know, throwing everybody a water bottle or discounting you know, everything under the sun. So, it’s it, I don’t think anything was really specific to us. I think it’s just specific across the industry to just, you know, really make sure you’re holding your margin. And if you can’t, what does that telling you? It’s telling you No, is the product bad? Is the product oversaturated in your market? You know, if you’re, if you’re having to fight, if people are coming in and saying they can get, you know, product x down the street for cheaper. You have to look at that really hard because as soon as you start, you know, well I’m gonna I’m going to automatically match that price. If that goes on long enough, you’re gonna be in trouble.

Scott Chapin 37:05

Right? So to kind of back to when you’ve sold the business and having a really good set of books is there. You know, I know in some businesses, there’s, they’re sort of when you’re doing a business valuation, it’s the business itself, plus inventory, but there’s a factor based on profitability. We do you have a pretty clear understanding of what you should be able to get based on profit margins, gross sales, and those specifics?

David DeKeyser 37:41

So yeah, valuing a business is really is I think one of those things that most obviously from people I’ve talked to that nobody understands it but it’s actually a really, really simple formula and it’s based on profits. At the end of the day, your books are going to go to the SBA. really speaking they’re gonna go for a bank they’re gonna use an SBA loan to buy you know bike shop like this and you have to be able to show the profitability and everything just goes into a formula okay if this buyer is you know, they’re bringing some of their own money we’re gonna, the bank is going to give them x and the debt service to that loan has to be able to be shown by the business to cover that and pay the new owner there’s no black magic really in valuing a business inventory is always a separate deal. So and you know that the buyer is going to pay for your inventory. If you have a bunch of dated inventory then you know that’s you’re going to negotiate, you know a percentage off of that but the bank is basically buying the business and what the profits have shown in the past to be right to do there’s no while we think it could do better if you know the new owner. Just was, you know, on-site more or had more enthusiasm or whatever, you know, those are all. That’s all great to talk about. But the only thing that’s going to help you sell the business and value the business is what your profits were.

Scott Chapin 39:16

Alright, I think we’re running low on time. But I have one more question. So if you could go back in time and change a business practice, what’s the single greatest thing that you wish you either hadn’t done or had done?

David DeKeyser 39:34

Wow. Oh, boy, I wish I had been better at managing people. I think I had some really, really amazing employees over the years. And I had one employee that was that I had hired at the previous business and he was with me, Store Manager. He’s still with the business. And he and I really jelled. He, I think it was primarily him because he was just he could deal with me. But I think that if there was one thing I could go back and do better, it would have been able to I would have tried to be better at understanding some of the employee’s needs and wants a little bit better. Because it when you lose a good employee, it’s always really hard to replace them. And I think for me, that was the big thing was I think I was maybe too hard on some people not understanding enough others.

Scott Chapin 40:38

Perfect. Well, thank you. I think we will conclude. Thank you so much, David, and, and we’ll I’m sure you’ll be on another one of these. So

David DeKeyser 40:51

yeah, it’s a lot of fun. I love talking about this stuff.

Scott Chapin 40:53

Great. Thank you. All right.

David DeKeyser 40:55

Thanks, Scott.

Scott Chapin 40:56

Bye-bye.

Rod Judd 41:04

This has been bicycle retail radio by the National Bicycle Dealers Association. For more information on membership and member benefits, join us @nbda.com

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The post How to Run a Profitable Bike Shop appeared first on National Bicycle Dealers Association.

Business Planning

NBDA — Wed, 29 Jul 2020 17:51:28 +0000

The following outline for business planning has been provided by bicycle industry veteran Ed Benjamin, who owned and operated successful stores in Florida for many years. It is targeted for people who may be looking at buying or starting a bicycle retail business, but can also be very useful to existing bicycle stores.

By Ed Benjamin

Questions to consider before buying or starting a bicycle store…

By answering these, you will create a list of concerns, information, and goals that you can use to start your business plan.

Goals and Lifestyle:

1. What are your personal, long, and short term goals? Describe them in both lifestyle and dollar terms.

2. How long will the contemplated business serve these goals?

3. What is unique about you or your situation that will enable you to be successful in this business?

4. How much money do you have to invest?

5. What would be the consequences of losing that money?

6. What about this business would make it attractive to other investors?

7. What return do you expect?

8. What return do you think your investors (if any) will expect?

9. Where is your expertise?

10. What do you like to do the most?

11. What do you like to do the least?

12. In what areas do you need other’s expertise?

13. Are you willing to work longer, harder hours?

14. Are you willing to work on weekends?

15. Are you wining to forgo vacations, or time off, perhaps for years?

16. How will longer harder hours, and few holidays affect your family or other relationships?

17. Who will help you?

18. How will you feel if your business is not successful?

19. What will you do, if your business is not successful?

Research:

1. What is the population within a 15-minute drive?

2. What is the income, and age demographics of that population?

3. What sort of bicycle facilities such as bicycle paths, BMX tracks, etc. exist?

4. What is the economic base of the community?

5. How many bike shops exist in the area?

6. How well are they doing?

7. How big is the local bicycle club?

8. Is there racing in the area?

9. Is there a local triathlon(s) every year?

10. How rapidly is the community growing (or not)?

11. What bicycle brands are represented by local shops already?

12. What brands are not represented?

13. Have you compiled an analysis of each bike shop? (including years in business, size of the store, number of employees, the volume of sales)

14. Have you talked to the local reps for any of the bike lines?

15. Have you considered franchising?

16. Have you considered buying an existing store?

17. Have you talked to the staff of existing stores?

18. Have you considered hiring any of them?

19. Check the yellow pages, add to these information clippings of newspaper ads, Google search ads, and notes about any other advertising the other bike shops are doing. What conclusions have you come to about advertising in this market?

20. Have you subscribed to the bicycle trade magazines?

21. What trade shows have you attended?

22. Have you acquired the NBDA studies on the bike business?

23. Have you investigated banks, do you have a potential line of credit arranged?

24. Do you qualify for any Federal or State assistance programs?

25. Have you investigated SBA loans?

26. Have you talked to merchants in similar businesses, in the local community, about their business experiences?

27. Do you have a mentor(s) that can help you with the bike business?

28. Do you have a CPA and a lawyer that you are comfortable with, and who have successfully worked with other small merchants for many years?

29. Do you have an insurance agent and advertising agency (or consultant) that you are comfortable with, and have successfully worked with other small merchants for many years?

30. What market share do you think existing shops have?

31. Have you made a list of every place that sells bikes in the area? (include grocery stores, sporting goods, bike shops, hardware stores, used bicycle outlets, everything)

32. What complaints do local cyclists have about existing stores?

33. Is any local store participating in the Catalyst Super Sale?

34. Is any local store participating in the Catalyst Cycling Guide?

35. Are any local stores parts of Bike Line or Performance??

Planning:

1. Have you defined your business in 50 words or less?

2. What will you name your business?

3. Are you convinced that business planning is an absolute necessity?

4. Have you made a financial plan that defines the capital you will need, projects your sales, and projects your profits?

5. Do you have a computer? Are you competent with spreadsheets?

6. What business structure do you plan to use?

7. Have you prepared your current financial statements?

8. What is your current personal credit rating?

9. Do you have substantial personal assets to collateralize loans to the business?

10. What is your marketing plan?

11. What is your mission statement?

12. What trends in this business are forecast for the nation?

13. What plans do you have to acquire additional training for yourself?

14. How will you train your staff?

15. What vulnerabilities do you think you will have? What are your plans to deal with them?

16. Are there plans by local or state governments that will affect your business? (example: widening a road in front of the site)

17. What is happening with the increase or decrease in supp1iers to the bike business?

18. How do you expect to exit this business? (sell it, liquidate it, die, etc.)

19. Have you investigated possible alternative locations?

20. Describe the basic lease terms offered or purchase price?

21. Have you talked to merchants who rent from this landlord, or are in the same immediate area about their experiences?

22. What marketing position do you expect to occupy?

Now take the information that you have accumulated by answering these questions and:

1. Describe the present situation of yourself and the market you want to enter.

2. Describe your objectives in starting this business, and how you will know if you reach them.

3. Describe the management team and organization you will create.

4. Describe the products you will offer, both merchandise and service.

5. Describe what equipment and facilities you will need

6. Analyze and describe the market.

7. Describe your marketing strategy.

8. Using a spreadsheet, create cash flow projections for five years.

9. Review all of the above, and write an executive summary.

WARNING

There are a lot of people, including myself, who would tell you that the bike business has been good to them. The vendors, the dealers, and the customers are better than an average bunch. They love what they do, they are healthy and pleasant. A well-run bike shop can make money, and while no one ever got rich, a lot of dealers have been very comfortable.

But, this is a flat out warning. Going into business is dangerous to your lifestyle, your net worth, your relationships with family and friends, and to your peace of mind.

If I seem to overstate this, it is because I believe that I am doing you a favor by giving you simple honest advice that being an Independent Bicycle Dealer is not for everyone. And it may not be for you.

Before entering into a business, you should contemplate the following:

You are probably in a pretty good situation right now. You probably have adequate income, and you probably enjoy your life and the relationships you have around you. By starting a business, you may alter the fabric of your life so much that you will lose all the friends you have, and be taken over by the interests of your business to such a degree that you (and others) will find your life monotonous or stressful to an unpleasant degree. You may make money, but you may also lose everything you have, and wind up bankrupt or with crushing debts.

You do not have to start a business, it is a choice. If you choose not to start a business, that may be the better of the two decisions.

You must believe this to the point where if the plan does not shape out to meet your goals, you will drop the business idea, and smile while you do so.

People who find problems in the planning stages and go ahead anyway are usually doomed to failure. By telling yourself it is OK to not start the business, you make your chances of a successful business much more likely.

Once upon a tune, a friend came to me and said, “Ed! I need your help.” When asked what was the matter, he replied: “I bought this bike shop, and now I have to start work long before starting time, and I have to stay long after quitting time, and I have to work weekends, and now my wife has to help me!”

“So?” I inquired.

“And I’m not making any money,” he complained.

“Welcome to being self-employed,” I replied.

Want more?

Get some one-on-one time with a successful shop owner! Our P2 Consult program is perfect for people just getting started. We’ve partnered with David DeKeyser, author of the Positive Spin series on Bicycle Retailer and Industry News, to provide you with personalized business coaching that is relevant and specific to the bicycle retail industry.

The post Business Planning appeared first on National Bicycle Dealers Association.

Charge For Minor Service Jobs: How To Run a Profitable Bike Shop

NBDA — Mon, 20 Jul 2020 17:48:52 +0000

Should You Charge For Minor Service Jobs?

The short answer is yes! You should charge for minor service jobs!

There seems to be a point at which many bicycle retailers may not charge for minor service jobs that are seen as incidental. The idea is that the “fix” took so little time, that it is worth building trust and community with the potential customer who came for the service quickly and, in some instances, mere seconds, performing the service and sending them on their way. The owner or employee may feel as if they just earned the potential customers’ respect and trust. The short answer is that you should most likely always charge for anything you provide as service, no matter how small. Now let’s cover two very different scenarios out of countless situations as examples of how many shops operate and how those who are intent on building a customer base and understand the need also to monetize things that were in the past giveaways. While these generate initially small dollars, they also have a much more critical underlying effect. Let’s look at three common examples of fixing it on the spot in front of the customer issues that can be a win-win for you and the customer to dig a little deeper.

1. The Unintentional Bar Spin

Spend any time greeting customers rolling a bike in the door, and you have seen this situation. The brakes don’t work, the bike doesn’t steer, and something is “off” about the bike. You immediately see the bars have been spun in a full circle. Easy fix, right? Of course, most of the time it is, but this scenario can also have damaged the ferrules, pulled a cable or housing to the point of damage, or even hurt the front brake. Regardless of the initial view, you should always put the bike in the stand and do a brief but thorough examination of the potentially damaged areas for the customer’s safety.

2. The Loose Skewer

You’ve seen this one. The front wheel is rattling, or a complaint of brake rub, maybe even a dangerously worn sidewall. Like the spun bars, this is an opportunity to quickly straighten and tighten the skewer or take the proper steps to identify any other potential safety issues that may be the result of improper care or bike adjustments.

3. Can You Pump Up My Tires?

This request seems like the most simple and straightforward service request in the world. So simple in fact that many bike shops provide either the pump or the service for free. I think having a pump for riders placed outside is not the worst mistake you can make. But this most basic need can also be an opening for new customer acquisition. A simple question can be the opening to a conversation that shows you are engaged and show you care about the issue of the rider – something like, “how are they often having to add air?” This conversation may open the door to a quick examination of their tires for cracks and wear, and a potential tire sale.

The Benefits Of Digging Deeper

Now let’s cover the top three reasons to convert the potential customer to an actual paying customer and demonstrate that your business is professional and worthy of future business.

1. Data Acquisition

The cornerstone of any small business’s ability to grow and market to its customer base is acquiring emails and cell numbers. By just performing a service without charging, even a nominal amount, you lose the ability to grab, create a customer, and market to them for life. The importance of this cannot be overstated; here’s a great article that drives home reasons for collecting emails – Why Collect Emails? 7 Benefits Of Building An Email List.

2. Repair documentation

One nice thing in addition to the customer data gained is to show a level of professionalism by entering the work completed into your system attached to the customer for future reference if the problem continues. It is always helpful to pull up some information to give a clear picture of the situation. I once had an angry customer berate me that the tires I had sold them had rotted in one year. When we pulled up the customer and found the repair, it was found that they had indeed paid for new tires, but it was three years prior on a different bike – their daughters in fact, which when the customer checked that bike on arrival back home called and apologized profusely. Two things happened during this confrontation. 1. We diffused an uncomfortable situation by acting in a professional manner backed up by our data. 2. Gained a customer for life by quickly identifying the issue, which was that the bike in question had never received new tires, which were evident to us, but that the customer was also nearly 100% correct. The data saved the day!

3. Profit

Simply put, why do work for free that has an actual value. Think about the spun bars situation. A customer has an issue they cannot solve. They load their bike and make the trip to your store. By acting professionally, solving the problem, and verifying there are no other underlying issues, you not only demonstrate your knowledge by being professional (think about the definition of expert for a moment). You also validate the need to charge. The customer came to you and had their problem solved and most likely did not expect it to be for free. Have you ever been to the doctor for a complaint, told to give it a couple of weeks to resolve, and then gotten billed several hundred dollars? A $5-10 charge for a quick and professional fix to the average consumer is not only unheard of but welcomed.

Conclusion

As you can see, the above gives you multiple compelling reasons never to let a simple fix be an excuse to not gain and impress a rider through simple work to acquire and develop the trust of a new and future customer. Many consumers today expect a certain level of professionalism. Remember, these quick transactions can be a valuable conduit to creating a customer for life versus being treated as an “awe shucks I couldn’t possibly charge you for something so simple.” There are other benefits to always putting the bike in the stand as well when you may notice a frayed cable, missed bar end plug, etc. Be professional and impress those who have come to you for just that, while gaining the ability to make a tidy profit and gain a customer for life.

By David DeKeyser

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Margins And Pricing: How To Run A Profitable Bike Shop in 2020 and Beyond

NBDA — Mon, 13 Jul 2020 20:38:34 +0000

Margin. Probably one of the most uttered words when discussing bicycle retail. Margins are generally regarded as too low, getting lower, eroding, hard to maintain, and that retailers are at the mercy of the supplier, internet pricing, and MAP pricing. However, some retailers seem to make due and thrive while others are selling the same products struggle. One of the most straightforward reasons is some retailers will negotiate for the best pricing!

So, how critical are margins? Well, that is a bit of a loaded question. On the one hand, they are crucial, but the reality is that so many other things weigh in on a store’s profitability. Expenses are a considerable part of profitability, as is the ability to avoid discounting and turning your inventory as quickly as possible. But let’s get back to margins and talk product margins, which is where the discussion is always centered. Rarely do retailers discuss or complain about their control or lack of retaining as much margin as possible. Evaluating product margins has to happen from the standpoint of what you end up with once the product is sold, or what is referred to as realized margin. This idea is straightforward but can be overlooked if you do not use financial tools to do these evaluations. Two products with different initial (wholesale) margins may, for many reasons, have flip-flopped realized margins. Things like color, quality, sales staff buy-in, and many other factors can affect an item’s ability to sell quickly at full price/margin. An underperforming item isn’t a good buy if it ends up languishing on your shelves and eventually is discounted to a lower realized margin.

Margin and Pricing

Hand in hand with margins and successful stores lies the topic of pricing. There is very much an art to pricing the items and services in your store. Of course, there are many very price-sensitive items in your store that you will be pricing at, generally the retail price that a supplier sets. These items will most likely be bikes and other high-profile items that have been researched before a customer arrives. However, you must be very careful not to fall into the trap of thinking that an item that has an acceptable margin on paper is profoundly affected by what the article may be selling online. You can probably think of a few things that sell at or even below your wholesale pricing if you search for the best price. The reality for your store may be that it can still sell very well at the full margin in your business. I know from personal experience that even items that are very susceptible to discounting online may again sell very well at full price in your store. This conversation is a different and more detailed on psychology – both yours and customers, which can derail you if you don’t experiment and make all efforts to keep your own bias from altering reality. Don’t just blindly assume you can’t command a full-margin for an item until you have tried. Also, your service center is very much an area that you can use to regain margin loss elsewhere. If you are struggling with ideas on uncovering these hidden margin opportunities, please visit my P2 consulting page to learn how I may be able to help you increase your profitability. A few easy examples would make sure you are charging for services that customers may not expect to free. When selling a bike, for example, could you be charging to install additional accessories or component swaps? The answer is yes if you are wondering, yet many store owners and staff will argue that it’s impossible. However, the store across town is quietly doing just that, and it is working out just fine. You don’t know if something works until you try it, and try it with conviction.

Running a Profitable Bike Shop

Running a profitable bike shop is not as simple as it would appear on the surface. When it comes to pricing and margins, I hope you begin to analyze your business to dig deeper into your potential profitability. Do not just assume that margins are too low. You have an ultimate say in your margin maintenance and pricing strategies. Margins and pricing are, of course, a very critical part of your success. Still, they are also not the simple issue many will make them out to be, and with some serious attention to details, you will begin to realize just how much control you ultimately have over your business.

Words by David DeKeyser

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Hidden Hurdles to Avoid: How To Run a Profitable Bike Shop

NBDA — Mon, 13 Jul 2020 20:21:40 +0000

Sometimes, your business’ biggest hidden hurdles to avoid is yourself and the beliefs that you may have about how your company operates, or what your customers perceive your business is. It would be best if you always worked towards becoming more profitable sometimes at the expense of understanding that your preconceived notions are wrong. Not knowing this is a significant problem for many struggling retailers. So let’s dive right into some of the personal hurdles.

Your beliefs of what your store’s position is regarding who you are serving

This gap is quite common in my experience with stores that are struggling. Simply put, the owner is trying to be or become the store they aspire to own in the face of directly contradictory evidence. This misconception is most common when the owner believes they can sell either higher-end products than their market/customers are interested in or a category that they appeal to them. Still, again, their customers are telling them differently.

Your personal bias in choosing inventory that reflects your personal preferences

This concept is pretty straightforward. You like things that you use, yet they are not selling for various reasons. You may want certain brands, models, or categories of products, yet your customers are not in agreement, which should be evident because it isn’t selling. Yet, you persist in a cycle of ordering and needing to discount to these items believing they should sell.

A belief that customers will not accept higher prices or charges for service.

I have heard “we can’t,” so often when it comes to product and service pricing. It usually has to do with the perception of what the market the can bear. The shop owner who feels this way may be right, but I will go out on a limb and say they have not experimented with different pricing strategies to see if there is any pushback. If there is pushback, determining how much is also crucial. Humans seem to be very averse to criticism. Even one negative experience may produce enough ammo to revert, even in the face of the vast majority of sales transactions garnering no reaction to the rise in pricing.

The belief that a specific percentage increase in sales will solve any financial strain.

This challenge is an arduous thought process to overcome. I have heard many times from retailers over the years the description of the perfect sales increase percentage that will free them from stress. The problem is that unless there is a concerted effort to reduce expenses and increase margins, the extra costs associated with the increased sales will probably not be the panacea it was hoped to be. Often an immediate expense reduction is what is needed to the right the ship. One of the first reactions to a stagnant or slowing of sales companies often makes to reduce payroll through layoffs. It is an immediate change to the financials. In less extreme measures, you may consider pricing strategy solutions and more deep analysis of your critical metrics if not already doing so. The point is that there are many more good and quickly attainable solutions to tight cash flow issues than merely raising your sales volume.

Most of the above issues can be resolved by diligent best practices in the areas of reporting for both inventory and sales, along with margin maintenance and stocking items that sell along with digging even deeper into items that sell faster, etc. Utilizing your financial reports also to verify you are making data-driven decisions versus emotional or ego-based decisions. Please review the NBDA’s programs such as P2 Consult with myself, or the peer to peer, P2 groups, where you can learn from other excellent retailers how to elevate your business with increased profits following best practices. Some retailers will push back that some of the things discussed here will suck the soul out of their business by being too business-like. I have heard arguments to that effect. But I say that nothing could be better than being more profitable as you get to chose what to do with those profits. If you honestly feel you would not like more money for you or your employees, you can donate to a million worthy causes. The point is that being profitable should drive your decisions. You can still operate a profitable business that gives you the living you desire and can benefit the greater community right as well.

Words by David DeKeyser

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Evaluating and Choosing a Location: How to Run a Profitable Bike Shop

NBDA — Mon, 13 Jul 2020 19:56:14 +0000

Ever wonder how to run a profitable bike shop?

Learning how to run a profitable bike shop takes effort, but is well worth it and it starts with evaluating and choosing a location. Most bicycle retail stores’ second most significant expense behind payroll is occupancy expenses. As a percentage of gross sales, the target for all combined occupancy expenses is generally around 10%, preferably less. But even just a few percentage points can add up to substantial dollars. I always think that using an example to paint a picture is compelling. If you have an “average” size store of 1M in annual sales, a 2% occupancy expense reduction, invested in a mutual fund monthly over ten years, would put over $300,000 into that account with a relatively modest 8% return. It could also help you buy inventory, pay down debt, and a host of other things.

Mistakes Retailers Make when evaluating and choosing a location…

A mistake many retailers may make is to have either too big or too expensive of a retail location. As commercial property prices tend to rise over time, if you can find a spot to purchase, you are permanently locking in the expense, and building equity. Without going to much further into it, if you can afford to buy, it usually makes sense. If you cannot purchase a building, then be very careful spending too much on your lease.

How much space do you need?

The amount of square footage is a figure you can extrapolate as a number based on sales per square foot of selling space. This number can vary greatly, but if you begin to tickle close to $400 per selling square foot, you start to exploit each square foot to a reasonable degree. What is selling square feet exactly? It is simply the retail floor space. You will have restrooms, storage, the repair shop, and perhaps some office space. Somewhere around 30-35% of your area will be dedicated to supporting space. Let’s take an average size store of $1M in sales, with an average sales per square foot of $325.How much space do you need? About 3100 square feet of selling space or about a roughly 5000 square foot total size store. There are so many variables based on regional rents that some areas will allow for more space and others far less, which can add significant variance to the sales per square foot equation. Still, one major caveat to going with too much space, even if it’s relatively affordable, is the tendency to want to fill the space, which can wreak havoc on your inventory dollars you are carrying, and subsequent turns. You may need to go quite small in areas with high rents and be creative with your selling space while looking for less expensive and innovative ways of storing inventory. Personally, it seems prudent to burst at the seems and outgrow a location versus having to grow into it, which is a significant risk. Remember, the number of arriving at 5,000 square feet is a middle of the road number. Bigger and you risk needing too much inventory and smaller means you will work harder, which is not a bad thing. Smaller equals more turns and more affordable, and that is where the profits are found.

In real estate, the saying has always been Location, Location, Location.

Everyone, of course, wants to be in the A+ Location. The problem is that you have to pay for those locations. Perhaps being a solid B gets you close enough to the action. Bicycle retail stores are generally destination businesses and do not require you to be in the absolute best areas. It may be a hindrance at times to be in too big of a shopping area and get lost in the crowd. Test riding bikes is also a real consideration, along with the ability to rent bikes if you want to tap into that market. Having managed or owned retail bicycle businesses in at least 7 locations over my career, I can say without hesitation that being where people are riding can be a huge benefit. It s tough to quantify, but I can say that when we moved our bicycle shop from a strip mall to a freestanding store on a bike path, sales increased pretty quickly.

So what do you do?

Big store for the wow factor, along with an A+ location? Maybe that will work for you, but I would urge caution in going too big or too pricey. It would be better to build up to that commitment, particularly if you start a new business. On the other hand, you can go small and conservative, but too small and conservative may cost you some potential. The answer, like many things, lies somewhere in finding the right balance. I offered a formula above to use as an example. Figure in your local variables in expenses, metered with your risk assessment, and then analyze the demographics to try and get the best possible Location. Add in the potential to ride nearby, if for nothing more than to take a quick spin to clear your head during hectic days racking up big sales.

How to Run a Profitable Bike Shop: Part 2

NBDA — Wed, 24 Jun 2020 20:29:25 +0000

How to Run a Profitable Bike Shop: Part 2 This week, Dave DeKeyser, a Business Consultant for the NBDA, returns to interview Todd Cravens, Vice President of Business Development at Quality Bicycle Products. Dave and Todd talk about trends and best practices that they have observed for running a profitable bike shop. In his position at QBP, Todd works with many bike shops at all levels and it has given him great insights into the hard numbers that he shares with us today.

Todd Cravens

Todd is responsible for identifying and developing strategic business opportunities with new and existing customers, suppliers, brands, segments, and QBP consumer brands to help maximize their long-term sales and profitability.

Cravens is a 24-year employee at QBP, where he’s worked with nearly every stakeholder and in a variety of Director roles, including his most recent position as Director of National Accounts. He’s worked in, owned or served bicycle retailers for more than 40 years.

“Todd has accomplished much in his tenure at QBP and has a deep understanding of our industry and the needs of our stakeholders, plus great leadership skills and knowledge of our business,” said Rich Tauer, President of QBP. “He’s been working in the space of Business Development for some time, really defining what it means for us as we continue to transition from being a distributor to a bike company and service provider for retailers and suppliers.”

A tireless advocate who lives by the QBP mantra of putting every butt on a bike, Cravens has long worked beyond the walls to inspire new cyclists and connect them to great brands through retailers. He helped to coach a Minnesota National Interscholastic Cycling Association (NICA) high school mountain bike team; worked with the National Bicycle Dealers Association’s Profitability Project to facilitate best retail practices; and has been an active bike racer since 1975, most recently competing in gravel and endurance MTB events.

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Todd Cravens

Tue, 8/18 10:46AM • 32:53

SUMMARY KEYWORDS

retailers, business, bike, people, bike shops, pre-tax profit, buying, profitability, number, bit, factories, store, bicycle, inventory, items, sales, expense, margin, run, businesses

SPEAKERS

Todd Cravens, Rod Judd, Tara Kuipers, David DeKeyser, Kent Cranford

Rod Judd 00:10

You are listening to Bicycle Retail Radio brought to you by the National Bicycle Dealers Association.

David DeKeyser 00:16

Hello and welcome to another episode of bicycle retail radio. My name is David DeKeyser and I do retail consulting for the NBDA is P2 Consult program. You can find more information on that program and all the other great benefits the NVDA provides and the NBDA is website nbda.com. Today’s guest is Todd Cravens. Todd is the Vice President of Business Development at quality bicycle products. Todd has well over Forty years of industry experience. And with that, thank you, Todd, for taking the time to join us today.

Todd Cravens 00:45

Oh, thank you, David. I’m really pleased to be here.

David DeKeyser 00:48

First off, why don’t you give us a little bio on your experience over the years, and as you finish up, maybe you could go into what you’re doing day to day at QBP.

Todd Cravens 00:56

Okay, thank you. I was bitten by like bug about age 10 and not being able to sit shaken. So bicycles have been a personal passion of mine. And that morphed into working in stores through my youth in school and starting a store on campus in college and doing economic research on the common behavior of bike shops and businesses and college on to import work being a partner in a store in the Washington DC area in the 80s, working in manufacturer serrana. And then eventually coming to QBP. Working in customer service, product development, Product Management, purchasing sales, and in many cases, both things wrapped around retailer support at this point in my career. As the Vice President of Business Development, I’m the one tasked with looking to the future and developing things that will help our retailers and suppliers thrive. And so, on a daily basis, that does mean quite a bit of retailer contact both big and small. That’s part of how we’re trying to keep our finger on the pulse of what it is that retailers are experiencing needing and wanting. And there are times when Someone says they want something. And I might actually disagree and think rather, that somebody actually may want something but maybe need something else. And that if we talk about what’s happening in the way our world has changed post-COVID, and how shopping habits have changed and what many retailers have had to do to attack. So you can kind of adjust to whether it’s a new normal or not the new conditions, I’m not sure many people would say that those are things they wanted. But if we talk about retailers being available to consumers a variety of ways, whether it’s online or social, I would argue those would be things that retailers need. And so, you know, a daily basis can also be things I said on our credit committee. So I see a lot of bicycle shop financial information, I mean, the sign off-chain there, and it’s something that kind of developed a bit of a knack for in terms of helping me to understand the financial health of our retailers. And that can go to margin conversations with vendors when a vendor develops an item and gives them an app and said what they think the margin should be for a retailer. I’ve consulted with a number of vendors and been able to share with them that that actually that margins down Enough based on what bike shops average expenses are. And what I find is that oftentimes vendors don’t know what that number is. But we have real data. So you know what they are. And it’s something that happens behind the scenes, but something that I’ve done as well. So those are maybe a few bits and pieces. It’s a bit of a mixed bag on a daily basis.

David DeKeyser 03:17

Excellent. Yeah, we’ll dig into that profitability thing here in just a little bit. I think that that’ll be very interesting. The first major topic right now, as of today in the industry, I think a lot of retailers are wondering about inventory levels, what that’s going to look like over the next few months. What you take us on that. And do you have any suggestions for what retailers could do either to prepare if we think we’re going to have shortages? So basically, how did we get to where we are at this point in time and what can we do going forward?

Todd Cravens 03:50

Right, thank you. I think that you know, part of how we got here was that 12 manufacturers and distributors had forecast badass growth for spring of 20 Nobody was expecting what would come the devastating effects of COVID not only in the tragic loss of life but all the economic disruption, particularly as things really lit up in the United States and march for a period of time, we saw sales drop off at a rate of 30%, which is really not sustainable for virtually any business. And we had to take some very drastic actions in our organization, as in other companies out there if we look at this general industry, it was pretty scary. The switch flip, though, and cycling seemed to be something that people could do. I think, in many cases, Mike’s offer a more affordable solution that a new bass boat or a new jet ski or a new car, whatever that is. And so we saw, this has come roaring back through our retailers, many of the retailers we’ve worked with and spoken to, it talked about working hours and having the kind of business that those who have been around a long time experienced during the bike boom in the early 70s that they’ve been told about and to the point that has been so much growth for many people that is beyond stressful. It’s rather hard to continue to meet day after day. But as we go to some of the things that happened through this is starting to fall off a number of companies very quickly, canceled purchase orders or put them on the factories got this information and they made adjustments in many cases they were struggling with staffing their factories due to the closures and quarantines that staff had been in due to COVID issues in Southeast Asia. So as things kind of peeled back like that, a number of, again, factors you’re able to adjust. But when things very quickly flipped, and all of a sudden demand came roaring back. At that point, many of the light companies, ourselves included, came back to our factories and said, Oh no, we know you’re only at 80% capacity. But here’s 120 or 150% of what we originally thought we wanted, which kind of created a big gap for the factory to try to meet demand. If you throw in the fact that three of Shimano factories in Malaysia, Philippines and Singapore which make a lower-end middle-end product, very, very popular on the OEM side, high demand if you will, those factories were shuttered for anywhere from 30 to 45 days, and the That was a problem as well. So we’ve seen these kinds of supply-side shocks and some demand-side shocks as well, both the fall off and then there’s roaring back. And that so there have been some gaps for the manufacturers, if you will, to try to catch up. So we’ve seen quite a bit of pressure on them. And that’s both on the bike side and on the PMA side. So that’s a bit of kind of where we got there, if that makes sense, and really about advice and dealing with it. It is so challenging for everyone, My heart goes out to everybody here. I really think this is the place where you do lead to the relationships you created. So hopefully the suppliers you’re working with you have a good credit relationship, you know, the credit managers are going to need to know that you’re likely going to need more credit because you’re buying more and buying more frequently. Hopefully, there’s enough cash flow is being generated that you can not only seek that but also continue to meet your credit obligations. We’re a big believer as a company and just in time inventory that gives retailers more flexibility, and we fund our inventory such that retailers can order more frequently from us get higher returns. And actually spin if you will more cash through the business but with a lower capital requirement, so we’re big believers and just in time inventory, we think you’ve got less at risk. I think that what we’re seeing right now with demand, this is a place where, especially on bread and butter items, retailers should probably take a longer view of days on-hand inventory, because they’re things you just don’t want to be out of, you don’t want to be added to you want to be out of tires, you want to be out of cables on the service side as an example. But there are also accessory items that should go on every bike or that people should be buying from you that you also don’t want to be out of. So I think a retailer at this time should probably put more days on hand in stock. And that’s because the product is available. It’s certainly run out in some category, some items. And that’s been challenging again, for everybody because everybody wants it. I think those are a couple of ways to get at it traditionally. I think you have to be more comfortable with substituting out something maybe even a product line that you add a product line because it’s available and it’s filling a need that you have and it’s maybe not your first choice but you know, I was talking to a large retailer and NVDA member of course who made the comment to me that as well. suppliers run out of a poor group of bikes. And when he said, What should I do? I’m thinking about adding another brand. The vendor said, Oh, don’t do that. That’s a horrible idea. The retailer asked, Well, how long will he be? And he’s like at least five weeks. Well, that’s not acceptable. This retailer can’t be without bikes for five weeks. So he did bring on another line. And I’m not suggesting that retailers just kind of willy nilly jump lines. But I think you have to be open to meeting those opportunities as they become available to you. Does that make sense? Does that kind of get out at David?

David DeKeyser 08:29

Absolutely. Yep. I think that’s great advice. And it’s interesting to hear. I’ve heard a few people discuss where bikes were made and how that might affect where they’re coming from. But when you paint the picture of these parts are coming from there’s also parts included when you’re buying bikes, so it’s just that whole supply chain has been interrupted across the board. So even if you could get parts of a bike, you may not get the whole bike.

Todd Cravens 08:55

Well, that’s true. And the other piece to throw in there is it comes out of a tariff We as a bike industry has had to deal with is that a number of manufacturers, ourselves included, are in the process of moving our supply chains. And in a naive world, the feedback I’ve gotten from some retailers, it’s a little bit jaded. It’s like, I don’t know why to do that. I mean, it’s really easy. Just go to a different country, you know, kind of like a Burger Kings out, you go to McDonald’s kind of a thing, and it doesn’t quite work that way. And what we found is in the best possible instance, and that’s with everything working perfectly and working with existing people that you know, you’re 18 months, and you could easily be 22 to 24 months. Because you go to different countries, you’ve got to qualify, all of the manufacturing, you’ve got to qualify all the samples, and then your batch testing when you’re doing production. And so I wish it were easy but not and on the one hand, actually, it’s rather making it having all these hurdles, it slows you down to be sure, but particularly with the batch testing, it allows you to catch things upstream so they never hit the retailer and they never hit the consumer so you catch things before they’re a problem. It is a fairly involved thing. So yeah, that’s been a challenge for everyone.

David DeKeyser 10:03

So let’s kind of turn a corner here. You and I had had a conversation. And you would allude to this in your introduction about profitability. And what QBP has found the average stores pre-tax profits are overall what they are for good stores. Why don’t we kind of dive into that a little bit? I think that this is something that retailers would probably find interesting if they don’t know how they stack up to other retailers, A and B, what the potential is, or them profitability wise.

Todd Cravens 10:35

I’ve been in the industry, as you mentioned, for a very long time, ever since I can remember. So I started working in bike shops in eighth grade, I’ve always been told you can’t make a lot of money in the bike business, or, you know, kind of the old thing that we kidded about how do you make a small fortune start with a large fortune and you know, it’s like as I spent time as I did research and that as I owned a store and then as I continue to support retailers throughout my career, I have come across a number of retailers that have made a very comfortable living, and in some cases creating wealth. And they run really disciplined businesses. And they certainly work hard. We all work hard, but they pull it off. And so when I think about that, I know what’s out there. And in most cases, those retailers are running their business like a business and some retailers that I’ve spoken to take offense when I say that, and my intention is never to be offensive, but it’s rather to reflect on what it is you’re doing, and are you getting the result you want. And if you’re not, then you need to change and you change by looking at what’s causing your results. Right. So you know, we’ve seen pre-tax profit between 2.2 and 3.9%. On average, frankly, with sgma is from 35 to 45%, which is quite high. If you think of a vendor crowing about an item that is digit percent gross profit margin or that so keep what we have called Keystone over the years. You know, there’s not a lot left over frankly, yet. We have seen also retailers that are pushing 10 to 12% pre-tax those retailers and it’s not that you know, running on a shoestring or doesn’t have any overhead Don’t pay their staff or things of that nature. They’re significantly more efficient. They do run leaner, as it relates to SAS or their staff gets worked pretty hard. But they are also really operating on the three kinds of a leverage point to the income statement around how they maximize sales, how they maximize margin, and that comes out of how they buy. And then lastly, their expense Hawks. And now the expense part is the least alluring part of the job. If you like bikes, you don’t really want to be negotiating with your insurance broker and the people that provide your internet and your landlord and utility company on and on and on. But that’s what we found, as we’ve done the research and income statement says we’ve visited retailers as we’ve done work with v2, we did work with v2 over a period of time there were definitely those retailers that did that. And I think it goes back to, frankly, the basics of are you buying and selling items on which you can be profitable and again, that’s for some people. That sounds ridiculous to say it that way. I continue to be floored that retailers sell products on which they aren’t profitable. And then Kind of insult to injury is on which they do not know that they’re not profitable. And that’s a really, really scary combination.

David DeKeyser 13:07

One question I had that I kind of came back to after our last conversation was the pre-tax profits. The NBA, in their cost of doing business surveys, has a term owners’ compensation and profits to gross sales and those numbers that you’re talking about anywhere from 2.2% to 1012, or 15%. Those do not include the owner’s salary, is that correct?

Todd Cravens 13:30

Those numbers actually do include the owner. So do I do that there are what I would call a fully loaded income statement? And so no, they do, in fact, for that 2.2 to four-point or 3.9. These aren’t people that are writing a massive distribution at the end of the year, you know, and so, exact comp shoots off the page. You know, these are folks that are operating just above or just below average costs, and it’s kind of a precarious place to be the people that are running tidy your businesses with higher pre-tax profits, the difference we see that really drives at home The expense piece we’ll see a five-point Delta on the expense, sometimes seven points. And sometimes it’s because the retailer really did bread and water for the first several years and that retailer was able to get a mortgage to buy a building and eventually pay him or herself rent. And at the end of a 35-year run, they didn’t just have a business with a pre-tax profit to sell. So there could be multiple, they had good inventory, even though it’s going to be written down on a sale, but they had a building they could either sell or rent. And so you know, they’ve got they’re building a tangible asset for which there’s a public market. You know, there are a lot of stores that are not making a lot of money that at the end of 30 years, if they’re operating maybe two to 4%, pre-tax, they’ve got okay inventory, they rent a building, even if they’re pulling down, let’s be generous and say 5% because the math is easier, and they’re doing a million dollars. And you say that somehow you talk somebody into paying, you have five times multiple, we’re retiring on what it would be a very small amount of money, so to speak, and so think it’s a bit of the battle. What you find on a daily basis, and that’s how you win the war at the end, if you will, maybe that language is through martial, but nonetheless, you’ve really got to be engaged, measuring regularly. So I still know retailers, they look at annual balance sheet income statement, they don’t look at monthly or weekly. And I’m a big believer in charting your progress because the sooner you find what your results are, if they’re what you want, we’ll do more of it. If they’re not what you want, figure out what’s causing it and change it so then you can get what you want.

Kent Cranford 15:29

This podcast is brought to you by NBDA, membership, and industry donors to continue providing education and content like the podcast you’re listening to now. We need your support, go to NBDA.com and join or donate today.

David DeKeyser 15:49

So one of the big discussions is always around the margin. And we talked about this a little bit and how to increase it and one of the topics you brought up was the idea of value pricing and you use the analogy sample from when you were a store owner. And I was wondering if you could kind of go through that real quick.

Todd Cravens 16:05

Sure, thank you be sure to qualify this for everybody I store in the 80s. It was before the internet, it wasn’t a Washington, DC suburbs, there was a strong personal income component. And it was during the 80s, which was kind of a gogo time in the economy, especially in Washington. But we were clear that there were certain items that customers didn’t shop you on, they just want to know that you had it and could fix it. For us. It was sealed 27 by one and a quarter chromed bolt-on roadwheels. We paid I think I want to say 865 if I remember right, and we sold them for 3499 all day. And again, the question was always not how much is it? It was rather can you do this and get me back on the road right now that taught us a valuable lesson one we tried to position ourselves as a shop that offered exceptional value, not prices, but exceptional value. So we were customer-centric, checked into our community involved in our community as well of course, but we did look at a number of things where we believe we could make more money and so we mark things As such now where there are some things that were just kind of insanely competitive, absolutely, we could get those things for people, but we didn’t stock them because we wouldn’t make enough money on them. And so, while I was an enthusiast and liked all the neat bike parts, we were a business first and had to be profitable. So I think that approaching it that way, knowing what those items are, and often those are service items. But even if we take that step further, I have seen retailers let the items being sold say at service be determined by the service advisor or the service manager, not by what the retailer’s chosen for assortment, that is where the retail will be most profitable. And I’ve often seen people sell things where they’re either trading dollars or losing money on a repair item when they should be making significantly a significant margin because again, they’re providing a service they can obviously pricing the labor to but it is a piece that can be a disconnect. So I think that value pricing matters as a way to approach your business. So do you have to know your market Absolutely? And yet No, but it will bear Yes, you do. So do you do some testing, of course, you’re going to probably lose a few people along the way customers that think that you’re not worth it? And we were very happy to tell you that we struggle with that at first because we didn’t really lose anybody. It was really, really hard when somebody accused us of charging too much. But interestingly, that didn’t ultimately have an impact that we could measure, as in proper sales down or things of that nature.

David DeKeyser 18:22

Fantastic. So in the big three items here for profitability, we’ve gone over expenses, which are the hard and somewhat boring part we’ve talked about. We’ve talked about margins when I’ve talked to retailers when I was a retailer, and now one of the things that always comes up, it’s just a very knee jerk way of improving their businesses to increase sales. And it seems like the easy way out, well, if I could just get my sales up and fill in the blank with the percentages, or the number of bikes, but you had stated that you need to be very mindful of the cost to increase those sales, and had discussed a multiplier of your pre-tax profits to determine if something actually works. And the example that we had discussed to me was so clear, and I think could be very helpful for retailers about an ad buy, and how you would determine if that was actually successful. And I think to give an idea to that increasing sales, you really need to increase sales if you’re going to spend money to increase the sales

Todd Cravens 19:29

agreed. And thank you, you know, it’s one of those things that I kind of struggle with getting to but I’ve seen it when people are considering an ad buy what for whatever medium you wish that’s agnostic, you spend $1,000, let’s say, which is not insignificant for any store. And I’ve seen retailers say, Well, I spent 1000, and I made about 1000 or 1100. dollars in sales. So you know, I just about broke, even so, I did okay because I got my name out there, you know, and first of all, I think that’s the wrong approach. When you’re evaluating any kind of expense and where you anticipate a return. You need to look at your pre-tax profit. If you can divide that into 100, to get an integer that tells you what the multiplier is how many sales dollars, you have to break even. And so again, because the math is easy in my head, you’ve got a 5% pre-tax profit. If you divide that into 100, you got a multiplier of 20 times that thousand dollars add by breaking, you even get to $20,000. If it doesn’t get you $20,000, you’ve lost money, because margins involved. I think it’s a handy little tool to evaluate whether or not something is worth it because you can put a hard measure on did it return your sales that it actually makes you money? And I think we often have gotten this from people in the advertising and marketing world when they come to us to say, Oh, no, this is going to be great for you, you’re gonna have a great ROI. Well, you now have a tool to determine whether or not it’s a great ROI or whether or not it’s an ROI at all. Maybe it’s a loss, right. Again, not a particularly alluring thing, but I think it’s a powerful tool to help you be a steward of your business because really for the retailer, if not you who sets the old Harry Truman, the buck stops here. And so that kind of really takes me to. It’s not that you shouldn’t be looking for opportunities. But I’m a big believer in making a plan and then executing your plan. And as you’re executing, you’re measuring and if it’s not going the way you want, you find out what’s the pinch, what’s the area that’s causing the problem, you fix it, and you move forward and keep measuring. I’ve kind of had the belief that because of the feedback, I’ve gotten more people to know what their functional threshold power is, then what their top five expenses are, and most importantly, what they’re doing about those sub-five expenses, because every year those are going on, and even if it’s only 1%, two or 2%. There. And I’ve heard people say it’s not really very much WellQBP if your top 10 expenses all go up 2%. That’s a lot.

David DeKeyser 21:44

Right.

Tara Kuipers 21:46

Have you heard of P2 groups and wondered what they are. P2 stands for the profitability project. And while profitability is that the focus of everything we do, we do so much more P2 groups Members share their expertise and their insights. They ask questions and they exchange resources to make sure every member is profitable and successful in every aspect of bike shop ownership. Reach out today so we can tell you more.

David DeKeyser 22:21

So I want to talk about competition a little bit between retailers. In a way, if you have two retailers in the same town, and they’re buying products, both from QBP, and they bought at the same product, and they hung up on the wall in their store, they have it priced the same. How can retailers either brand themselves or how do they compete at that point in time when basically the items are identical, the prices are identical, and even the place where they’re buying from is the same?

Todd Cravens 22:51

Yeah, that’s a great question. That’s a tough one too. I think it’s kind of easy to get mired in kind of call negativity around competition and the big believer that stores Have to differentiate themselves. And it’s really foundational to branding and I kind of hang it on as a retailer, how do you make yourself special, distinctive and memorable, and in doing in such a way that people will pay you? That’s kind of the essence of strategy. And you do have to figure that part out, a lot of retailers will say, Well, you know, we’re known for customer service, I can’t tell you how many have told me that some are really exceptional, most are not. Because if you say that you’re being held against how Lexus does service, for instance, regardless of whether or not your Lexus dealer and kind of the other service experiences retailers across the board have provided to this consumer. So I really think that you try to move away from competing on the thing, and more about how are you more alluring to the consumer? How are you working in the community in a way that is creating riders that are perhaps supporting the community? You know, one way to think about it? This is an old example. But when I owned a store, my wife taught at a private school, they had an auction every year we were a retailer. So people came for us to sponsor Little League and other things. We didn’t do that because it wasn’t like it didn’t make sense to us. But the bike made sense to us. So we were involved in things that promoted cycling. And we donated, I was not clear that I wanted to do it. But I liked the school in one sport, my wife in school, so we donated an expensive road bike at the time. And those were popular. And a very interesting thing happened. And this is again, we learned a lesson here, we backed into it, we weren’t aware of it. Because we supported school. All of a sudden, teachers were buying bikes from us. And all of a sudden, parents were buying bikes for themselves and their children because we supported the school. And so when we cost out what we had put into it, we actually did get a very strong return in a long term way. And really, I think what this highlight is, again, what are you doing this making yourself distinctive? How are you reaching out to communities in a way that is important to them that is meaningful and that they would want to come back because a lot of retailers will give you a narrative on how well they do in every category across the board, whether it’s women or people of color or minorities and I would challenge Specifically, what are you doing that’s meaningful? And it should probably learn that from somebody else rather than just what you think if that makes sense, but I think the differentiation is a really big piece. And that’s a tough one. Because at that point, we’re selling commodities. We absolutely are.

David DeKeyser 25:12

So every day, you and QBP, obviously, are plugged in to what’s happening with retailers, and you’re speaking with retailers you’ve seen over your years, obviously a ton of great retailers and you’ve seen those who have struggled. Is there something that you have found that is just a foundational difference between these different stores and how they’re doing instead of mindset? Is that a certain skill? Is there anything that you’ve ever been able to distill down as to the difference between those who are really succeeding not just in their community, but also financially?

Todd Cravens 25:56

Gosh, I think the biggest piece and it may sound tedious but If that concept around business acumen really matters, and you know, it’s treating the business like a business on an everyday basis, and it is knowing your numbers, and it’s Frankly, I take it back to me in a step back further setting a goal, okay, I’ve set the goal, how do I get there? And so those retailers that have prospered, they lead into their business every day. And it’s not that they don’t take time off, but they are extraordinarily conversant. They do stay on top of business and trends in the industry. They have learned things like real estate, whether they’re renting or whether they’re buying, I can think of one who’s quite successful and he says location, location, location is not a cliche, and he’s right. He’s pretty savvy about where he puts a store. As an example, I think others lookout a little bit further into the future wondering how else they can be efficient. I can think of one who made a massive closeout cash buy which got him even a better origin. This would have been in the middle 90s and he then computerized his business when computerization is more expensive. But in doing so that gave this retailer and his business partner extraordinary information to run the business even more efficiently and more effectively, again, being in the numbers. So I think that being in the numbers is probably it. And for some people, I know that’s gonna sound like, Oh, that’s not why I got in the bike business. And I would actually put it out there. It’s not either-or it should be and, and if you own the business, it kind of has to be an regardless of whether or not it’s your favorite thing. You just can’t pay attention to it. And as you get in the numbers, and as you understand your performance, and what drives it, and you increase that performance, you can ultimately become more profitable. And if you’re more profitable, I would argue that profit just represents a choice, the more your profit, the more choices you have. And that’s kind of a cool place to be able to have choice versus at the end of the year, having and if there’s any money left, that’s probably an inventory, which is typical, but you know, not really kind of having a paltry existence. So I think there’s an opportunity there, but I think it’s really learning your business. If you don’t know it. You’ll If you got a mentor, you work with another person in a business who understands it. There are things like community college classes just even on basic things like cost accounting, but otherwise, you know, you’re cooking a turkey in an oven, but you don’t have a thermometer. So you don’t know if it’s done or not. And that’s a problem.

David DeKeyser 28:13

Right? Right now it feels a little bit like retailers and everybody is kind of hitting the reset button. In a way, I think that inventories in the stores are they’re obviously able to sell through a lot of things. So they’re kind of able to clean house, but retailers are also and this has been discussed quite a bit is how tired everybody is right now. And even you guys there was an Instagram post and CBeebies Instagram page that I saw last week, it was all hands on deck, absolutely. packing boxes and everybody’s working longer and harder as far as the next several months or a year and nobody has a crystal ball obviously, but the things that retailers have learned in operating their businesses and how many times and how fast they’ve had to pivot in the last 60 or 90 days. Do you feel it? That’s going to be, ultimately, possibly a positive for how retailers and the whole industry has learned to completely change day to day in the beginning week to week and now kind of month to month. In the end, do you think it may be a net positive for operations? I believe so. Because to be sure, it’s hard. And I know retailers are beyond tired, and often 70-80 hours don’t get it. And so my heart goes out to them. I know, it’s a challenging time, I kind of think of stress on top of stress. And there are a lot of times in our personal life or in work, that we’re doing all these things that are the first time ever, but then successively, right. So that’s really stressful. And so I do believe that some of the things we’ve learned

Todd Cravens 29:45

will serve us one is just the ability to change and to pivot. Sometimes it’s forced upon us and I would argue that would be right now, other times there’s an opportunity and we take a risk, but if we think about it, you know, we worked hard to support people for bikes to get bike shops, nationally listed as essential businesses, because we deeply believe in our hearts bike shops are essential businesses, that was important for us because we believe that designation, a lot of a number of retailers to continue to do business if they chose some chose not to because they were worried about health, I totally understand and respect that. But a number did and add to, to your point change how they were doing business by appointment more online, through Facebook, any number of things that allowed them to serve their communities and be accessible to their customers. And, you know, even when I think about the numbers of customers that have chosen to sign up for a retail fulfillment, or they’ve created a stronger online presence, for a number of people, they had no interest in doing that, with these significant changes in public health policy and the challenges that we were all dealing with a number of people leaned in and based on the numbers we’re seeing, it seems to be making a difference. So I guess in the end, I think most people don’t like change. I know I’m in that boat. However, I know that being able to be open to change and then understanding how to Work through change might be one of the most important skills I’ve ever learned at QBP. Because it allows us to continue to develop and grow either again, because it’s forced upon us or because there’s an opportunity if that makes sense. Absolutely.

David DeKeyser 31:13

Todd, this has been very informative. We really appreciate that you took the time today. Do you have any final thoughts or last words for us here as we start to wrap this up?

Todd Cravens 31:23

Oh, gosh, Thanks, David. It’s just a pleasure to be on the podcast. And thank you so much. You know, I really just have such profound respect for our retailers out there and the services they provide the community, we really believe bikes solve a lot of problems. And we think that mic shops are positioned to be able to be part of the solution, which is really magical. Not all businesses can say or do that or even feel that good. So it’s just our great privilege to serve retailers out there as well as suppliers, getting the product to retailers. In both cases. These are really critical stakeholders that we want to support and continue to advocate on behalf of so I’d say thank you very much. Best of luck. I still think we have bright bright skies ahead of us. Excellent.

David DeKeyser 32:02

Well, everybody that was Todd Cravens, we thank him for being on the episode today. If you found this episode or other bicycle retail radio insightful and informative, please consider joining the NBA if you haven’t already by visiting nba.com as the NBA has benefits that can save you money and improve your business. Ultimately your membership adds to the collective voice so the specialty bicycle retailer in the NBA is efforts to represent and advocate for your interests. Thank you, everybody, for listening.

Rod Judd 32:29

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