.

Re VAT: A shop will pay VAT on the goods it buys and charge it on the goods it sells but it only hands HMRC the difference between the two. So a shop buys a bike at £1500 net but pays 20%VAT so actually pays £1800 to the supplier. Let’s assume a markup of 50% which means the punter will pay £2700. HMRC want the VAT on the difference between the two net prices, i.e. 20% of £750 or £150. So even though there’s a total of £450 VAT levied on a £2700 the shop has only paid £150 of that it’s based on the amount it “value added”.

The shop thus has £600 out of which to pay rates, rent, utilities, staff, etc.

The guy who was thinking of opening a bike shop needs to read this thread.

Probably best if ‘bike’ shops remodel themselves on service centres and coffee shops, focus more on paid/guided rides, stock some tubes, spokes etc….but for me the LBS is defunct, I can do most stuff on my bike apart from wheel building and I’ve bought my last several bikes online….i don’t mean any ill will towards LBS owners or workers but if they can’t compete with CRC, Wiggle etc then I’m not interested….you have to play to your strengths and going forward I think that’ll be servicing and repairs for most LBSs.

Deviant you are not far off, but no benefit in organising rides, best do your own brand stuff and be a workshop and coffee shop.
But there are plenty of people buying bikes, just not from the LBS.
Its unfortunately the pull of big shiny shops that the average shopper feels more comfortable in. A big shop full of shiny things makes the average shopper feel confident in quality and service etc.
small shops are viewed with suspicion

Been lurking in this thread reading with interest. Here’s another inside perspective.

Typical margin on your mainstream brand is 35-40% max. Generally high end bikes like the ones many of you here ride are around 30%. If you purchase it on 0% finance over 36 months the finance company takes around 17% of the gross. Your £3k bike is then down to about £200 profit left to go towards the bills. I can say not many people purchase high end bikes without finance. That’s not a great reward for the amount of risk involved in stocking bikes that then get devalued at clearance time. If you’ve not sold them by this point you can bet the stock you are sitting on is worth less than what you paid for it.

For costs of running a shop, lets say 2 members of staff, rent, insurance, electricity, advertising, sundries for example might come to about £70k. Even at such a conservative example that’s a lot of £3k bikes sold on 0% finance just to break even, let alone achieve net profit.

As for margin on parts, accessories, etc…. that depends on how much you are willing to discount the stock your customer is telling you they can by from xyz.com for much cheaper.

Even with repairs the odd customer for some reason expects you to do jobs for free, because “It’ll only take a couple of minutes if I borrow your tools and you help me”. Why bike shops get such a hard time I’ve no idea, but I can tell you it’s a very challenging industry to be in right now. Your LBS is most definitely not ripping you off.

but no benefit in organising rides

Some shops become the founders of, or the centre of, a club. Cyclopedia in Cardiff for example is inextricably linked to the JIF club which is very active across disciplines. Bikezone in Oxford housed Zappi’s cafe, which was the hub of Zappi’s club.

For a bike shop doing reasonable levels of trade with the big brands, its typically 35%

But, when you look at the difference between gross profit margin and net profit margin, you suddenly realize there is not money in selling bike

Gross profit margin = (revenue – cost of goods) / revenue

Net profit margin = (revenue – cost of goods – operating expenses – other expenses – interest – taxes) / revenue

for tax-relief cycle to work schemes:

cyclescheme take 10%

Halfords scheme takes 15%

Why bike shops get such a hard time I’ve no idea,

partly because at the bottom of the market when people can buy a whole new bike for 99 quid they can’t comprehend why it might cost 50 quid to do a little repair (their mentality, not mine, but I’ve overheard exactly that). And at the top we’re all web-savvy bargain hunters who buy from mail order, or end-of-season and heavily discounted; my CX bike was discounted by 25%, my MTB and road bikes by 40% or more.

i think you made my point, CTM.
its better to be involved with clubs than organising your own thing.

You get more reach being involved with a club or even a few clubs, but as you pointed out its the coffee shop bit that people also like

I work for a large German tyre manufacturer, and we can get the tyres at “trade + VAT” and it’s only 1-2 pounds less per tyre than the german sites like bike-discount, rose etc..

And that’s at 1.28 Euro’s to the £ now… Was as high as 1.44 to the £ at Christmas, which meant everything was cheaper from Europe than anyone in the UK could supply it at by some margin!

Deviant, To some extent that is happening, within the bike trade there are some shops pulling the plug on selling bikes and fancy goods, then putting more into the workshop, however “Paid/Guided rides”, don’t think so, lots of shops put on bike rides for free so I can’t see that happening, so that leaves all the little bits, like the spokes, rear mech hangers, tubes and the like, you know, there is quite a lot of parts on bikes, chain rings change formats like the weather, mech hangers go into the hundreds, spokes much the same, and here is the thing, lots of money held in low £ goods, with bigger costs per square foot vs a mail order warehouse, good help us if we don’t have the part in stock when you do finally decide to give us your business.

…there is quite a lot of parts on bikes, chain rings change formats like the weather, mech hangers go into the hundreds, spokes much the same, and here is the thing, lots of money held in low £ goods, with bigger costs per square foot vs a mail order warehouse, good help us if we don’t have the part in stock when you do finally decide to give us your business.

There are also companies that support LBSs. You can’t buy Spesh or Bontrager tyres from any of the larger online retailers, and while I have no particular loyalty to or love for either Specialized or Trek, I do like the current Specialized tyres. The fact they’re £30-35 and I can pop over to my LBS at lunch and get a cup of tea added to the bargain is great.

As has been said on here several times there is a place for the LBS, but a lot of them will need to change quite drastically to survive. It’s a tough market out there.

There are also companies that support LBSs. You can’t buy Spesh or Bontrager tyres from any of the larger online retailers

True, but those suppliers are far and between, besides we can’t all be Specialized dealers, big brands give an area to a dealer, not that I would want to sell Spech, although they are easy to sell to golfers and estate agents, bit like Cannonade.

FWIW, you can get all the Trek/Bontrager stuff from Evans. I’d say that they were one of the larger online retailers (though mibbe not in the same league as Chiggle)

True, but those suppliers are far and between, besides we can’t all be Specialized dealers, big brands give an area to a dealer, not that I would want to sell Spech, although they are easy to sell to golfers and estate agents, bit like Cannonade.

That’s a valid point and one I should have thought of. The shop I worked in stopped carrying Spesh because of their bike purchase demands – ie we couldn’t sell as many bikes as they wanted us to. As it happens I asked my LBS about this the other day; they have a good relationship and while a figure is agreed to on paper, it doesn’t always happen in the real world, and if it doesn’t there are no repercussions.

I am aware though that this is the upside of a long and good relationship, dealing with a larger company and having the area contract.

So in short – yes. Point taken.