Randy W. Kirk, author of Principles of Bicycle Retailing III, offers his insight about how to open a bike shop. He explains bicycle retailing, choosing which brands to carry, hiring staff, marketing your bike shop, and more. [13 min.]
Tell us a little bit about your background in the bicycle industry.
Well, I started out back in the 70s when bicycles were just going crazy, and I had opened a retail store thinking that I could take advantage of that, but unfortunately the dock strike started. We had the first and only ever bi-coastal dock strike, which eliminated all the new bicycles that were being imported, and meant a new guy who just opened wasn’t going to get any new bicycles. So, with only six new bicycles between July and Christmas, it was impossible to stay open. So I took what I had learned in my brief foray and I ended up involved in the importation business, importing bicycle locks, and from there I spent the next thirty something years in various levels: advertising, promotion, import, manufacturing, distribution, just about anything you can think of in the bicycle industry.
Talk a little bit about bicycle retailing.
Well the bicycle retail business is one of the few remaining mom and pop games. When I grew up, the ice cream store and the drug store were mom and pop, even the grocery store. And today basically all those are mass marketing, and you only have a few remaining industries that can support mom and pop type stores. So for the individual who’s thinking about going into the business, it’s important to recognize, A) that that’s true, but that B) this is not an industry that’s gonna make you rich. In fact we have a saying in the bicycle industry, that there’s a great way to make a small fortune in the bicycle industry, and that’s to start with a large one. So the bicycle industry is filled with small, traditional, typical entrepreneurs, who typically have a great passion for the sport or for some aspect of the bicycle itself, as a result they’re willing to work for maybe less than somebody who was driven more by the financial rewards that business can bring.
How much does it cost to open a bike shop?
That is a interesting question given an interview I just did a few weeks ago with a bike shop that just opened in Santa Monica, and I won’t give his number, but let’s say that it was north of seven figures to open this gorgeous state-of-the-art bicycle shop. Now he is not the typical guy, he may be an affectionado, loves the sport, and whatnot, which is why he opened, but ultimately he does intend to make money, so he’s got that goal in mind as well. Someone who wanted to open a more traditional mom and pop bike shop could probably do it for $70-$100,000 without too much trouble.
Is that mostly inventory?
Yes. Inventory costs a lot today, but in order to be competitive in the environment today, most people would want to have some pretty nice, state of the art furnishings in terms of layout and design. You’ve got your first and last months rent, which today is, no matter where you are, going to be pretty healthy. And then cash flow some amount set aside for dealing with losses that undoubtedly will happen during the first year or two depending on how good you are.
What kind of markup can you expect on a bicycle?
The bicycle industry has really pushed the last few years to try to get that off of its traditional 36%, and I would say that today the consultants I talk to say that has gotten closer to 40%. The real money has to be made in the service end of the business and in the accessories that are sold after the bike.
How do you decide which brands to carry?
Well, again, the industry has rapidly undergone a change here just over the last couple of years, and now there are three major brands: there’s Trek, and there is Giant, and there is Specialized. And all of these three companies are now doing what are known as concept stores. If you choose one of those three brands, they expect you to carry a certain substantial percentage of your floor or a certain percentage of your purchases in their branded items. Could be anywhere from a low of let’s say 50% to as high as maybe 80% and would be negotiated with regard to carrying one of those three bike brands. The alternative is to be more of a generalist, and carry some of the other brands like Cannondale, Raleigh, and a host of others. You don’t need one of the big three, and you could carry a mix of six or seven or ten or twelve smaller brands, and do quite well, it just kind of depends on which part of market you’re going after. The three big brands do support their dealers pretty well, they have programs and things to help them succeed.
What about accessories such as helmets and clothing, you mentioned that that might be a big profit center. Is that the case?
Yes, that’s a much more substantial profit margin. And of course you don’t move as many dollars worth of those items as you do bicycles, so there is a trade-off where the dealer has to constantly be wondering what he should do in terms of incentivizing his employees. Does he want to incentivize them to sell more volume of dollars, which would be the bicycles, or to push more profitable items in the accessory area. So there’s a nice mix, there’s a nice goal, where maybe the dealer would like to get his average margin somewhere over 50%, and that probably would mean a pretty profitable store.
You also mentioned that servicing bicycles is an important part of the business.
Yes, and it’s one that many dealers really enjoy, and which makes it interesting, because the dealer who likes the mechanical part of the business commonly is not that fond of the selling part or of the day to day management aspects, or maybe has no background in either one of those. So this has been a traditional conundrum for the bicycle industry. So an owner who is a great mechanic has to be careful to hire individuals who can take care of those other two areas or he won’t be in business for very long. But yes, it can add up to easily 20% of the overall volume of a store.
Talk about hiring staff for your shop. Should you look for bike enthusiasts?
Well, that’s a question that’s being asked by a lot of people today. I’ve been doing a number of interviews for the next version of my book for the bicycle industry, and one of the big questions today is the demographics of who’s both coming into the bike shop, and who’s working at a bike shop. Right now the bicycle industry is concerned that it’s not very inclusive, that the customer is a 25-50 year old white male, and that the people that work in the stores are 25-35 year old white males, and that when you walk into that store as a minority or as a female, as a person of a different ethnic background, you may not feel very appreciated in that store. Or even if you come into some of the more techie stores, and you don’t know much about the sport, you may feel under appreciated or like they’re not willing to spend enough time helping you get to know what you need to know to participate. So while that may be typical of a lot of high-tech industries like electronics. Game stores, for instance, have some of the same problems. I would probably not feel very comfortable walking into a game store at age 59. The Bicycle industry is not the only one that suffers from that, but there is a movement on now, that’s being talked about and will be talked about in my next book, in terms of what do bike stores need to do to reach the 80% of the population today that’s not cycling at all.
What marketing techniques work well for bike shops?
Another great question, and one that I’ve been researching for the last two or three months. They’re using a wide variety of marketing approaches, and there doesn’t seem to be any across-the-board good advice to be given at this point. The main thing is that everybody’s getting away from the yellow pages obviously. Some of the bigger stores have eliminated the yellow page advertising all together. The Web is critical and there are great services available specifically for the bicycle industry to get a good website up, so they all have to have a website, and the better the website usually the more likely it is to actually produce revenue. They’re using everything from mailers to e-mail blasts, to cable television, radio, newspaper, I mean just pretty much across the board, and it is hard right now to say that any one thing is hugely successful. Now there’s a branch of that that’s very successful, and that is what I would call advocacy rides. So whether it’s an AIDS ride, or a muscular dystrophy ride, or any of these 100 mile rides across states, the rides that are taking place seem to be a great place for a bike shop to generate interest from newcomers. And that seems to be one that a lot of bike shops have figured out.
Can you recommend some online resources or magazines for someone starting a bicycle dealership?
Well, Principles of Bicycle Retailing III is the only book that has ever been written about bicycle retailing. There are industry magazines, there’s one called Bicycle Retailer and Industry News (BRAIN), and I guess that’s available to the public if they were preparing to open a bike shop, but there are very few other real resources for the beginner. For the guy that’s already in it, there are a number of consulting companies that are pretty readily available and anxious to help. No, I wouldn’t say that there’s a large amount of material out there for the aspiring bicycle shop owner.
Do you think that most bike shops get into other things that can kind of provide some year round revenue?
That was a trend all through the 40s, 50s, 60s, 70s, they would get into anything else, locksmithing, lawnmowers, you name it. I mean, huge numbers of different ideas and approaches and ways to not only round out the year, but just in order to help pay for the space, and that has kind of gone away. Most shops today are bikes, bikes, bikes. One of my friends in the industry said to me in an interview a couple weeks ago, this is a good time to be a bicycle retailer. It may not be six months from now or three years form now, but right now it’s a pretty good time, if you’re savvy.
What are the biggest mistakes you see people make when starting a bike shop?
Not having the full skill set would be number one, and the most likely skill set to be missing would be retail sales experience. It goes without saying that nothing happens until something is sold. So you can love the industry, and you can have a bunch of friends that love the industry that are around you, you can have a great look in the store, you can have the greatest advertising going out to the consumers, but if folks walk in the door and they don’t get a good greeting, and they don’t get excited by being in your store and feel wanted and loved and then are truly sold, then a high percentage is going to walk out without a purchase, and if that percentage crops down below around 50% you’re probably not going to be successful.
Any parting advice for someone considering opening a bike shop?
I would say that it’s not that different than any other small business that is likely to be under ten employees and might never be more than ten employees. You have two choices today in the bicycle industry. You’re either coming into it as an enthusiast and you recognize that you may not make as much money as you might have made in another business venture, or even as much money as you might make working for somebody, or you go into it as a business person with a full skill set, probably an MBA or at least a BA in business. I would suggest at least a substantial background in retail sales and management, and if you have those skill sets going in and you use all the same skills and experience that would be true for anybody else in any other retail environment, there is actually a fair amount of money that can be made in the business.