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An Open Letter To Chain Reaction Cycles

Nov. 14, 2012, 9:03 a.m.
Posts: 2120
Joined: Nov. 6, 2005

It really is a broken system, legality aside, I find it really confusing that a local bike shop could order from CRC, mark it up for their usual profit margin, and still sell the parts at a considerable discount from what they are currently selling at.

This argument keeps coming up, and I think that everyone agrees that regardless of your position on the debate, something needs to change in the Canadian distribution system.

Kaboom… you nailed it.

Nov. 14, 2012, 9:12 a.m.
Posts: 5731
Joined: June 24, 2003

The times are changing is all it is. Global market and all. On line retailers can never give you that personal service though so it is unlikely that I would ever buy anything complex like a fork, that might need warranty service, on line. Tires saddles other things that are lower cost and unlikely to need warranty sure. Clothes, only if I am certain of the size. Simply because returning to Northern Ireland is a pain compared with going to a store and actually putting something on.

I assume the price difference between US and Canada is partly volume related partly more middle men. I would think Jensen would sell way more freemastrats than any local bike shop could and therefore can demand a better price from the manufacturer or distributor and keep the same margin. LBS won't likely be able to compete on price therefore they have to make up for that on service and experience.

Debate? Bikes are made for riding not pushing.

Nov. 14, 2012, 9:20 a.m.
Posts: 49
Joined: Sept. 20, 2007

Can even a mega retailer like Jenson demand a price from a manufacturer that allows them to sell a product at the Canadian wholesale cost? Taxing goods or limiting online imports to save the local retailer is not a long term answer. Unfortunately relying on personal service isn't going to save local shops. I routinely walk out of the local shops I frequent when I get blank stares and should shrugs when I ask competent questions. Anyone know what the prices that distributors are bringing bike parts across the border at? At what step in the distribution is the gauging taking place?

Nov. 14, 2012, 10:11 a.m.
Posts: 5717
Joined: Nov. 19, 2002

So how is it that CRC is able to sell at such a massive discount? They sure as hell don't do it all by themselves, but nobody questions the manufacturers who sell products to them for so little (or inflate the prices for everyone else by so much, depending on your POV), or the regulators that make importing goods by distributors prohibitively expensive.

A few years ago we had 1 headtube standard, two hub sizes (one for XC, one for DH) and 1 wheel size.

Now we've got 3+ headset standards, 4 hub sizes, and 3 wheel sizes in the mainstream. The same industry that's pushing bullshit 10 speed cassettes and 650b wheels are creating an environment that the LBS CAN'T compete in. Not only are they unable to carry all the standards, but their staff can't keep up with the knowledge to work with it.

Every clothing manufacturer wants to be the premium boutique brand, so they all sell to shops at a high pricepoint, but only a few can fit in that sector, so the extra stock has to go sell cheaply somewhere and the LBSs refuse to sell the gear at that price accordingly.

These are just a couple of issue to highlight how places like CRC aren't the problem, they're more of a solution to a broken system. CRC may be making it harder to compete, but it's still possible. They're like Wall Mart, but even Wall Mart doesn't kill ALL local business, they just cull the herd.

Unlike Wall Mart, the bike industry has a community element to it. The manufacturers still have to answer to the users, so if you don't like it, take it up with the source of the gear.

iforonewelcome.com

Nov. 14, 2012, 10:20 a.m.
Posts: 14115
Joined: Nov. 19, 2002

reminds of when bikeroom was around..

wah wah i cant adjust to the new world market… wah wah.

ps guess the guy doesnt watch UCI level racing much. cuz the CRC team is pretty big

Nov. 14, 2012, 10:22 a.m.
Posts: 11299
Joined: June 4, 2008

I do know that a certain major Canadian bike manufacturer once purchased a certain Japanese companies products from a certain UK online retailer because they couldn't source it through their usual channels. Furthermore, they purchased said parts at a cheaper price than they themselves normally paid through traditional means.

That's broken.

Regardless, as others have mentioned, most bike stores in the Lower Mainland hire people who'd rather not be there or who are suffering from insecurity issues. Unless you're dealing with someone who has a financial stake in the store, the probability is pretty high you're gonna have a bad time.

I go out of my way to try and source parts locally and have had good experiences at Dunbar, NSBS, Cove and Fanatik (I consider them local). That said, there is a point where price plays an issue.

Regardless of what happens when this all plays out, not everyone will want to learn how to bleed their brakes, change the oil in their suspension or true their wheels. The service aspect will always be there, it just might have to change how it looks now.

Nov. 14, 2012, 10:29 a.m.
Posts: 424
Joined: Feb. 18, 2010

I read that article through and through, even between the lines. Due to my occupation, many of you will colour me biased, but I think he hit the nail on the head, particularly wrt community building.

Now, I've read a couple of posts telling me that I need to do my job better, and I agree; EVERYONE can do their job better, whatever it might be. However, working in the bicycle retail/service industry does not pay well enough to keep people involved who do not work in it for the love of it. I know many people who've gone away from the bike industry simply because they cannot afford to feed their family on what they make. The only way I can see to change this, in the face of all that is now available online, is to significantly increase service rates.

As for educating my customers and all that, I have some very astute customers. They know what they want and will research their purchases prior to coming to me. Shopping around is good, but there is not an even playing field in the purchase of goods between brick-and-mortar, and online mail order.

I don't blame the distributors- they also have service staff and all other associated costs to deal with. They also help to support the community by offering employment to enthusiasts. There used to be plenty to go around, but now that almost everything produced is available online, these businesses are drying up. Who gets the money now? Underpaid local bike industry folk? Nope. Offshore mega online mail order warehouses? Yup. I know where I'd rather my money went.

Recently, a good friend and customer asked me to help him determine which new drivetrain he should get. I ended up with a list of components, and when I compared his online supplier list to my catalogue pricing, I found that 6 out of 7 current model year items were priced below my cost. We agreed that I should make some money on his order, but to be honest, making 5-10% on these parts does not cover my costs to order them for him. So, as much as I'd like to help him out, it's in both our best interests, (for this one particular deal) that his money go to another continent and not recirculated into his local community.

It's always argued that it's strictly about a dollar figure. The best thing about that letter is that it tells people who understand what they are reading that it's about more than just dollars. But then again, if one can understand the gist of the article and 'get it' they likely already understand the issue anyway.

Nov. 14, 2012, 10:51 a.m.
Posts: 99
Joined: July 20, 2007

So how is it that CRC is able to sell at such a massive discount?

If you really want to know, it's because UK business law is such that you can be both a distributor and retailer of goods. Not sure about Canada, but you can not do that here in the US. The ability to buy at distributor costs and then sell directly to the consumer yields a massive advantage to companies like Chain Reaction and nobody (LBS or internet retailers) in North America can compete with that model.

Nov. 14, 2012, 11 a.m.
Posts: 5
Joined: Jan. 13, 2003

Any LBS that feels threatened by online retaillers is, quite simply, doing it wrong. Find your niche. Cultivate and educate your clientele. Provide value-added services that can't be offered online. Make your shop a destination shop!

^this is truth.

I use chainreaction and jensonusa etc..A seamless process and straight to your door….i do my own wrenching and i embrace e.commerce. Change is constant, and if you want to survive in business you need to diversify yourself. Decent pricing, great customer service and quality mechanics always helps too.

Nov. 14, 2012, 11:47 a.m.
Posts: 495
Joined: Jan. 24, 2008

problem = multiple levels of small national distribution cannot compete with large flat global distribution.

CRC pretty much offers one thing - cheap parts and gear within a week or so. However, they are not always the cheapest source for the price conscious buyer. For people who just need parts and can wait a bit, CRC is great. Clearly CRCs huge sales volume and size means more choice for customers.

For people who need more than just parts or need parts immediately, local shops offer the extras that CRC cannot provide.

One possible solution to the existing inequity would be for CRC to offer parts directly to local shops at a reduced profit margin. ie. less than a final customer can buy for. Any shop that is buying a part is doing so because they are also providing something in addition to their customer - service, installation, post-sales support, etc. This will bring customers back to local shops. CRC should and can do this because they won't have to deal with any post sales support (now the local shop's responsibility) and will have another level of distribution which fits their business model.

The CRC model is not going anywhere and (based on their success) is something bike comsumers clearly want. Obvioulsy shops don't like the competition but the legacy distribution system they work within ain't their fault. If i were a bike shop owner, i'd round up as many shops as i could get on board and sit down and meet with both CRC and the legacy distribution players to hammer out a new distribution system that works for local shops and not just CRC.

Nov. 14, 2012, 12:06 p.m.
Posts: 26382
Joined: Aug. 14, 2005

Regardless of what happens when this all plays out, not everyone will want to learn how to bleed their brakes, change the oil in their suspension or true their wheels. The service aspect will always be there, it just might have to change how it looks now.

Kind of like the motocross shop model Wayne P used to use.

www.thisiswhy.co.uk

www.teamnfi.blogspot.com/

Nov. 14, 2012, 12:34 p.m.
Posts: 5717
Joined: Nov. 19, 2002

If you really want to know, it's because UK business law is such that you can be both a distributor and retailer of goods. Not sure about Canada, but you can not do that here in the US. The ability to buy at distributor costs and then sell directly to the consumer yields a massive advantage to companies like Chain Reaction and nobody (LBS or internet retailers) in North America can compete with that model.

While it was mostly a rhetorical question, your answer only partly explains why they can sell for so much less.

Being a distributor would certainly eliminate some markup, but how can you explain their prices being lower than what shops can get from their local distributors, or even sometimes direct from the manufacturer?

Something's fishy at the wholesale level.

iforonewelcome.com

Nov. 14, 2012, 12:49 p.m.
Posts: 5731
Joined: June 24, 2003

Can even a mega retailer like Jenson demand a price from a manufacturer that allows them to sell a product at the Canadian wholesale cost?

I used to work for Brooks running shoes. We sold the Brooks Chariot for I think 39.95 a pair wholesale. The shoes MSRP was $79.95. Shops would book their annual order and get better terms and a better price. Maybe a couple bucks off from what I recall. rackets and Runners would order 3000 pair and demand and get a better price. I think they got them for around $32. Superstar Athletic would order 15,000 pairs, some would be stored at the Brooks warehouse in Vancouver and they negotiated a price of around $27.00 per. That will give you an idea of the economies of scale. And they all still sold the shoes for around $79.95. Brooks had a Canadian licensee though who had the shoes made to Brooks specs in Asia. IIRC the Chariot cost about $13 to manufacture and ship to Toronto with a drop ship to my warehouse. They made thousands of those shoes. The more expensive fancier shoes did not see such margins. Canvas hi tops were incredibly cheap to manufacture in China then. Kids versions under a dollar and adults were still under two bucks and sold for $45-$50 bucks at the stores.

Take an XTR derailleur and I'll bet the manufacturing cost is probably under $100, wholesale from Shimano $125 or so? Eliminate a middle man, operate from a warehouse and order from Shimano only when you get an order and sell to the entire world and your market is large, costs per sale low. I'm sure for some items that are popular that they keep stock. Other stuff not so much. Maybe they buy grey market too. You know, a manufacturer order 5000 XT groups and they end up using only 4500 and sell off the extra for cheap.

Debate? Bikes are made for riding not pushing.

Nov. 14, 2012, 12:50 p.m.
Posts: 8935
Joined: Dec. 23, 2005

Something's fishy at the wholesale level.

This.

Nov. 14, 2012, 12:53 p.m.
Posts: 5731
Joined: June 24, 2003

While it was mostly a rhetorical question, your answer only partly explains why they can sell for so much less.

Being a distributor would certainly eliminate some markup, but how can you explain their prices being lower than what shops can get from their local distributors, or even sometimes direct from the manufacturer?

Something's fishy at the wholesale level.

Yeah I think in Canada we often have an extra middle man whereas in the US retailers can buy direct. On the other hand I bought a Giant 29er Hardtail spring 2011 for $499. That was the list price on the Giant Canada website. In the US that same frame was listed on the Giant USA website for $599. Splain that?

Debate? Bikes are made for riding not pushing.

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