With the exception of the period between 2015 and this year, the National Bicycle Dealers Association has been producing its Cost Of Doing Business Survey every other year since 1999. Now the CODBS for 2020–2021 has been published, and the news is so good it suggests those years were less likely a “new normal” than a once-in-a-lifetime occurrence.
The CODBS is must-have information for retailers who want to benchmark their business relative to others of comparable size, number of stores and business type, and to develop effective business plans. But it’s also an invaluable resource for suppliers who want to understand the boots-on-the-ground reality of the last mile in the specialty retail supply chain. It shows, step by step, how and where bicycle retailers earn their money and how much of it they get to keep at the end of the year.
Among other things, the CODBS shows that bike shops don’t make their money selling new bikes; in terms of margin, bikes are actually Number 5 on the list of bike shop profit centers; e-bikes are Number 6. If you want to know what numbers 1–5 are, you can either purchase a copy of the study ($399, $349 for NBDA members) or check out Human Powered Solutions founding partner and resident futurist Jay Townley’s excellent video, Key Insights: 2022 Cost Of Doing Business Survey, which is free (and despite the title, it covers the years 2020–2021).
What the CODBS is … and isn’t
A little context: the CODBS is based not on averages, but on median (“most typical”) values for bike shops in general and for “High-Profit Shops” in the upper 25% of all bicycle dealers reporting. That way, outliers on either end can’t pull the averages too far from the norm; what you get is the most common values for players in either category.
In addition to profitability, the Survey focuses on key performance indicators like productivity ratios, and financial indicators like liquidity and leverage.
Information is displayed in detailed tables within the survey itself and in easy-to-read charts for everything from product categories to employee benefits within the introduction.
The result is a robust, flexible tool for shop owners and industry observers alike.
Getting to the bottom line
“Dealers didn’t achieve these record numbers with high margins; they didn’t do it with high inventory turns. They did it by keeping costs low.” — former NBDA executive director Fred Clements
The good news behind the CODBS is not just that the years 2020–2021 were successful ones for bike shops, but that they were literally record-setting. Compared to 2010–2011, (the benchmarks years Townley chose for his presentation), typical shops’ net profitability was more than triple (3.3x) what it had been a decade ago; high-profitability shops were nearly double (1.9x). In fact, the typical shop’s net profits in 2020–21 were higher than the high-profit shops had been in 2010–2011.
To make sense of this unprecedented increase in profitability, I reached out to industry consultant Fred Clements, who was executive director of the NBDA from 1989 to 2017.
“I was shocked when I heard those numbers,” he told me in a phone conversation. “They’re record numbers going back as far as we’ve been doing the studies, which is since 1999.
“Dealers didn’t achieve these record numbers with high margins; they didn’t do it with high inventory turns. They did it by keeping costs low. These are unprecedented profit numbers, unprecedented sales and unprecedented low cost of doing business. I don’t think we’re likely to see these kind of numbers again.”
Nor was the benchmark year of 2010 a low ebb in the US bicycle business. The market had just come out of the Great Recession, bicycle imports and ridership were both on track, and aside from forced discounting from too much inventory, dealer margins were at historically average levels.
2020 changed all that, obviously, because there was little or no inventory to be had at any price. Savvy dealers supplemented the few available products with second- and third-tier suppliers and by getting into the used bike business in a big way, which according to the CODBS, is far more profitable than new bikes, even those sold at full suggested list price. Because there were so few mechanics and salespeople available, shops had to survive with skeleton crews, often working longer hours. Marketing and promotions budgets were abandoned, because many retailers had more new customers coming in the door than they could supply.
It’s also worth noting that realized margins on new bikes for typical dealers were nine points lower in 2020–21 than 2010–11 even after 2010 discounts were factored in. For high-profit retailers, the drop was a full 15 margin points from the previous decade.
Let that sink in a minute. Low supply and high demand made it possible for retailers to sell bikes at full retail price during the pandemic for the first time in a decade. But even so, dealers’ realized margins from suppliers have shrunk 9–15% in the intervening years. Wherever these record profitability numbers came from, it’s sure wasn’t from selling new bikes.
The pandemic brought two waves to the bicycle business: an upsurge of customers, many of them relatively new to cycling, and a dearth of product that tended to keep prices, if not high, than at least at MSRP. The combination created a perfect storm of low supply and high demand. Factor in the reduced operational costs, and it was a unique event in the history of the specialty retail channel.
Now fast-forward a year to September of 2022. Dealers and suppliers alike are scrambling to put their 2023 forecasts in order and one thing is clear: What happened in 2020–21 is not a good basis for making 2023 predictions. Even 2019 isn’t a good benchmark, because that year had the lowest import levels since 1982.
Product managers and salespeople will have to reach all the way back to 2018 to find a solid basis to make projections for 2023, and that five-year time gap carries risks of its own. Meanwhile, savvy dealers (and, presumably, suppliers too) have been canceling or reducing orders for 2023 products, orders they originally placed back in 2021 or early 2022.
If there’s any takeaway to the 2020–2021 windfall, it’s that it was a one-time event. If there’s any long-term good news, it’s that there’s a whole new generation of cyclists, some of whom will stick with us in the long run. And if there’s a new normal in all of this, I hate to be the one to tell you, but it’s looking an awful lot like the old one.
