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From the mag: Retailers go straight to the source

Published May 20, 2013
From the May 1 issue of BRAIN

TAIPEI, Taiwan (BRAIN) — Benjamin Cox says that sourcing a line of accessories from Taiwanese, Chinese and Vietnamese manufacturers for his single-location store is a big investment of capital and time. He’s personally had to learn all the tricks of the trade quickly—how much duties are for products he imports, buying product liability insurance, ensuring quality control and that there are no packaging issues. 

And, unlike with his American suppliers and distributors, it’s an all-cash transaction wired directly from the bank—no credit here. 

Cox, CEO of Newbury Park Bicycle Shop in Southern California, began researching and talking to overseas vendors over the last nearly four years; this year was his second time attending the Taipei Cycle show, where manufacturers go to source products and meet with distributors. He’s grown the shop’s in-house brand of softgoods and accessories to 30 SKUs. 

He admits for a smaller business becoming a supplier involves quite a bit of risk, “but that’s why the margins are so much better,” Cox said. 

“The other thing, quite frankly, with consumers using us as a showroom and jumping online to find the cheapest price on Amazon, when it’s our product and we control it, there’s less of that,” Cox added. “If it’s my brand, I control all the distribution and the sales channel.”

Direct sourcing isn’t a new trend for larger-scale retailers. Companies like Performance and REI and online sellers Bike Nashbar and Pricepoint have sourced private-label bikes and accessories directly from Taiwanese and Chinese vendors for years. More recently, however, smaller one-store IBDs have started going direct to the factories in an effort to cut out the middleman and improve their margins in light of ever-increasing price competition. Many also said that they enjoy the control that comes from being their own supplier. 

“We see a lot of U.S. retailers out there,” said Dominic Galenti, co-owner of Incycle Bicycles with four stores in Southern California, about the Taipei show. Galenti said he and co-owner Mark Smits went to the Taipei show for the third time this year. 

“We’re getting better buying there and learning how to do it,” he said, adding that they focus on sourcing everyday items where people don’t care so much about branding, including water bottles, seatbags and bottle cages, for example. “We’ve more than doubled it every year,” Galenti said about the product lineup. 

Galenti said you have to be a certain size retailer to be able to source directly, as many factories have minimum order quantities—or MOQs—that could be in the few hundreds or few thousands, depending on the specific product or item. 

“If you can do the volume and order the container of product and go through 5,000 pieces of it or 10,000 pieces of it or float the capital, it’s worth it,” said Newbury’s Cox. “But if you’re buying five baskets at a time from QBP, there’s no way you’re going overseas.”

Ken Martin, founder and CEO of Mike’s Bikes, is a Taipei show veteran. Eight years ago he began selling an in-house accessory brand in his Northern California stores called BikeSmart. Earlier this year, he spun it off into its own company. It’s owned by the same parent company that owns Mike’s Bikes, Headlands Ventures, but as Martin decided to push the brand out to other retailers to sell in their stores, it made sense to make it its own entity. 

Martin said becoming a distributor wasn’t part of his plan when he first launched BikeSmart, which has grown to more than 120 SKUs in 10 different product categories, from pedals and tools to pumps, bottle cages and bags, and even lube. But as the line has evolved from off-the-shelf product to more customized offerings, he’s seen more interest from retailers. And as more sign up to carry BikeSmart, his volumes go up, driving overall product costs down. 

“My whole game here is to get myself and a bunch of the power retailers together with buying power to drive costs down,” Martin said. “That’s the end game. We are a distributor born from a retailer. We understand you need to earn more than 50 points on accessories. Fifty points is not going to pay the bills, which is why we got in the game ourselves and now we’re able to pass that margin on to other retailers.

“We all know there are many distributors out there that don’t add value; they just warehouse stuff but they’re taking a huge cut,” Martin added. “I feel retailers, we’re the ones out there doing the hard work, building brands and paying rent. We should have that cut, not the middlemen.”

BikeSmart is sold through more than 60 IBDs in the U.S., according to BikeSmart sales director Demi Basiliades, and the brand also has dealers in South Africa and will soon open up a shop in Puerto Rico. It’s not sold direct to consumers and Martin said he’s strict about pricing. “I’m a hard ass on MAP,” he said. “We don’t want to play the pricing game.”

Erik’s Bike Shop was its first customer. The 18-store Minnesota retailer sells BikeSmart in all of its stores, with product shipping direct from the factories in Taiwan to its distribution center in Minneapolis, Martin said. 

Martin said he’s also working with the Bike Cooperative to offer BikeSmart as the “preferred brand” for co-op members. 

Both Incycle and Newbury Park Bike Shop are considering offering their lines to other retailers in the future, gaining the buying scale that comes from larger volumes, but for now they sell mostly through their own stores and websites. Most retailers limit their sourcing to accessories and “smaller, safer goods” that come with less liability. 

Other shops that source directly, including Turin Bicycles in Chicago, Illinois, and Jones Bicycles in Long Beach, California, prefer to keep their branded product in their own stores. 

Alan Fine, co-owner of Turin, said he and his partner Lee Katz have been sourcing since the early 70s. Back then, they sourced from Europe. They started doing it because they lost exclusive distribution of Mercier, a French bike brand that Fine said they helped build in the U.S. 

“That really pissed us off,” Fine recalls. “We had developed the name and people had started to ask for them. We thought, the key to the future is to control our brand, so that’s what we did.”

The partners, who recently reopened the Chicago shop after closing for a year, prefer to design their own product rather than slap their name on open-mold product. 

“We do it because it’s fun,” Fine said. “A lot of it is the sheer love of the bike business and the joy of being creative, not just being a clerk selling Blackburn pumps.”

Jones Bicycles owner John Genshock has been selling his F.U.B.A.R. line of house-branded accessories for eight years. He hasn’t gone to the Taipei show. Instead, he has made most of his connections with overseas suppliers at the Interbike trade show or looking suppliers and products up in the Taiwan Bicycle Source catalog, which he calls “the bible everybody uses to spec their bikes.”

His line consists of some 30-something SKUs, but Genshock said he’s planning to ramp that up soon. “I’ve had as much as 60 products,” he said. “If you do it yourself you can change gears a lot easier. You can control value and have it on hand.

“We’re going to be doing it more aggressively—a lot more aggressively in the near future,” he added.

Topics associated with this article: From the Magazine

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