Bike shops are great fun, especially if you have a passion for cycling. Kitting people out with everything they need to enjoy riding is also extremely rewarding,You do need to be aware of which products are high-margin, and how to negotiate with suppliers, to ensure you remain competitive and profitable. Jamie Lawrence of inspiresme.co.uk explores the market, and tells you how to get the wheels turning on your new business.
What does the market look like?
There’s a lack of data on the UK cycling market, with most statistics borne out of two or three well-known studies. A particularly comprehensive study was conducted by ActSmart in 2010, which revealed around 2500 independent bike shops are in operation throughout the UK.
All of the specialist UK cycle shops, excluding non-specialist large firms such as Halfords, are SMEs, so it’s definitely a market where smaller firms can thrive.
The high-end cycle market, driven by strong and consistent demand among enthusiasts, semi-professionals and professionals, remains strong, although there has been a dip in mountain bikes sales. The study suggested that this dip had been somewhat offset by a growth in sales for recreational and work cycling purposes.
With an increasing emphasis on carbon-conscious travel and healthy lifestyles, along with the upward swing in petrol prices, cycling is emerging on the political and social agenda as a positive choice to make. And with the attractive cycle-to-work scheme offered by an increasing number of employers, now is not a bad time to get involved in this industry, although the downward pressure on prices by internet retailers can be an issue, as with many sectors.
Government investment in cycling routes, and the visibility of related charities such as Sustrans, may also indicate a trend towards market growth. However, the market is not as strong as it once was, and as with many retail businesses there is a huge amount of hard work needed to create a success story.
What are the challenges of opening a bike shop?
The main challenges come from mass-market sales and the marketing power of large companies – bicycles are quite complex machines but the ease of purchasing from a big retailer, and the low prices, makes people less inclined to pay higher prices even though it is expensive to produce a decent bike.
Competition from other independent bike shops can also be tough, which makes location very important. Internet retailers are perhaps the biggest concern, particularly as they have eliminated many of the disadvantages of buying a bike online – not being able to see it, not being able to ride it – by offering retail locations where they can be taken for a test ride, or a 30 day trial period.
The sector is also known for its high degree of specialism – it’s hard to be a jack of all trades as the needs of one group are so different to another. You may want to diversify revenue streams and offer a bike hire service, but there may be a dedicated company offering this that you can’t compete with on price. Likewise, if you want to set up a specialist cycling shop, it’ll be hard to market your service to casual cyclists without hurting the brand.
Identifying your remit
It is very important to know precisely what you’ll be selling, and what services you’ll offer. Of course, this requires substantial market research so you know that your choice is suitable for the local area and for your target market. Will you sell a range of bikes to a broad market, and hope to make most of your money during periods of strong consumer demand e.g. the summer? Or will you advertise in industry magazines and target professional racers? These are important decisions to make – the more experience you have in the sector, the more you can specialise. But that doesn’t mean you need to.
Diversifying revenue streams
As well as selling bicycles and accessories, you may want to offer additional services to bolster your income – remember that bike selling is very much a seasonal business. Demand peaks just before and during the summer months, and dips off heavily during colder times, although professional demand is likely to be less affected by the seasons.
Some possible ways to diversify revenue include:
- Gait analysis for semi-pro and professional riders
- Bikes for hire
- Bike repair and maintenance
- Corporate schemes
Training and development
Experience of selling and repairing bikes are essential to running a shop effectively, so you’ll need to learn – there are different routes. One of the best is simply apprenticing with a current bike shop or working in a busy bike shop. You can also learn the basics yourself before moving onto employment.
If you’re after professional qualifications, Cytech Accreditation is a recognised benchmark that suggests competence in a range of skills. Cytech offer courses in bike mechanics, as well as more specialised modules in areas including suspension technology, wheel building and advanced road wheels.
Start-up costs vary depending on the type of bike retailer you set up as. If you’ll sell a cross-section of bicycles, with a few high-end models alongside an expansive consumer range, you should probably budget £25,000+ to get set up in a suitable premises, with branding, point-of-sale materials, accessories and basic marketing. If you’re setting up a high-end retailer, this figure could easy double and triple.
And if you provide additional services, such as gait scanning, be prepared to spend a lot on high-performance cameras and specialist software.
Here is an average list of expenses as a total of overall outgoings, for speciality bicycle retailers, from the NBDA Cost of doing Business Survey. These figures are expressed as a percentage of gross annual sales. Bear in mind that these are compiled from American businesses.
- Payroll Expenses — 20.5 percent
- Occupancy Expenses — 7.7 percent
- Advertising/Promotion — 3. percent
- Auto and Delivery — 0.5 percent
- Depreciation — 0.9 percent
- Insurance — 0.8 percent
- Licenses/Other Taxes — 0.5 percent
- Professional Services — 0.5 percent
- Office Supplies/Postage — 1.2 percent
- Telephone — 0.6 percent
- Travel/Entertainment — 0.4 percent
- Other operating expenses— 1.3 percent
- Total operating expenses — 37.7 percent
- Net income before tax — 4.2 percent
- Gross margin on bicycle sales — 36 percent
- Gross margin on clothing sales — 43 percent
- Gross margin for other equipment — 48.1 percent
Insurance and compliance
Because you’ll be giving advice and selling merchandise that could potentially cause injury, you’ll need good insurance cover. Public liability insurance and professional indemnity insurance are important, but you should also consider product liability insurance – not all lawsuits name the manufacturer and can go after the seller, particularly if they changed, maintained, rebranded or altered the product in any way.
When you take on staff, make sure you take out employer’s liability insurance. This is a legal requirement.