How’s Business – April 2023

By Phil Latz | 27th April 2023 |

Bike store interior — Cycle City, Fyshwick ACT. Photo credit: Cycle City

Welcome to our monthly conversation with retailers across Australia and NZ.

It’s always dangerous to define any trends from a sample of, in this month’s case, just seven stores. However, it seems stores with less nearby competition, particularly regional stores, are finding things better than city stores where there are multiple shops nearby.

We’ve been running articles recently about battery fires and shops that have flooded, while hearing other reports of break-ins and bike theft. We were wondering if any impact is being felt with insurance, so this month’s follow-up question was: “What has been your most recent experience in renewing your business insurance in terms of price or any difficulties?”

Garth Irons from Cycle City in the Canberra suburb of Fyshwick, who also operates at Stromlo MTB park, said:

The workshops are flat out, but the sales staff are bored s***less!

And who knows what the year will bring, because the suppliers are all overstocked, so that’s going to go on sale, which will drive down prices on the floor. But if you’ve got no customers, it doesn’t matter what the price of a bike is, it’s not going to sell.

It will also drop the arse out of the second-hand market, which is way overpriced at the moment. (Garth does not sell second hand bikes through his business).

All my sales staff had always had mechanical training. That’s where these large companies fall short. How do they train all of their mechanics? You can’t get good mechanical staff because it’s all in-house training.

I know from training kids that you don’t just tell them information once a month or once a week. It’s constant, on-the-spot training. Any apprenticeship that has TAFE training also has, for want of a better word, a master at the business that’s got them under their wing.

Recent experience with insurance?

I don’t give it too much attention. It hasn’t been difficult at all. I don’t think the price has changed much. I know that some shops don’t even both insuring, because of the equation, you know, x amount of years that you insure, you could have just covered the cost yourself.

That’s the other gamble. Insurance is a gamble. I prefer to insure, but I have knocked my insurance right down to base levels over the last 10 years; slowly just made it more basic so it’s more affordable.

I guess shops with e-bikes probably take insurance a bit more seriously than I do. I have very few e-bikes. But I don’t not stock e-bikes just for that reason. I’m consolidating the shop more and more. In the years ahead I will stock a minimal amount of bikes and just concentrate on the workshop.

Kate Huxley from Batemans Bay Cycles, in the NSW coastal holiday town, 150km east of Canberra said:

It’s actually surprisingly buoyant, considering there’s been a lull. We’ve had the Covid hangover party. Everybody’s nervous.

The industry has had to suffer a few price corrections. I guess freight pushed everything high during Covid.

We’re quite regional and being the ‘Capital Coast’ as it were, we’re a little bit buoyant for sales, which is good. We’re still very cautious but optimistic.

There’s a huge number of people who have their holiday house here. In the Eurobodalla Shire there’s only about 37,000 permanent residents and there’s an extra … I think they say somewhere between 15% to 20% of housing is a holiday house or a second house or something.

So when we have the peaks of people ‘popping on down the hill’, as we say, we’re like ‘East Canberra’, it’s kind of good because they’re so time poor up there doing legislation and all that stuff and they come down here and say, ‘Aww, I need to get my bike fixed’.

We’ve been doing stacks of repairs. The repair shop is definitely a bonus, keeping good dollar turnover and lots of parts sales. We were quite astute early on in Covid times. We’ve been stockpiling (workshop parts) a little bit. We’re now at that point where we’re getting down through the stockpile. We’ve bought things at really good prices and we’re still selling a lot of repair components; except for 12 speed (MTB) cassettes from Shimano – thanks, they forgot to order them (laughs) or I think there’s some delays.

But there’s alternative suppliers, so we tell the customer, ‘We can’t get you an original Shimano one, we’ll just get you a SunRace’. Or whichever other brand – it’s either that or the bike gets mothballed for three or four months while we wait for a cassette.

We’re very mountain bike down here on the coast.

We’ve got a new mountain bike club in our area. We’ve now got 75 members. In the near future, about 80km of mountain bike trails are going in, and about 125km in the next two years.

We’re feeling optimistic about mountain biking in the future. We’re part of regional development funding. NSW south coast has had a lot of funding post-bushfires. We’re a lucky industry to be able to benefit. ‘Tourism infrastructure! Let’s build a mountain bike park’.

Five million dollars into the local shire council to build a mountain bike park … I’ve got to put my hand up and go, ‘Happy’. It’s more bums on seats, more broken derailleurs.

The official trail total at the moment sits at about 35km, so this is a significant development; 35km of volunteer-built trail versus 125km of beautifully crafted, machine-built and hand-built from an actual trail building company.

Recent experience with insurance?

Last year we did notice. We have a broker who has been our broker since we bought the business and he pretty much said we would discontinue with the original insurance company.

They way he explained it, the insurance companies are exposed because they’re multinationals and exposed to markets globally. Because there have been floods in Lismore and Brisbane and we’re on the coast, we could flood, so the insurance quote went from $4,000 per year to $14,000 per year – like, ‘You’re joking!?’.

We found an alternative company which was not such an extreme rise, probably not much more than CPI. The new insurance company is covering all the same things, like glass and stock and business interruption.

Insurance is definitely a factor that’s costing more every year – watch that space. We’re about to renew again.

Leighton Thomas from Geraldton Bikes, on the WA Mid West coast, said:

It’s going good. We’re still doing figures we were during Covid, which is surprising for us as well. But I think we managed our stock levels well through Covid to come out the other side with as close to what you would hope is the right amount of stock, right amount of cashflow and right amount of money in the bank to transition as smoothly into post-Covid as we can.

It seems like the general trend is it has quietened up a bit and demand has slowed. We’re very fortunate but I think that’s partly because we’re in a regional area and we’ve got such a large catchment area, that we’ve got through okay.

E-bikes are always growing. We’ve been big on e-bikes for about seven years. We definitely stretched ourselves at times, cashflow wise, to put as many e-bikes as we could on the floor. But that served us well.

Recreational bikes are still going strong. Road bikes are nearly non-existent. There’s only a couple here and there. It’s a difficult process to manage when a customer comes in asking for a (road) bike. Just trying to find a bike that’s available in their size, in their budget, that we can supply them in the next couple of months, so we’re just focusing on other styles of bikes until the road market improves. Performance mountain bikes are still going strong.

We’re pretty isolated from discounting because we’re nearly 500km from Perth. It’s noticeable. Obviously, online advertising and the emails that go out … but I think we’ve always made a point of offering the highest level of service we can to create the best level of service for the customer. We try to focus on service-based customers rather than price-based customers.

One trend I’ve noticed massively is the quality control of bikes. We’re almost doing a warranty on every second bike that we’re pulling out of a box.

I think an interesting question to ask retailers is: ‘Are they monitoring how much extra time and labour are they putting into processing warranties? And how good are your brands at compensating you for your labour on warranties as well?’.

I’ve looked at my figures – my turnover and gross profit was nearly identical but my wages have gone up. And then I worked out I was effectively paying a staff member – they were putting in nearly a whole day per week into processing warranties with the brands. You get that $200 and times it by 52 weeks of the year … you spend $10,000 per year on processing warranties.

We’ve all got to ride it out and wait for the quality to get better again. But I think that is the most noticeable trend post-Covid. Some brands compensate us nicely for labour and some brands don’t compensate us at all for labour.

I think you should see what other dealers’ thoughts are about this.

Recent experience with insurance?

We’ve got a very good broker we know personally. He’s always shopped our insurance around, so I’ve not put much thought into it, to be honest. He comes back with a range of offers and makes some suggestions on what might suit us best.

Something I like is that over peak periods the level of stock is covered for a higher limit – our insurer understands that at Christmas we might be sitting on a higher level of stock than we would be in the middle of the year.

They’re very flexible and even cover bikes we store off-site in shipping containers. I then had more bikes arrive, which I had to put in my shed, which is not as secure. T y looked into that and were flexible enough to insure it for another 20% of stock value for what we had in the shed.

It needs to be dynamic like that because coming out of Covid, our stock level might drop by a couple of hundred thousand dollars that we don’t need to restock now that bike supply is better. Like most shops, we’ll never have the same amount of stock at any one time.

Gavin Nugent from My Ride Salisbury in the outer north-eastern suburbs of Adelaide said:

Business is good … we’re in a lucky position where Gary Mills from Star Cycles Elizabeth has retired and closed the store. That was an opposition store, although we worked loosely together. That’s opened up some trade for us in the past three or four months since he’s fully closed.

We have a big catchment area from Blair Athol to Modbury to Gawler. And housing development in our area is huge.

We’re working pretty hard to make it happen, don’t get me wrong. You don’t get it for just sitting back and opening the door.

There’s plenty of stock out there but you’ve still got to be mindful about what is available. Not everything is available when you want it.

It’s no longer the case when the customer just walks in and, ‘Do you want it or not?’ That’s gone. We had that for two years and that was a nice place to be. But now we’re back with the customers gaining more of the upper hand. So we have to work with the customer now – back to how it should be – customer service is paramount.

We’re okay avoiding discounts just at the moment but it is coming back into the game. Part of that is driven by suppliers as well, because they’re over supplied in some areas.

Recent experience with insurance?

We’ve had no problem renewing our insurance but the last two times we’ve renewed it, the list of questions has grown each time.

We deal with Cyclecover and I’m sure they farm it out from their side, insurance broker style.

Insurance has gone up, the list of questions has gone up, but in line with everything else.

Kathryn Boyd from Aspley Bike Shop in the northern suburbs of Brisbane said:

It’s a bit quiet at the moment. Everyone’s tightening their belts, so things have been a little bit slower. People are still coming through but they’re not spending lots of dollars, just small amounts. It’s across the board of bike categories.

Our stock is a lot better than it has been.

Our workshop is ticking along. It’s probably a little bit quieter than it normally is, but it’s still going.

Recent experience with insurance?

(No comment as Kathryn does not manage the insurance.)

Ryan Wilson from St Kilda Cycles in the Melbourne inner bayside suburb said:

Good – workshop’s busy, bike sales not so much. But I feel like that’s the case across the board really.

We’re booked for a couple of weeks’ time, always got jobs going on. P&As good. Online’s pretty quiet, bike sales are quiet.

For us, where we are in our market, we’re still getting sales in your standard commuter / hybrid, but at pretty low price points and low margins. We’ve got some nice stuff, like custom builds that we’ve put on the wall but little to no interest in them, which surprises me.

Two years ago, road bikes would just sell themselves really. That’s taken a bit of a dump.

We’re lucky where we are. We do a lot of hire and a lot of repairs. We’re one of the few bike shops in the area so we’ve got a little bit of a monopoly for the area, which is fantastic.

Going into colder months, I guess things will slow down.

We do not sell scooters and we never will. It’s just not our market. But we do a lot of repairs on scooters. A lot of places that sell them don’t seem to want to ever repair them once they leave the shop; so we do a lot of scooter repairs, but only flat tyres and stuff. We don’t service the electrics. We’ll continue to do so, but scooters aren’t our market.

I don’t think we want to be a jack of all trades. We want to pick our lane, so to speak.

Recent experience with insurance?

I wouldn’t know about buying insurance but I know we have had to use our insurance twice in the past 12 months. We had a flood and we got broken into and had a couple of bikes stolen.

The insurance came through on these occasions.

Mark Taylor from Mt Eden Cycles which has two locations in suburban Auckland, NZ said:

Business is pretty tough at the moment. It’s been a little harder with the interest rates increases. (As of April 2023, the official NZ interest rate is 5.25%, compared with 3.60% in Australia).

The NZ government is pretty strict on curbing inflation – in a small economy we find it tough to do it. We’re getting a constant run of interest rate increases over the past year.

I sold the stores to Specialized. Both are affected in the same way. It’s just a tougher environment to trade it. But it’s not as though we’re losing money – they’re still profitable businesses.

It’s not all doom and gloom. It’s just that we were enjoying a boom for a couple of years and now we’re not. We’re almost on par with 2019.