Rising rent and diminishing margins have led to the closure of Sydney’s first specialist mountain bike store, Summit Cycles, according to its founder, Paul Rowney.
Paul last week announced in an email to industry contacts that Summit Cycles Sydney will close on 25th August, after nine years at its Hillsdale location, as the business consolidates its retail operations at its Melbourne store.
“We don’t take this decision lightly as we have invested the last nine years to bring the concept of specialty mountain bike retail to life, and for many years it worked and worked really well,” he said.
“Even during the last six months we’ve had some pretty amazing months but it’s not as reliable as it used to be. With the lease due for renewal in September, I wasn’t prepared to take the risk for another three years.
“Phil Latz wrote an interesting article about 10 years ago that stated if you didn’t own your own building, you might be in trouble.”
Paul said that is certainly playing out now, with rent for his store doubling in the past nine years, while a changing market in the south Sydney district meant a dedicated MTB store is no longer the right fit.
“I don’t think the MTB specialist concept has had its day in the sun, I just think it’s a case of where we’re located and its changing customer base.”
“The bicycle industry is just chopping all its IBDs down and the big brands want to sell everything direct.”
Paul is putting the store on the market, in the hope someone has the energy and ideas to do something different with the location.
He said while rising Sydney rents were hitting small retailers in many industries, bike stores were also being hit by other trends in the sector, including the practices of some major brands.
He cited the motorcycle industry as an example of manufacturers assisting retailers to help them through current retail discounting to clear excess stock.
“At what point do you have to start turning these people away or start charging them? But that’s not built into the manufacturer’s direct to consumer model.”
“You see rows of motorcycles selling at $3,000 off for an $18,000 bike but they can afford to do that because they’re propped up so heavily by the manufacturer,” he said.
“Whereas the bicycle industry is just chopping all its IBDs down and the big brands want to sell everything direct.
“They’re attracting customers to their online outlets and the minute there’s a problem, they direct customers to IBDs to do their dirty work for little return. If we get a customer come in who has blown a motor under warranty, the charge we get from the manufacturer does not cover the labour, or there’s no profitability in it.
“At what point do you have to start turning these people away or start charging them? But that’s not built into the manufacturer’s direct to consumer model.
“None of us are going to survive the way it’s going.
“Maybe it’s just going to be a change in the industry. Maybe it will just be a lot of holes in a wall for servicing, and you’ll just go to a large supermarket-style store for purchases, or shop online.
“We still do reasonable trade but the cost of doing business means are margins are so tight.
“For example, last year our insurance company stopped doing bike shops and the next best quote we could get from the broker was a doubling in price, from about $8000 a year to $16,000.”
22 Years’ Experience
Paul has been in the industry since 2001, when he became the distributor for Yeti, one of the brands he continues to import.
“I was going through paperwork from 2004 when margins used to be 40% – back in the dream days,” he added.
“Now if you’re doing 25%, you’re doing pretty well. I have mates who’ve had to write off $200,000 to $300,000 because of discounting by major brands. To compete, they’re having to sell at cost and with no margin, just to get stuff off the floor and get a few dollars back in the till.
“My gut feeling is this will be the case well into next year. I’m seeing model previews for next year and outside SRAM Transmission, nothing really new is coming. Mainly because of the inventory gluts they’re experiencing in the US.
“People are hoping time will fix the hole we’re in but I think that hole is going to be around for another year.
“I think we’re just going to have to wear this period of everyone turning their pricing down. Whatever you’ve got on the floor, you’ll have to turn your pricing down for really low margin, to get your dollars back, then restock at the new price.”
He said Summit Cycles Sydney was put on the backfoot by Covid and its impact on supply.
“We probably lost quarter of a million dollars in one location just in Santa Cruz sales because we effectively couldn’t get bikes for two years.
“By the time you paid rent and kept staff on, then with massive supply delays, that period wasn’t quite as amazing for us as some people thought it was.
“More recently, a lot of our sales have just been frames because people bought new parts during Covid and now they are transferring those parts across.
“That’s been a challenge from a wholesale perspective as well, because you buy parts and forks and wheels to fit certain bikes and instead people are buying frames.
“It’s a big chunk of your turnover that gets diminished and you really couldn’t have picked that one.”
Tale of Two Cities
Paul said his Melbourne store, Summit Cycles Fitzroy, which opened a year after the Sydney store, is continuing to do comparatively well.
“It really is a tale of two cities. For a similar level of rent we get twice the space to fit three times as much inventory,” he said.
“Like every store, Melbourne is down a bit but it’s turning a profit.
“Melbourne is different because people have a tendency to travel to the store to get what they’re looking for. In Sydney, people generally don’t drive across town to a destination store because it takes an hour and a half to cover 20 or 30km and it’s getting worse.
“In addition, our online sales operations are based in Melbourne and our online activity is become a thing.”
He said e-bike sales were also contributing the Melbourne store’s success, rising to about 50% of total sales.
“The Sydney consumer is still orientated towards acoustic bikes, even though Sydney is made for e-bikes.
“You need to be in a certain location to sell e-bikes in Sydney it seems. The northern beaches do very well with Commencal and Specialized for example and if you look at the Shire there’s a lot of Giants and Meridas.
“We never really captivated that e-bike market. E-Bikes still don’t have the same potential to draw in a customer who has to have a particular brand.
“A lot of e-bikes are sold on price, the motor it has and how much horsepower it has.”
Decade of Change
He said a lot has changed in the industry since Summit Cycles Sydney opened nine years ago.
“To sum it up, all the direct to consumer brands were in their infancy when we started. Now companies like Canyon , Commencal and YT are big brands and there are constantly new brands coming onto the market.
“Customers have more choice, there’s less margin and we’re competing with direct to consumer sales. Retailers are bearing the brunt of that.”