Completely unacceptable margins. That right there is why no one buys from the businesses in town. Free shipping on parts at cost trumps a 12-14% on parts for a feel good factor. Especially in these economic times. Increase your volume, reinvent the local motorcycle parts business. A couple of percent should absolutely suffice, especially if you aren't paying for the overhead for storage, and the speculatory prices of sitting on merch. This begs the question, what are the current margins, in all sectors of the business? Is there currently a 12-14% markup on parts and accessories? What about bikes? What about the shop rate for service? I'd really love to see a breakdown of service charges someday. I've seen rates in town from $75-$150/hr. I know that your average good ole boy motorcycle mechanic that works in town isn't pulling more than half of that hourly as wages. Where does the rest go? Overhead? Management? Dental plans??? :huh
Not for one or two points, bud. You'd both be anorexic pdq. General rule of thumb for a brick and mortar wholesale business to stay afloat is 20-22% gross margin at end of month. Some of their business is taken at 5%, too so you know that some of their sales have a significantly higher margin than 22%. Sometimes even over 30%. For a retail business it's normally far higher. These numbers are fairly common knowledge amongst the banking industry. They loan money on receivables and judge the health of a wholesaler or retailer based on their GM. It used to be that the typical commercial lender had a book behind their desk that showed which businesses required what kind of margin. With the web I'm sure things have changed a bunch but you can get that kind of information on just about any business with just a little rooting around. I ran the sales department for a local brick and mortar wholesale business in the early to mid 80's here and at that time our end of month GM was between 28-31% but those days are gone. In that era there was a common saying that "Nobody screws Alaskans like Alaskans screw Alaskans". There is no business I know of that can trade goods as their core competency and stay in business at anywhere near one to two points.
The Internet is a great place . Amazon rocks too. So does Motorycle super store, tho they don't ship tires . And yes locally wil always be a pricey more. It's Alaska eh.
Thanks for the numbers and 1st hand insight. I'm not necessarily trying to be argumentative, just trying to wrap my mind around this. Let's split the difference and call it 5%. I still can't justify spending any percent buying locally. What's the benefit? Having it right now? It seems that most people's experience is that it needs to be ordered anyways. Some of the examples you gave were from before the internet existed. Now that we have an instantaneous global economy, maybe the low volume brick and mortar's will have to reinvent their business model to compete?
Ben, If you have a business in it's own building, with employees, your margins have to be way higher just to cover time invested in the behind the scenes costs. Things like rent, utilities, time it takes to keep the books, payroll, insurance etc. will eat you alive. In our business we strive for a 40% margine... we don't always get it, but will make it up on something down the line, but we have 3 buildings on 3 lots with 25 employees... Let's take your numbers as an example... 5% markup. Part A costs $20... add 5% markup = $1 Would you really go thru the hassle of ordering, invoicing and holding Part A until the customer picks up for $1 ?:huh
No, especially when Amazon, A&S, Max's, or whomever can monumentally undercut you. See earlier about "reinventing the model of parts/accessories sales". I really could bat this idea around for days. It interests me immensely, so much that I recently decided to get my degree in small business management and administration. I know that any theoretical solutions are worthless without proven practical application. I suppose I will just resign to be curious to see what the future holds for businesses like this, for the time being.
The most recent business model to sweep the US came about when manufacturers decided that they were manufacturers only, meaning that they don't also warehouse material and they don't do any of that other stuff. They thought that manufacturers should manufacture and that distributors should be responsible for the three golden tasks... 1) stock material 2) promote a specific manufacturer's stuff (ah, yeah) and, 3) insulate mfg's from issues of credit. Flawed model however, all of 'em are and the definition of business is changing, too. For example, 30 years ago your Grandpa would buy a stock and hold it for ten years. Or twenty or thirty years. I remember going downtown with my Grandpa to check on some of his stock. It was a peanut butter company and he'd owned it for a decade or two. When we went to the stock broker's to check he had no interest in selling; just wanted to know where it was. Now a business is owned by somebody with an internet connection and they own stock for an hour or a day but not long term. A mfg's goal now is to please a stockholder that owns the company for such a short term that nobody even knows who really owns the company anymore. With that change comes redefinition of roles and a change in margins and how they're earned. Direct shipments from mfg to end customer have become common. So have reserved production agreements where a single customer will commit to purchasing x days worth of production capacity over a given period and the manufacturer and end user agree on a predetermined quantity and shipment schedule so the mfg doesn't stock, etc. So have labels that say Made in China. Look back on what you and everyone else normally says which is that you want a lower price, margins are too thick, I'm tired of getting screwed and I'll go 4000 miles out of my way to get what I feel is a more reasonable deal; there you'll find the polar moment. In its quest to compensate shareholders and drive down costs American business has shipped too much of its capacity to Asian markets and those people are far from stupid. They'll be building all of the material AND marketing it back to us in a manner we can't compete with, soon. And once again the shape and appearance of business will morph with the climate. This is a constant change and a constant re-education of the people involved. A marginally related example is professional politeness. For some reason corporate America started training its people to seem unconditionally caring and apologetic for the slightest perceived infraction. Now you call Apple computer or any of the big phone companies and you'll be connected with someone that's painfully stupid but polite and courteous and all that. What really happened is that classes could be taught to make the biggest retard polite and that morphed into ISO 9000 guidelines to where you could now put a flip chart in front of an amazingly polite idiot and most customers would tolerate his being a dumbass because 'he was just sooo nice'. It seemed like you were paying for someone to be nice to you when in fact you actually wanted a service or item that worked. The problem is though that the polite dork is all that's left of many manufacturers. That dork can't put the phone down and walk out on the production floor as production is in a rice patty 5000 miles away. All that that guy *can* be is a polite parrot. Now that's morphed into the automated checkout counter where the most courteous voice cheerily asks you "have you entered your member number yet"? and then guides you through their self service process and thanks you for (who knows what... you don't listen to the digital voice you just rip your receipt out and walk off as you're completely desensitized to disingenuous cheeriness and courtesy anymore. Corporate America has taught you that politeness is complete horseshit and you've realized that what you really want is what you want, and preferably one that works like they said it would). And then you've got Costco who's thickest margin is never greater than 15% yet they thrive. Curiously, there's a lack of disingenuous courtesy there and they only sell what you want to buy constantly and in volume. What is it that's really missing at Costco? Marketing. There's very little and every marketing assbag is the guy that runs up margin artificially. What's a marketer? He's the guy you first met as a kid. He said shit on the Wheaties box like "product enlarged to show detail" or when he put less in a bigger box he'd say "some settling will occur in transit". My favorite? "Secret decoder ring inside" because our product tastes like your dog's butt and you wouldn't buy it on it's own merit, kid is what he forgot to say. Same guy works behind the scenes in every product you buy. The next business wave will include less four color photo glossy brochure crap and hopefully most corporate marketing schlubs will die in leper colonies. Shame really. I'll send 'em a factory sealed half empty box of Wheaties. The key to parts will be combining the internet with reserved mfg capacity and a cheap rural whse. Sort of like South West Moto Tire did. Or on a bigger scale sort of like Sam Walton did. None of that will be happening from Alaska for logistical reasons though. We'll remain a colonial outpost and we'll probably always have a preference for local business. I know I do. I take special pleasure in not giving local car dealers my business but bikes and accessories? For me they deserve first crack. And maybe last look, depending. Unless of course they have a disingenuous but polite retard there at the shop. Then all bets are off.
Wow, lots of interesting discussion! Griz-sorry we reach for a parts catalog when you're looking for parts...what an idiot I am. Sounds like something in the past put a bad taste in your mouth, give me a chance, we'll do our best to change that. As for everyone else: Honestly I can't take much more time to such discussion. Seeing as how I (as well as a few others) am devoting much of my immediate future to the success of The Motorcycle Shop, this limits my free time immensely. I consider frequenting this site as a form of extended customer service. The more avenues we have our hands in the more we can be in touch with our customer base. I can't tell you how many times I've received business feedback, heard of a broken down traveler, someone interested in a bike, the list goes on. As far as parts goes we are currently looking for new systems for stocking, ordering, reserving, and sales in general. Parts are a very challenging aspect of the power sports business, that said I think we're improving. That's all for me, I've got to answer the phone.
Wat. :huh 12-14% is too high? You even mentioned 2% as acceptable in another post? You might be happy making $2 for every hundred dollars sold, but how will you pay your employees, keep the lights on, buy insurance, buy a building, etc. etc? So you sell $1 million worth of inventory. That's pretty awesome. Most people would be stoked about that. Congratulations, you made $20,000. Enough to pay one unskilled college student part time, you can't afford a dime worth of equipment, and you made nothing. Sell $10 million? $200,000. Now you have a manager and 3 or 4 part/full time employees, no profit, no draw for you, still no building, and no anything else. And how are those 3 or 4 employees going to sell $10 Million worth of inventory by themselves with none of that stuff? Even if you plug 14% in there instead of 2% it's challenging to create a functioning business model, no matter what you're selling. There's a reason prices are what they are in any situation. It's pretty basic macro economics (Supply & Demand). Any time you can look at a business idea that's that simple and say "I'm going to be rich!" it's almost a sure thing someone else has thought the same thing, and there is a reason they aren't rich.
Barb from Alaska leathers told me right after I had bought my brand new 1200 GS " You know the bike is just the tip of the ice berg" The money is always in the aftermarket products, think braces, breast implants, faster mufflers, special boxes to put shit in.
The money is in taking care of the customer, that's more what we're trying to say. You've posed some interesting discussion, I'd love to dive further, perhaps this weekend when I've got more free time.
Note that this article references profit benchmarks that would be waaay low for a typical dealership in Alaska unless that dealer also had snow machines and winter sports stuff. http://www.motorcyclepowersportsnews.com/Item/76715/total_store_gross_margins.aspx Rules of thumb: 1) Sales. Bikes take up a lot of space but normally won't exceed 20% of monthly revenue. Usually closer to 10% would be a predictable average for a typical shop. 2) Service. Big money there as long as you can avoid warranty work. Warranty work has a slim margin to it but service work in general is a dealer's cash cow. 3) Parts. This can be big money if run well or a complete cluster if ran poorly. Next time you go into a parts shop look at the shelves and instead of seeing parts consider that you're looking at stacks of $100 bills as that's what all that stuff really is. It's easier to show profit at month end by not stocking any parts than it is to contrast stock sales against the expense required to earn them. Not meaning it in a bad way but it's also a piece of the business that a typical motorcycle shop might not be expected to have natural skills in. Sure, they may know what parts you want but businesses based on inventory turns and earns requires a unique blend of purchasing agent, discount negotiations with vendors, dating on billing, an xlnt grasp of freight issues and then somebody to peddle the stuff that has a pretty good understanding of what they're looking at. For Alaska consider that a shop that only focusses on business that's available for 6 months out of the year also has to have thicker margins and higher volume than a normal shop stateside. Like, double or more. Ever been charged a buck for a crush washer? I've seen a buddy of mine charged $7 for a screw. That's all part of the month end margin that might seem outrageous and it is... but it keeps the heater on for the six months that the door doesn't really need to be unlocked much. Without at least some extra margin those shops would go the way of the Anchorage Times and none of us would be the better for it. I'm not saying it's ok to pork the customer but I definitely understand that this is not a 1-2% margin business. At least not for more than about 90 days.
I still can't justify spending any percent buying locally. What's the benefit? The local economy may survive
