Margins-or how much is enough-industry types please chime in

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stormur
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by stormur

Yes, you didn't possesed obviously that skill ( comes clearly from your posts ), so it's not insulting- just noticing fact. Read again what I wrote, and quote after with bold & capital.


Same business models applies to various fields withing "luxury" goods as sporting equipment. In cycling margins, turnover and net profit are MUCH higher than in other fields. Part of it is selling equipped bikes, not just frames. A lot of turnover and profit comes from selling Claris, Tiagra, 105 ... and 50€ wheels ( in bike priced like 200 ).

Margin ( DO NOT miss it with net profit !!! ) on high end carbon frames is around 500%. Manufacturing cost : 350€, price for dealer : 2740€ , MRSP 4250€ ( all net, no vat ) . That comes from internal communicarion email I accidentally received.

Eye opener ?

Edit : that's why checking evrey carbon frame for production fault should be mandatory, it cost NOTHING. That's why high end priced should have high end qualiy. Because now IT DOESN'T.

Edit 2 : just check price of same frameset 4y ago : 2350€ MRSP INCLUDING VAT ! So lets say 2000€ net... What cause 100% increase of price ? Material ? nope, Labour- no way... Maybe quality ? .... Kidding :mrgreen:
Go to Heaven for the climate, Hell for the company.
Mark Twain


I can be wrong, and have plenty of examples for that ;)

by Weenie


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AJS914
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by AJS914

Contemplating what is an appropriate margin is a pointless exercise.
That's what I was thinking.

Also, Specialized is a boutique brand. You can only buy their parts at a Specialized dealer. The stuff is rarely on sale or discounted. There is no cheap UK mail order pipeline. So that's it. You buy in to their marketing and sales channel or you don't.

In this particular case, I'd say try the Chinese knockoff and see how it goes. It's just a saddle and either agrees with your bum or not. Personally, I wouldn't ride a knockoff handlebar but I'd try a saddle.

If you are trying to stretch your cycling dollars, buy a lot of used stuff. Do UK mail order. Pick and choose wisely. You can do well. My C59 would have had an MSRP of $6000-7000. I've got maybe $2500 into it. That was achieved with a used frame, some smart ebay and craigslist buys, and a little horse trading. My Specialized Camber MTB has an $8000 MSRP and I picked it up in hardly used condition for $3000. I got a similar deal on my S-Works Crux. Used bikes depreciate quite a bit. Use it to your advantage. Let the first guy take the hit.

With the high profit stuff like accessories you just have to decide if it's worth it to you. It doesn't matter what the margin is. Personally, I'd have a hard time paying $5000 for a frame, $200 for a saddle, $2000 for wheels, or $300 for bib shorts. That's where I draw the line. Lower level stuff that costs half the price performs at 99.5% usually so I go that route.

wingguy
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by wingguy

stormur wrote:
Sun Jan 07, 2018 10:05 pm
....MRSP 4250€ ( all net, no vat ) . That comes from internal communicarion email I accidentally received.

Edit 2 : just check price of same frameset 4y ago : 2350€ MRSP INCLUDING VAT ! So lets say 2000€ net... What cause 100% increase of price ?
What frame is that?

There is no frame or complete bike that I know of that has gone up by that much in such a short time. Not even if you’re comparing something that used to be a frame only to something that is now a frame/bar/seatpost/brakes package.

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wheelbuilder
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by wheelbuilder

Lol at some of these posts..... post up this secret e-mail Stormur. The bike industry has been steadily losing money in pretty much every category except e-bikes for the last 2 years. Founders of the big companies, CEO's and upper executive staff might make a good living, but even then probably not nearly the riches some of you conspiracists imagine. The rest of the bike industry types are not getting rich. And as always, I feel sorry for those who believe the utter crap being turned out by the Ali-Express carbon dealers is the same stuff as the brand names, just not branded.
Never cheer before you know who is winning

AndreLM
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by AndreLM

Specialized and Trek do not publish annual reports, but looking at the financial results Giant and Dorel (Cannondale, GT, Schwinn), we can see that even if they charge 500% mark-up, that is not translating into huge profits... I would say that these companies are far from generating a lot of return for their investors. Other brands are probably more or less on the same boat.

As others have said, there is no such thing as fair margin, but rather "fair price", and that is the price the market is willing to pay. There is no doubt that the high-end road cyclist (or a even worse, a triathlete) is willing to pay more than a high-end mountain biker, regardless of cost.

glepore
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by glepore

Some of the ali stuff is just crap, yes. Some of it not so much. Do I believe an ali saddle is “ close enough” yo a specialized saddle? C’mon. The layup isn’t exotic, and its covered w polyurethane foam and pleather. It lacks the swat mount. The real sworks saddles are notorious for cracking so they aren’t exactly exotic quality. And no, probably no one is getting rich on saddles.
But $300 for a piece the Chinese vendors can deliver “good enough” for $45? And still make money?


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Wookski
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by Wookski

AndreLM wrote:
Sun Jan 07, 2018 11:22 pm
Specialized and Trek do not publish annual reports, but looking at the financial results Giant and Dorel (Cannondale, GT, Schwinn), we can see that even if they charge 500% mark-up, that is not translating into huge profits... I would say that these companies are far from generating a lot of return for their investors. Other brands are probably more or less on the same boat.

As others have said, there is no such thing as fair margin, but rather "fair price", and that is the price the market is willing to pay. There is no doubt that the high-end road cyclist (or a even worse, a triathlete) is willing to pay more than a high-end mountain biker, regardless of cost.
Agree- Merida (owns 40% of spec) is delivering a net profit margin of 6.17% & 11.59% ROE. Hardly hitting it out of the park!

AJS914
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by AJS914

glepore wrote:
Sun Jan 07, 2018 11:39 pm
But $300 for a piece the Chinese vendors can deliver “good enough” for $45? And still make money?
$300 has zero relationship to the cost of manufacturing. Specialized puts an S-Works badge on a product that is marginally better than the non S-Works item and doubles or triples the price. It's the same way Rolex can sell a watch for many thousands of dollars. They market, advertise, pay Peter Sagan to pimp it and the price triples if you want their best.

So, you buy into their game, settle for their second tier saddle, or buy a different brand of saddle, etc.

stormur
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by stormur

wheelbuilder wrote:
Sun Jan 07, 2018 11:09 pm
Lol at some of these posts..... post up this secret e-mail Stormur. The bike industry has been steadily losing money in pretty much every category except e-bikes for the last 2 years. Founders of the big companies, CEO's and upper executive staff might make a good living, but even then probably not nearly the riches some of you conspiracists imagine. The rest of the bike industry types are not getting rich. And as always, I feel sorry for those who believe the utter crap being turned out by the Ali-Express carbon dealers is the same stuff as the brand names, just not branded.
Can't publish email, nor file from it. It could put me into legal troubles.

Creative accountancy is more than common, I would say obvious practice to report less income/pay less taxes for "mother company"... Possibilities are endless ;) And numbers given in interim/annual reports has NOTHING to real revenue.

If business with such margins as cycling industry has is REALLY loosing money- then management is to immediate change. But somehow, they "loose money" all the time, and still exist.... Interesting ;)

Specialized is boutique brand ??? ROFTL. NOTHING from Specialized is "boutique". It's made in ....China.

"brand" ( because in most cases it's just that ) vs non-brand ( I'll skip "20€" items made in basement easy to buy on alli ) ... that can be interesting.
Two examples : Derosa R838 and Bianchi Zolder ( just 2 first which came into mind ) - what are they ? OPEN MOLD. Buy Ribble- same thing, but much cheaper. Brands like hell....

Q: What connects such carbon frames : planet X , 3T, Cervelo, Ridley, BH and many of "open mold" non branded/rebranded frames ? ( again, not all of them- just an example )

A. all are made in China B. All are made by 1 chinese company C. all are made in same premises D. all above :mrgreen:


Lets take "high end" bike price : 10.000 €

Lets take "low end" car price ( like VW Polo ) : 10.000 €

Compare now investments in engineering, building OWN factory, employement, certification, shipping. dealership, warranties, marketing, legal responsibilities... WTF is to compare ???

That's why I will call all "claims" about low margins, loosing money & co in cycling industry as ... BS.

I talked recently with some authorised dealer of not cheap cycling brand. He was selling frames for 25% of MRSP ( after season fast sale of previous model, new just released ) ... Asked, who's loosing money on such deal, he answered "no one". Everyone in the chain is still making it. Not by much, but still "above the line".

Naturally, no one has to agree with me. Your right. I don't care :mrgreen:
Go to Heaven for the climate, Hell for the company.
Mark Twain


I can be wrong, and have plenty of examples for that ;)

Wookski
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Joined: Tue Feb 23, 2016 5:51 am

by Wookski

stormur wrote:
Mon Jan 08, 2018 10:03 am
wheelbuilder wrote:
Sun Jan 07, 2018 11:09 pm
Lol at some of these posts..... post up this secret e-mail Stormur. The bike industry has been steadily losing money in pretty much every category except e-bikes for the last 2 years. Founders of the big companies, CEO's and upper executive staff might make a good living, but even then probably not nearly the riches some of you conspiracists imagine. The rest of the bike industry types are not getting rich. And as always, I feel sorry for those who believe the utter crap being turned out by the Ali-Express carbon dealers is the same stuff as the brand names, just not branded.
Can't publish email, nor file from it. It could put me into legal troubles.

Creative accountancy is more than common, I would say obvious practice to report less income/pay less taxes for "mother company"... Possibilities are endless ;) And numbers given in interim/annual reports has NOTHING to real revenue.

If business with such margins as cycling industry has is REALLY loosing money- then management is to immediate change. But somehow, they "loose money" all the time, and still exist.... Interesting ;)

Specialized is boutique brand ??? ROFTL. NOTHING from Specialized is "boutique". It's made in ....China.

"brand" ( because in most cases it's just that ) vs non-brand ( I'll skip "20€" items made in basement easy to buy on alli ) ... that can be interesting.
Two examples : Derosa R838 and Bianchi Zolder ( just 2 first which came into mind ) - what are they ? OPEN MOLD. Buy Ribble- same thing, but much cheaper. Brands like hell....

Q: What connects such carbon frames : planet X , 3T, Cervelo, Ridley, BH and many of "open mold" non branded/rebranded frames ? ( again, not all of them- just an example )

A. all are made in China B. All are made by 1 chinese company C. all are made in same premises D. all above :mrgreen:


Lets take "high end" bike price : 10.000 €

Lets take "low end" car price ( like VW Polo ) : 10.000 €

Compare now investments in engineering, building OWN factory, employement, certification, shipping. dealership, warranties, marketing, legal responsibilities... WTF is to compare ???

That's why I will call all "claims" about low margins, loosing money & co in cycling industry as ... BS.

I talked recently with some authorised dealer of not cheap cycling brand. He was selling frames for 25% of MRSP ( after season fast sale of previous model, new just released ) ... Asked, who's loosing money on such deal, he answered "no one". Everyone in the chain is still making it. Not by much, but still "above the line".

Naturally, no one has to agree with me. Your right. I don't care :mrgreen:
Thanks for the rant- especially appreciate the use of CAPITALS.

THE TRUTH IS OUT THERE!

wingguy
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by wingguy

stormur wrote:
Mon Jan 08, 2018 10:03 am
Can't publish email, nor file from it. It could put me into legal troubles.
So just tell us which frame has increased in price from 2k to 4K over the last 4 years?

sadisticnoob
Posts: 48
Joined: Fri Feb 22, 2013 7:30 am

by sadisticnoob

From Shimano annual report.

http://www.shimano.com/en/ir/library/cm ... FY2016.pdf

Gross Profit Margin
40.8% (consistent for 2015, 2016)

Net Operating income margin
¬20% 2015 ¬22% 2016

Markup from distro
At around 20-30%

To put this into perspective.

Item for $1,000 (selling price)

Cost to distro $800 (1000/125*100%)

sales price shimano to distro
S$661 (800/121*100)

Cost to shimano
$265 (661/100*40)

Final markup
377% (1000/265)


I think im probably missing transfer pricing policy and I probably gotten some of the numbers wrong somewhere.

AJS914
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by AJS914

Specialized is boutique brand ??? ROFTL. NOTHING from Specialized is "boutique". It's made in ....China.
By boutique, I mean that you can only buy Specialized parts at a Specialized dealer. No mail order. They have cut out the middle distributors. Country of origin has nothing to do with anything. Most "swiss" watches have many parts made in China but assembled in Switzerland.

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853guy
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by 853guy

stormur wrote:
Mon Jan 08, 2018 10:03 am
Lets take "high end" bike price : 10.000 €

Lets take "low end" car price ( like VW Polo ) : 10.000 €

Compare now investments in engineering, building OWN factory, employement, certification, shipping. dealership, warranties, marketing, legal responsibilities... WTF is to compare ???

That's why I will call all "claims" about low margins, loosing money & co in cycling industry as ... BS.
Hello stormur,

With all due respect, "investment in engineering, building own factory, employment, certification, shipping, dealership, warranties, marketing, legal responsibilities", (etc) of a VW Polo is spread over nineteen models from four manufacturers, given the Polo shares the MQB architecture with the Audi A3, TT, Q2; Seat Ibiza, Leon, Arona, Ateca; Škoda Octavia, Superb, Karoq, Kodiaq; and VW Arteon, Atlas, Golf, Golf Sportsman, Passat, T-Roc, Tiguan and Touran.

The economies of scale that go into producing a single motor vehicle platform in which uniformity of motors and transmissions (not to mention interior fitments, switchgear, satnav/entertainment, et al) are standardised and shared across multiple models and manufacturers is utterly incomparable relative to something like an Indy Fab, Firefly or Field (if indeed, the 10,000 € price tag is assumed to be literal), given every single parameter will be customised to each individual buyer. Even in cases in which the bike in question is off the peg, there will be almost zero convergence between buyers once groupset, wheels, tires, saddle, pedals and stem size are taken into consideration.

Once you factor in the number of 10,000 € bikes sold relative to the number of VW Polo’s sold each year (307,000 in Europe alone for 2016), the redundancy of the comparison becomes even more stark.

For whatever that may be worth. Which may be nothing.

Best,

853guy

by Weenie


Visit starbike.com Online Retailer for HighEnd cycling components
Great Prices ✓    Broad Selection ✓    Worldwide Delivery ✓

www.starbike.com



stormur
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by stormur

AJS914 wrote:
Mon Jan 08, 2018 6:56 pm
Specialized is boutique brand ??? ROFTL. NOTHING from Specialized is "boutique". It's made in ....China.
By boutique, I mean that you can only buy Specialized parts at a Specialized dealer. No mail order. They have cut out the middle distributors. Country of origin has nothing to do with anything. Most "swiss" watches have many parts made in China but assembled in Switzerland.
Thruth about your "boutique" ;) https://www.bike24.com/1.php?content=21 ... ed;mid=917

you can but specialized stuff in almost every net in EU, most ship abroad. In Finland brand is carried by independent shops only, with many other brands.

Place of manufacturing has everything for being "boutique" / premium / luxury . None of those are made in far east. Most of it is made in Europe. If not all. NONE of reputable Swiss watches are made in China. Some mechanisms ( for cheap ones ) come from Japan. So...BS. Basically all what you wrote.

Tarmac "architecture" is shared with all other models made by Specialized... total missed shot. VW Polo, Skoda Rapid and Seat Ibiza are made in different factories, look different ( body part, interrior part ) , have to go thru separate certification process, have to be advertised separately.... Even simple thing like cargo of frame/ bike and car generates enormous difference in cost . So, please .... :roll:

Point is : to sale 10k€ car ( with delaer margin 3% before discount for the client ( ask any bike shop to sell bikes for 3% margin :mrgreen: !) and cheap cars produce more revenue and better margin for manufacturer than expensive ones ) how much any car manufacturers have to invest in

1. Engineering
2. Certification
3. Own factory
4. Dealership chain
5. Warranty claims reserve
6. Marketing
7. Education ( mechanics )
8. Legal department
9. few racing teams ( 1+ in each category )
10. Road tests

Good Q: what sells in bigger quantity in your nearest( local) big city : new cars or new bikes ? ;) I know answer, I believe you do as well.

Now how much bike "brand" have to invest in new model ? : 3-5 engineers, 3-5 marketing geeks, and 50 low paid noobs for net activity :mrgreen:
All the MOST IMPORTANT rest will be easy and fairly cheap outsourced ( details like manufacturing, testing, certification ) . Specialized ( isn't biggest brand ? ) employes 300 ish people worldwide. ONLY 300ish ! They have over 2 milion $ annual revenue per employee... . Including drivers, cafee and cleaning ladies. Impressive, isn't it ?


Or ... Nothing ( like Bianchi with Zolder ) : just order 5-10.000 frames, make a phonecall to painter which will make design for free, and will paint all of them cheap ( that includes special editions ( sic!) and team bikes ) . 3-5% of frames for warranty claims ( all obvious accepted, rest rejected to not employ even 1 lawyer, cost more )... And we have Bianchi Zolder frame with EXACTLY 500% margin. ( OEM manufacturer naturally will provide for free client ready packaging with Bianchi logo's ) . Now left to buy some positive reviews, some forums activity, give some frames to few riders, take aspiring photo/ videographer which will happily work for free ( to just put Bianchi logo in CV :) ) ... buy some advetrs... and voila : we have ( example ) Bike of the year :mrgreen: ( 20grands in cash plus 1y adverts in portal should be enough ;) ) . Heritage of the brand naturally included :mrgreen:

Does it sound almost insane ? It does. Don't blame me for that. it's just how it works. Or may work.

Bianchi is just as example : brand with "heritage" selling OEM frames under own logo.
Last edited by stormur on Mon Jan 08, 2018 10:48 pm, edited 1 time in total.
Go to Heaven for the climate, Hell for the company.
Mark Twain


I can be wrong, and have plenty of examples for that ;)

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