This guest post was written by Jeremy Smith (@jeremybsmith). Currently a web strategist for several industries, including bicycles, outdoor, architecture and planning, and apparel, Jeremy has been in and out of the bike industry for over a decade, with experience at the shop, vendor, and brand levels. I became acquainted with Jeremy last week after publishing my post on The Fleecing of Cyclists. Because of his experience I asked him to write a guest post from the industry perspective and he graciously accepted. Thanks Jeremy.

A little about me and bikes. I’ve been working in and around the bike industry for over 10 years, on the both the retail and corporate side of affairs. I’ve also been a plain old bike consumer, struggling with pricing and value.

It costs a lot of money to make the niche products that we consume as cyclists as a manufacturer, brand, or vendor. There simply isn’t the volume there to drive down wholesale costs enough to the level of other consumer goods. There’s always going to be the floor of wholesale pricing which is the cost of materials, labor, lights, rent, and so on for the manufacturer.

Before I get too far into the specifics of the bike industry, let’s talk general consumer goods retail and pricing. The model varies, but if you take out the razor/cartridge and printer/ink nonsense, in general, when you go into a store, you are going to pay 2x what the store paid for the item. That 100% mark-up is there to pay people, rent, utilities, other marginal costs, and finally, to make a profit. That profit is the incentive to have the store in the first place, and for a sole proprietor of any store, that is their salary. Corporate chains obviously have more diverse structures, but do a lot more volume to make up for the increased cost of infrastructure. Online is always cheaper because there’s less of the people, rent, utilities, etc to pay.

Now, what about how much the store is paying for the item? That’s usually going to be 2x what it cost (in general, there’s tremendous variability in what goes into wholesale prices) to make the widget, including materials, labor, infrastructure, and transport costs.

The most expensive and flexible cost on both sides is people. Materials are fixed cost. There’s not much that any one company can do to drive down the price of raw inputs. However, infrastructure gets cheaper with scale, and labor can currently be found for less, somewhere. There are also gains in cost to be had if cheaper materials are used, or less materials, or both. This creates the “race to the bottom”. Consumers start getting hooked on paying less for less quality, and things just spiral down from there.

Back to bikes.

Our industry is small. A lot of the better products are made by tiny companies, meaning no discount for scale. Most of the products are made in ethical manufacturing factories by fairly well paid employees (whoops, there goes another potential way to make cheaper stuff) and from better raw inputs (well, there goes another way to save money).

So we can’t make stuff cost much less for shops to buy, to sell to you. Once it’s in the shop, each widget needs to pay its way out the door. In other words, the store needs to recover what they paid for it, what it cost to stock it, put it inventory, order it, and for the person installing it on your bike to take it off the shelf and either hand it to you, or install it. It also needs to pay for all the people that come in and ask a question and get a free answer to a question, or tried on something that they bought online, or test rode a bike to figure out their size for craigslist. It also needs to pay for other inventory that has to be sold on clearance for whatever reason. All those things we’ve all bought at 50% off wound up netting nothing for the store.

Basics aside, let’s talk about the things that seem to really irritate the average rider. $8000 bikes and $120 jerseys. I see the big dollar bikes the same way I see expensive cars. It’s nice that someone can make a machine that good. It’s not hurting me that it exists. Maybe I’ll even own a second hand version of one eventually. In the meantime, people dropping that much cash means that I can walk down the street, grab a tube, and chat with some bike people. The really pricey stuff is a bit of a strawman when it comes to arguing pricing. Getting angry that someone bought that $10k pinarello is about as futile as hanging out by the BMW dealership and hollering at the people driving off in new 7-series. Ain’t worth it.

The advantage of such amazing stuff at the high end, is that sooner or later it is replaced by something yet more amazing, and pushed down the line. Meaning, a $500 mountain bike these days is better than what I used to race on, and is probably better than 99% of what was available 10 years ago, or even 5. The low end of Campagnolo’s product line is as good as Record from 4 or 5 years ago. Trickle down is nice.

On the clothing side, yes, the good stuff costs money. It will also last, with care, a very long time. I’ve just started replacing my first batch of real jerseys over the last 2 years that I bought in the mid-90s. Shorts are more personal. I get about 5 years out of a pair, assuming I wear them once a week. It really comes down to cost per wear.

There’s still your choice of craigslist, ebay, goodwill, garage sales, and nashformance if you’re still looking to get really frugal about it. The first 5 years of my riding career I rode pretty all clearance and used gear. I still do buy a lot on clearance. Used is always cheaper.

I’ll throw out two more options:

If everything is too expensive, vote with your dollars, and don’t buy it. You can ride in whatever you want, on whatever you want. No-one’s stopping you. It’s all about horses for courses. Riding the local MUP doesn’t require anything more than a yard sale 10-speed. Cat-1 racing ostensibly requires full kit and a racier bike, but I’m willing to bet a good cat-1 rider is still gonna place even on that 10-speed in street clothes. There’s a few hardcore holdouts in Marin county tearing it up on old Schwinns in hiking boots and cut-off 501s.

If you feel that the industry is out to get you with the pricing structure, prove us wrong. Build a company, set up a factory (or use an existing one, but I personally would rather you open a state-side factory), market your product, and undersell those rich fatcats over Castelli or Specialized. Again, no-one’s going to stop you, in fact, people will probably encourage you to jump into the fray.

I’ll conclude with a couple of sayings from the industry:

  • “Cheap, light, strong. Pick 2.”
  • “Want to make a million in the bike industry? Start with two million.”

Jeremy will be out of the country for the next couple of weeks with limited Internet access but wanted me to pass along that he’ll take five or six good questions/points for a follow-up post.