When the online sales boom started, one of the biggest effects was the online businesses could significantly reduce the traditional overheads; high street’ retail premises, skilled floor staff and many of the costs involved in running a bricks and mortar business. When bicycle parts and accessories have mark-ups up to 100% (of the wholesale purchase price), eliminating the expensive shop costs has a big impact on profit margins.
Selling online is cut-throat and in Feburary 2013 Wiggle posted a 2012 turnover of 140 million pounds. But after costs and overheads the retained profits were just under 9 million pounds. The constant discounting by online shops means that they are reaping obscene fortunes.
But big online bike shops have a few tricks up their sleeves to remain competitive and consistently undercut smaller shops on price. The approach will vary from shop to shop, but here are a few in brief:
• Bulk Buying: large volume purchases give big online retailers power to negotiate on prices.
• Old Season Stock: brands with old and hard-to-sell stock can offload to online shops who buy cheaply and can quickly sell.
• OEM Equiptment: accessories that are officially purchased for assembly on complete bike, but are never assembled (or even disassembled) and then sold seperately.
• Grey Market Sales: bikes, parts and accessories which are purchased via unofficial agents or routes. Also making wavailable to customers in countries that are otherwise served by official distribution partners and dealers.
• Tax Breaks: Online shops may locate to countries, regions or districts with low taxes and exemptions.
• Wheeling and Dealing: using loopholes, unsanctioned or even dubious channels to acquire cheap stock.
Some brands actively try to manage their distribution, and explains why they are hard to find with the big name shops, but many have traditional distribution agreements which fuel price discrepencies between distributers and online retailers.