How Things Work Online


According to most American Express Small Business commercials, it's quite easy and breezy to run a small business.

Imagine you ran a business selling flower pots, in an actual store location.  You buy the pots from your supplier at $1, and sell them for $2. In the retail world, this is known as "Keystone Pricing", and represents the coveted 100% markup (50% margin) on retail items. A mark-up that allows the retail store to simply exist.
Now, imagine that same customer can buy that same flower pot for 85 cents at flowerpotsforless.com, 15 cents cheaper than you can buy it wholesale! Even if you sell it to your customer at your cost ($1), you are losing money.

This is how the bike industry works.  Take this (large parts manufacturer) shifter set.. This shifter set is available at Chain Reaction for $149 (listing here).  As a brick-and-mortar shop and (large parts manufacturer) retailer, (large parts manufacturer) sells them to me for $177.18 and tells me I have to sell them for an MSRP of $289, lest I lose my "right" to sell (large parts manufacturer) parts. This is an upside down market.

Chain Reaction is allowed to sell them for $140 less than I can.  And, an online customer can purchase them cheaper than I can as a retailer. Do you think (large parts manufacturer) is looking after the independent bike shop that installs their product and gives them credibility. Can you see why so much of the industry is moving to SRAM? Can you also see why companies like QBP are developing products that will replace (large parts manufacturer) parts as it becomes unfeasible for shops to sell them

How can this happen, you ask?  There are 2 factors at play.  Chain Reaction is allowed to buy in such bulk that the prices get driven down.  That's "big-boy capitalism", and I get it. However, (large parts manufacturer) also turns a blind eye to enforcing MSRP pricing on online sellers (and that's a huge blind eye).

(large parts manufacturer) is selling lots of units, yet allowing the value of their product get driven down. Who on earth will ever pay $289 for that shifter set ever again? Its the race to the bottom.

Look at Chris King, Phil Wood, Paul Components and White Industries. The value of all of these companies products are consistent and high because they don't allow themselves to be sold to the lowest bidder online.

"I found this online for $xx, do you match prices". We get the question alot, I always answer no. Go ahead, buy it online. Hey, I buy things online too, we all do. I actually know shops that use these online warehouses as their actual suppliers!

But I do tell people this.
  1. It will take the same amount of time to get here if I order it
  2. The robot that puts your part into the box doesnt care if its the right part/fit, but I do
  3. Good luck with a warranty with that offshore online warehouse.
We look to partner with vendors who understand the value of the Independent Bike Shop in the whole scheme of things. We look to partner with vendors who aren't out to undercut us any chance they get.

At 718, we are defined by who we are and what we do, not by what we sell.  I envision a world where someday everything we sell on our shelves will be available to an online shopper for cheaper than I can buy it (much less try and sell it to make a profit and keep my doors open). That's why we focus on the things that the internet can never match; our hands and our ability to create human relationships with our customers.