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Are we getting fleeced?

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2/10/2016 5:45 PM

I dug through some of the forum pages briefly and found this dead thread - http://www.vitalmtb.com/forums/The-Hub,2/Mtbs-are-overpriced,8653 - but it went down the moto comparison route too quickly.

Recently went on a ride with an ex entry level employee at a bike company. He bought a complete carbon bike from them for $800 before he left. The bike would retail to about $5K. This seems like a massive margin. Obviously there is a ton that goes into being a successful bike company. I am going to try to break down the buckets in order to get a little more clarity.

Cost Centers:
Production - Overseas factory vs. USA welders, etc.
R&D/Prototyping - mules, testing, wind tunnels...
Marketing - trade shows, demo programs, product launches (hello Santa Cruz Hightower in Patagonia...)
Supply and Distribution
Sponsorship - UCI Factory Race all the way to local grom/development and ambassador programs
SG&A - Warehouse/assembly up to Executive level employees, facilities, computer programs, etc.

If a company can offer a low level employee a bike for 1/5th of the retail price as an incentive, a.) we all know they are paying that employee a shit wage b.) it leads me to believe bike companies either have lower sales volumes than I assume or are living in the golden age of mountain biking profits, C.) this is a ding to their bottom line but they know it is a massive incentive for people to work for cheap because mountain bikers are passionate about their pursuit D.) all of the above?

A lot of the discussion around Gwin's move to YT was around YT's vs. Specialized's ability to pay him what he was asking (another # that would be interesting to learn and one that we have tried to speculate on many times - Palm making $300K back in his heyday is a start, assuming Gwin is pulling 7 figs all in this year?) YT interview over on PB said that his payment fit in their already established marketing budget. Specialized just announced a layoff of 3% of its global workforce, less than 50 Morgan Hill employees. Any way you cut it that is a fair amount of people in a niche profession in NorCal looking for a gig.

So what's the deal? I am 32, work a great job, and mountain biking has been my preferred form of recreation for the last 20 years. I am lucky as hell to even have it as a choice. I am also at the level of riding where I notice the difference between a $3500 bike and a $6500 bike, and I want to ride that $6500 bike. I also notice the diff on the $9500 ENVE option, but realize that is less important to my ride than that entry level vs. high/mid level jump. Do I want to pay $6500 for it? No. And a lot of people agree with me there. BUT, am I supporting Roskopp's car racing enthusiasm or am I supporting the maintenance of Santa Cruz's brand strength and business health? Are only a select few owners of this mostly privatized industry reaping the rewards or is it just that difficult to make it work as a bike company? Should that $6500 bike cost $5K or $4K? I'd love some more transparency but unfortunately not a lot of bike co's are publicly traded.

Thoughts?


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2/11/2016 4:47 PM

Here are a few things to consider:

1) Was that $800 bike a current model? If so, did the bike company allow their employees to purchase it at a loss? (It's possible.)
2) What's that company's distribution like? They have to sell it to a distributor, at a price which is likely to be more than the $800 they offered the employee. Then that distributor sells it to the bike shop. Then that bike shop sells it to the consumer. That many markups can dramatically alter the price of anything. Even without a distributor middleman, the markups can be significant.
3) What's the market's expectation of discounts, deals, etc.? I'm new to mountain biking from this angle, but it seems like the bike shops are blowing out last year's models for 20-25% off at the end of every year. To do that and stay in business, you must have more than that in profit. The discounts and deals I've seen support the idea of larger markups.


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2/11/2016 5:20 PM
Edited Date/Time: 2/11/2016 5:21 PM

Deleted.

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2/11/2016 5:40 PM

Didn't mean to focus the post on the dude who got an awesome complete bike for cheap as chips, but that was what got me thinking. Especially since I was just starting to get myself comfortable with throwing down retail for a new whip...

Valid points all 3. And if you look at the YT complete Capra's you are shaving off about $1K-$1200 from a comparably spec'd bike.

Really just looking for some industry insiders or ex industry insiders that actually had a grasp on the overall econs. Probably not as black and white as I want it to be.

Maybe I just remember bikes costing less because I wasn't going for the upper level models back when I was a teen. Top level bikes back in the mid 90s were still going for $4K+ with XTR and Judy DHs, and that was 20 years ago. Certainly feels like less time has passed but $4K 20 years ago for that level of technology equates to $6200 today with inflation.

Maybe bike industry profits have remained pretty similar per bike, there is just more market penetration and more companies doing it, and the bikes and materials are better.

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2/11/2016 8:05 PM

I've wondered about what kind of margins or money companies like Santa Cruz make. I worked at a shop for a while and the margin there was very small, if any (i'm sure that varies shop to shop). In the end, as long as these bike transactions are free of deception and/or coercion I say good on any bike company making a lot of money.

With the Specialized layoffs, you just don't know if they are hurting financially or just trying to stay ahead of the game by periodically trimming the fat and refocusing their goals. Sales/marketing/engineering/customer service in the bike industry all transfer over to other industries.

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2/11/2016 8:11 PM

Was it a former demo bike? A blem? Was that complete or just the frame?

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2/12/2016 1:49 PM

Hittheshowers, I know what you mean about comparisons in price from a while ago. I bought my current bike in '05: A Gary Fisher Cake 2 DLX. It's mostly XT with carbon seatstays, Fox Float R fork and Manitou Swinger shock - not too bad, I suppose. It was one step down from the best bike they made at the time, and I got it new for about $2K. Something similar nowadays from Trek is easily $5K, maybe $6K.
I think the "industry inflation" has outpaced actual inflation. I'm not sure why, but it seems like the market is willing to support more $ for bikes these days.
I'm interested to see what happens with these "direct to consumer" sales models, like YT or Commencal have.

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2/12/2016 2:15 PM

mfoga wrote:

Was it a former demo bike? A blem? Was that complete or just the frame?

Complete bike, I think I lead this thread down a rat hole by leading with that comment. I barely know the guy, friend of friend that I met once on a ride. I don't know any specifics about the entire setup, i.e. where the frame started its life, etc. but that was what triggered my question. The bike co isn't very big like Spec or even Santa Cruz for that matter.

To be clear, I am not trying to bitch about having to pay for top level performance bikes. It is a choice and there are a ton of them out there for people who want to ride mountain bikes. Also, I want to also be clear that I have full respect for the people that risked everything to build top level brands from the ground up and stayed true to their core mission. As an outsider looking in and not knowing anyone in particular, Roskopp is an idol of mine in that respect. He deserves everything that he's earned IMHO because he has never backed down to what he truly believes in. I think the guys at Transition are also ones to admire in that sense, full blown rider owned company and nice as hell in person.

It will be interesting to see where the industry goes from here. There will always be the outlier top of the line bikes that cost a ton, but with all the recent innovation and "innovation" around standards and tech, trickle down is real. SRAM's new 1x11 NX is straight up affordable. SLX brakes are good brakes, and a base level Pike rips for most people. Even Vital's Test Sessions are pointing to a number of rides that get you good bang for your buck. $3800 for the stumpy carbon looks like a good deal. I guess I am answering my own question in a way. Maybe I don't need the $6500 build after all...

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