one of the biggest differences between those are how they are measured, quantified, and communicated. GHz of a cpu (within the same architecture) is easily understood and measured (higher is better!), MPG is a unit that is also easily compared across all ICE cars (higher is better here too!), but how do we measure and communicate stiffness in a bike? we could make a completely rigid bike, which would be 100000% stiffer, but that would be intensely uncomfortable. so what’s the ideal? do we want all bikes to hit that same stiffness measurement?
for aero testing, we haven’t really gotten a good, established way of testing out the aero performance of a complete system (or even parts, really!) that gives you a nice value that you can use to compare performance of parts and what you can expect in some scenario that resembles real life. it’d be nice if there were some agreed upon standard test protocol that gives you some nice CdA figure that’s comparable across brands, but we don’t have one yet
it’s surprisingly tricky to define what makes a bike better than another one!
First, you are confusing very different companies. Giant, as a publicly owned company is primarily a bicycle factory, not a bicycle supplier. They manufacture for dozens of brands / suppliers.
Specialized and Trek are not “boutique” brands…they are full-category suppliers, including PA&R. From entry-level bikes to those used in the TdF and everything in between. They make the vast majority of their revenue from selling Hard Rocks and 820’s, not Tarmacs and Madones.
I know for a fact what our gross and net margins were when I worked for a similar large company (and then even a larger company that also sold into the mass merchants) and double-digit net margins were a pipe dream.
well, something like a new honda fit has significantly more tech in it, is more reliable, is safer, is more efficient, etc than a honda civic from 15+ years ago, and is actually cheaper when you factor inflation into it.
i don’t really know where i’m going with this, but there are some things where you get more for your money as time goes on
What I said in relation to cars was about branding drift; i.e. just because Honda still use the name Civic, doesn’t mean it’s the same offering (in term of market positioning or intended consumer) as it was 10 years ago.
I did think cars were better value than they used to be, so I just did a quick bit of Googling. According to the RAC (UK based car association), the average ‘cost of motoring’ (cars, taxes, maintenance, fuel) has increased by 17.6% in the last decade, while wages have increased by 23.4%. That would suggest the cost of owning a car, if not cars themselves, has actually fallen in real terms in the last 10 years.
Now, I get that we are not comparing like with like here (the cost of a Tarmac might be better plotted against the cost of a BMW) but it’s another suggestion the bike industry is moving in a different direction to others. But if the demand is there…
Keep in mind margin via percentage is interesting, but gains WAY MORE meaning when you consider a bike sale of $2,000-5,000 as common, and a car/truck sale is more along the lines of $20,000-50,000.
That makes a BIG difference in the bottom line, and is one reason the large unit volume differences are also relevant (bikes way more units, but cars way more expensive).
At the end of the day if people pay, they will sell. Remember when Apple introduced the $1000 iPhone and people lost their minds saying nobody will pay that much etc, that was like 3 iPhones ago and I still see people everywhere with iPhone X/XS//11pro/12pro.
On the upside, do keep in mind that it’s the early adopters of expensive tech that make trickle down possible. If people didn’t buy those $1000 iPhones you probably wouldn’t have their tech trickle into the $699 model. If nobody bought Mercedes, you wouldn’t find their features in Hondas. If nobody bought di2, you wouldn’t have it at Ultegra level. Whether or not it’s worth it to the individual is their agenda.
Perhaps a naive question, but would I be right in assuming that manufacturers have different margins/target margins at different price ranges? I would have thought they would have been forced to keep them tighter at the lower end (more price conscious/budget-constrained customers) and could have pushed them further at the high end (if you can afford a 10k bike, value for money is not perhaps your primary concern).
If my assumption is right (and if it’s not, then fair enough) is the discussion above a bit of an unfair comparison? Is it more that the types of bikes most of us ride are now essentially luxury items, and subject to different pricing models/drivers? It’s not my industry so I may be wholly off-track here!
When you refer to “Giant” what Giant do you mean. There is Giant the manufacturer, who sells to “independent” distributors Giant USA, Giant Canada, Giant UK, Giant “wherever” who adds on their profit margin when they sell them to Giant stores and LBS who in turn need to make their net as well. It all adds up for the end consumer who is paying at least 3 entities cost+profit.
I didn’t say being a publicly owned company had anything to do with it…I said that they were primarily a factory, not a supplier, adn as a result, their financials are very different. I simply added the point about being publicly owned as a detail.
Well gee that would be weird since I was in charge of the P&L’s…but please tell me more about your experience and expertise in the bicycle industry.
Have a look at Dorel’s numbers for the Cycling Sports Group…
MONTREAL, Canada - Today Dorel Industries Inc. announces slightly increasing results for its Sports division (including Cannondale, Schwinn, GT, Mongoose, Pacific Cycles and Caloi) in 2019 and in the fourth quarter in particular. For the year, Dorel Sports’ revenue increased by USD 26 million, or 2.9 percent, to USD 909 million and a gross profit of USD 191.8.
Based on those numbers, please tell me what their gross margin was for 2019 (and yes, I am asking for gross margin, not net)
Yes, this is generally correct…however as you move up the price continuum, margin as a percentage becomes less of a factor because the raw dollars become much more significant.
Sure, I can point to Huffy and Road Master bikes for sale in department stores for a few hundred dollar bills. But I think most people could agree there is a massive gulf between those “bargin bin” level bikes and something from an actual bike company.
Spesh, Trek and Giant offer “entry level” enthusiast bikes. The other brands selling stuff at well below those models are selling bikes that are not meant to be anything close to the same level.
That doesn’t make Spesh and such “botique” brands because they sell at higher prices than the bargins. A real boutique brand is something like Moots, Gorilla Gravity, and any other really small scale builder, that sometimes offers custom frame geo, but focuses more on a narrow niche product line, are what I think of with that word.
S, T, G are massive conglomerates by comparison to what we see in true small form builders, that usually get the “boutique” label applied.
I could say the same about Cube in the US. Super rare here, but that doesn’t necessarily define them as a “boutique” bike maker. I see the general availability and company size as two very different things. Likely some relationships, but these examples prove there are no absolutes when looking at just one factor (local availability).
I would be baffled if a company, in any industry, had the same margin targets for every item or SKU or whatever. I worked in retail furniture for a long time and we had certain items in the store that we made very little on, or sold at a loss (recliner that cost $324 was almost always on sale for $299) but we made up for it with other items/add ons.
I’m sure Trek makes less as a percentage on their $500 bikes than on their $5000 bikes. My time at an LBS was limited but I do recall it was totally different from what I expected. I sold nothing but FX, Verve, DS, and Marlin pretty much without exception. The one day I sold a powerfly my boss was thrilled because it dug us out of the hole for the entire month of selling things that made almost no money
I never said I know it all…but I do have first-hand, professional experience in this subject matter and would reasonably be considered an “expert” as a result.
Let me know when you have time to run that gross margin calculation I asked for…I think you’ll find the results surprising.
I work in the service industry so we’re not selling movable stuff and it can at times be hard to calculate precise margins on different ‘products’ - but there are certain things that are generally much bigger profit generators for us than others.
Hence my feeling that the discussion about companies’ overall margins and the price rises of specific models might be a bit of an oversimplification.
People can pay whatever they want for bikes. I reserve the right to judge anyone buying an off the shelf S-Works bike though when you can literally buy the frameset and all the parts for about $2000 less than the cost of the ready built bike. That’s at retail prices too from the Specialized website for things like the bars/seat/wheels/tires/etc. Utter madness, but clearly people are willing to go along with having their pants pulled down.
