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In this month’s retail comment Mark Sutton questions the wisdom of drastic price cutting when demand is high…

COMMENT: Why discount?

Mail order firms are really testing the IBD’s grit at present, offering up to 20 per cent (and in a few cases more) off 2009 models. I have to wonder why on earth they’re making cuts so deep so soon. Is it even necessary?

Last time I checked, demand was on par, if not outstripping supply. It’s one thing having a sale to shift stale stock, but needlessly discounting fresh bikes when each would sell at full retail? That’s surely reckless, even if you are shifting containers of the things. With prices now firmly up on the pre-Christmas figures, wouldn’t it make more sense to maximise profit on the models bought at cheaper prices?

Studying the financials of CRC, Wiggle and others for the past 12 months, their year-on-year growth ranges between 30 to 45 per cent. Consider how many units that equates to, but I’d suggest you avoid picturing the market share split between IBDs, multiples, online and others. The strong are a whole lot stronger this year.

It cannot be long before larger internet outfits hire a couple of competent mechanics to iron out the typical bike-in a box problems. It’s an idea many may laugh at – these e-tailers who care more about units shifted than profit per unit becoming as savvy as those managing independent stores. But what if…?

Sure, they’ll never match the personal service associated with retail, but that’s not what the majority of customers are paying for. Ever heard the line: “But, I saw it cheaper on the internet…?’ What’s worse, consumers are comparing independent business to online retail and assuming traditional dealers are hiking prices.

From the desk-bound research that I’ve done, kids’ bikes seem to be worst affected by price shagging, which I suppose is nothing new. What is new, however, is that the quality of these bikes from prices low-to-high has really improved in the last five years. Well, excluding a few… and sadly those will be the eyesores in your workshop.

The difference between sinking or swimming in 2009 could rest on just a few decisions. IBDs will need to strike a balance between shifting stock before it goes stale and maintaining net profits through sensible margins.

The peak time for cashing in on Google hits may have just passed, but it’s worth remembering that local custom will likely be tougher the next few months. And there’s no use in sitting tight and hoping things pick up. Fight back…

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