BikeBiz Bicycle and cycling retail news
John Styles is an independent sales agent in the bike trade. The former marketing manager, product manager and in-house sales rep lists ten in-depth reasons why it might be quiet in bike stores…
It’s quiet in store, unusually quiet and it has been since last October. Every store I go in, people are wondering why and how long it’s going to last.
So, here’s my top 10 reasons why this might be happening and, more importantly, what you can do about it. And trust me when I say, Showrooming might be the least of your worries.
Macro-Economic factors
(big stuff we can’t really do much about)
1 The Kondratiev Wave.
You’ve probably never heard of a Kondratiev Wave but that doesn’t mean it doesn’t affect you. In fact it affects every part of your life, both commercial and personal, every single minute of every single day. From the way your house is built to the smartphone in your pocket, a Kondratiev Wave is a shift in the way we do things. Since the beginning of the industrial revolution there have been five of these roughly 50 year long economic cycles as illustrated here.
It’s also known as the “50 year economic cycle”. Right now, we are in the pit of the 50 year economic cycle. The great recession or financial crash of 2007 and 2008 was primarily felt in (and some say caused by) the banking sector sub-prime mortgages and toxic debt. However like any economic crisis its roots were deeper. We are currently transitioning from the IT boom to what many pundits believe will be the 6th Kondratiev Wave – the “Sustainable Energy boom”. Malcolm Rifkind in his book “The Zero Marginal Cost Society” describes this as “a move from the second industrial age to the third”.
Any fundamental shift in society involves disruption to existing players, and creates both winners and losers. In your specific case, the explosion of the internet and the diffusion of smartphones. This the first time in human history that consumers have enjoyed Perfect Information without barriers. Creating (via the Invisible Hand of Capitalism) what Adam Smith foresaw and labelled Perfect Competition.
2 The 7 Year Boom and Bust Cycle.
This is the traditional economic headline we are all familiar with, to do with aggregate supply and demand growth in the economy. This mechanism was temporarily disrupted during the ’90s by “the China effect”. This once-in-a-lifetime event was triggered largely by the UK’s return of Hong Kong to Chinese Control in 1996. As my Hong Kong friend back put it to me in 1993 (after a bottle of Johnny Walker Red Label) “Hey man, don’t worry about us, China’s not taking us over, we’re taking over China (!) And we’re going to make money”. China rapidly industrialised during the ’90s allowing the price of many consumer goods to fall. This depressed the RPI measure of inflation and meant the (largely) Monetarist governments of the West were able to keep interest rates lower than normal for the amount of demand in the economy. This was a contributory factor to overheating in the housing market and in the banking sector. We thought we had easy money, we didn’t. Gordon Browns’ now infamous 1997 “no more boom and bust” speech was simply a failure to recognise this.
As a result the 50 year economic downturn (transitioning from one wave to the next) was compounded by a deeper and more long-lasting short term slump. Hence in the USA the 2007/8 recession has been termed “The Great Recession (echoing “The Great Depression” of the 1930s). To which I honestly have to say, No Shit Sherlock, the Economy was overdue for a big one.
3 Deflation. Well, sort of.
You will be familiar with the news headlines about Britain encountering deflation, falling prices – which can often be a symptom of falling demand. According the Chancellor, it’s a different deflation to that experienced by the Eurozone, our deflation is largely driven by falling oil prices. This in turn is driven by international tensions between Russia and the West – part of that international tension results in lower oil prices as Saudi Arabia brings economic pressure to bear on countries like Iran and Russia.
4. The Polarization of Income
Since the early 2000s and especially since the financial crash, the rich have become richer and the middle classes squeezed. We’ve seen a boom in top end race bike stores as city bankers spent their bonuses. And a boom in the £1k – £2.5k carbon road bike market as the middle classes traded down their expectations. The £3k-£5k market has been dead for a long time – and colleagues in the Eurozone tell me it’s much the same there. Unless middle class incomes rebound, that’s not coming back.
Macro-Economic Summary
The result of all this economic uncertainty is that consumers delay major purchases, like expensive bicycles. And discretionary purchase, like more bicycles. So what’s the take out for you as a retailer?
Maximise the sales of small stuff, focus on workshop and services. Build diversity. Most importantly – don’t expect any sort of quick turnaround in the “general state of affairs” anytime soon.
Micro Economic Factors
(small stuff that affects our industry a bit more specifically)
5. Maturity in the Market
The bike industry is at the peak of the product lifecycle. For example, MTB suspension platforms have been good for about 10 years or more, carbon road bikes are getting cheaper and cheaper (* China Effect again), reducing the average selling price and putting downwards pressure on £500-£1000 alu bikes. We have well defined, high quality products made a number of suppliers, differentiation is small and productive capacity exceeds demand. There is considerable vertical and horizontal consolidation pressure in the supply chain (e.g. recent purchases of Marin or BBB). This trend isn’t going away.
6. Paul’s Life-stage (demographics)
In my previous article about Paul, I proposed that this year Paul would no longer be purchasing expensive bicycles but a varied mix of many things. Anecdotal evidence I’ve been gathering in stores seems to support this. So we have a position where both micro and macro consumer drivers are favouring many small purchases instead of large ones.
7. The Non-Consumptive Pause
It’s been a good 8 to 9 months that stores have been quiet. This was described in a previous article and suggests that the long term shift from in-store purchasing to Showrooming may have entered a new phase. Where consumers either shop online or in store.
This raises two difficult questions for the industry – first (for retailers) what is worse than show rooming? No Showrooming? Under Showrooming at least you had footfall, a sniff at the sale. And second (for brands, wholesalers and distributors), will the total amount of goods sold be greater or less if we are now in the “Post-show rooming era”.
8. The Withdrawal of Service
Has show-rooming resulted in fewer bricks and mortar store staff? Are they less committed, less trained, less eager for the sale? Are stores labelling potentially good customers as showroomers and losing sales? I’m really not sure, but I can state with certainty there are fewer consumer visits and much shorter conversations. Like all reps, I’m acutely and intensely aware of this measure.
How? When I started rep-ing back in 2001 I frequently had to wait to get the store owners undivided attention, often 30 minutes or more, while the store owner dealt with a customer and engaged with every aspect of the sale. Around 2008 this waiting time started to drop off until nowadays I often spend an hour or more in a store without seeing a single customer. And if one or two do come in, their conversations are usually much shorter and more focused. Consumers are much better informed from doing research on the web first (or at least they think they are, not all shop owners and certainly mechanics would agree they actually are).
Worryingly this pattern can be seen and confirmed in other countries, areas of business and retail sectors and it demonstrates clearly that good customer service is the key to both individual store demand and aggregate industry or category sector demand.
In Retail Revolution (a Harvard study by Lal Greenburg and Alvarez) they examine US giant Home Depot. Although Home depot stores are massively insulated from show rooming that doesn’t mean their sales are always safe. During Home Depots’ golden years of the 90s store numbers grew exponentially, and the foundation for this growth was laid in high quality customer service and advice. However, during 2000- 2007 a new Chief Executive implemented cost-cutting and bureaucratic measures that negatively impacted customer service and resulted in consistently falling sales versus competitors. With a change of management in 2008 (and a return to high customer service values) the company steadily recovered it sales and position in the market (ceteris paribus).
In many stores (who have been long-term victims of show rooming) I am observing a withdrawal of service, a lack of enthusiasm to make the sale, for fear that sell will be lost to the Internet. The customer does not care why service has been withdrawn, he simply does not purchase at all. Which brings me back to the point of a previous article. The industry’s biggest enemy is Non-Consumption.
9. The Dawn of the Post Show-Rooming Era?
I hate to say this, but did we scare them away? In a recent article for Cycling Weekly Carlton Reid observes that in some stores he has seen consumers escorted from the premises for show-rooming. Or to take another example of the potentially divisive nature of showrooming from a relation “I researched an £80 light I wanted and saw it online for 10% off. I went to the local bike shop first (who doesn’t stock it) and asked if he could get it and would he match the price, I wanted to give him some profit at least, he fixes my bikes all the time – I received a virtual f**k off and felt really upset. Now I feel too uncomfortable to go there and have to get my bikes done at Halfords.”
Perhaps a bad experience in one independent store leads a consumer to tar others with the same brush? Underlying these rare and extreme examples, I have been observing an increasing tension between shop-owners and consumers as showrooming and has driven a wedge between them, breaking down the traditional close relationship between local consumers and their local store.
It’s been the Elephant in the Room for a very long time now.
10. The Deflationary effect of Online Shopping (or Category Value Erosion)
What happens when shopping shifts online? People mostly pay less, but they also buy fewer items. It’s a double whammy. Again in the Retail Revolution study Lal, Alvarez and Greenburg examine the impact of Amazon and other online retailers against Walmart’s traditional brick and mortar stores. What they highlight is that basket spend in online purchasing can be significantly lower due to target driven consumer behaviour. In one example a specific Household Item was tracked. When purchased in store the average basket contained 4.8 items and was valued at $103. The same item purchased online had an average basket of 1.3 items and was valued at $45. This is a further deflationary effect on the overall consumer demand in the marketplace.
If we are encountering a “Non-Consumptive Pause”, it has been around certainly since last October, a period of some eight months, begging the difficult question – is it permanent? Is this the new normal?
What you can do about it?
A) Re-engage with Making the Sale.
There are four main types of shoppers – illustrated in the chart below.
Brick and mortar stores across all sectors, not just bike shops have possibly been guilty of labelling too many consumers as show-roomers (or potential showroomers). There are ways to engage with consumers and discover their shopping behaviour. Another way to reinvigorate your shop-floor staff is sales training.
As Home Depot’s training guru Tom Spahr puts it "Customers don’t come to Home Depot to buy just a thing, they are buying a Dream… so it’s not just ‘Here let me take you to the aisle and here’s the item, but it’s ‘Let’s spend the next 30 minutes together talking about all the parts, pieces and tools you need and how to use the tools and techniques you need to do this project". Sound familiar?
Now Home depot has been rated as having one of the highest “Showrooming-proof” floor spaces of any B&M store (74%), so they can be confident that the majority of time invested on the shop-floor won’t be wasted. Your challenge is identifying who is who, Donnie Perry’s excellent book about the cycle industry “Leading Out Retail”, is a great place to start.
B) Re-Engineer your website to draw in Millennials.
Millennials expect a seamless service between technology and bricks and mortar stores. To begin with, you can gear your website towards Modern Shopping behaviour – where considerable research is done online – before coming into store to complete the purchase. Home depot are engaging with this process even though their sales are significantly insulated from showroom. Why are they doing this? Because in the ’90s they grew the DIY sector by educating and informing and inspiring consumers. They are now attempting to engage with this growth driver through more modern mediums.
C) Print some leaflets and target Baby Boomers
Yes that’s what I said, print some traditional old school A5 flyers. They might have an offer on the back or just the details of the brands you carry, the services you do, where you are and what you all about. Baby Boomers value service, people and face-to-face contact.
This is all about maximising the time that you are your staff may have on your hands. 15 years ago I ran an O’Neill surf store based on the lowest level of the Brighton shopping centre. We struggled with footfall against larger, better located, stores on the upper mall. To combat this way we printed thousands of small A5 flyers and on any given day, if business was quiet we would send staff to the upper malls and street to hand out the flyers.
We got pretty expert at this. If it was 10 or 11 in the morning, the shopping centre was filled with “Gold Card Moms” so we’d send Jack and Craig – our cool young surf dudes. And within an hour or so, the store was full – and we were selling £300 baskets of colour co-ordinated ski, fashion or beachwear outfits. If it was quiet in the afternoon and the mall was full of young (often hungover) twentysomething males, we’d send Lucy and Phil – who knew a lot of them from college and Uni. Then we’d get a queue of T-Shirt, belt and wallet purchases. All extra cash in the till.
Now for anyone who has been following Mary Portas’ series Secret Shopper. You will notice a common theme in almost every episode. She gets them to go out on the street and engage with their local shopping community, getting outside of the four walls and just going to talk to people. There’s no law against it and although you might not want a table and a huge bunch of pink and blue balloons, you could still do this with the humble leaflet.
D Get on the coat tails of the next Kondratiev wave
Electric bikes. If you don’t, someone else will. At least get a toe in the water. Maybe you already did.
E State your Showrooming Policy
Remember when chain stores all had a notice by the till? Returns within X days, No Returns. Returns with packaging. Cash Only etc etc. Well, what consumers need now is a notice about your show-rooming policy. Do you price match? Yes or No or “within reason”. Is it ok to ask? Will I cause offence, be shouted at or asked to leave the store?
There’s a huge variety of approaches in IBDs from “full price only” to 10%-off-if-you-ask-nicely-and-are-spending-a-lot to “we always price match and are proud of it”. Consumers have no clue what to expect when they walk into an IBD and that’s making them nervous. So they are staying away. It’s up to us, as an industry, to fix that.
You can get in contact with John Styles via johnstyles2002@yahoo.co.uk
Read more retail front line insights from John Styles on BikeBiz.com.
Sources & Further Reading
http://en.wikipedia.org/wiki/Kondratiev_wave
http://thethirdindustrialrevolution.com/
http://en.wikipedia.org/wiki/Adam_Smith
http://en.wikiquote.org/wiki/Gordon_Brown
http://www.hbs.edu/faculty/Pages/item.aspx?num=48636
http://www.amazon.co.uk/Leading-Out-Retail-Creative-Retailers/dp/0996037306
http://www.channel4.com/programmes/mary-portas-secret-shopper
