Value Added: The Bike Biz

By Thomas Heath


Most years around this time I visit Big Wheel Bikes in Bethesda and fork over around $80 to get my 10-speed tuned up so I am ready for the summer. It's up there with my other costly spring rituals such as paying someone to put up the awnings, remove the storm windows, buy the mulch, check the air conditioning, garden stuff ..... let's just say the Heaths do their share to stimulate the economy.

I called Big Wheels owner Mike Sendar, who is a part-time tax attorney, newspaper and sports junkie, and sometime blogger (sportsbard.com).

I asked him how the bicycle business is doing.

"My 2008 was level with 2007 until the second half of October, November and December, which were dramatically down from the year before," Sendar said.

How far down? Around 20 percent.

Is he making money?

"I always make money," said Sendar, who is 62 and started selling bikes in 1971, which was the dawn of a miserable decade for the economy. "I wouldn't be in business if I didn't make money."

Aside from Bethesda, Sendar's other stores are in Georgetown on 33rd Street NW, just a few yards from the C&O Canal; in a commercial "power center" in Arlington that benefits from a CVS drug store and a Giant grocery; and in Old Town Alexandria, a half a block off the Potomac River.
The Arlington store is his anchor; at 4,400 square feet, it's three times the size of the others. Mike estimates he sells around 2,000 new bikes a year.

Weather is everything. Stores are empty when it rains and full on the sunny weekends. Sendar keeps stores open seven days a week through spring, summer and fall. May is his best month, with sales five times that of November, January and February.

Big Wheel Bikes grosses between $2.5 and $3 million annually and earns Sendar a comfortable six-figure income. He leaves a bunch of cash in the business each year so he doesn't have to borrow. Bike sales, which include everything from kiddie three-wheelers to sophisticated racers, are 55 percent of revenues. Accessories such locks, racks, helmets, and gloves are another 20 percent. Repairs (that's me) are another 20 percent, and then rentals make up the rest.

Rentals are especially hot at the Georgetown store, which benefits from tourists, as well as university students and their families. Rentals have nice margins because Big Wheel can charge up to $50 a day for the bikes, which means they pay for themselves quickly.

His expenses, aside from the cost of goods such as buying new bikes, are rent and payroll. Like most retailers, he is at the mercy of his landlords. He owns the Georgetown store outright, but he must negotiate leases for the rest.

He has 10 full-timers and adds 10 part-timers during the warm months. He doesn't have a health plan, but some key employees have a portion of their health insurance reimbursed. Sendar used to spend $40,000 a year on advertising, including The Washington Post, but the Internet does his work for him so he doesn't spend a nickel any more.

Sendar isn't sure exactly what the recession will mean for his business. This winter has been unusually slow, but then winter is hardly the best barometer for an enterprise like his.

"If business continues to be down, I might be a losing operation," he said. So he is cutting back on expenses wherever he can to preserve his profit.

He is not filling some usual retail slots and works himself at the Arlington store one day a week. Some stores are staffed by a single person. He is concentrating the bike repair work into a few days a week, so he doesn't have to have mechanics (who earn $10 an hour and up) on duty all the time. In other words, you can drop off your bike and it will be ready the next day instead of the same day.

Sendar was also more conservative about ordering new bikes last fall. "I saw the signs, so I wasn't as speculative as I might have been," he said. "With respect to a couple of high-end lines of bikes, where I might have made a preseason order of $30,000 or $40,000, I did not do so last fall."

In 2002, he expanded into high-end road and triathlon bikes, but these days people are less likely to spend the $3,500 on those bikes. Given the downturn, he is going to back to what he calls his "bread and butter" customers, the recreational cyclists who buy bikes priced between $300 to $1,000.

"Those prices might be less sensitive to the economy," he said.

Besides, he would rather stock 200 bikes at $500 apiece than 50 bikes at $2,000 each. Lower priced bikes are easier to move and keep cash coming in.

He also has no bank debt. So last fall, he set aside more cash than usual so he would have enough to weather the downturn in 2009. I wish some of the public companies in which I own stock were run like that.

"I'm anticipating things won't pick up. I have to be prepared for long stretches of doing little or no business."

He should know soon.

Mid-March is usually the kickoff to the bike season, so Sendar is going to watch the numbers carefully.

"If I'm getting a 20 percent decline from last year, I'm in real trouble," he said.

The key to making money in the bike business, like any retailer I guess, is to get good deals from suppliers so you can get big margins on the store sales. The normal bicycle markup between wholesale and retail is 40 percent, but Sendar looks for situations where suppliers have more bikes of a model than they need.

Case in point: the Fuji Roubaix Pro Road bike has a manufacturers' suggested retail price of $1,499. Most bike stores would buy it for $750. Sendar bought 20 of them for $600 each, and sold them at $1,199, which is a 50 percent margin.

He also keeps it simple.

He overexpanded to six stores in the late-1980s, including a store in Oakton, Va., and one on Vermont Avenue in the District. The expansion necessitated a Rockville warehouse, a general manager and overhead expenses, which Sendar hates. Sendar shut down the two stores, abandoned the warehouse and lost the general manager. Now he handles all the general managing himself.

When Mike is at Big Wheel in Bethesda, I will hang out for an hour just talking about local business, banks, politics and sports. Sendar can detail the starting five for both the 1966 Syracuse Orangemen and their opponents, the Duke Blue Devils, in the NCAA quarterfinals.
He got into the bike business by accident. He was a tax attorney at the Internal Revenue Service. A friend who ran an art gallery at what is now the Georgetown Big Wheel was moving the gallery, and Sendar suggested they replace it with a bike shop. He put up around $6,000 of his own money and borrowed another $4,000 from two friends. With some of that money, he launched his bike rental business.

He marched to Toys R Us and bought 15 Raleigh English Hercules 3-speeds for $42.99 apiece.

You've got to start somewhere.

By Dan Beyers  |  March 1, 2009; 8:00 PM ET  | Category:  Value Added
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Comments

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If Sender isn't making increased profits during an economic downturn, he doesn't know what he's doing. People are looking to save money. There's no better way to save money than ride a bike every day to work.

Posted by: JoshHamilton | March 2, 2009 12:36 AM

This story can be a business 'case study'.

Posted by: GSteed1 | March 2, 2009 8:06 AM

Josh,

55% of his stores revenue comes from bike sales. Everyone is pulling back on purchasing in this economy. It's not that he doesn't know how to run a business during this recession.

My recommendation would be to offer a promotion on Rentals, as people are looking to do activities that are less expensive. (buy one day, get one free on a rental kind of promotion)

Posted by: johnmckee219 | March 2, 2009 9:05 AM

Wait... You're an adult and you need to send a bicycle for a "tune-up". Oh my God, this is why we're in a recession- nobody in this country has any basic common skills anymore.

Posted by: slomiamg | March 2, 2009 9:31 AM

Love the first post (sarcasm). I suppose your business (you do own your own business right?) is making more money than this time last year. No better way to save money than to plunk down $300 on a bike, not knowing IF you'll end up using it. No thanks! I'd rather walk. LOL.

Posted by: notamullethead | March 2, 2009 10:20 AM

I'm curious to know how much repeat business Sendar gets, since in my experience customer loyalty is the key to weathering a downturn. I have been to the Big Wheel in Bethesda to have a stubborn flat repaired, and in the process got a very strong-willed salesperson trying to convince me to buy a new bike. So Big Wheels got my business for the small repair, but it will never get my business for a large purchase like a new bike -- I was turned off by the hard sell.

Posted by: uk1992 | March 2, 2009 10:35 AM

"Wait... You're an adult and you need to send a bicycle for a "tune-up". Oh my God, this is why we're in a recession- nobody in this country has any basic common skills anymore."

Don't be too hard on the columnist. I completely agree with your point, and one of huge advantages of making your bike your everyday transportation choice is that a person can fix it himself.

The Washington Area Bicyclist Association offers basic bicycle repair classes. Taking one of these classes is a good idea for many reasons, not the least of which is the repair backlog at most area shops that occurs when the weather turns warm.

Posted by: bikes-everywhere | March 2, 2009 11:08 AM

I would expect sales to suffer in a recession because bicycles in America are marketed and designed as sports and fitness machines, not transportation. People will forgo them when money is tight, just as I'd expect sales of home elliptical machines and treadmills to suffer.

What are your chances of walking into an American bike shop and buying a bike with fenders, chain guard, lights, and racks right off the floor? You know, an everyday bike that people could use as primary, money-saving transportation, as opposed a "recreational" (i.e., not essential) bike?

Posted by: hitpoints | March 2, 2009 11:26 AM

I've gotten nothing but horrible service at the Arlington store. I get that blank 20-something stare at the most obvious question. I stopped in to see about getting a 10-cog cassette (not an unusual item, believe me.) They not only didn't have any in stock, but I got "the look" for even asking the question. Finally the dude offered to order one and I could pick it up at the end of the week. Why? I know how to order stuff over the internet. The point of a local bike shop is to be able to get stuff right now, not the end of the week.

Posted by: jimfergusonj | March 2, 2009 12:19 PM

A good shop can do a better job than us amateurs at fixing up a bike. They have all the tools, experience, and parts at hand. I've been bike commuting for 10 years now and over the years have gradually collected together $500-1000 worth of tools, stand, truing machine, etc., and I try to do regular preventative maintenance every week or two on things. But I will run across something that needs fixing that I haven't done for a while and I have to go back and look things up to figure out what exactly to do to get things working correctly. (example, try to adjust your front derailleur properly). I think $80 for a mechanic once or twice a year would be money well spent, especially if they do a better job than I could do at it simply because they have better tools, knowledge and practice.

Posted by: jonb5 | March 2, 2009 12:35 PM

slomiamg just cut me to pieces. yes, i am an adult. yes, i need to get my bike tuned up.lots of good comments here and thanks for the interest. i try to make every story a case study. the insight on repeat business is right on point. that's key to any retail or service company. any company competing for consumer needs to stay on their game and keep 'em coming back. too expensive to find new customers. i think i have talked about that in past value added. but it's something to mine as i go forward.

Posted by: heatht | March 2, 2009 1:11 PM

Yes unfortunately, I had a similarly experience to "jimfergusonj" at both the Bethesda, Georgetown Big-Wheel Stores. A spoke wrench, and seat post both out of stock, very common items. I don't think they cater to the DIY's, among us.

Posted by: drewbird911 | March 2, 2009 1:45 PM

jonb5 wrote:
"A good shop can do a better job than us amateurs at fixing up a bike."

Hah, hah, hah. Receiving payment for a service does not suddenly impart special knowledge on a worker. Especially if it is some minimally skilled task, like fixing bicycles, that can be picked up in a few hours.

As for experience, have you taken a hard look at many of the people who work as bike "mechanics"? Do these people look like they have been at it longer than you? We're not talking about some professional team's mechanics here.

The $80 bucks for a tune-up may be worth it when it comes to not having the spare time or not getting dirty. But please let's stop this myth that bike shop repair guys are somehow super skilled and super specialized.

Posted by: Wallenstein | March 2, 2009 2:36 PM

I think Big Wheel Bikes is safe for the time being. The discount big-box alternatives sell such low quality equipment--There was a time when you could buy a really terrific bike at *Sears*.--that the local bike shops are pretty safe from real competition. (It must be great to be in a business where you pretty much collude with your competitors and only have to worry about fickle demand).

Maybe the recession will suddenly drive much better quality staff toward bike shops. That certainly wouldn't hurt.

Posted by: Wallenstein | March 2, 2009 2:47 PM

Just wanted to point out that Conte's Bicycles (locally owned and operated franchise) just opened a high performance bicycle and coaching store in downtown Bethesda in January even with the present economy. The owners have a very successful store in Arlington and appeal to the serious roadie, triathlete and off road biker. They do carry one top of the line commuter bike - the Civia, but specialize in high tech engineered bike frames like Cervelo and the latest digital components like the Shimano Di2.

Posted by: elar55 | March 2, 2009 3:51 PM

After reading some of the last few comments, I would like to come to the defense of the bike mechanic. Many are certified, have been working on bikes for a very long time, and are basically true professionals. And always - they love bikes. Bikes have become very highly engineered and specialized - from carbon frames to high end digital components; and then there are the full-suspension off road bikes. A professionally tuned in bike is a dream to ride. Amateurs can't keep up, haven't experienced most problems, and could inadvertently damage very expensive bikes.

Posted by: elar55 | March 2, 2009 4:26 PM

elar55 beat me to the punch. I have worked in a bike shop part time for several years, and the full time mechanics I worked with have all received several certifications which include wheel building and fork and suspension service. These services, along with many others, like knowing exactly which parts to use (can't say how many times I've seen people use incorrect parts) and how to install them is not something that can be "picked up in a few hours" as Wallenstein says. It takes years to accumulate the knowledge and practice that these mechanics have. Let's all give our local bike mechanics the credit they are due.

Posted by: johnz12 | March 2, 2009 5:35 PM

I’m always intrigued (and inspired) to read about someone who made an innovative career switch and started a successful business. Today’s installment was especially interesting since I’m an avid biker and started my own company a few years back. Mr. Heath’s weekly columns never disappoint and always provide useful information on entrepreneurship. Each week, I’m particularly drawn to his use of personal anecdotes and how he ties his individual (and wife’s) situations perfectly into the story.

Posted by: matthagan | March 2, 2009 8:47 PM

Okay, so he sells the Fuji bikes at $1,350 each instead of $1,199. He makes the full $750 per bike he would have made had he paid normal wholesale and sold at MSRP. The customer saves $150 which he can use to buy tools or pay for two years' tuneups depending on his personal view of the merits of modern mechanics (see above) and Mike goes away happy and more profitable. Currently, he is passing on half his savings to the customer.

Times must be rough or else your readers have already bought into the new era of responsibility and personal sacrifice. With all the posts you have today, surprisingly not a single complaint about the absence of health insurance.

Posted by: Cooperstown | March 2, 2009 9:18 PM

No matter who you are...you've gotta love a great success story.

As a small business owner, I completely agree with you that "You've got to start somewhere." Stories like this help me stay motivated and focused...even in these tough times.

Posted by: CanineCommuter | March 3, 2009 8:21 AM

Okay, as head mechanic of another local bike shop, I'll chime in on this.

First, I would never pretend that bicycle service is a vast mystery, unfathomable by mere mortals. That being said, it does take experience and skill to diagnose (that's the toughest part) and efficiently and effectively fix a malfunctioning bicycle. It cannot be "picked up in a few hours". And most people don't want to be bothered learning the skills, or taking the time to do it themselves when they can pay someone else to do it. This is true of many, many things... it's why service is such a big part of our economy. Any of us COULD learn to fix just about any of the equipment we use daily... and we each choose those we do and those we leave to others. And for the record, no shop is getting rich off an %80 tuneup.

Second, hitpoints makes an excellent point... in the US, bikes are seen as recreational, and therefore not essential, so sales of bikes typically do drop off, rather than rise, when the economy is bad. What does get people on bikes for transportation is high gas prices, which gave shops a bump this past summer... however, that bump was in the service area, where we were all inundated with bikes that had sat neglected in garages and sheds, dragged out for errands and trips to the Metro station to save some $$ on gas. What we did NOT see was a huge number of people buying new bikes for commuting, shopping, etc.

As for the observation that fully equipped, practical, transportation-oriented bikes aren't on shop floors, that's generally true. However, our shop used to carry such bikes... and they gathered dust, more often than not. Americans on the whole do not see bikes as transportation, and when you show them a bike equipped for practicality, they turn the other way and want to be shown the light, shiny, fast-looking bike over there. I have even had a hard time getting practicing bike commuters in the area to seriously consider fenders on their commuter bikes. We've all been told for so long that it's not "cool" that we just can't see the practical side.

Finally, a general note... retail bike shops have a tough time making ends meet, even in the good times. It's a never ending struggle of trying to guess what people will actually buy and avoiding sitting on products you can't sell. I suspect the reason one writer couldn't just walk in and walk out with the 10 cog cassette he wanted was simply because a shop can't tie up a lot of money on items that may or may not move. There are a variety of different options just in the example of a cassette, so how is a shop to know which particular combination of cogs is going to be in demand and which isn't? In my case, it took me a couple of seasons to figure out those parts that we reliably turn over on a regular basis, keep those in stock, and let the rest be on an as needed basis. You can't please everyone, but we do try.

Posted by: tymn61 | March 3, 2009 10:42 PM

I would have appreciated more information on more Bike Shops in the DC area. This article leads us to believe all bike shops are the same. Mike Sendar does not represent the norm. He receives a comfortable six figure income(WOW!). No mention of what his employees receive in compensation. Do they have health insurance? Do they have a pension plan? This is a business success story when he over-expands, fires his general manager, and is really in trouble if his numbers are down in the next few months?!? Please report back if he fails. Next time you decide to write about the health of an industry, at least add a few more businesses in the mix.
As for the comments about the people working in shops...you get what you pay for...the less support/money you give to a shop, the less money to pay staff. I support my local businesses...they give back to the local community by keeping people employed, paying taxes, giving to local charities & schools, showing up at local meetings for improved bicycle lanes and paths. If you think saving 5 bucks by buying a product online, think again. Most bike shop owners (not Mike Sendar) & employees work for the love & passion of cycling and promote a better lifestyle for all in the end. So, the next time you're in a Bike Shop, ask to see the owner and ask why he's doing what he's doing? You may be surprised at the answer. My Bike Shop of choice is The Bicycle Place in Silver Spring...good people, good shop. Anyone have any other Bike Shops they would recommend? Now, go ride your bike!

Posted by: bianchiboccone | March 5, 2009 1:21 PM

I was surprised to see that Mike Sendar is a former IRS employee and tax attorney. My son worked for Big Wheel Bikes in the summer of 2007, during which time the company withheld income taxes and FICA.
When no W-2 arrived the following January, I followed up and was informed that Mike Sendar did not pay over withheld income and FICA taxes for his student employees. My son had to gently remind Sendar that his mother was a former Special Agent for the IRS Criminal Investigation Division before Sendar at least agreed to refund the money he'd withheld. Perhaps unlawfully failing to pay over taxes withheld from his minimum wage student employees is how he manages to survive in a tight economy.

Posted by: cjmce | March 5, 2009 2:02 PM

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