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.
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