Trying to understand the industry

Gene

Gene

The Dancing Machine
In most industries you have Product Vendor -> Hosting Service\Store to Customer -> Customer... The bike industry has an additional hop. Product Vendor -> Distributor -> Hosting Service\Store to Customer -> Customer.

My father owns a business in which he sells parts (for what is ireelevant). He purchases them from the manufacturer and then sells them to the client. My grandfather owned a business in which he purchased used equipment, fixed it to new and sold at a discount from its original price to the customer.

Why is there a billion dollar industry that requires a distributor? I imagine most smaller custom bicycle manufacturers don't use distributors. Are the distribution companies pockets too deep for the price surge in bicycles over the years?

I'd understand if distribution companies owned the bike manufacturers and used their distribution center, but from my limited research that is not the case...
 
Probably because the same factory (vendor) makes bikes for multiple distributors (brands).
 
Great google search that offers thoughts on both sides, but no solution or clear answer. Bike shops are fighting or discouraging vendors because the vendor loses too much money going through a distribution company... vendor (sidi) then goes direct to consumer to avoid bankruptcy to clear inventory.

I am just thinking about this. No argument or disagreement, but there is an issue. If the pandemic didn't happen would bike shops not be discussing the importance of buying local instead of direct to vendor or online?
 
multiple manufacturers involved - multiple builds per frame. millions of units over a widely dispersed
area with local requirements requiring local expertise (ie language, or legal - USA requires reflectors)

I don't think they are driving the price up - especially since what something sells for has nothing to do with how much it costs to build.
 
Gene said:
In most industries you have Product Vendor -> Hosting Service\Store to Customer -> Customer... The bike industry has an additional hop. Product Vendor -> Distributor -> Hosting Service\Store to Customer -> Customer.
Click to expand...

Not every brand is like that. Some brands sell direct to consumer, skipping the distributor and the retailer all-together. Other brands act as their own distributor and sell to retailers, that in turn sell to consumers. Depending on business model, those same brands might also have international distributors that sell to retailers in other countries.

It's all over the place. But yes, more layers means more people need to get their cut.
 
Are you saying that distributors are somewhat unique to the bike industry? I'd disagree with you there. Distributors are a link in the supply chain for many (if not most) industries. Anytime the POS provider is carrying multiple brands, the distributor model just makes sense. (And even in a model like Trek's current store model, there is still a subsidiary of the company managing the sourcing of components to whatever degree possible - in that case, Bontrager.) Any other model becomes cost-prohibitive to the manufacturer and a massive PIA to the POS provider. Pretty much any industry where you have POS choice on the part of the buyer you're probably going to see at least some form of distributor model.

As an example, this model is all over healthcare, albeit sometimes in modified forms. Without getting into the weeds on them, both PBMs and Wholesalers basically function in a similar capacity for drug benefits under our managed care system.
 
Beer/Liquor stores are another example. Imagine if the local spot got deliveries from every producer of beer/wine/liquor. The parking lot would be filled with delivery trucks all day every day. The shop would have hundreds of invoices with several line items, instead of one or two invoices with hundreds of line items. Imagine trying to reorder stock from 250 individual producers?
 
@1speed is correct; It's not exclusive to the bike industry.

Back when Easy Video was a thing, there was 1 distributor for movies, 1 distributor for video games, 1 distributor for candy and 1 distributor for porn. Eliminate that model and it would have become a headache ordering individually through each studio, publisher and vendor.
 
The money is made when the Manufacturer sells it's product to the Distributor. The Margin between the Retail Store and Customer is absurd. That's why mechanics are in such demand, it's literally the only profit a shop will make.
 
jimvreeland said:
The money is made when the Manufacturer sells it's product to the Distributor. The Margin between the Retail Store and Customer is absurd. That's why mechanics are in such demand, it's literally the only profit a shop will make.
Click to expand...
Like make 6 figures high demand? Where do i sign up!?
 
jimvreeland said:
The money is made when the Manufacturer sells it's product to the Distributor. The Margin between the Retail Store and Customer is absurd. That's why mechanics are in such demand, it's literally the only profit a shop will make.
Click to expand...

Highlighting this because of how funny it is.
 
jimvreeland said:
The money is made when the Manufacturer sells it's product to the Distributor. The Margin between the Retail Store and Customer is absurd. That's why mechanics are in such demand, it's literally the only profit a shop will make.
Click to expand...
Unfortunately, this is really how most industries work. And, even more unfortunately, that same tight margin usually plays out at all levels. Margins are usually tight across the chain. They add up to high costs at the end for some industries and (sadly) the customer-facing link in the chain is the one who absorbs all the pushback from the customer.
 
jimvreeland said:
The money is made when the Manufacturer sells it's product to the Distributor. The Margin between the Retail Store and Customer is absurd. That's why mechanics are in such demand, it's literally the only profit a shop will make.
Click to expand...
The exact problem with the industry that uses distributors. Eliminating the distribution center and having the manufacturer going direct to bike shop is what should happen in my opinion... btw, amazing job on the rebuilt fork you performed on my Niner a month ago. Loving it!
 
MadisonDan said:
Beer/Liquor stores are another example. Imagine if the local spot got deliveries from every producer of beer/wine/liquor. The parking lot would be filled with delivery trucks all day every day. The shop would have hundreds of invoices with several line items, instead of one or two invoices with hundreds of line items. Imagine trying to reorder stock from 250 individual producers?
Click to expand...
We can have an entirely different discussion on other industries. FedEx\UPS\USPS\DHL\etc. would be the "delivery trucks all day every day" I guess, but aren't they already today?
 
1speed said:
Are you saying that distributors are somewhat unique to the bike industry? I'd disagree with you there. Distributors are a link in the supply chain for many (if not most) industries. Anytime the POS provider is carrying multiple brands, the distributor model just makes sense. (And even in a model like Trek's current store model, there is still a subsidiary of the company managing the sourcing of components to whatever degree possible - in that case, Bontrager.) Any other model becomes cost-prohibitive to the manufacturer and a massive PIA to the POS provider. Pretty much any industry where you have POS choice on the part of the buyer you're probably going to see at least some form of distributor model.

As an example, this model is all over healthcare, albeit sometimes in modified forms. Without getting into the weeds on them, both PBMs and Wholesalers basically function in a similar capacity for drug benefits under our managed care system.
Click to expand...
I do not, but do know online sales are what is taking advantage of the elimination of local bike shops that most of us support year after year.

The margin should change. I don't have a dollar in this either way, but absolutely hate when I see a bike shop I support go under because someone in the middle is making the most of this and they don't even deal with the ones that get sold the bike for riding...
 
Gene said:
The exact problem with the industry that uses distributors. Eliminating the distribution center and having the manufacturer going direct to bike shop is what should happen in my opinion... btw, amazing job on the rebuilt fork you performed on my Niner a month ago. Loving it!
Click to expand...
Logistics isn't free though. Each manufacturer would have to raise a new division to handle what the distributor already does for them.
 
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