03 December, 2008

Tom, VO Imports, and Upsetting the Apple Cart


As some of you know, we have another company, called VO Imports (VOI). The purpose of this company is to sell to bike shops and distributors, rather than to retail customers. VOI has a warehouse and office next door to us, but it is a separate company. VOI sells some Velo Orange parts and it also starting to import and distribute components and accessories from other companies.

VOI's general manager is Tom Martin, who has many years experience in the bike distribution business. He is great at getting stuff made, keeping in almost constant touch with Taiwan. He is also known here for creating gigantic spreadsheets detailing an almost infinite number of cost and design variables for each of our products. In addition he maintains relations with all the shops that stock our products.

Tom probably doesn't have an easy time working with me. In Tom's world, which is the standard distribution model, a company designs a product and has a factory makes it. Then the agent who helped set it up us gets a small cut. Now the component company sells the part to a distributor and so makes its profit. The distributor sells the part to a bike shop and makes its profit. Finally the bike shop makes a profit selling the part to a customer. As you can see, there are a lot of folks taking a cut. And so the bike business world has always smoothly revolved.

But I am not from the bike or the distribution biz and I have a long history of building companies by breaking rules. I decide that some Velo Orange products, the stainless steel racks as an example, must be affordable and cut out all the middle men. The distributor and bike shop can't sell them and so don't get a cut. Velo Orange does not get those cuts either; the customer does. I've upset the apple cart and poor Tom has to hear the complaints.

Tom feels, and he is probably correct in this, that if we simply raise prices or concentrate only on items that can be sold through traditional distribution channels both VOI and Velo Orange will grow even faster. But I want to keep prices low. And so it goes.

Tom has started a VOI blog, as well as a Twitter and Face Book page. The blog is intended for shop owners and their employees, but many here may find it interesting too.

33 comments:

part time worker said...

Tom, listen to Chris.
Keep pices as low as possible.
I have an extremely modest income and would like to continue to purchase from VO.

Tom said...

Excellent post by Chris.

I've been saying this all along.

Some products at Velo Orange are undervalued. When you look at who else is making Porteur racks, the Velo Orange at $190 is the absolute best. No-one else is making it out of stainless. Pass and Stow is tubular cromoly and costs $240. CETMA is steel rod and sells for $190, and all he does is bolt some Wald struts and handlebar attachment hardware to the platform. Both are completely acceptable price wise for a hand built rack made in the states in small batches.

We also want to sell our racks through bike shops. Our current dealer pricing gives no-one a decent markup or profit margin at the current retail.

Should it surprise anyone here that Velo Orange is interested in selling through bike shops? They are just as excited about VO designed and/or resurrected parts and accessories.

Is it fair and reasonable to expect a bike shop would want to make a profit on selling VO stuff?
What do you think is a fair and reasonable profit?
Before you answer (and I'd really like your opinion and idea on it), realize your local bike shop has a cost of doing business. It costs money for rent or mortgage payments, energy, payroll, debt payments, communications service, marketing, etc. Then there is the cost of the gadgets and doodads themselves. This is commonly expressed as operating margin, in a percentage. That number is around 30-34% depending on location, and whether or not the shop owns its storefront and for how long.

So, with that in mind, how much of a markup (or profit margin) would you give a bike shop to remain in business? The 3 stage distro model is right for many products that are heavy and bulky (locks, baskets, tires) and companies can focus on doing what they do best. Wald is great at making cheap baskets but really poor at marketing. Kryptonite is really great at marketing but really poor at distributing and managing thousands of dealer accounts or millions of customers.

Planet Bike, Topeak, Brooks, Continental, Panaracer, and hundreds more companies use distributors to sell more product than if they were to sell factory direct. Factory direct sales are great for small framebuilders and boutique parts makers like White industries, but once the interest reaches a tipping point, it's more manageable to split up the duties of getting stuff through the sales channel. Seperate out distribution from sales from marketing from manufacturing.

Gunnar Berg said...

Saint An, and now Saint Tom.

Tom said...

here's the twitter feed if yall care:
http://twitter.com/Velo_Orange

And the facebook page too:
http://www.facebook.com/home.php#/group.php?gid=35952323691

Tom said...

And someone created a flickr group too:
http://flickr.com/groups/velo-orange/

Anonymous said...

I think it's worth pointing out: 1. CETMA has introduced a new strut design, eliminating the old Wald style and 2. 4130 tubing is used on the 5 rail rack.

Anonymous said...

Yes, but CETMA has decided to attach the new struts to the rack with "p" clamps instead of brazing tabs like they used to, which is stronger. So some improvement there, but also a step back.

david_nj said...

I don't really understand all of Tom's post but whatever...

As the proud new owner of a VO Porteur rack and the proud old owner of a CETMA rack, both are good. Sure, the CETMA's a bit aggro, but I finagled it a bit so as not to have to attach to the handlebars and it's proven amazingly useful.

Also, just want to point out that Lane at CETMA is a *first class* human being. A truly nice, self-effacing fella. It feels good to buy a rack from him.

One minor thing I was wondering is why the VO Porteur rack struts don't go to the outside, like on the traditional porteur bikes. Not that it matters a bit; who really cares. But more important, I do think it might want to be 10% bigger -- 's kinda petite.

Oh, I can intro you guys to a killer bike shop here in NJ that has never heard of you but absolutely loves your kind of stuff. Boy do they sell costly bikes, and a lot of 'em. And boy are they opinionated and occasionally annoying. But they're perfect for you and they like to move it move it move it.


David

Tom said...

Hi David:

I would love to talk to that bike shop you speak so highly of. At least I think you are speaking highly of them.

Sorry about all the wonky small business costing 101 talk. I'm like that sometimes.

CETMA is a great company. I'm not bashing them/him at all. There is room for them, and for Velo Orange. Not everyone wants something shiny and silver.

david_nj said...

Tom,

Sure, I'll give you a call or if I forget, Chris/Annette would have my #.

It's a verrry good bike shop, no doubt about it. (I'm extremely easy to annoy so you should discount my remarks.) I don't know the owner really well but pretty well and when he was prepping a wheel I told him about your company and it was all good.

I fancy myself mighty experienced in business but I must admit I know less-than-half-of-f&*k-all about the bicycle industry. That being said, your reasoning about selling through external distributors seems sound, as long as the resultant margin-slimming doesn't flay you alive.

Best,

David

jimmythefly said...

Tom, here's my opinion on the matter:

A bike shop's margin is up to them, unless you plan on policing their retail pricing. Figure out what margin VO needs to get, and go from there with what your wholesale to shops is. I assume given a quantity commitment a shop could get a rack cheaper than I could, but when they put in a margin I'd pay more to buy it from them than from VO direct.

I'd buy from a shop for convenience (in my hands that day). Also, possibly because I feel some obligation to purchase through them because of advice or help they've given me.

Nothing wrong with buying direct from VO when the shop is out, and would charge me more for a special-order part that I could get direct cheaper(and in the same timeframe).

I think VO has no obligation to keep their online prices even with a shop's in-store (or online) pricing. If a shop is charging more than VO, there should be some added value to that extra cost.

How does VO see being in shops impacting their business? In a way you're not only selling stuff, but getting a bit of in-store advertising(both shelf space and employee recommendations), which will potentially attract customers to the website. Perhaps when someone buys something from VO online, they could fill in a blank for if they first heard about VO from a shop, and the shop could earn something from that sale, too?

Anonymous said...

i'd like to meat a bike shop with a morgage. me thinks RENT would be more accurate.

jimmythefly said...

Gregg's Greenlake Cycles in Seattle. Same location since '32.

http://www.greggscycles.com/cartgenie/new_history.asp


I'm guessing its mostly older bike shops that don't pay rent, but who knows?

jimmythefly said...

Sorry.

http://tinyurl.com/5gfpm4

Adrienne Johnson said...

I know, for myself, that what I look for in any business is not pricing. Do not get me wrong, I like a deal. More than that, I want service and to know that my business is important to the business I am dealing with.

I am very impressed with how you guys look for input from your customers, and try to fill the needs they express. You demonstrate your respect for you customers very well.

That is the 'niche' that I think you should focus on. There are so many places to buy things anonymously, so what you have going here is special.

Cottered Crank said...

I think one of the most important innovations Chris has made is actively seeking input from us customers. That's something you don't get with a traditional supply chain. By the time word filters back through several people to the decision makers, it is often too late and too garbled to be of any use. There are many, many examples of this. The differences between the products VO sells and what's out there at other places is often quite subtle, especially to people who could be described as "middlemen." If VO and VOI have to go big for whatever reason, then please be sure to keep the design and feedback process as it is. It's a rare thing indeed, and I think without it VO would be another animal entirely.

One thing that baffles me is how many people have a hard time with the idea that a business needs to make a profit in order to keep the doors open. I grew up in a family that was involved in small businesses, and it's astonishing what people seem to expect. Running a bike shop is a tricky business on a good day. It will be interesting to see how VOI handles the balancing act of keeping dealers happy while competing with them to some extent on the web. The smart bike shop owners I know have done a good job of turning the web to their advantage. Interesting times we live in.

Tom said...

Most ppl will pay more for buying at the shop,. the question is, how much of a premium? a couple of bucks more? 1% more? 20% more?
And shops also desire to sell stuff with a higher margin. every time I change the price to increase the dealer margin, sales go up for the product. Especially when it's a substantial jump. Dealers like to make money and still be competitive.,

I don't think Chris is going to change the customer feedback loop anytime soon. It's gotten us in some trouble with some suppliers, but overall, they are happy to accept larger orders from us over time.

Anonymous said...

For a specialty product such as one of your VO racks, most shops would want a 35 point margin, minimum, preferably 40 points - on a special order item. It gets awkward tacking on a shipping charge at the retail level, even for special orders. A stocking dealer would want to make 40 points on unit cost, and expects to benifit with higher margin from higher volume orders.

It's been 15 years, but I managed a shop and shared ordering and pricing responsibilities with the shop owner during my 10+ year tenure.

EE

Joel said...

Question for David:

I have a CETMA on my touring bike. I have taken trips with two full Ortlieb panniers and a bag with tent and cooking gear on the top. Maybe 40 pounds in all (I have a smaller rack on the back for incidentals around 20 pounds).

I wouldn't mind swapping a VO Porteur for the CETMA. Do you think the VO can handle the same amount of weight?

Anonymous said...

Normal distribution channels don't really work as well in lower traffic markets. When I go to my LBS, I have a handful of choices in $30 aluminum rear racks and a few large trunk bags and that's it. Forget boutique items. They're not going to stock a ~$250 porteur rack. They could make a special order, but I can do that myself just as easily.

Joel said...

I bought my CETMA rack off the shelf at an LBS in Chicago. Cost me less than I would have paid were I to buy it on line from CETMA.

I had a VO rear rack installed on a bike I subsequently sold. The LBS bought the VO special order, chaged me VO's price for the rack, and made its money fitting and installing the rack.

david_nj said...

Joel,

I really don't know. You'd have to ask Chris. My seat-of-the-pants feeling is that 40 pounds would be an awful lot for the VO rack, unless you used a stronger way to attach the rear of the platform to the bike. There are a couple of ways to do that that occur to me; fortunately, the way Chris has designed this it's very easy to substitute another method of attachment (since it is just a bolt-on to the rack). For a heavy load carried a long way, I think it'd be worth the trouble to make up something bombproof.

The other issue is the platform size. I don't know what would work best for you but it's worth thinking about. The big CETMA one is quite a bit larger.

All in, either would be a great choice, although of course the VO rack is considerably more handsome.

Steve said...

david nj said:
My seat-of-the-pants feeling is that 40 pounds would be an awful lot for the VO rack, unless you used a stronger way to attach the rear of the platform to the bike. There are a couple of ways to do that that occur to me; fortunately, the way Chris has designed this it's very easy to substitute another method of attachment (since it is just a bolt-on to the rack). For a heavy load carried a long way, I think it'd be worth the trouble to make up something bombproof.

I'm sure an alternate attachment method would help make the rack sturdier. However, the struts aren't triangulated from the outer edges of the rack they way they are on this Rene Herse porteur: http://www.reneherse.com/RHporteur.html How important would that be for heavier loads?

Chris Kulczycki said...

I've had a few questions about the triangulation thing. First off, the VO rack supports do splay outward, though not all the way to the outer rails. They do not form a 90-degree "box" as on a narrow rack.

Most old porteur racks, like the one Steve links too, were designed for stacks of newspaper where the weight was distributed evenly, and it could be 50-100 lbs. But imagine a smaller yet still heavy weight, say an anvil or a car battery on such a rack. It would cause the platform to bow downward and push the fender into the tire. For the sort of loads I imagined our rack would be used for, like groceries, the VO design was better. Actually it's not really our design; there were plenty of old French racks that have struts like the VO racks and the our rack is based on one of them.

Joel said...

Thank you David.

Chris: The linked photo shows what I am doing right now with the CETMA (not my bike, but I do the same thing with the same panniers as it happens). On my longest camping trip where I had to carry food and water, I probably had 45 pounds split between the two panniers and another ten or so on top.

Is this more than the Porteur is designd to accommodate? My camper is a right handsome bike. It would do the porteur proud.

http://cetmaracks.com/CETMAgallery/Gallery/index.html

Jeff said...

I'd happily pay 20 to 30% markup at my LBS - I love them and I want them to stick around. I'm not a wealthy person, but I choose to spend whatever "play" money I might have on bikes and bike parts, all year long, year after year. If I can't find what I'm looking for at my LBS, I'm still a big fan of buying local, so will try sourcing locally instead of ordering from afar. Throwing VO into the mix, well, they're kinda local to me in MD, so.... I'd likely still buy VO stuff at my LBS for a markup if they carried the stuff, but I'd have a tiny internal struggle over it. I have the luxury of supporting my LBS and VO because my LBS doesn't carry VO (yet). Everyone wins!

Chris Kulczycki said...

Joel, I would not recommend any single rack for carrying 55lbs for long distances over rough roads. That's just not something I've tested our rack to do. My approach is to pack very light and spread the load out over the front and rear racks. But, to be honest, most of my camping experience was bivouacking as an alpinst in my youth. I prefer to stay at inns and B&Bs on bike trips.

Joel said...

Chris: Wherever possible, I certainly prefer sleeping indoors as well. In Europe and the East Coast, B&B's and inns are usually close enough to most choice natural beauty (maybe not in the Adirondacks).

West of the Mississippi and even in parts of the upper midwest (my ride around Lake Superior last summer comes to mind) you either have to bring water and food with you or skip a number of destinations well worth seeing.

Unfortunately the compromise is you need to have a functional, if unattatractive kit on your bike to manage.

Tom said...

I don't think the carrying load is limited by the rack. It's tig welded stainless by a well respected frame builder. It probably has a weight capacity of 100lbs or more.
The limitations are the weight on the steering axis of the bike. CETMA cautions carrying loads above 40lbs on their racks because 'steering gets all wonky'. if you're already carrying 55lbs- 15lbs over CETMA's recommended load- I don't see how a stainless rack would do any worse.

Anonymous said...

Good Lord! Someone please put some fenders on Tom's bicycle. Quick!

Tom said...

you can take the kid out of oakland.....

meade said...

Ok, the most important comment/question...what's Tom riding?

Tom said...

a benotto fixed frame- columbus tubing, campag fork ends, generic schwinn butted cromoly fork. 39x15 gearing, D/A crank MKS pedals. Prototype dyno hub on the front, high flange campag 28h track hub on the rear. Nitto Promenade bars and a nitto stem. Velo Orange Mod 7 saddle. VO rack with integrated decaleur so I can bring home ground scores.