Motorcycle Economics: Brick and Mortar Compression

Crisis accelerates evolution. In 2019, buying a vehicle meant negotiating on price with a sleazy salesman, followed by long waits in a side office with lending applications, extended warranty pitches, and endless paperwork. Even after signing the deal, you often had to wait on bike setup. If you were lucky, a couple of days later you walked out of a dealership and rode away on a new bike, smiling ear to ear following an otherwise painful experience. In 2020, this process was miraculously reduced to a series of text messages, and I’m told maybe an hour visit to sign papers and pick up your vehicle (at least for cars). What happened?

Life got easy

When confronted with evolution or bankruptcy, savvy entrepreneurs discovered how to streamline the bloated, archaic retail processes to get goods into the hands of eager consumers. The world essentially took advantage of the available technology and jettisoned obsolete sales tactics, much to the celebration of customers. Buying motorcycles became a faster and more pleasurable experience.

On a different end of the consumer experience, buying motorcycle stuff got a lot easier too. With retail outlets adopting severely limited operating hours or completely closed to the public, internet retailers were all the rage. Some shops got smart and figured out how to manage orders via text and e-mail, set up pick-up times, or even “drop ship” parts directly to the customer. With a little extra jingle in our pockets from limited travel and stimmy checks, we built the bikes of our dreams thanks to modern conveniences.

The bullwhip

Related to an article about motorcycle financing, recent world events had a massive impact on supply chains. In 2019 we had 24-hour convenience stores, fully stocked shelves at local grocers, and motorcycle showrooms with almost any model you’re looking for. Since that time, we’re all overwhelmingly familiar with empty sales floors and long waits for replacement parts on backorder. As a result, today every consumer has a very vivid understanding of how supply chains are like a bullwhip; the smallest change in the input has a stunning impact on the result.

Inflation

Without stepping in a pile of politics, let’s suffice to say that supply chain interruptions led to limited parts and inventory available for buyers. With more money to spend and less stuff to spend it on, consumers were competing against one another, and the prices rose to match the heated demand against the shrinking supply. Supply and demand are obviously concepts most of us are familiar with, but I bring this up to highlight a recent trend that has upset a number of consumers: mark-ups and fees.

As a guy that never stops surfing the used bike ads, I’m pretty put off by the asking prices above retail pricing I’ve seen. In the used market it’s an individual seller with an individual identity, and their own perceived value of the item they’re selling. When that item becomes a replicated commodity sold against the backdrop of identical models, like at a motorcycle dealer, folks seem to get a little testy about increased costs. I’m as frugal as the next guy, but we need to pause a moment and consider this unique situation from the other side of the counter. What has this experience been like as a shopkeeper?

In March 2020, retailers around the country were told to close. Like most of us, many of them weren’t sure where their next paycheck would come from. Many of these retailers had loans on “floor plan” motorcycles they had to pay, combined with continued overhead costs. Fortunately, when they adapted to the new sales conditions, anything remotely outdoorsy was selling like gangbusters. Until the showrooms emptied.

Brick-and-mortar stores went from fully stocked to nearly depleted inventory on all kinds of things, and likely everything, just at different times. For you and me, when we don’t know when we’re going to find our next meal, we start rationing. When dealers are unable to get more stuff to sell, they’re forced to increase prices to cover the gap between the sale of the last item to when the replacement finally arrives. Obviously, this doesn’t happen all at once. When the reality of supply starvation started to set in, dealers realized they could easily collect the full asking price, if not more, along with freight charges, documentation, and setup fees. Jacking up the sticker price of the vehicle, despite highly limited supply, potentially exposes the dealer to conflict with manufacturers who set the retail price. Thus retailers are more inclined to find other methods to collect cash to cover their next meal.

The last time I bought a new bike, I was a bit miffed by things I considered junk fees. Fortunately, the bike I wanted was in overwhelming supply everywhere, so a local dealer essentially ate the excess fees to give me the “out the door” price I wanted. In a buyers’ market, dealerships have all kinds of creative ways to reduce fees or take a haircut on list price as a means to get the customer into the monthly payment they can afford. One way or another, the total cost paid is a lump sum, despite whatever is listed on the receipt, and the manufacturer isn’t overly upset so long as their invoice is paid in full. Unfortunately, most of us motorcycle consumers aren’t familiar with the inverse of this formula, at least most of us shopping since 2008.

The fallout

Just as things were heating up in 2021, I released a podcast about the future of brick-and-mortar retailers. This idea had been rolling around in my head for some time as online retailers were making it vastly more convenient to buy motorcycle farkles versus waiting on parts to be delivered to a dealership and making multiple trips. The landscape has evolved considerably in that time. When confronted by companies like Carvana, and especially Amazon, providing anything and everything consumers want delivered to their door, many companies figured out how to duplicate the success of online retailers. So much so, those before-mentioned companies are now struggling by comparison. As a consumer, I see this as a good thing, I can now get high-quality products shipped direct from the retailer to my house. This situation puts increased stress on the middlemen. When it’s a faceless distributor, most folks don’t fret. When it’s a personal friend, trying to make a living selling you the toys you both love so much, it’s a different story.

I said privately back in 2020, the pandemic propped up power sports businesses that were already failing. Everything outdoors was gold and money was easy. When the bullwhip cracks, interest rates reach the moon, and the consumer base shrinks, the dealers that have failed to evolve with emerging technology and the whims of the customer may not be the only victims. The market forces of both limited supply and a potentially shrinking customer base may put insurmountable pressure on retailers that were until recently keeping their heads above water.

I fear this story gets worse as I suspect manufacturer politics will force a degree of corporate cannibalism among dealerships. In the automotive realm, there’s been much gnashing of teeth between the mothership and the dealers over price markups. The brands are concerned that in a receding market, their reputation will be tarnished by “greedy” salespeople. There’s an argument about the manufacturer’s hands being tied by politics and supply chain challenges, but this doesn’t change the fact that working folks at the dealership still need to be paid, especially if business is less than consistent. The very uncomfortable truth is that, despite searing prices, there were folks still foolish enough to pay them. This of course doesn’t change the fact that competing dealerships will be heavily at odds with one another, along with manufacturers depending on how this plays out. Brands may decide to slow output in preparation for a recession, putting more pressure on retail establishments. Equally problematic, if manufacturers attempt to resume 2019-era inventory, they could be forcing overstock conditions onto dealers. Conflict is brewing between the two parties, and I fear the manufacturers are the most likely victors.

The upside

This is unfortunately an ugly story for sales folks handing out business cards. However, all uncomfortable situations are also opportunities to excel. Dealerships facing inventory challenges will be forced to focus on customer relations, improving customer experience, enhancing their service department, and building a riding community. Reduced inventory means folks will have to sell the “value-added” factors and building customer loyalty. These facets, combined with yet-to-be-discovered sales innovations means more appreciation for the customer. The most successful businesses aren’t built when things are good, they’re built in the hard times.

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9 Responses to Motorcycle Economics: Brick and Mortar Compression

  1. parasympatheticsynapse says:

    Seems to me that both mfgs and dealers have discovered that advertising one price and then piling on the fees once in the viper pit is a good sales tactic.
    Doesn’t seem so long ago to me that the price was the price and if anything you could nibble away at at it. Or at least score a hat.
    Then paperwork fees became a thing. Next shipping fees. Now some add prep fees and surcharges. All that used to come out of the dealer’s margin.
    In fairness, dealers have been required to upgrade from places you had to hold your nose to enter the restroom into warehouse sized boutique stores.
    I have to admit that I kind of like not needing an assortment of immunizations to visit a dealer, but fancy buildings have a price. We’re not only paying for bikes now, but for contemporary places to hang out too. One in Cincy even has a tattoo parlor in the store!
    Based on our current economic trajectory, it’ll be interesting to see if that model persists. Then again, commercial real estate appears to be getting cheaper. Honda place in Middletown is so big that they ride electric scooters to get back and forth in there.

    Liked by 1 person

    • MotoADVR says:

      You nailed it. People claim they like Harley Davidsons bloated retail business model. I’ll gladly pass if the bikes and parts are cheaper. Paying for someone else’s overhead in the interest of “comfortable showroom” seems a little odd, but maybe I’m naive. It’s gonna be interesting indeed.

      Liked by 1 person

  2. TheQ says:

    I had to smile a bit when i read the line “customer relations, improving customer experience, enhancing their service department, and building a riding community. Reduced inventory means folks will have to sell the “value-added” factors and building customer loyalty.”. All you wrote would be reasonable but is ignoring the fact that all dealers want their customers best … their money and customers aren´t loyal to anything, except their money. So all what you wrote could work given money wouldn´t be the only thing both sides do care about. The only way i see (and know from automotive as it starts in car business already) is that dealers become workshops cos there is one thing most of us are really loyal to – the mechanic who works on ones bike, cos ones life may depend on his abilities. Another way of making money as a workshop is to offer makers becoming their service partner, BUT (a big one for a reason) at the conditions they set-up, not the ones the makers did force on them. Cos the only thing makers can´t do themselves is to provide service, repair etc.. Gone rid of having to pay for marketing, store-designs just to match makers corporate identity and lots of other stuff, former dealers would have a much better and profitable life. Consumers would also benefit – cos now they are no longer the customer of the dealer but the one of the maker. No more “can´t do, cos maker doesn´t …” when it comes eg. to warranty claims or alike. Customers also become much more powerful and influential in regards to model policy etc., cos if a maker doesn´t deliver, he´ll lose business and be soon out of. Oh and best of all – no more hiding behind anonymous call-center agents and e-mail addresses – they´ve to show their faces and names along with contact details. Makers (if clever enough) can be much closer to the market and bring models and features really wanted, no guessing anymore, direct feedback, direct input, shorter reaction times on market demand (see Royal Enfield doing it already). No more bikes not demanded by the market means better use of R&D and financial resources, planning of production etc.. Definitely a change in the business but one with some improvements beneficial for all involved.

    Liked by 1 person

    • MotoADVR says:

      There are certainly dealers only concerned about making their next buck. There are customers with no loyalty. However, there are still a great number of customers with brand loyalty; that loyalty may or may not be extended to dealers for a host of factors. For the record, I agree with you, but there are many different flavors of customer. I’m also really glad you spoke about service. I’m pretty frugal, so I started working on my own bikes a long time ago. That behavior was reinforced by the horror stories I heard from friends regarding their experience with various service departments around town. To both of our points, local businesses better tighten up their service departments or they’ll have nothing left to sell.

      Liked by 1 person

  3. Simon says:

    A lot of excellent points to ponder. My own experiences with motorcycle dealers in the UK and in Italy vary but mainly I remain faithful to my UK dealer and his brand (Yamaha) but I also purchase some used Yamahas and Hondas through him. He has never supplied me with anything but good bikes backed up by his warranty which I have never had to use.

    Liked by 1 person

    • MotoADVR says:

      This is definitely a lot of fortune telling on my part, but direct to consumer sales has been surging for years now; which has been forcing dealers to hone their “value added” skills, because anyone can now sell “stuff”. Covid hit pause on that for a second… and now we’re back at it… and people learned new skills during covid. It’s gonna be interesting and stressful going foward.

      Like

      • TheQ says:

        Hmm, so I´m the only one who is not savy doing maintenance myself and buys pre-owned from private owners 🙂 To my defense I´m loyal to the mechanic working on my bikes to the point that I make sure he isn´t on vacation, ill or otherwise occupied. However, I recently spoke with the sales manager of this Triumph / KTM dealer and we agreed that he´s better off when i don´t buy a bike from him. Given the margin left after he paid for everything else, he makes more money with my service bills, tires and accessories i bought from him.

        Like

  4. DMK says:

    From what I can see working in the industry with brands, dealers and a distributor, there is some squeeze in this economic environment and there is some increase in direct-to-consumer marketing. However the demand for machine service in powersports remains strong, and therefore the demand for parts and accessories remains strong as well. The dealers with the best service departments will thrive.

    Dealers cannot carry every part for every year of every machine, so the need for JIT distribution companies with mass warehousing also remains. The pressure is concentrated within discretionary items such as apparel, while the “must-have to ride” items such as hard parts and batteries remain steady. Therefore if these businesses invest in the right areas and do good service work, they are likely to do OK for the foreseeable future while the ones who don’t adjust will suffer. In terms of macro business cycles, it’s healthy for the industry long term. Most of the powersports “stuff” you buy online is still being sold by dealers who added online sales to their business plan, for example, which is a great example of invention from necessity.

    Like

  5. MotoADVR says:

    This is interesting news from the car market. It will be interesting to see how this shakes out.

    Like

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