The chance of a lifetime: You are asked to start a bike shop. How should it be done?

[Scorp]

Hope Scorp reads this

You'll be happy I did then

And I'd like to point out that there's a big difference between margins being squeezed by external factors, and voluntarily reducing ones own margin. Looks like Robert's are being squeezed by external factors. In that kind of situation, you only really have two choices - reduce costs (which Robert has been forced to do), or increase prices (a tactic that can sometimes work successfully if you can add value at the same time).

Both are steps which are designed to 'increase' margin, not reduce it. Robert has not followed a policy of 'reducing' his margin. On the contrary, he has responded to an external threat by attempting to 'increase' his margins, through cutting costs.

A quick return to the McDonald's example given before:

McDonalds has maintained an operating profit margin of around 24% for the last few decades. Something worth thinking about when you bite into your next Big Mac. Currently, McD's operating margin is a very healthy 25%, despite the recession. They are not reducing margin. They are maintaining it - as this article shows. Flick back a couple of pages and you'll see that I said: "A successful business will maintain margins if possible."

Here's a quote from the above mentioned article:

Who says that you cannot expand profits in a recession? Indeed, McDonald’s is maintaining operating margins in excess of 25% and a net margin of 18%.

Plus, McDonalds operating profit margins are considerably higher than their competitors. These are operating profit figures for 2007.

McDonalds = 24.35%
Burger King = 13.83%
YUM* Group = 12.66%

*YUM includes KFC, Pizza Hut, Taco Bell and Long John Silver.

Food for thought, aye? And an interesting choice of example for you to use to support your idea that it's good business practice to reduce margin.

Personally I think McDonald's margin is verging on obscene. As is their food.


And a word on the Walter A. Forbes example

Walter A. Forbes is someone that all the naysayers should investigate and someone Conquiztador should look at for inspiration: Walter A. Forbes is the founder of Comp-U-Card (CUC international Inc) a business that is exactly what has been invisaged here, Forbes had the seed of an idea in the late 70s and in the 80s made it happen. At the time of the case study I'm quoting from (1998) CUC International Inc had two dozen small operations servicing 68 million people and Forbes had just launched netMarket an electronic superstore offering 250000 brand name products. Against all the bollocks that was set towards his ideas & dreams he's the one laughing in the face of the dinosaurs that said it wouldn't work.

Well, he ain't laughing now. And I'm not sure he should really be much of an inspiration to anyone.

He's a crook.

http://en.wikipedia.org/wiki/Walter_Forbes
http://www.investmentfraudtimes.com/stock/3064.html

And then my final, final word on the subject of profit.

Personally, I think that capitalism (with all it's inherent layers of costs, margin, marketing, dealers, agents, wholesalers, retailers, shippers, shipping agents etc...) is an incredibly inefficient method of distributing goods and services to people. But it is the system we're currently living with. And if you're in business in this system, you have to play by its rules. And rule No. 1 is you have to make a profit to play.

I don't know what Ray Kroc's business philosophy was, but I doubt I share it. I run a small (very small) business. For me, and for most small business people, profit = food, fun and meeting family needs. No profit = shit life. Go back and read my posts and you'll spot the fact that I have never once said that profit is the "be all and end all" either of life, or of business.

All I have ever said, is that when one is in business, and if one wants to be successful at it... then operating profit/profitability... comes first... and all other good things follow.

It may be your dream to run a 100% ecologically sound tourism business...
Or the perfect bike shop...
Or the best blues bar in NZ...

But in order to achieve those fine ideals and live that good life... it is imperative that you trade at an operating profit. Doesn't have to be 24% like McDonalds, or even 12% like KFC. Doesn't even have to be 5%. So long you're profitable - and not losing money. Because in business (sadly) profit must come first. Dreams and ideals (a close) second. Arrange things the other way round, and your dreams will be very short lived.

I really, really hope that I have now made myself clear. Because I honestly doubt you disagree with me on this.

[dipshit]

If you are a motorcycle dealer selling one of the big brands I think you are very much a serf to the distributors requirements, suiting their needs but all too often negatively impacting on your profitability. In turn the distributors are often serfs to the factories. Thats cynical but its the reality.

And this is partly why I personally criticise the motorcycle industry in NZ as being stuck in the 80's from the perspective of a potential customer. Too many in the industry appear to be too self-involved in running their motorcycle business as the old boys network has demanded decade after decade, that they have lost touch with what the customers of today want.

[Robert Taylor]

And this is partly why I personally criticise the motorcycle industry in NZ as being stuck in the 80's from the perspective of a potential customer. Too many in the industry appear to be too self-involved in running their motorcycle business as the old boys network has demanded decade after decade, that they have lost touch with what the customers of today want.

In fairness this all harks back to the ( international ) manufacturers. They are never comfortable sharing showroom space with competing brands, and frankly I understand that. This is the same in every market, the trouble being that in NZ we have a tiny poulation base ( and frankly ) too many dealers.

[dipshit]

In fairness this all harks back to the ( international ) manufacturers. They are never comfortable sharing showroom space with competing brands, and frankly I understand that. This is the same in every market, the trouble being that in NZ we have a tiny poulation base ( and frankly ) too many dealers.

Apparently in the US they aren't so strict on that with multiple major manufacturers under one roof. And now in Australia they may be starting to do similar.

I don't think NZ especially can afford to cling to old business models.

[jasonu]

You will also find that a few business are running their workshop as a separate entity from their retail outlet (and the retail outlet has to pay for any work done by the workshop on retail items ie:bikes) and that the workshop has to sustain itself.

And its not costing $200 an hour.

That is how it works in the town I live in. It is almost like there is a bike dealers with a parts and accesories dept. and next door someone else is running a workshop business.