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MAP loopholes (like the thomanmusic.com example you mentioned) have killed brick and mortar retail. Some of those prices you're paying from those European outle

MAP loopholes (like the thomanmusic.com example you mentioned) have killed brick and mortar retail. Some of those prices you're paying from those European outlets are less than the local retailer can buy it wholesale. So you're asking your local retailer to lose money to make the sale. I owned a bike shop and sporting goods store in a past life (I've written about it here: http://www.sciencerocketry.com/blog/great-work-and-new-beginnings http://www.sciencerocketry.com/blog/great-work-and-new-begin...) and the effects of Shimano's inability (or really, refusal) to control pricing from its European distribution was catastrophic to my business and my peers. And not only that, I found that many of those sellers would defraud customs on expensive items by declaring the value just under thresholds that would result in them paying import taxes and tariffs. It was a profit destroyer for us but Shimano moved units, and that's all that mattered to them. When some of those parts customers purchased from Chain Reaction or Wiggle or whatever didn't work, the customers who bought those parts overseas would come into our shop asking us to handle the warranty process. We were a Shimano dealer, after all! If we politely refused or tried to collect a handling charge, we were the ones that would face the customer's outrage. The end result is that there is less sales tax in your community because of the absence of that brick and mortar retailer. There are fewer jobs. There are fewer local communities built around hobbies, crafts, trades, or whatever. But you can get products cheaper and your dollars have greater purchasing power. Maybe that's a worthwhile trade-off - YMMV.

alistairSH 6y ago
But what is causing the prices in US and EU to vary so much? Im a cyclist, and even with a race team discount, the EU prices are often 10% lower than through my LBS. Are Shimano and others just gouging in the US market because they can (and damn the impact on local retailers)?
- ohmaigad 6y ago
  Maybe the fact that EU has VAT? The final consumer price might be the same in US and EU but manufacturer can charge US retailers more because the sales tax is small compared to VAT.
  - TheOtherHobbes 6y ago
    I'm curious about relative tariffs. If I buy an expensive custom modular synthesizer from the US, I'm going to get hit with import duties as well as VAT. As a business owner I can claim back the VAT, but the import duties are a non-trivial and non-recoverable extra. If buy a synthesizer from Thomann in the EU, I can also claim back the VAT. And there are no import duties - at least until January 2021 in the UK. So the final cost for a UK business buyer is 20% less than the nominal price. Does the US charge import tariffs on these items? I have no idea. But if it does, that would explain some of the differences. And it usually works the other way. The standard price in pounds for US tech sold in the UK is 1:1 with the US dollar price. The base iPhone 12 Pro Max is $1099 in the US. In the UK it's £1099, which is more than $1400. Even without VAT it's more than $1200. In Spain it's €1259, which is closer to $1500.
    - rahimnathwani 6y ago
      Don't forget state+city sales tax. In San Francisco that adds 8.5%.
    - Scoundreller 6y ago
      That US$1099 in the US is usually increased by 5-8% for sales tax. https://en.wikipedia.org/wiki/Sales_taxes_in_the_United_States https://en.wikipedia.org/wiki/Sales_taxes_in_the_United_Stat... Duties are another funny thing. At least in Canada, bike stuff from China has variable duties: > Importing a complete, assembled bicycle will cost you 13 per cent in duty. If you're just bringing the frame in, that's a five per cent tariff, and if you're importing complete wheels, there's a 6.5 per cent tariff. So, if you import tires and rims separately (even in the same package), there's no tariff! Frame + other parts, and you only pay on the frame. https://www.cbc.ca/news/canada/british-columbia/what-you-need-to-know-about-bicycle-tariffs-1.5071380 https://www.cbc.ca/news/canada/british-columbia/what-you-nee...
- trentnix 6y ago
  It's a number of different things that contribute: - It's common for global manufacturers to sell products at different prices depending on regional market conditions. So EU distributers may get better pricing than US distributers. - Some retailers may be able to purchase products cheaper because of volume or preferential relationship. - Most commonly, the products beings old are actually OEM products originally sold at a significant discount to a bike brand (who have massive minimums, arbitrary product mix requirements - think a mountain bike brand buying road parts because that's the "package" Shimano sells to get favorable pricing, and big incentives to prevent them from purchasing from SRAM or some other parts manufacturer). The bike brand takes its excess parts and sells them "under the table" to a retail outlet (that they may have actually discretely partnered with at the outset). My opinion is that yes, Shimano, specifically, doesn't care about brick and mortar retailers. Shimano considers it a relic of the past and are partially unaware (or apathetic) of the reality that their actions and distribution model is accelerating the death of the brick and mortar shops. That said, Shimano USA might care about US brick-and-mortar retailers, but they don't have enough influence to prevent Shimano Global (Japan) to affect any real change. Shimano has seen steady growth, so they have no incentive to change. But that growth has been at the expense of the very partners that played a significant role in helping them gain market dominance. I'm generally of the opinion that, at least in the bike industry, the shops and online outlets selling massive volume at discount aren't really in any better financial shape than their mom and pop competitors. When I first got into the industry I was regaled with stories of success of competitors like The Clymb and how they were 'killing it'. Turns out, the only thing they were killing was themselves. The Clymb, despite assurances of their brilliance, sold back in 2015 for $100,000 despite millions and millions in sales (the buyer assumed 18.5MM in debt) - https://www.oregonlive.com/silicon-forest/2016/01/the_clymb_emerging_portland_ou.html https://www.oregonlive.com/silicon-forest/2016/01/the_clymb_...
  - lumost 6y ago
    Reading this, I do wonder how long any middlemen will last in the age of the internet. Manufacturers don’t sell direct for a variety of reasons that steadily become less compelling as the costs and complexity of shipping, advertising, and retail management fall. How long before non tech firms follow the path of tech firms and sell direct?
- michaelt 6y ago
  > But what is causing the prices in US and EU to vary so much? In the UK (and perhaps other parts of Europe) manufacturers aren't allowed to force retailers to sell at a particular price. The manufacturer can 'recommend' a price (or indeed print a price on the package) but the retailer can sell for whatever price they want [1] Any binding 'minimum advertised price' or 'resale price maintenance' agreement would be price fixing, violating competition law. [1] https://www.gov.uk/government/publications/resale-price-maintenance-advice-for-retailers/resale-price-maintenance-advice-for-retailers https://www.gov.uk/government/publications/resale-price-main...
  - lotsofpulp 6y ago
    As far as I know, it’s the same in the US. But a manufacturer can make a deal with a seller to not advertise lower than a certain price. Hence if you go to a retailer’s website, they might say you have to add the item to the cart to see the price.
    - michaelt 6y ago
      An agreement not to advertise an item lower than a certain price would be illegal in the UK, as indirect price fixing.
      - deleted 6y ago
        [deleted]
- notatoad 6y ago
  ChainReaction owns the bike brands Vitus and Nukeproof, so they're able to purchase whole groupsets from shimano at OEM pricing which is a massive discount over retail price. It's not the US market that is getting shafted by shimano, it's the entire retail components market. I've even seen groupsets in boxes on the shelf at bike shops, priced higher than bikes on the showroom floor with that same groupset installed. And somehow the bike retailers get furious at their own customers for seeking out the lower-priced options, instead of being furious with shimano for ripping them off.
  - trentnix 6y ago
    I assure you, there is plenty of outrage directed at Shimano, over many years. And little has changed. Any retailer that is furious at their customers is misdirecting their anger, for sure. The customer would be a fool not to seek the lower-priced option.
  - skeeter2020 6y ago
    >> able to purchase whole groupsets from shimano at OEM pricing which is a massive discount over retail price. This is false (unfortunately); while CR/Wiggle does sell their own bikes with Shimano builds this is no different than any other bike manufacturer, yet the trek or specialized at your LBS is still significantly more. You cannot purchase any Shimano parts at Chain Reaction.
    - notatoad 6y ago
      >You cannot purchase any Shimano parts at Chain Reaction. this is a relatively recent development, you could last year. i'm not sure if they've clamped down globally or just stopped shipping to north america. >this is no different than any other bike manufacturer it's different in that CR is a retailer as well as a manufacturer. I assure you that even if the situation has changed recently, they definitely were selling off their OEM parts. it wasn't some sneaky thing, they were literally advertising what they were doing.
S_A_P 6y ago
I think you are highlighting the main issue- either these companies like Shimano are subsidizing artificially low prices abroad with US MAP/wholesale prices or they are behaving in a dealer hostile manner. The net result is US brick and mortar retailers are screwed.
rienbdj 6y ago
Thanks for this comment. Very interesting. I think Wiggle and Chain Reaction have now merged, but both are struggling. I was wondering if you could explain why bike components are so expensive in the first place? For example, why can a bicycle, which is mechanically quite simple, cost as much as a motorbike or small car? Is this a patent situation?
- bluGill 6y ago
  Volumn, bikes just don't sell enough to pay off the engineering that goes into them without high prices.
- C19is20 6y ago
  I don't purchase as much due to global events - I need the cash in my pocket. My cycling purchases used to be top end, really top end, but now I can go for a ride in a pair of regular shorts just as well as €80 ones. And I feel such a dick for blowing so much, so unnecessarily. Equally, thanks to various YouTubers (Hambini, Durianrider etc) - it's all a scam, anyway. I'm glad I woke up. Sorry lbs, and online stores, but it's back to basics for this non-pro.
  - trentnix 6y ago
    I'm familiar with Hambini - and his bravado is well ahead of his actual knowledge. I'm not familiar with Durianrider. I can say this with confidence - the bike industry isn't built on a scam. There are scammers within it (like any other industry) but the established brands are not scamming you with their higher priced offerings. They may be wrong about some of the benefits they believe they are offering, but it's not a scam. It sounds mostly like your cost-value threshold has changed. And that's fine. But that €80 pair of shorts - if it comes from a reputable brand - actually does offer some benefits and advancements that a few consumers find valuable. When I read a comment like yours it sounds like someone lamenting that people purchase high-end GPUs. Sure, nobody needs 4k graphics at 120 fps, but there's a market for it anyway.
- trentnix 6y ago
  I'm probably being a bike industry apologist when I say this, but I think maybe you don't appreciate how complex some of the parts and materials used in bikes are. The quality of the manufacturing and materials is outstanding. Also, the bike company doing research and development to design a frame, prescribe a carbon layup for that frame, service and warranty that frame, and distribute that frame is only going to sell 4-figure and sometimes 5-figure numbers of those frames on complete bikes. My general understanding of the economics on the product side of the bike business (which isn't as deep as my understanding of the retail side) is that the manufacturers aren't making much money either. They've got lots of hands in their pockets, a lot of pricing pressure thinning margins, and a low barrier of entry for new competition in the marketplace. In regards to Chain Wiggle, I'm not surprised they are struggling. The graveyard is full of businesses that won on price and their is no business strategy easier to emulate than being the price leader.
gedy 6y ago
I feel for you- I have a family member running a medical supply retail store, and the people who use it to showroom their online purchases and act like they've caught a shyster because of a 10-15% price difference is maddening. Amazon, etc doesn't walk people through models, usage, fitting, etc. Then folks pontificating about how they need to "innovate" in the face of huge corps selling less than they can buy wholesale..
- trentnix 6y ago
  Oh yeah, bike retailers have seen their fair share of exhortations to "innovate". And that's why some of them tried opening coffee shops or brewing beer or hiring consultants to help them create better merchandising to "reach female buyers that like to shop" and ways to spend your money with no return. Why manage one struggling business (your bike shop) when you can manage two struggling businesses (your bike shop and your coffee shop)! Really, retail has largely been gamed past the point of no return. "Win the Holidays", as Best Buy put it a few years ago. Consumers evangelize their hookup, not their service experience. Maybe bike consumers don't need the support and service the bike business traditionally offered. Camera stores are gone, but camera sales have never been better. Cameras are better and more accessible than ever before, too. Maybe the bike business will follow the same path. Time will tell. EDIT: Funny enough, cameras are still subject to MAP and it is generally enforced fiercely.
  - hug 6y ago
    All camera sales are in steep decline year on year, assuming you’re ignoring smartphones. The compact camera market is essentially dead, no one is making DSLRs in the future, and the mirrorless market is shrinking.
    - trentnix 6y ago
      My anecdote must be then, at best, a few years old. But I am continually amazed at the quality of the cameras available both in my phone and in standalone cameras. Innovation continues even though the market has radically changed.
enriquto 6y ago
> ...have killed brick and mortar retail. There's still a lot of brick and mortar retail, and it does not seem to be disappearing, but it is not really about re-distributing the goods anymore, but mostly about paid support. For instance, a lot of bike shops in my area are turning into repair and assembly workshops, where you are welcome to bring the bike that you bought cheaply from an online retailer and they help you assemble and adjust it. I guess the earnings for that usage are much larger than for re-distribution, since 100% of what the client pays is directly for the shop. EDIT: also, I have issue on the fact that you call buying cheapest goods a "loophole". There's nothing wrong about it in an efficient market.
- trentnix 6y ago
  I've seen similar conversions to service-only, and I'll just say that service was a loss leader for us. We never found our service department to be profitable on service alone. Some of it was the complexity of the type of bikes we services (high-end, aero-focused bikes) and some of it was because service pricing has largely been subsidized by healthy margins on parts sales. The service-only shops will never be anything more than cozy lifestyle businesses. And a few of those that own service-only shops actually live in the business to make ends meet.
  - enriquto 6y ago
    Maybe the high-end segment is too niche. But if there are hundreds of thousands of bike commuters in your urban area, you need quite a lot of service shops. Right now they seem to be over-saturated and give you a rdv mid-january if you ask. It would seem that things are going quite well for them! I recently bought a new bike in one of those shops and it essentially amounted to the seller buying the bike online from his laptop in front of me. Not sure what you mean about "cozy lifestile business", but is seems great, especially if it allows to make ends meet.
    - sfkdjf9j3j 6y ago
      In U.S. cities it's more like thousands or tens of thousands of bike commuters (during good weather), but commuter bikes are either rented from bikeshares or are junkers that get replaced for a couple hundred dollars from time to time. If any market has customers, it's high end.
gusmd 6y ago
Then the solution is not for Shimano to enforce MAP overseas, but to instead stop enforcing it in the States. "MAP loopholes" haven't killed your business, MAP has.
- trentnix 6y ago
  The playing field is still unlevel - those overseas retailers don't pay sales tax and are still getting the products cheaper than they are made available to US retailers. The US government even subsidizes some overseas shipping, making it more affordable for overseas retailers to reach a US audience!
  - prepend 6y ago
    > cheaper than they are made available to US retailers Seems like addressing this problem is important. Why is wholesale cheaper in Europe than the US?
  - phaker 6y ago
    MAP agreements are illegal in EU. They were specifically banned, and for good reason. Which is why calling Shimano's stance a "refusal" to deal with some problem gets you a negative response. Still, feel you on the retail apocalypse, and how every other new internet darling can somehow skirt taxes or... and the problem is unfixable until right after it doesn't matter anymore. It took something like twenty years for Amazon to start paying US sales taxes most of the time, in many cities Uber's business model was price dumping etc.
    - trentnix 6y ago
      Apple and Garmin manage to successfully enforce MAP. Nintendo, Sega, and Sony before them. Parallel Import Law is the means they use to do so. Shimano could, were they willing, use Parallel Import laws to prevent European retailers from selling those products in the American market. They've chosen not to. So whether one likes hearing it called a "refusal" or not, I think that's what it is.
- adrr 6y ago
m0zg 6y ago
I don't get why bikes are so crazy expensive. Maybe you can elucidate. How can a bicycle cost $3-5K? What's in it that costs so much? This is not a US-only phenomenon either, I just checked e.g. UK Bikester store and the prices are pretty nutty there as well. It's just a few pieces of metal welded together by robots in China, how can it be $5K?
- howlgarnish 6y ago
  Bikes that are a few pieces of metal welded together by robots in China go for $100 at Walmart. Carbon fiber bikes that you can lift with your pinky and use to hurtle down a mountain road in the French Alps can be well north of $10,000.
deleted 6y ago
[deleted]
Bayart 6y ago
>the effects of Shimano's inability (or really, refusal) to control pricing from its European distribution was catastrophic to my business and my peers. MAP is outright illegal in the EU.
titzer 6y ago
This sounds like one of the oft-overlooked knock-on effects of globalization and long supply chains. Lots of tariff quackery and a whole lot of risk and uncertainty for sourcing. It all ends up funneling money away from local businesses and governments. Even if it helps consumers by making goods a smidgen cheaper, what good is it if money ultimately leaves the local economy? Multiply your experience by a million and stretch it out over decades, and this is middle America getting sucked dry.
- S_A_P 6y ago
  Well stated.
- kortilla 6y ago
  There are two conflicting things at play there. Middle America is getting sucked dry on the manufacturing side because of uncompetitive costs. The knee jerk reaction of the government is then to address this with tariffs, which then results in the local retail industry getting sucked dry as well because they can’t compete with tariff bypass loopholes.
  - ehvatum 6y ago
    There are steel mills down the road from my manufacturing business that were shuttered for decades and reopened when the tariffs came into effect. They were not competitive with Chinese government sponsored steel, that much is true. It’s extremely nice for me that they came back online; they order out of production precision parts from me for their heavy equipment. I’m located just across the river from St. Louis. This is middle America. Most of my consumer products are sold directly, online, but I also sell titanium weed pipes to a local chain. COVID definitely slowed retail sales. I looked into getting my motorcycle parts onto big corporate retail shelves, but the margins are tight. I’m working on that. Business has been good, so I can afford to try new things. Cutting blanks with plasma rather than waterjet and milling steel with air blast rather than coolant, together, might make big box retail rational, for me. The economics of manufacturing: extremely multi-faceted. There is a tendency for successful manufacturers to allow costs to escalate until flexibility is gone. Their employees unionize. Management borrows against the future. Then, the market changes. It’s a rough game. I chuckle when people talk about the right to a job. Sure; that can work if I have a right to sales.
chrisweekly 6y ago
MAP -- Manufacturer's Authorized Price? Minimum Advertised Price? ...?
- mjrpes 6y ago
  Looks to be Minimum Advertised Price: https://www.thebalancesmb.com/what-is-minimum-advertised-price-2890196 https://www.thebalancesmb.com/what-is-minimum-advertised-pri...
- Semaphor 6y ago
  Thank you! The term is ungoogleable for obvious reasons and "MAP loophole" finds this thread.
  - CincinnatiMan 6y ago
    Searching for "map price" gives me the definition right away. :)
    - chrisweekly 6y ago
      "the" definition -> "a" definition it's still unclear which of the 2 acronyms I cited was the intended one.
Glyptodon 6y ago
Shouldn't you blame producers for practicing price discrimination by nationality before anyone else though?
krzyk 6y ago
> effects of Shimano's inability (or really, refusal) to control pricing from its European distribution Why should they control pricing, or why any producer should control pricing in stores?
- GoatOfAplomb 6y ago
  It looks to me like trentnix already provided their answer to this question, by stating what happens when the producer doesn't control pricing: "The end result is that there is less sales tax in your community because of the absence of that brick and mortar retailer. There are fewer jobs. There are fewer local communities built around hobbies, crafts, trades, or whatever. But you can get products cheaper and your dollars have greater purchasing power. Maybe that's a worthwhile trade-off - YMMV." I'm not here to claim that the answer is convincing (or not), but I think it does qualify as an answer to your question.
- trentnix 6y ago
  The first major reason is that price controls influence and protect perception of value. The primary means a consumer uses to assess value when comparing product options is price. Lots of brands (particularly of the premium but still mainstream variety) such as Apple, Garmin, and Nintendo use price controls to influence the buyer's perception of value. Do you think that an iPad is never on sale because no retailer is willing to put it on sale? Do you think a Nintendo Switch is never on sale because no retailer is willing to mark down the price? There is always a retailer willing to undercut the rest in pursuit of a sale. Some retailers are even willing to do so in a predatory way, willing to absorb losses until the competition is eliminated or in pursuit of add-on sales that might help recoup lost margin. But those brands strictly enforce the prices their products can be advertised and sold at because it helps maintain the customer's perception that their products are valuable and in demand. Products in bike shops are almost always considered "premium". They don't sell the big box $100 bikes and cheap parts. They typically sell higher quality products targeted at aspiring enthusiasts or enthusiasts. So a price control is exactly how you can differentiate your product from the cheap schlock on the shelves at Wal-Mart or even Academy and Dick's Sporting Goods. The second major reason is because (although this benefit has diminished over time) having products on store shelves provides enormous marketing benefit. Most customers that walked into my store didn't come in knowing explicitly what they wanted. Many of them had done some research to be generally aware of their options, but our recommendations were often a massive influence in their purchasing decision. Bike, component, and apparel brands were often pretty myopic when it came to their marketing efforts (and that's why they are always exactly the same from brand-to-brand). They genuinely thought the average consumer in the market for an entry-level carbon bike (say 1500-2000 USD) was influenced by having a Tour de France team or having some great rider win races on their bike. While that sometimes made a different at the prosumer level, the meat-and-potatoes bike shop customer isn't influenced one bit by that type of marketing. But seeing an attractive bike at a compelling price on the floor of a reputable bike shop is how most sales begin. So brands making sure retailers can be profitable selling those options is essential or retailers won't bother stocking their stuff. If the bike shops can't be profitable, there will be fewer bike shops. And that means there will be fewer opportunities for customers to see you brand and your products. And it also means there will eventually be fewer riders - at least among bike enthusiasts. Because in my experience, bike shops are the hub of bike culture in most communities.
codemusings 6y ago
Well for what it's worth: Thomann started out as and still is a Brick and Mortar Store. In fact it used to be quite the Mom&Pop Shop makin sales in the founder's living room that doubled as a show floor. They however were excellent at expanding into online sales (in roughly the same timeline as Amazon) and became Europe's largest online retailer. So one could argue that Guitar Center not improving their online offerings and maybe cutting back on physical locations had also something to do with it.
newfie_bullet 6y ago
Sorry your business didn't flourish like you had hoped but I enjoyed your blog post. I always wondered how my experiences in software development and marketing would work in a more traditional business and if it would make things way easier/better/worse. Sounds like it would help but there are lots more variables to try and contend with. All the best with your future endeavours!
xster 6y ago
What is the european MAP loophole though? I shop for music gear regularly and don't recall seeing prices listed for lower from european retailers or on platforms like reverb. Even if it was cheaper, shipping was usually inhibitive. Is this really a practical loophole?

alistairSH 6y ago

But what is causing the prices in US and EU to vary so much? Im a cyclist, and even with a race team discount, the EU prices are often 10% lower than through my LBS. Are Shimano and others just gouging in the US market because they can (and damn the impact on local retailers)?

ohmaigad 6y ago
Maybe the fact that EU has VAT? The final consumer price might be the same in US and EU but manufacturer can charge US retailers more because the sales tax is small compared to VAT.
- TheOtherHobbes 6y ago
  I'm curious about relative tariffs. If I buy an expensive custom modular synthesizer from the US, I'm going to get hit with import duties as well as VAT. As a business owner I can claim back the VAT, but the import duties are a non-trivial and non-recoverable extra. If buy a synthesizer from Thomann in the EU, I can also claim back the VAT. And there are no import duties - at least until January 2021 in the UK. So the final cost for a UK business buyer is 20% less than the nominal price. Does the US charge import tariffs on these items? I have no idea. But if it does, that would explain some of the differences. And it usually works the other way. The standard price in pounds for US tech sold in the UK is 1:1 with the US dollar price. The base iPhone 12 Pro Max is $1099 in the US. In the UK it's £1099, which is more than $1400. Even without VAT it's more than $1200. In Spain it's €1259, which is closer to $1500.
  - rahimnathwani 6y ago
    Don't forget state+city sales tax. In San Francisco that adds 8.5%.
  - Scoundreller 6y ago
    That US$1099 in the US is usually increased by 5-8% for sales tax. https://en.wikipedia.org/wiki/Sales_taxes_in_the_United_States https://en.wikipedia.org/wiki/Sales_taxes_in_the_United_Stat... Duties are another funny thing. At least in Canada, bike stuff from China has variable duties: > Importing a complete, assembled bicycle will cost you 13 per cent in duty. If you're just bringing the frame in, that's a five per cent tariff, and if you're importing complete wheels, there's a 6.5 per cent tariff. So, if you import tires and rims separately (even in the same package), there's no tariff! Frame + other parts, and you only pay on the frame. https://www.cbc.ca/news/canada/british-columbia/what-you-need-to-know-about-bicycle-tariffs-1.5071380 https://www.cbc.ca/news/canada/british-columbia/what-you-nee...
trentnix 6y ago
It's a number of different things that contribute: - It's common for global manufacturers to sell products at different prices depending on regional market conditions. So EU distributers may get better pricing than US distributers. - Some retailers may be able to purchase products cheaper because of volume or preferential relationship. - Most commonly, the products beings old are actually OEM products originally sold at a significant discount to a bike brand (who have massive minimums, arbitrary product mix requirements - think a mountain bike brand buying road parts because that's the "package" Shimano sells to get favorable pricing, and big incentives to prevent them from purchasing from SRAM or some other parts manufacturer). The bike brand takes its excess parts and sells them "under the table" to a retail outlet (that they may have actually discretely partnered with at the outset). My opinion is that yes, Shimano, specifically, doesn't care about brick and mortar retailers. Shimano considers it a relic of the past and are partially unaware (or apathetic) of the reality that their actions and distribution model is accelerating the death of the brick and mortar shops. That said, Shimano USA might care about US brick-and-mortar retailers, but they don't have enough influence to prevent Shimano Global (Japan) to affect any real change. Shimano has seen steady growth, so they have no incentive to change. But that growth has been at the expense of the very partners that played a significant role in helping them gain market dominance. I'm generally of the opinion that, at least in the bike industry, the shops and online outlets selling massive volume at discount aren't really in any better financial shape than their mom and pop competitors. When I first got into the industry I was regaled with stories of success of competitors like The Clymb and how they were 'killing it'. Turns out, the only thing they were killing was themselves. The Clymb, despite assurances of their brilliance, sold back in 2015 for $100,000 despite millions and millions in sales (the buyer assumed 18.5MM in debt) - https://www.oregonlive.com/silicon-forest/2016/01/the_clymb_emerging_portland_ou.html https://www.oregonlive.com/silicon-forest/2016/01/the_clymb_...
- lumost 6y ago
  Reading this, I do wonder how long any middlemen will last in the age of the internet. Manufacturers don’t sell direct for a variety of reasons that steadily become less compelling as the costs and complexity of shipping, advertising, and retail management fall. How long before non tech firms follow the path of tech firms and sell direct?
michaelt 6y ago
> But what is causing the prices in US and EU to vary so much? In the UK (and perhaps other parts of Europe) manufacturers aren't allowed to force retailers to sell at a particular price. The manufacturer can 'recommend' a price (or indeed print a price on the package) but the retailer can sell for whatever price they want [1] Any binding 'minimum advertised price' or 'resale price maintenance' agreement would be price fixing, violating competition law. [1] https://www.gov.uk/government/publications/resale-price-maintenance-advice-for-retailers/resale-price-maintenance-advice-for-retailers https://www.gov.uk/government/publications/resale-price-main...
- lotsofpulp 6y ago
  As far as I know, it’s the same in the US. But a manufacturer can make a deal with a seller to not advertise lower than a certain price. Hence if you go to a retailer’s website, they might say you have to add the item to the cart to see the price.
  - michaelt 6y ago
    An agreement not to advertise an item lower than a certain price would be illegal in the UK, as indirect price fixing.
    - deleted 6y ago
      [deleted]
notatoad 6y ago
ChainReaction owns the bike brands Vitus and Nukeproof, so they're able to purchase whole groupsets from shimano at OEM pricing which is a massive discount over retail price. It's not the US market that is getting shafted by shimano, it's the entire retail components market. I've even seen groupsets in boxes on the shelf at bike shops, priced higher than bikes on the showroom floor with that same groupset installed. And somehow the bike retailers get furious at their own customers for seeking out the lower-priced options, instead of being furious with shimano for ripping them off.
- trentnix 6y ago
  I assure you, there is plenty of outrage directed at Shimano, over many years. And little has changed. Any retailer that is furious at their customers is misdirecting their anger, for sure. The customer would be a fool not to seek the lower-priced option.
- skeeter2020 6y ago
  >> able to purchase whole groupsets from shimano at OEM pricing which is a massive discount over retail price. This is false (unfortunately); while CR/Wiggle does sell their own bikes with Shimano builds this is no different than any other bike manufacturer, yet the trek or specialized at your LBS is still significantly more. You cannot purchase any Shimano parts at Chain Reaction.
  - notatoad 6y ago
    >You cannot purchase any Shimano parts at Chain Reaction. this is a relatively recent development, you could last year. i'm not sure if they've clamped down globally or just stopped shipping to north america. >this is no different than any other bike manufacturer it's different in that CR is a retailer as well as a manufacturer. I assure you that even if the situation has changed recently, they definitely were selling off their OEM parts. it wasn't some sneaky thing, they were literally advertising what they were doing.

S_A_P 6y ago

I think you are highlighting the main issue- either these companies like Shimano are subsidizing artificially low prices abroad with US MAP/wholesale prices or they are behaving in a dealer hostile manner. The net result is US brick and mortar retailers are screwed.

rienbdj 6y ago

Thanks for this comment. Very interesting. I think Wiggle and Chain Reaction have now merged, but both are struggling. I was wondering if you could explain why bike components are so expensive in the first place? For example, why can a bicycle, which is mechanically quite simple, cost as much as a motorbike or small car? Is this a patent situation?

bluGill 6y ago
Volumn, bikes just don't sell enough to pay off the engineering that goes into them without high prices.
C19is20 6y ago
I don't purchase as much due to global events - I need the cash in my pocket. My cycling purchases used to be top end, really top end, but now I can go for a ride in a pair of regular shorts just as well as €80 ones. And I feel such a dick for blowing so much, so unnecessarily. Equally, thanks to various YouTubers (Hambini, Durianrider etc) - it's all a scam, anyway. I'm glad I woke up. Sorry lbs, and online stores, but it's back to basics for this non-pro.
- trentnix 6y ago
  I'm familiar with Hambini - and his bravado is well ahead of his actual knowledge. I'm not familiar with Durianrider. I can say this with confidence - the bike industry isn't built on a scam. There are scammers within it (like any other industry) but the established brands are not scamming you with their higher priced offerings. They may be wrong about some of the benefits they believe they are offering, but it's not a scam. It sounds mostly like your cost-value threshold has changed. And that's fine. But that €80 pair of shorts - if it comes from a reputable brand - actually does offer some benefits and advancements that a few consumers find valuable. When I read a comment like yours it sounds like someone lamenting that people purchase high-end GPUs. Sure, nobody needs 4k graphics at 120 fps, but there's a market for it anyway.
trentnix 6y ago
I'm probably being a bike industry apologist when I say this, but I think maybe you don't appreciate how complex some of the parts and materials used in bikes are. The quality of the manufacturing and materials is outstanding. Also, the bike company doing research and development to design a frame, prescribe a carbon layup for that frame, service and warranty that frame, and distribute that frame is only going to sell 4-figure and sometimes 5-figure numbers of those frames on complete bikes. My general understanding of the economics on the product side of the bike business (which isn't as deep as my understanding of the retail side) is that the manufacturers aren't making much money either. They've got lots of hands in their pockets, a lot of pricing pressure thinning margins, and a low barrier of entry for new competition in the marketplace. In regards to Chain Wiggle, I'm not surprised they are struggling. The graveyard is full of businesses that won on price and their is no business strategy easier to emulate than being the price leader.

gedy 6y ago

I feel for you- I have a family member running a medical supply retail store, and the people who use it to showroom their online purchases and act like they've caught a shyster because of a 10-15% price difference is maddening. Amazon, etc doesn't walk people through models, usage, fitting, etc. Then folks pontificating about how they need to "innovate" in the face of huge corps selling less than they can buy wholesale..

trentnix 6y ago
Oh yeah, bike retailers have seen their fair share of exhortations to "innovate". And that's why some of them tried opening coffee shops or brewing beer or hiring consultants to help them create better merchandising to "reach female buyers that like to shop" and ways to spend your money with no return. Why manage one struggling business (your bike shop) when you can manage two struggling businesses (your bike shop and your coffee shop)! Really, retail has largely been gamed past the point of no return. "Win the Holidays", as Best Buy put it a few years ago. Consumers evangelize their hookup, not their service experience. Maybe bike consumers don't need the support and service the bike business traditionally offered. Camera stores are gone, but camera sales have never been better. Cameras are better and more accessible than ever before, too. Maybe the bike business will follow the same path. Time will tell. EDIT: Funny enough, cameras are still subject to MAP and it is generally enforced fiercely.
- hug 6y ago
  All camera sales are in steep decline year on year, assuming you’re ignoring smartphones. The compact camera market is essentially dead, no one is making DSLRs in the future, and the mirrorless market is shrinking.
  - trentnix 6y ago
    My anecdote must be then, at best, a few years old. But I am continually amazed at the quality of the cameras available both in my phone and in standalone cameras. Innovation continues even though the market has radically changed.

enriquto 6y ago

> ...have killed brick and mortar retail. There's still a lot of brick and mortar retail, and it does not seem to be disappearing, but it is not really about re-distributing the goods anymore, but mostly about paid support. For instance, a lot of bike shops in my area are turning into repair and assembly workshops, where you are welcome to bring the bike that you bought cheaply from an online retailer and they help you assemble and adjust it. I guess the earnings for that usage are much larger than for re-distribution, since 100% of what the client pays is directly for the shop. EDIT: also, I have issue on the fact that you call buying cheapest goods a "loophole". There's nothing wrong about it in an efficient market.

trentnix 6y ago
I've seen similar conversions to service-only, and I'll just say that service was a loss leader for us. We never found our service department to be profitable on service alone. Some of it was the complexity of the type of bikes we services (high-end, aero-focused bikes) and some of it was because service pricing has largely been subsidized by healthy margins on parts sales. The service-only shops will never be anything more than cozy lifestyle businesses. And a few of those that own service-only shops actually live in the business to make ends meet.
- enriquto 6y ago
  Maybe the high-end segment is too niche. But if there are hundreds of thousands of bike commuters in your urban area, you need quite a lot of service shops. Right now they seem to be over-saturated and give you a rdv mid-january if you ask. It would seem that things are going quite well for them! I recently bought a new bike in one of those shops and it essentially amounted to the seller buying the bike online from his laptop in front of me. Not sure what you mean about "cozy lifestile business", but is seems great, especially if it allows to make ends meet.
  - sfkdjf9j3j 6y ago
    In U.S. cities it's more like thousands or tens of thousands of bike commuters (during good weather), but commuter bikes are either rented from bikeshares or are junkers that get replaced for a couple hundred dollars from time to time. If any market has customers, it's high end.

gusmd 6y ago

Then the solution is not for Shimano to enforce MAP overseas, but to instead stop enforcing it in the States. "MAP loopholes" haven't killed your business, MAP has.

trentnix 6y ago
The playing field is still unlevel - those overseas retailers don't pay sales tax and are still getting the products cheaper than they are made available to US retailers. The US government even subsidizes some overseas shipping, making it more affordable for overseas retailers to reach a US audience!
- prepend 6y ago
  > cheaper than they are made available to US retailers Seems like addressing this problem is important. Why is wholesale cheaper in Europe than the US?
- phaker 6y ago
  MAP agreements are illegal in EU. They were specifically banned, and for good reason. Which is why calling Shimano's stance a "refusal" to deal with some problem gets you a negative response. Still, feel you on the retail apocalypse, and how every other new internet darling can somehow skirt taxes or... and the problem is unfixable until right after it doesn't matter anymore. It took something like twenty years for Amazon to start paying US sales taxes most of the time, in many cities Uber's business model was price dumping etc.
  - trentnix 6y ago
    Apple and Garmin manage to successfully enforce MAP. Nintendo, Sega, and Sony before them. Parallel Import Law is the means they use to do so. Shimano could, were they willing, use Parallel Import laws to prevent European retailers from selling those products in the American market. They've chosen not to. So whether one likes hearing it called a "refusal" or not, I think that's what it is.
adrr 6y ago

m0zg 6y ago

I don't get why bikes are so crazy expensive. Maybe you can elucidate. How can a bicycle cost $3-5K? What's in it that costs so much? This is not a US-only phenomenon either, I just checked e.g. UK Bikester store and the prices are pretty nutty there as well. It's just a few pieces of metal welded together by robots in China, how can it be $5K?

howlgarnish 6y ago
Bikes that are a few pieces of metal welded together by robots in China go for $100 at Walmart. Carbon fiber bikes that you can lift with your pinky and use to hurtle down a mountain road in the French Alps can be well north of $10,000.

deleted 6y ago

[deleted]

Bayart 6y ago

>the effects of Shimano's inability (or really, refusal) to control pricing from its European distribution was catastrophic to my business and my peers. MAP is outright illegal in the EU.

titzer 6y ago

This sounds like one of the oft-overlooked knock-on effects of globalization and long supply chains. Lots of tariff quackery and a whole lot of risk and uncertainty for sourcing. It all ends up funneling money away from local businesses and governments. Even if it helps consumers by making goods a smidgen cheaper, what good is it if money ultimately leaves the local economy? Multiply your experience by a million and stretch it out over decades, and this is middle America getting sucked dry.

S_A_P 6y ago
Well stated.
kortilla 6y ago
There are two conflicting things at play there. Middle America is getting sucked dry on the manufacturing side because of uncompetitive costs. The knee jerk reaction of the government is then to address this with tariffs, which then results in the local retail industry getting sucked dry as well because they can’t compete with tariff bypass loopholes.
- ehvatum 6y ago
  There are steel mills down the road from my manufacturing business that were shuttered for decades and reopened when the tariffs came into effect. They were not competitive with Chinese government sponsored steel, that much is true. It’s extremely nice for me that they came back online; they order out of production precision parts from me for their heavy equipment. I’m located just across the river from St. Louis. This is middle America. Most of my consumer products are sold directly, online, but I also sell titanium weed pipes to a local chain. COVID definitely slowed retail sales. I looked into getting my motorcycle parts onto big corporate retail shelves, but the margins are tight. I’m working on that. Business has been good, so I can afford to try new things. Cutting blanks with plasma rather than waterjet and milling steel with air blast rather than coolant, together, might make big box retail rational, for me. The economics of manufacturing: extremely multi-faceted. There is a tendency for successful manufacturers to allow costs to escalate until flexibility is gone. Their employees unionize. Management borrows against the future. Then, the market changes. It’s a rough game. I chuckle when people talk about the right to a job. Sure; that can work if I have a right to sales.

chrisweekly 6y ago

MAP -- Manufacturer's Authorized Price? Minimum Advertised Price? ...?

mjrpes 6y ago
Looks to be Minimum Advertised Price: https://www.thebalancesmb.com/what-is-minimum-advertised-price-2890196 https://www.thebalancesmb.com/what-is-minimum-advertised-pri...
Semaphor 6y ago
Thank you! The term is ungoogleable for obvious reasons and "MAP loophole" finds this thread.
- CincinnatiMan 6y ago
  Searching for "map price" gives me the definition right away. :)
  - chrisweekly 6y ago
    "the" definition -> "a" definition it's still unclear which of the 2 acronyms I cited was the intended one.

Glyptodon 6y ago

Shouldn't you blame producers for practicing price discrimination by nationality before anyone else though?

krzyk 6y ago

> effects of Shimano's inability (or really, refusal) to control pricing from its European distribution Why should they control pricing, or why any producer should control pricing in stores?

GoatOfAplomb 6y ago
It looks to me like trentnix already provided their answer to this question, by stating what happens when the producer doesn't control pricing: "The end result is that there is less sales tax in your community because of the absence of that brick and mortar retailer. There are fewer jobs. There are fewer local communities built around hobbies, crafts, trades, or whatever. But you can get products cheaper and your dollars have greater purchasing power. Maybe that's a worthwhile trade-off - YMMV." I'm not here to claim that the answer is convincing (or not), but I think it does qualify as an answer to your question.
trentnix 6y ago
The first major reason is that price controls influence and protect perception of value. The primary means a consumer uses to assess value when comparing product options is price. Lots of brands (particularly of the premium but still mainstream variety) such as Apple, Garmin, and Nintendo use price controls to influence the buyer's perception of value. Do you think that an iPad is never on sale because no retailer is willing to put it on sale? Do you think a Nintendo Switch is never on sale because no retailer is willing to mark down the price? There is always a retailer willing to undercut the rest in pursuit of a sale. Some retailers are even willing to do so in a predatory way, willing to absorb losses until the competition is eliminated or in pursuit of add-on sales that might help recoup lost margin. But those brands strictly enforce the prices their products can be advertised and sold at because it helps maintain the customer's perception that their products are valuable and in demand. Products in bike shops are almost always considered "premium". They don't sell the big box $100 bikes and cheap parts. They typically sell higher quality products targeted at aspiring enthusiasts or enthusiasts. So a price control is exactly how you can differentiate your product from the cheap schlock on the shelves at Wal-Mart or even Academy and Dick's Sporting Goods. The second major reason is because (although this benefit has diminished over time) having products on store shelves provides enormous marketing benefit. Most customers that walked into my store didn't come in knowing explicitly what they wanted. Many of them had done some research to be generally aware of their options, but our recommendations were often a massive influence in their purchasing decision. Bike, component, and apparel brands were often pretty myopic when it came to their marketing efforts (and that's why they are always exactly the same from brand-to-brand). They genuinely thought the average consumer in the market for an entry-level carbon bike (say 1500-2000 USD) was influenced by having a Tour de France team or having some great rider win races on their bike. While that sometimes made a different at the prosumer level, the meat-and-potatoes bike shop customer isn't influenced one bit by that type of marketing. But seeing an attractive bike at a compelling price on the floor of a reputable bike shop is how most sales begin. So brands making sure retailers can be profitable selling those options is essential or retailers won't bother stocking their stuff. If the bike shops can't be profitable, there will be fewer bike shops. And that means there will be fewer opportunities for customers to see you brand and your products. And it also means there will eventually be fewer riders - at least among bike enthusiasts. Because in my experience, bike shops are the hub of bike culture in most communities.

codemusings 6y ago

Well for what it's worth: Thomann started out as and still is a Brick and Mortar Store. In fact it used to be quite the Mom&Pop Shop makin sales in the founder's living room that doubled as a show floor. They however were excellent at expanding into online sales (in roughly the same timeline as Amazon) and became Europe's largest online retailer. So one could argue that Guitar Center not improving their online offerings and maybe cutting back on physical locations had also something to do with it.

newfie_bullet 6y ago

Sorry your business didn't flourish like you had hoped but I enjoyed your blog post. I always wondered how my experiences in software development and marketing would work in a more traditional business and if it would make things way easier/better/worse. Sounds like it would help but there are lots more variables to try and contend with. All the best with your future endeavours!

xster 6y ago

What is the european MAP loophole though? I shop for music gear regularly and don't recall seeing prices listed for lower from european retailers or on platforms like reverb. Even if it was cheaper, shipping was usually inhibitive. Is this really a practical loophole?