Wheels of fortune

Published 29 July 2010 06:29, Updated 09 September 2010 04:15

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Trends are a fickle friend of retailers. For Sydney bike shop Cell Bikes, a strong trend towards pushbike riding has helped its revenue grow by an average of 70 per cent over three years. It reached $6.2 million in June.

But fashions change as fast for cyclists as they do at Flemington racecourse. The latest craze is the fixed (single) gear bike, which is light, durable and easy to handle. When the company was caught out by the craze, stocked with mountain bikes and unable to supply enough fixed-wheel products, it slashed prices to clear stock and introduced some clever marketing ideas to predict new trends.

John Coffey was taking a holiday break from the bicycle shop he owned in Newcastle when he noticed a newspaper ad from Cell Bikes. He called the shop’s founder, Albert Yang. “I could see the potential of the shop,” says Coffey, who is now general manager.

Cell Bikes began life as a corner junk shop selling $2 Chinese imports. Yang, originally from China, found bikes sold fastest and specialised in them. For the past three years, sales of pushbikes have outstripped car sales as concerns about climate change, fitness and the price of petrol have spurred many commuters to leave their cars at home. Yang started to sell on eBay, successfully.

When Coffey joined the business after selling his Newcastle shop, he brought relationships with suppliers built over his 20 years in bike retailing. “Albert had trouble getting suppliers,” he says. “Selling on eBay is still frowned upon. Because of my contacts, I got suppliers on side, and now they are knocking our doors down.”

Yang has the advantage with Chinese manufacturers – knowing the language and the tricks of the trade to have the bikes made according to Cell Bikes’ specifications at prices that undercut competitors. “You can go belly-up easily in the Chinese market,” Coffey says. “There is not much loyalty. They say they are selling only to you and they are selling to your next-door neighbour.”

Coffey wanted to take the company’s products upmarket and away from competing with Kmart prices (about $200 to $300) to entry-level commuter bike prices (usually less than $1000).

The two shifted the shop to its current address in Sydney’s busiest street, Parramatta Road (in Stanmore), changed its name, shifted off eBay to its own e-commerce site, and developed a stronger mechanical service and repairs unit. The average bike sale is now $800 and about 5000 bikes are sold each year.

Sales growth was 43 per cent last year. Coffey says the downturn created more sales. The only big interruption recently was the market’s swing to fixed-gear bikes, leaving Cell Bikes badly overstocked with other types. The lead time for orders is five months for Cell Bikes, with a 30 per cent deposit, so the sudden fad left it in a bad position.

“We were luckier than most,” Coffey says. “The bigger companies bring out models once a year.”

The company responded by slashing prices on mountain bikes to shift stock, straining cash flow to the limit. The strong dollar helped cushion profits, even with the discounted prices. The company has no debt and no overdraft.

To avoid a repeat of the problem, the company started polling the 13,000 subscribers to its e-newsletter on its planned products and their wish lists. “We ask what they would like to see added to our range, and they respond,” Coffey says.

About 40 per cent of revenue comes from online sales, but bike sales over the net are rare. Accessories such as helmets, gloves, lights, bags, bottles and even DVDs are the hot sellers on the net. “People want to come in [for bikes] to see what they are buying. They like to be fitted [for bike size],” he says. However, most customers come in with pages from the website showing the bike they want.

With Sydney, Melbourne and Brisbane all building bike paths using the federal government’s stimulus money, the company sees opportunities to expand interstate. Franchising is one option, with another store in Sydney, then stores in Brisbane and Melbourne by late 2010.

Yang is also considering using investors to fund growth, and Coffey is one of the contenders to buy a share of the business.