With no fanfare at all, Shimano has reduced wholesale pricing on many products sold to independent bike shops (IBDs) in North America. It’s unclear at this point if there will be reductions elsewhere. The numbers are apparently impressive with price drops at retail level of up to 40%. An example cited by Bicycle Retailer is XT front brakes dropped from a retail price of US$159.99 to $118.99 – a 26% reduction. Apparently everything above SLX will see a price drop. Other factors that could be contributing, as noted by Bicycle Retailer, were the strength of the US dollar versus the Japanese Yen and a 20% drop in the price of aluminum over last year.

Rumours suggest this move was made to support bike shops struggling to compete with online retailers. If an online shop owns a bike brand, like Chain Reaction’s house brand, Nukeproof, they are able to buy full Shimano groups at OE prices, a significant discount when compared to wholesale. Some of these groups are broken up and sold at deep discounts online. IBDs complained that Chain Reaction and others were often able to sell Shimano product for the price they paid for it at wholesale. This has been going on for years at a smaller scale, but with more consumers looking online for deals, it was becoming a larger problem.

I spoke to Rob Venables, owner of Dunbar Cycles, one of Vancouver’s oldest shops, about the impact; “It was digging into our business big time. All of Shimano was being sold to companies overseas.” You might argue that this is simply how business works, and it’s something retailers should learn to live with, but Rob sees it differently.

IBDs see a cost to this, and it’s possible Shimano does as well. Rob continued, “Shimano has taken necessary steps because if they have two or three shops around the world the sport doesn’t grow. All those things that local shops do to ensure growth, like shop rides and supporting local races, events and racers. Without them new people won’t get into the sport. In the big picture fuelling this one engine (online retailers) isn’t going to contribute to long-term growth as a company. In order for their business to grow they need everyone to be successful.”

Another issue is that shops and distributors have to pick up the tab for online retailers when there are warranty or service issues. Rob gives this example; “If the local distributor spends 50g doing warranty for Chain Reaction-sold product then prices are going to go up at every level. Shimano is taking logical first steps to counteract this.”

According to Rob, Chain Reaction poaches customers from IBDs in very calculated ways. “Chain Reaction will spend a ton of money on Google ads to target local areas. They show up on our web site. Shimano should notice that more than anyone because they are a global company.” Dunbar has a strong online presence and they could use this strategy as well but for Rob that’s not fair play. “Because we are an online retailer we see some flack as well but we don’t put ads outside areas where we contribute to the sport. Otherwise we’re no better than they are. We have a huge advantage with the dollar right now so if I was to pump money into ads in Washington it would pay off, but we’re not doing that. We’re not going to take away from what those guys are trying to build.”

Retailers carrying a lot of Shimano product have had that inventory instantly devalued, but the shop owners I spoke to, like Kim Steed of Steed Cycles, weren’t worried. “We stayed pretty clean on inventory so we don’t have a ton of overstock.” Running a tight ship is important for bike shops. In Canada the average margin on goods sold is 35%. That may sound generous but if you consider that the cost of sales for staffing, rent, and everything else runs at 33% on average, that leaves just 2% profit over the course of a year.

One shop owner I spoke to had a different take on the situation. James Wilson of Obsession:Bikes recently visited Shimano factories in Japan and Malaysia and he’s the kind of person who talks to everyone. While he didn’t deny the other factors that may have contributed to the reductions, his feeling was that this was likely a play for market share over SRAM in the after market, where Shimano already enjoyed a price advantage in many cases.

The good news is that riders are getting a bit of a breather for once. And hopefully this will spread and lead other manufacturers to reduce margins some so everyone’s riding buddies can get more bike parts for every dollar spent. More new stuff is the most likely outcome for most riders, because mountain bikers rarely seem to spend less money than the year before.

Shimano doesn’t comment on pricing and no official announcement of these changes was made. Most retailers learned of the new pricing through their Shimano sales reps.

Does this change your attitude about supporting your local shop?