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Cash in on keystone margins

"We need to make more money," I said to my parts and accessories manager, "and there are two ways to do that — raise prices or lower costs."

Many people might think that the latter is uncontrollable; that the only option a dealership really has is to raise prices. Raising prices in this economy risks flat-lining sales. Sure, you can try to get full pop for your items, but if you’re already at MSRP and you attempt to establish a premium on your products, you’ll likely find that you drive away more business than you can supplement with higher margins­ — especially if you’re in a competitive environment.

That leaves us with scenario number two: lower costs. Now, if I’m buying new vehicles from the manufacturer, I’m kind of stuck. Sure, a couple of years ago you might have found someone with 10 warehouses full of a specific model, and they’d be willing to offer some big incentive to any dealer in the district who might jump. But now, with many manufacturers limiting 2010 production, those days are long gone. Try to get extra incentives out of a manufacturer now, and you’ll likely be contacted to do stand-up comedy at the next dealer convention (except, they can no longer afford to hold dealer conventions).

Time to look at your used business, but that too is pretty competitive with ever-increasing non-dealer sales as customers flock to Craigslist and eBay in search of a "deal" on a bike. This used bike fever has created a high demand thereby sending used prices skyward.

So, how about trade-ins! We could lower the amount that we give for trades and therefore increase the spread between used resale and the purchase price! Um, except that there are much fewer new bike purchases now than there were two years ago, and unfortunately a lot of those customers who would otherwise trade in a normal market have begun to catch on to the high demand for quality used units online. So now the guy who used to trade is more likely to sell it outright, or he’ll want an arm and a leg on trade. Customers can be so difficult sometimes. So, now you know why I was talking to my parts guy…

Our industry isn’t enjoying decent profits on parts and accessories either, comparatively speaking. In 2001, when I completed a large addition at my dealership, I also got into clothing with the Columbia Sportswear Company, which is when I learned a dirty little secret: The rest of the retail business world works on something called "keystone" margins. The idea is to double your money.

Clothing manufacturers sell to the stores with at least a keystone margin difference between cost and suggested retail. In our business I was accustomed to reps walking in my door with promises of 35 percent mark-ups, and they acted as though they were doing me a favor. And yet, here I was dealing with a company that didn’t understand why I’d be surprised to double my investment on everything that I bought. I didn’t even have to negotiate!

Unlike the powersports apparel industry where you might have four or five top brands, the clothing world has tons of options. Just open one of the gazillion retail catalogs you get in the mail — it’s a never-ending variety of brand names and styles, all stuff that can turn quickly in the right season and bring the retailer a higher margin than what we powersports people ever get.

Now, I’m not saying that you should go out and buy $20,000 worth of clothing tomorrow and start a new store within your store. On the contrary, you really need to learn a lot about that business before making a jump like that. (In the spirit of full disclosure, I ended up getting out of the clothing business because I didn’t know enough about it to really become competitive.) This shouldn’t stop you from thinking outside the box and looking for new products outside of our industry to add another profit center to your dealership and perhaps bring in a new client base.

Depending upon your local market, there are a lot of businesses that would work inside your store: maybe it’s portable buildings or western wear, maybe it’s guns and ammo or sporting goods, maybe it’s sports memorabilia or team clothing lines. My point is, there are potential moneymakers out there that can drive in new business, higher margins and still fit within your store without being too far out of place.

You built your dealership because you had an interest in riding, and obviously at this point, you’ve been at least somewhat successful. Chances are you’ve weathered some hard times, especially if you’re still afloat now. So, what’s stopping you from adding another business within your existing business? But, this shouldn’t stop you from thinking outside the box and looking for new products outside of our industry; products that can add another profit center to your dealership and perhaps bring in new clientele.

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