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SPINNING WHEELS: Scott Davis of Springfield Bicycle Co. says online sellers are disrupting the industry. The brick-and-mortar store lost $100,000 in sales last year.
SPINNING WHEELS: Scott Davis of Springfield Bicycle Co. says online sellers are disrupting the industry. The brick-and-mortar store lost $100,000 in sales last year.

Bike shops navigate e-commerce, manufacturer overstock

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Scott Davis’ lawn care company is booming, and his retail bicycle shop is struggling to keep up.

Springfield Bicycle Co. lost over $100,000 in sales last year.

Davis cites a domino effect created by consumer trends to online shopping.

“I believe that if you don’t get a handle on it, you are not going to have retail businesses or repair shops or anything like that in the near future,” he said.

The crux of the issue is a 1992 U.S. Supreme Court ruling in the case of Quill Corp. v. North Dakota. The case determined state sales and use taxes only apply when a company operates a physical presence in that state. The pre e-commerce ruling sets precedence in a world now flooded with online sales.

Pegged as “remote retailers,” online sellers are able to avoid most sales and use taxes and often beat traditional retailers’ prices.

A $5,000 bicycle sold in a store at Missouri’s 7.7 percent sales and use tax equals nearly $400. It’s enough savings for savvy shoppers to give online retailers a competitive advantage.

“Some states have a tax that applies to online sales, but the burden of paying the tax is actually on the person who purchases the item, not the business that sells it,” said Max D’Onofrio, press secretary to Sen. Mike Enzi, R-Wyo. “Other states try and put more of the burden on the business, often known as Amazon laws. This confusion really gets at the heart of the issue and the reason online sales fairness legislation is needed.”

Three federal bills regarding e-fairness have been introduced: two in the Senate and one in the House of Representatives.

The Marketplace Fairness Act, sponsored by Enzi and co-sponsored by Missouri Sen. Roy Blunt, proposes a destination-based sales tax that has a small remote business exception. In the bill, an online business that makes less than $1 million per year is exempt from the state sales tax requirement. States also would be required to provide software to simplify the tax process for remote retailers.

The Remote Transaction Parity Act is similar to the MFA, but in addition to a few other changes, including software requirements, it is without a small seller exemption.

Then the No Regulation Without Representation Act would maintain the status quo created by Quill v. North Dakota, requiring a physical presence in a state for taxation.

Round and round
Davis has company.

Sunshine Bike Shop Manager Josh Even, and A&B Cycle owner Chris McNeese agree their biggest competitor is not each other but online retailers like Amazon.

“I told my wife, if we’re out of business in the next 10 years, it will be because of Amazon,” McNeese said.

They also agree the push to buy locally is a necessary component to their survival. “People don’t realize what they’re doing when they spend their money on the internet,” Davis said. “It’s leaving Springfield, costing jobs, tax dollars, improvements for schools, parks. What they look at is, ‘I’m saving money right now.’”

Following the trend, Davis said bicycle companies now are going straight to the consumer. The bikes are ordered online and shipped either to a consumer’s home or a bike shop. When delivered to a store, he said the bike shop gets a small percentage set by the companies.

Sunshine Bike Shop has, so far, resisted participating in this, but Even said vendors are pushing the store in that direction. He said the trend is disconcerting for many shop managers because inventory has to be shared with vendors. Vendors knowing their inventory and the inventory of other vendors in the store could cause them to influence what is bought – “using leverage to influence who you do business with,” he said.

Davis considers pricing set by vendors as bad business practice.

“When you do that, a bike shop cannot live off of 10-15 percent commission and keep the doors open and pay employees a competitive wage,” said Davis at Springfield Bicycle Co. “It’s hitting home and coming at me from all directions now, and it’s all internet sales based.”

Miles Hamilton, owner of Queen City Cycles, this month closed his downtown store and moved the bicycle shop in with his wife Leslie Pruitt’s outdoor store, Outsiders, at 615 S. Pickwick Ave. He said there were a number of factors in the move: an increase in vehicle traffic downtown resulting in customers afraid to test ride bicycles as well as many involved with Queen City Cycles living in the Rountree neighborhood. Hamilton also cited online sales stifling his volumes and chalked it up to an industrywide challenge.

“That was a wise move for us with the way things are going with the bike industry,” he said.  

Pricing infrastructure
Even said another problem stems from manufacturers overproducing and vendors overbuying, only left to sell off the excess inexpensively.

Typically sold online at a fraction of the manufacturer’s suggested retail price, the deals are upsetting the entire structure of the industry.

A&B Cycle sales associate Bryant Johnson said the store has weathered the storm by recently zeroing in on the Trek brand, streamlining the decision for consumers. It also used to carry Specialized and Cannondale brand bicycles.

“Since we went with just one brand, we were able to carry a wider selection of models and we don’t have competing models within different brands,” he said.  

Sunshine Bike Shop quit selling the high-end wheels that are shipped easily and often found dirt-cheap online. Even said it’s challenging when shops buy and own all inventory and operate under the hope that what they purchased will not suddenly appear online for a fraction of the price. Shops can suffer significant losses if buyers misstep.

“I wrestle with it all the time. I wonder why I’m still in retail,” said Springfield Bicycle’s Davis. “I don’t feed my family off of a bike shop, that’s why I have a landscaping business.

“There is no certainty in bicycle sales, retail of any kind, for that matter.”

Even is hopeful steps will be put in place to protect consumers and retailers. He also thinks the risky nature of buying online might burn enough people that brick-and-mortar bicycle businesses will survive.

“The product’s not the same, it’s bad quality control, there’s no way to return it, there’s never any customer service on the other side. It’s risky business,” Even said. “At the shop, it’s not risky. You know where I am. I can’t scam you or else I will go out of business. I have to be honest. I can’t just be some sort of weird front online who smokes cigarettes in a back alleyway and just sells bicycle products for super cheap that I got from manufacturer overstock.”

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