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The new bicycle store on the block

MEC is selling bikes and its smaller rivals aren’t happy


 

 

The new bicycle store on the block

Photograph by MEC

 

The local bike shop, with its forest of pricey rides and canopy of rubber tires, can be an intimidating place for the casual cyclist. Sure, the staff are knowledgeable (evidenced by their muscular calves and grease-stained aprons), but it’s hard to shake the feeling that one is venturing into not just a store, but an urban subculture. Which is why Mountain Equipment Co-op’s arrival to the bike-selling business this spring is likely to be welcomed by the average Canadian, who is simply looking for a high quality machine, competitive prices and a comfortable shopping environment.

Of course, that’s not how local bike sellers see it. Several have complained that MEC, originally envisioned as a way for the granola-munching set to source quality outdoor gear, has morphed into a big box retailer (albeit one wrapped in a message of environmental sustainability) capable of disrupting the market. In particular, local shops are concerned that MEC’s status as a consumers’ co-operative (which allows it to pay less corporate taxes than traditional retailers since very little profit is retained) will enable it to undercut their prices. A blog posting on MEC’s website that referred to the retail bike industry as “grey, dusty and dirty” did little to assuage fears. It was later removed.

“This preferential tax treatment affords MEC a huge competitive advantage that permeates its entire business whether from building new stores to pricing based on ever-increasing buying power,” said Pete Lilly, the former president of the Bicycle Trade Association of Canada, in an open letter to MEC’s board last year, when the initiative was first revealed. MEC, on the other hand, says bicycles are a natural step in its evolution, noting that it has been selling bike gear—everything from helmets to reflective jerseys—since the late 1970s. And given the popularity of MEC garb among cyclists, and even hard-core riders, many independent bike shops would be wise to retool their approach, or face a steep uphill climb.


 

The new bicycle store on the block

  1. When you say that the Canadian retail industry is amongst the least competitive, can you explain why it is that products at MEC are usually cheaper than in the U.S or Europe? It seems to me that the point of competition is to lower prices. Since we have that, how can the market be uncompetitive?

  2. Why is the most important part of this story becoming the business side? Yes, MEC might be able to sell bike's at a slightly reduced rate. How many commuter and touring bikes to LBS sell in a year? Cause those are the ones that make up the majority of the MEC line. Not only that but if having bikes available at a store like MEC grows the sport how is that a bad thing? As a cyclist I am always enthused when I see more people out on the roads. The more people riding, the more awareness there is and the more people that care about bikes. While this might hurt a small number of stores in the short term, in the long term it means that there will be a larger market and hopefully more awareness of bikes. There are so few bike paths and lanes out there right now that any way this can be improved is a good thing. Rather than complaining about people selling bikes, look at the positive aspects and how this could affect the future. Would LBS complain if there were people fixing bikes for free and giving them away? I sure hope not and if so why are they a bike store in the first place if you care more about profit than the industry you are in there is a problem.

  3. The argument you make could be made against any co operative, including agricultural co ops. Are you in favor of disbanding all co ops, or just those that are in competition with you?

  4. Well then other bike stores obviously need to become cooperatives then. That means take on all the disadvantages of cooperatives as well, such as each shareholder only having one vote, no matter how many shares they may hold. The shares (and therefore ownership) being allowed only to pass back into the hands of the cooperative, and the profits from the organization either going right back into the organization or into community projects, not into private hands.

    If there's a bike store owner willing to agree to all that, then they should become a cooperative and MEC would hold no competitive advantage other than size. If, on the other hand, they want to profit from their enterprise, have it add to their balance sheet, and possibly be able to sell it off at some point in the future? Well then.. one could turn around your argument and say why should they be able to do that while MEC can't? Oh yeah, they pay taxes.

  5. As an MEC member and bike dealer I have some views to share.

    MEC's position and stated mission to behave ethically and be socially responsible is laudable but disingenuous. While sourcing goods ethically in places like China is a priority, MEC is prepared to abandon those same principles at home in the interests of their own business objectives.

    MEC's entry into bike retailing is the issue and yes MEC's competitive model is a problem.

    MEC was established as a co-op to sell mountaineering gear that was not available in the market. That arrangement came with a big competitive advantage in that MEC paid no corporate tax. Fine. The problem was (and is) that, once a co-op was established, MEC was free to enter other areas of products regardless of the fact that those products were already available. MEC has taken full advantage of that loophole and exploited its competitive tax advantage with the result being that many outdoor retailers went out of business. Now MEC wants to sell bikes. Why???

    I am a bicycle retailer in Vancouver. There are some 60 bike shops in Vancouver, doing approximately 30 million in sales. With 60 shops there is certainly no lack of selection or competitive pressure. There is an abundance of product and an abundance of places to buy that product.

    Contrast that reality with the Co-operative Secretariat of Canada that lists as the benefits and objectives for co-ops to exist: job creation, correcting market imbalances, serving community needs, filling market gaps (the reason MEC first came into existence) and empowering little guys. Also, consider that all co-ops are supposed to act out of concern for the community. MEC's own mission and value statement is that MEC will act with social leadership and community spirit.
    Yet MEC, is going after the more than 60 family owned bike businesses that more than serve the market. So, rather than serving their community and empowering the little guy, MEC has grown to such arrogance of its own principles that it would rather crush the little guy to steal ever more business out of the market economy. With no tax benefit to the community, one has to wonder why government would allow this to continue, as any reason for MEC to ever exist has long since passed. Yet, they continue unchecked in their quest for growth.

    contd

  6. By the statement " But make no mistake, it is a very aggressive and predatory competitor that leverages all of its advantages to its benefit against much smaller and less powerful competitors and suppliers" do you mean to imply that main stream capitalist profit corporations are imune from such practices? Have you never heard of Microsoft or Walmart?? When it comes to profit in todays society ANYTHING GOES.

  7. The arguments against MEC are the same ones we've heard for years about large vs small businesses. To all the small retailers: stop the specious claims about unfair taxation, the corporate tax rate for small business in BC is 13.5%, and that is tax on profit, after wages and other expenses. I own a private corporation I have a very small tax bill. But I am tired of paying the LBS 100% markup on clothes, parts, and accessories when all the employees of the small bike shop (and their buddies) buy at a huge discount. The endless moaning is just that and won't change a thing, if a small business wants to stay in business, compete on price or service, or close your doors.

    • Wow, that is possibly one of the dumbest letters I have read here. As a long-time independent bike shop staffer, I expect our business to suffer a bit at the hands of tax-free MEC. Commuter bikes (the line in which they probably expect to sell the majority of their product) make up about 12-15% of OUR bike sales. I'd LOVE to be in the position of paying no corporate income taxes… Employees in many industries are entitled to staff discounts, whether it's retail, car sales, food service, etc. You will still pay MEC 100% markup, if not more, and THEY won't contribute anything to social programs provided through government services (ie health care, education, infrastructure). Care to guess where I won't be spending any more money, Tom?

  8. If you can't compete, you shouldn't be in business. If you're a small business and you can't compete against larger businesses, you shouldn't be in business. MEC has actually brought prices down in every market it has entered, because smaller retailers that you could argue were gouging customers had to compete against them. In the absence of MEC, other larger retailers like Coast (now Altitude) would be charging much more. Now, we'll see Sport Chek and smaller retailers have to adjust their prices on bicycles. This is a good thing for consumers. It's also important to remember that if other retailers had been offering mountain gear at a reasonable price, MEC never would have gotten off the ground. Retailers that weren't responsive to their customers have only themselves to blame for the current situation. You could also argue that by making outdoor gear more accessible, MEC has helped make the market for all retailers larger. That they haven't been able to take advantage of that larger market is their own fault, not MEC's. As a marketing consultant, I see this all the time. Smaller companies stand around and watch while their market changes around them, and only respond when it's too late.

  9. What none of the posters have mentioned is that part of the "benefit" of being a Co-op and taking advantage of the Co-op "loophole" is that profits must go back into the business or be paid out to members (ie that owners) in dividends.
    My local bike shop does not pay me dividends for purchasing there… why not? The SCOUNDRELS! Horrible places, they're taking ADVANTAGE of the business laws, nay a LOOPHOLE in the law, to AVOID paying me DIVIDENDS and keep it all for themselves.

    Anyway, I patronize both MEC and Bow Cycle (Calgary – awesome shop) and get different things from both. MEC provides massive selection on all types of outdoor gear… but not a lot of expertise in the bike world. Bow, on the other hand, provides a great selection of bicycles and gear and very, very excellent expertise on bikes. Sure they may be a bit more expensive (don't really know actually) but who cares when they provide the service, expertise and vast selection that MEC will never be able to provide.

    Small business owners… time to wake up amigos. Excellent service will actually win out IF (big if) you provide it.

  10. MEC AGM is Thursday April 29 6pm. Might be even more interesting.

    Mike seems to work for Trek and others have addressed his complaints already. I just wish MEC had their bikes for sale when I bought my last one. They are great value for the quality they provide but Costco and Canadian Tire have basic bikes that are much less expensive and probably adequate for most occasional and recreational users. I have not bought much from MEC before but after reading Mike's comments, I now realize that MEC offers better value than I though so will be shopping there more. Chris comment also leads me to using a good specialty bike shop for my specialized competition cycling needs. Some of the specialty bike shops organize weekly group rides for road racing while MEC only seems to sponsor a few recreational rides (Great Rides in Metro Vancouver with the Vancouver Area Cycling Coalition).
    There is a place for all these shops in the emerging age of the bike (high energy prices, need for fitness to combat obesity epidemic etc.) !

  11. I am a MEC member who has given up shopping there. And for several reasons: quality of some of the merchandice has often been sketchy, the Big Box atmosphere they now convey, and lack of expertice. Used to be a great place! Now I gladly pay the LBS a bit extraon some items, a bit less on others. But I always get someone there who gives a damn about me and my needs. Something missing at MEC.

    As for the tax advantage, I was not aware of this situation (I am not an accountant). That ticks me off even more to see they are getting an unfair advantage in business. but I guess my pocketbook will speak. I will spend at the local shop who weem to have good stuff – old and new bike parts, something I am sure MEC cannot provide.

  12. Macleans should be ashamed of themselves for their coverage of this issue.

    There are clearly a lot of matters that they simply have not addressed or investigated.

    To all those that simply say compete or die to the small operators, I ask you; what business are you in? What would you do if the government gave an indefinite tax holiday to a new competitor that opened next door to you? As has been pointed out, there are over 60 bike shops in Vancouver, so there is competition. These shops sell different brands of bikes, clothing and accessories. They are not in collusion on pricing and they compete with each other. That is how a market economy works!

    The problem is MEC has an unfair advantage with their tax status that allows them to accumulate capital and grow at a much faster rate than other businesses. There is nothing "specious" about that.

    As for lower prices at MEC, I suggest you take a closer look. Their margins for profit and expenses are the same as similar businesses. They discount commodity product (available everywhere) and charge you through the nose for their MEC brands. They suck you in with the price of a tube but their MEC clothing and bikes are not good value. They then wrap all that in their fuzzy green image and laugh all the way to the bank when they cash their executive paychecks.

    Don't know why anyone would buy an MEC bike anyway. Their one man bike development department can't deliver product comparable to major bike companies that have proper infrastructure and scale for design, manufacture, development and testing in place.

    MEC is a predatory retailer disguised as something else. That we can live with. Their tax structure we can not.

    It is really funny how those that want everything from government are arguing in favour of an enterprise that does not contribute to the tax base that gives them the benefits they enjoy.

  13. I've seen the bicycles at Mec. They are good looking and decent Quality , but pretty generic. I still prefer to go to a local bike shop for a variety of brands and choice and service. The prices are pretty comparable.

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