Online Sales - The importance of buying from local businesses

[PhilEllis]

A while ago I had a friend who was a marketing major at a local college. She needed a project so we decided to to a business analysis of dive shops in the SF bay area. Note this only covered the bay area proper not Monterey, which as a resort, is a special case...

Our conclusion was that, on a per customer basis, that there are 2 or 3 times the number of stores per customer as other sporting goods stores in the sf bay area. This was based on population, number of divers, expected sales etc.

Given this (and assuming that rent and other expenses were similar) the stores needed to make much more money per customer than other sporting goods stores in order to stay in business. Or there only needed to be about 1/2 as many dive stores as there are to support the customer base.

There are three way that an industry can survive this, 1) drive up sales, make the gear fashionable and generate a preceived need to trade gear often, running up sales 2) fat margins 3) or profitable auxiliary sales (not training as it, as a lose leader, is what brings in new customers and their gear purchases. Otherwise expect consolidation.

One particular store, which we examined in depth, had very high fixed expenses. Rent was not two high, but the staffing coast were through the roof (6 full time employees, three with families) given that I never saw two customers in the store at one time, and saw no customers at all on many visits. Their level of knowledge was not that high, and they sent out all or most of their repair work.

Since that time three stores have close, to not reopen. In my mind this is a good thing. I would rather have a small number of good local dive stores (I do know of three, which I patronize when I think its appropriate) than the current crop of good/bad stores. Unfortunately i fear that the best stores will close and leave the cr**py ones

At the close of 2006, there were 1585 specialty scuba diving stores (local dive stores) in the United States. These stores shared a total retail market (equipment, service, training, travel) of $552 million dollars. Another $174 million dollars was attributed to retail sales of equipment at resorts, water sports stores that sold scuba equipment, and general sporting goods store sales of scuba gear.

The $552 million dollars is not even close to enough to sustain the 1585 local scuba stores. Given that scuba retail sales are only able to maintain a sales increase slightly below the inflation level, given that more and more of the retail scuba equipment sales are moving to the 5 largest online scuba outlets, and given the increase in chain water sports stores adding scuba to their inventory, there is not NEARLY enough sales to support those 1585 local scuba stores. There is some evidence that just last year, that total number of stores fell by another 100, to 1485 local scuba stores.

In the near future, we will need to see the reduction in the number of local scuba stores to some where near a number of 750 if the remaining stores are to see enough revenue to succeed. This is a small number and basically means there will be VERY FEW stores in markets (cities) smaller than 100,000 to 150,000 population. It simply isn't possible to pay the expenses of operating a retail store on the low sales in smaller markets.

IT IS MY PERSONAL ESTIMATE ( no research data to support...only my ability to gather G2 and keep my ear to the ground) that the annual sales at the 5 largest scuba online stores in the U.S. grew approximately 25% in 2007 over the previous year. THIS GROWTH ALONE cuts about $13 million out of a market that is basically unchanged in these two years. This industry cannot stand much more of this.

There is ONLY one fix for this. ALL local scuba stores must terminate the "sky if falling" method of maintaining loyality from thier very small customer base. They must adopt EVERY method of marketing and distribution used by every other good niche retail business in this country. The old "trip and fall" business model will not work much longer in this business. There are a lot of "dead men walking" in this business....already bankrupt, they just don't know it.

Oh well, just my opinion.

Additional Note: Many more things must change that are outside of the control of the local scuba store, but it makes my head hurt to drone on and on about those issues.

Phil Ellis

 

[PhilEllis]

Too bad the OP is gone. I really wanted him to tell me why it is better to pay $80 at the LDS for an XSscuba item with a $50 MSRP.

Explain to me the calculus of that deal, please.

(I can't help it, I keep reading these threads!)

Don't give Craig a hard time. It is painful when you finally realize that you have been "whistling past the grave yard". I know. I came to that same realization about 4 years ago.

Personally, I would love to have him come back and contribute to other threads. He could add much to the conversation here.

Phil Ellis

 

[redacted]

Additional Note: Many more things must change that are outside of the control of the local scuba store, but it makes my head hurt to drone on and on about those issues.

Phil Ellis

Please tell us more. I'm guessing one is the policies of some of the mfgrs and distributors. But that is largely within the control of the retailers. They can always say "NO" to policies like those of Scubapro and Aqualung.

 

[jasondcrawford]

Sorry for a semi off-the-topic post, but does anyone know if diving operations (with boats) do any better? Seems like only about 5% of dive shops are successful.

 

[froggs]

Stupid question---why is it better to support a dive shop closer to you than one further away, exactly?

Well, one answer to this that has merit is simply supporting your local economy. Since many of us in the states live near large cities, the impact of this isn't as obvious, but in smaller towns, the local economy can be much less stable. Once it starts to fail, it can be hard to control and can have disastrous effects on those who live there.

 

[Cap335]

Sorry for a semi off-the-topic post, but does anyone know if diving operations (with boats) do any better? Seems like only about 5% of dive shops are successful.

I don't know about other stores but our boat helps us.

Randy

 

[Cacia]

The boats are killing our operators here on Oahu. The liability insurance and USCG drydock alone makes it very tough. Retail space and slips are also very expensive. yet, there is always a new guy in town with a big dream offering 49 dollar dives, until he realizes it cannot be done. Gross excise taxes on everything coming and going.....

And don't even figure in the legal labor costs. The law requires health insurance for any 20 hr employee. How many operators do you think do that? I am guessing zero. I love Hawaii, but like the Dems who cannot support funding the war, I cannot support an ecomomy that is not viable for business by paying inflated prices to pay for bloated local economic policy. I support the local farmers cause they give me fresh organic food, but not much else. Heck, we scan our deposits at home to a mainland bank. Hawaii banks had my funds for 7 years and screwed me to the wall with fees....I'd love to support them, except I'd have to be even dumber than I am.

Boat costs---

initial outlay 150 k conservatively bought someplace cheap, like Fla

insurance 8-10 k

captain 4 k month

CG drydock 5-10k q 2 yrs

maintenance 1500 general maintenance

1000 things that break

slip fees 500 month

retail store 4 k month

DNLR (Department of Land and Natural Resources) wants 3 % gross just to load customers

Gross excise 5%

running a 12 man van on a five year note, is about 700 month....150 week fuel

4 k insurance

boat fuel ....1000k -1600 k per month

Cut taxes and some tort reform might help..but it is too late because the American mentality doesn't understand finite pie charts any more.

(and wants bannna republic prices for diving, ME included) The Ind Instrs who just swim out have a viable idea, at least they might not go negative.

 

[mike_s]

IT IS MY PERSONAL ESTIMATE ( no research data to support...only my ability to gather G2 and keep my ear to the ground) that the annual sales at the 5 largest scuba online stores in the U.S. grew approximately 25% in 2007 over the previous year.

Just curious.... since you brought it up. what are the 5 largest online stores?

My guess is:

1.) Leisure Pro with about $18 to $23 million a year in sales.
2.) Scuba.com with about $10 to $13 million a year in sales.
3.) ?
4.) ?
5.) ?

I've read that ScubaToys does about $5 to $6 million a year in sales. but not sure if there are any in between them and the top two listed. So not sure

I'm willing to bet that Divers Direct, Divers Supply and Sports Chalet do several million a year in sales based on the number of stores they have and/or their web/catalog sales. However Sports Chalet would be hard to get the numbers out of because they sell all sporting goods.

Any other shops worth mentioning and how they rank in total gross sales?

Sorry for a semi off-the-topic post, but does anyone know if diving operations (with boats) do any better? Seems like only about 5% of dive shops are successful.

Do dive shops with boats do any better? Maybe they do. But as gas prices increase and so does the cost of insurance, dock fees, etc, I think they will be in the same crunch.

I do know that as car gas prices increases, less and less people near where I live are making the 6 hour drive to the ocean to dive in saltwater. This is putting a huge pinch on dive boat operators. I know some of them are calling around to dive shops trying to get them to book charters because their numbers are down so much. Yet these shops they are calling are the same ones we're talking about that are also under hard times.

 

[Sinbad the Diver]

in some respects it's true. There are poor quality on-line merchants that sell low end gear and provide low end service. There are LDS' that have gone out of business and blame the on-line merchants. But the reality is that on-line merchants created a new option for divers, just like on-line travel sites created a new option for travelers. Many travel agents went under as a result of on-line travel servies. But most of those were little more than people who printed airline tickets. They didn't add any value other than having a printer.

There are still strong and succesful travel agents who continue to provide services that are of value to the traveler and there are and will continue to be LDS that provide services and value that you can't get on-line. I imagine a lot of the LDS that are going under would also have gone under if another LDS had opened in town.

The other part of this discussion that is forgotten is the basic laws of supply and demand. Competition brings down prices and lower prices will often stimulate purchasing and more people get into diving because it becomes more affordable. Maybe you get a smaller piece of the pie, but if the pie is much bigger the blow is softened.

 

[PhilEllis]

Please tell us more. I'm guessing one is the policies of some of the mfgrs and distributors. But that is largely within the control of the retailers. They can always say "NO" to policies like those of Scubapro and Aqualung.

Well, a dive store certainly can say no to companies that control retail prices like ScubaPro and AquaLung. However, since they are the two largest selling brands in the industry, a local dive store that can only afford to choose one line is likely to choose one of these two if they are available. What they don't realize is that choosing a brand that puts so much control over what a dealer may or may not do is only creating limits to their distribution, not allowing the dealer to do the essential thing.....expansion of market.

One of several major problems is lack of variety. With the advent of the internet and the transition of all of the dive magazines to an "advertising only" editorial philisophy, customers ofter develop a rather extensive "non brand specific" list of scuba items they want. They decide the want the ScubaPro bc, the Oceanic computer, the nice Atomic regulator, a Deep Outdoors dive bag, and a Pinnacle wetsuit. They walk into their local scuba store and the only thing he stocks is Sherwood. The local scuba store does not have ANY of the items in his wish list! This is a major problem, created by the "direct from the manufacturer" distribution model used by the industry. Online scuba stores, with their wider market and much higher volume, are able to stock many (in some cases, all) brands. This puts the local scuba store at a PRICE and SELECTION disadvantage to online stores. Many local stores think that price matching alone will solve their problem. But the biggest problem is lack of VARIETY.

Another serious problem for the local scuba store is dive travel. Somehow, way back when, this industry allowed the foreign destinations to develop a system where the dive store got a commission of maybe 10% to bring divers to their resort and their boat operations. Remember, MOST local dive store customers have a limited amount of disposable income to spend on scuba diving each year. That number nationally is probably $1000 - $4000 per person. If you plan an exotic trip that cost each customer $2500, you eliminate the largest amount of their spendable income on an item where you make very little margin. A local dive store is caught in a real catch 22....they must take their divers diving to promote sales, but taking them diving often exhausts a considerable amount of their disposable income on a scuba-related activity with a very low margin. Remember, the resorts cannot operate without a dive stores most valuable commodity.....diving customers. We need to move to a system where MUCH more of the income is shared with the local dive store who provides the only thing the resort needs....customers.

Another problem is the rising cost of conducting a scuba diving class. The local dive store is now forced to pay rent on pools that once were offered free. The alternative is to build an instore pool, a terrible expense which offers little return on investment and increased revenue stream...unless you are located in a very large area. In fact, as the "preceived liability" problem (you notice I said preceived....there is actually less real liability in scuba than most other active sports) expands, many dive stores may find it impossible to access indoor swimming pools, even if they are willing to pay big rent. This problem is seldom discussed, but I believe this is going to become a GIGANTIC obstacle in the future. Fairness demands that the instructors hired to teach the classes must be paid more. Insurance costs, rental gear costs, and all other training related costs are increasing while the price of scuba diving classes remain static. Many will say, "just charge more and do better classes". Making such a statement requires ignoring competitive factors. Remember MOST consumers simply want to go diving on their next cruise. They will not pay more for the card than the competition charges.

Unfortunately, I have only touched on the obstacles to expanding this industry.

Guys, to have any success in salvaging this industry, the changes will have to occur at EVERY level of the industry.....equipment manufacturers, training agencies, travel providers, resort operations, dive boats, local governments, and retail stores. It is truely a daunting problem.


Phil Ellis