Brunswick St Cycles shops closed during the week. The business appears to have suddenly collapsed, but I think that behind this the scenario was somewhat different. Reading the articles in the Age about it, a pattern of illogical capitalism emerges.

Cycling has become increasingly popular amongst the middle class as a form of transport and as a hobby, driven by such diverse forces as increasing traffic congestion and fuel prices, the need for sedentary office workers to get more exercise, and the coverage of cycle racing on SBS.

Consequently, more bike shops have opened. The problem is that there seems to be too many shops, as owner Peter Hess is quoted as saying in the Age: there are ‘too many stores opening up in our area‘. Our area? Fitzroy and the CBD? They don’t own an area or the customers in it.

Is Greensborough ‘their’ area? The shop BSC opened there failed and they had to close it. The reality is that the capitalist philosophy of infinite growth in a finite world is fundamentally flawed, and BSC contributed to the problem of too many bike shops opening by opening too many shops itself, including 3 in the CBD.

Such rapid expansion is often built on debt, which is risky and often leads to failure. The irrational growth projections fail to generate sufficient income to support the debt and the whole business collapses, just as it has. It’s been trading while debts to suppliers have mounted to the extent that some suppliers, according the Age, have refused to continue supplying stock.

Hess then does a Gerry Harvey and blames the internet (and implicitly customers) for providing too much competition to real world retailers. Retailers like Hess and Harvey seem to think that customers owe them loyalty. No we don’t. We don’t care about your brand, identity or anything else other than getting what we want.

If retailers get greedy and attempt to expand rapidly fueled with debt, assuming that customers will always be there to support them, then they fail. It’s that simple. In my experience, BSC has not been competitive on price for new bikes and I have purchased elsewhere, but I have had bikes services at the original Brunswick St shop and bought parts there and the service has always been good.

I have no sympathy for entrepreneurs who indulge their greed with debt and leave a mess behind, including staff who lose their jobs and unpaid creditors. The idea that you can expand to gain a greater market share and more customers with debt is illogical. Instead of making a business more profitable it often makes it less so. If you’ve built a successful business, why not sit back and enjoy life?

analysing the BSC failure

7 thoughts on “analysing the BSC failure

  • 17 June 2012 at 11:59 am
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    The advantage that ‘bricks and mortar’ retailers have over Internet retailers is customer service. In my experience, BSC did not use this to their advatntage. Their customer service was consistently rubbish so I chose to shop elsewhere and obviously so did many others.

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  • 17 June 2012 at 3:10 pm
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    Hess calls it “unfair internet competition” whilst Gerry Harvey touts a similar line. How is it unfair? It’s just competition, if you are an advocate of resource allocation via free markets. Is it unfair to local workers when merchants seek to source cheaper labor or supplies form overseas sources?

    It is interesting to note that we didn’t hear much from these so called entrepreneurs when the fruits of laissez faire were flourishing in their gardens. I didn’t hear Harvey championing the cause for smaller struggling stores or calling for the government to level the platform back in the days when he had the upper hand. Now that technology has given a foot up to alternative online business models, we have Harvey and friends bleating and begging for government intervention.

    In true hypocritical fashion, these so called businessmen espouse the virtues of capitalism when favorable conditions prevail but bleat like sheep when conditions turn against them, citing their importance as socially conscientious employers or resorting to blaming the GST for their woes. As far as I understand GST is still charged by Australian online merchants, it’s when we buy goods from overseas that we don’t pay GST for items under $1000. So Gerry Harvey is effectively pleading the government to impose the GST as a defacto import duty. Please correct me if I am wrong.

    Where was Gerry Harvey and his ilk when their chain stores or mega-stores contributed to the closure of smaller merchants; merchants who’s fates were consigned to demand and supply and economies of scale. Did we hear Harvey’s sorry voice belching like a wounded cow back in the days when the market environment was ideal for his business model? No, because free competition is just an inherent nature of our capitalist economy and back then it was his ability to compete which was his strength ( not that he now runs an unprofitable business by any means). It was a case of ‘stiff shit’ for the smaller furniture merchants, white goods merchants, audio merchants, video merchants, photographic labs etc, back in the days when the Harvey Norman Superstore first arrived.

    Now that a newer generation of entrepreneurs have the opportunity to innovate and harness new technologies and the power of the internet, Hess, Norman and others have suddenly taken a dislike to the notion of free competition. Hess claims that his physical store provides superior service over online stores, which (generally) I believe. So let the markets decide it’s price or service that prevails.

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  • 22 June 2012 at 3:20 pm
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    I have been a loyal customer for many years BSC was a great company, and always looked after me. I guess you can be selfish and have no loyalty towards any retailer but you’ll soon be paying through the nose to get your repairs done. Shops will not be able to afford to stock a lot of stuff as well. I guess you have to make a choice at the end of the day.

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  • 22 June 2012 at 5:28 pm
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    “I guess you can be selfish and have no loyalty towards any retailer but you’ll soon be paying through the nose to get your repairs done. ”

    I can’t see the correlation between loyalty and rising costs.

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  • 26 June 2012 at 1:33 am
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    Hess has failed with ‘big plan’ silent partners with deep pockets in only 6 or 7 years where others still prevail using organic growth models. He was neither niche nor big box, just expansion driven in areas that didn’t return sufficient profits. BSC was a name not a community or competition participant. I have heard less than favourable reports of service indequacies and despite regularly visiting the stores during my various hunts found myself making my big-ticket purchases elsewhere. It’s a shame for the employees and purchasing public whose warranties go unsupported. This could be a role for bike Vic.

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  • 14 July 2012 at 1:14 pm
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    I worked for the business when it three stores. I primarily came in to shake things up a bit as the store managers at two shops weren’t competent. I cleaned up Greensborough and implamented basic systems & proceedures. Met with some resistance from the store manager, backstabbing SFB that he is. After sorting out the shitfight that was Greensborough, fired. The store manager that came into Fitzroy to sort that out, job done, had it running like a well oiled machine, then fired within 9 months. The Melbourne store’s part owner & manager, bought out & fired as well. I’m not surprised that the group failed as anybody that actually gave a shit and could run the stores competently were fired. RIP BSC

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  • 19 October 2012 at 9:51 pm
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    If they weren’t such a rip-off then they may have still been in business. To be competitive in this day and age with internet shops, you need to provide a fair local price; not 15% above RRP which was regularly the case with BSC. People are willing to pay a bit more for purchases from local shops but not the ridiculous prices these guys were charging. So long BSC, you’re prices won’t be missed.

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