Will Pearson looked proudly at the bicycle waiting for collection at Pearson Performance, his store in East Sheen, south-west London. The black machine, with curled racing handlebars and extra-tough tyres, was the company’s own design, and bore the name “Irons in the Fire” in tribute to Pearson Cycles’ heritage as an offshoot of a blacksmith’s forge.
But although the customer was due to pay £2,200 for the bike and a further £300 for accessories, Mr Pearson’s return on the transaction was only “acceptable” due to the £265 commission taken by Cyclescheme, the company that handled the paperwork for the purchase under the government’s Cycle to Work scheme, which allows customers to pay for the bike over a year out of their pre-tax income. Higher-rate taxpayers can save as much as 42 per cent compared with paying up front for their bike.
“If somebody comes along and buys a £7,000 bike and then produces a cycle scheme voucher, it’s great for the customer, it’s great for the cycle scheme provider — but it’s not so great for us,” Mr Pearson said. “Typically, as prices go up, the margins come down.
Frustration at the high levels of commission levied under the widely-used scheme — up to 15 per cent on some bike purchases with some providers — has prompted Mr Pearson to join forces with a group of other independent bike retailers to call for reforms of Cycle to Work, a flagship government programme to boost cycling.
“If we’re having to give up to 15 per cent of that £7,000 away, it doesn’t make it a legitimate proposition for us.”
The group wants a review of provisions that allow providers to charge unlimited commissions, eroding margins in a business that is already intensely competitive and where margins on most bike sales are only around 30 per cent.
There is particular discontent with Cyclescheme — owned by Silver Lake Partners and P2 Capital Partners, two US private-equity firms — which earns unusually high profits. The company, the biggest provider of Cycle to Work schemes, last year reported pre-tax profits of £3.93m on a turnover of £7.2m — a margin of 55 per cent.
Cyclescheme currently takes 10 per cent of the cost of bikes and 15 per cent for accessories for collecting the price of purchases from employers and issuing a voucher employees can hand to bike retailers. Independent retailers that are signed up to another scheme operated by Halfords, the car parts and cycling retail chain, pay 15 per cent commission on bike sales.
Mr Pearson said the government’s programme had become a “different proposition” for retailers since a £1,000 price cap was removed last year to accommodate customers buying e-bikes, which tend to cost more than £1,000. It has also enabled customers to fund high-end machines that entail expensive, time-consuming fitting and other services from bike shops.
Pearson Cycles is one of seven prominent independent bike retailers, including London’s Velorution chain and Cotswold Cycles, based in Gloucestershire, which are calling for changes to the programme.
Before this year’s coronavirus-driven spike in sales, many UK cycle retailers had been struggling to survive in the face of fierce online competition. Two large cycle shop chains — Cycle Republic and Cycle Surgery — have closed over the past eight months, while a third, Evans Cycles, had to be rescued in 2018 via a pre-packaged administration by Frasers Group, which is controlled by Mike Ashley, founder of Sports Direct.
John Hamlen, managing director of Flag Bikes in Battersea, south London, said Cycle to Work schemes currently accounted for around 10 per cent of his sales. “You’re still making some money at the end of the day that you might not have had before,” he said. “If someone has a Cyclescheme voucher, they’re going to go to another bike shop that does accept it. That’s why I do it.”
Phil Cavell, director of CycleFit in central London, is a member of the group calling for changes to the programme. He said the retailers were not only concerned about Cyclescheme but about the “governance and oversight” of Cycle to Work more generally.
“I don’t think this is what the government had in mind when they set the scheme up,” Mr Cavell said.
The Department for Transport, insists the fees are an issue for providers, not the government.
But there are signs that retailers’ complaints may be prompting a rethink. One cycle industry figure indicated manufacturers were talking to scheme providers about potential changes.
Cyclescheme confirmed it was involved in talks and accepted that the current arrangement might have to change. Adrian Warren, the company’s senior product director, said its current flat commission rate on all bike sales might not be “the best way forward”.
“The last thing we want to do is to treat bike shops unfairly,” he said, adding that he hoped a new commission structure would ensure all parties received value from sales.
“Talks are ongoing, but we are confident we will have a new commission structure in place in the coming weeks that benefits everyone,” Mr Warren said.
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