Ride Ten Limited

Ride Ten Limited $($R$10)$ is a retail bicycle company that operates $20$ stores across Australia, including an online store. You are a recently recruited Chartered Accountant working as a member of the finance team for R$10.$

Part A Industry

The global retail bicycle market is worth US$$101$ billion $(2022),$ with expected growth of approximately $10\%$ per year$1.$ The industry has shown strong growth over the past five years, thanks to five perceived benefits of riding bikes:

$1.$ A feel$-$good factor $$ better for your physical and well$-$being health.

$2.$ Saving money $$ provides lower transport costs and reduced health costs.

$3.$ Less stress for the work commute $$ commuting to work by bike relieves parking stress, provides a predictable travel time and allows you to arrive at your destination feeling energised.

$4.$ Local regions providing the necessary infrastructure $$ to support cycling as a leisure activity and a good option for the work commute.

$5.$ Sustainability factors $$ leads to less traffic congestion, cleaner air, less fuel to import.

Domestically, approximately $3\%$ of city commuters regularly ride a bike to work. Based on the country$$s latest census information, cycling has been listed in the top five leisure activities in each of the past five years.

The past two years has seen a significant uptake in electric bikes $($e$-$bikes$).$ Consumers are increasingly adopting e$-$ bikes for their comfort and ease of commuting long distances. In addition to an increase in demand for leisure and commuter e$-$bikes, the demand for mountain e$-$bikes has increased sharply over the last year. This is due to their product suitability and recognition of the benefits that e$-$bikes provide on the mountain bike trails $($the ability to cycle longer distances over the same time$).$

The largest growth categories of the bike industry are expected to be commuter e$-$bikes and mountain e$-$bikes. Only a small number of bikes are locally made $$ across all categories, most bikes are imported from China or Taiwan.

Background

R$10$s head office is located next to its largest retail store, in Sydney. As a result, all head office staff $($including the finance team$)$ have a good understanding of store operations and R$10$ products. R$10$ sells an extensive range of bikes, scooters, and bike accessoriesThe bike categories are split between mechanical bikes and e$-$bikes. The mechanical segment includes mountain bikes, road bikes, commuter bikes, recreation bikes, BMX bikes and kids$$ bikes. The e$-$bikes category includes e$-$bikes and hybrid bikes. The bike accessories offered by R$10$ include bags, bells, lights, oils, helmets, bike locks, bike pumps, bike racks and drink bottles. An extensive range of bike clothing is offered in R$10$s larger stores.

The following diagram outlines the product categories sold at R$10$ stores:

Bike servicing

Customers value the ability to have their bikes serviced when required. Each R$10$ store offers a bike maintenance service, which is outsourced to a third$-$party provider $($Steve$$s Cycles$)$ and completed offsite at a Steve$$s Cycles workshop. Eighty percent of R$10$s stores are located within $10$km of a Steve's Cycles workshop, and the remaining twenty percent of R$10$ stores are located approximately $100$km from a Steve$$s Cycle workshop.

When an R$10$ bike is purchased, it is taken to a Steve$$s Cycle workshop, and customised to the customer$$s specifications. Other services offered at the workshops include regular maintenance programs, safety checks, bike tuning and service reports. R$10$ has considered it too costly to offer this service in$-$house and so has not employed any specialists to provide this service to date.

Due to a recent notification of an impending cost increase of twelve percent by Steve$$s Cycles, Harry Guild $($R$10$s Board Chair$)$ has started to investigate whether R$10$ should offer bike servicing in$-$house and has proposed comprehensive store renovations to update store layouts and incorporate servicing workshops. This would be implemented in larger stores only, as the smaller stores$$ premises do not have the required floorspace to incorporate workshops.

Jas Singh $($R$10$s Marketing Manager$)$ supports the idea of having R$10$ provide bike servicing in$-$house, as it aligns with recent customer feedback regarding the need for flexibility when scheduling servicing. Jas believes in$-$house servicing would improve R$10$s reputation around customer service, and that a store refresh would positively impact the R$10$brand. The proposal requires considerable capital expenditure to complete the renovations and install the required workshop equipment.