Dear Jay Townley,

We're making huge investments ($500K) to differentiate our business as an independent bicycle retailer aligned with your guidance. Our major supplier has taken note and applied significant pressure to open as a Concept Store since we meet all the requirements and they like our market presence. Question is will we lose our manufacturers incentives and handshake geographic agreement to a closely placed Concept Store in the future?

The brands have created a competitive environment where everything is negotable. Depending on the brand, you still might be able to negotiate a "concept" deal and maintain your independence. I am assuming you might be working with Giant, and of the top three they have shown the most retailer friendly "concept" approach so far.

What I have learned from one of our case studies is that start-up specialty retailers are most successful in negotiating with major brands when they put a plan on the table that will be profitable for both the retailer and the supplier (in other words take control of the dialog and negotiation). Most supplier incentives today are offered to lock in business from retailers and as "give-backs" or rewards to imporove bottom line. What I have found is that most of the "give-backs" are nice chunks of cash, but when factored back into realized margin on bicycle sales as an example - still don't bring the total gross margin at or above the total operating cost. An agreement to allow the retailer to stock and sell every other model in a category (typically $100 seperations at retail), as opposed to every model in a category (typically $25-$50 separations at retail), and for the supplier to guarantee just-in-time replenishment seems to be, from our studies, a better supplier incentive for both retailer and supplier than some of the current incentives that lower the cost of goods - but don't really help either realized gross margin or inventory turn.

You might also take a close look at the Authorized Dealer Agreement you have with the brand in question. If your agreement on geography is based on a handshake, in reality you don't have an agreement. Your Authorized Dealer Agreement is negotiable, and can be amended with a side letter. Tips on what to negotiate are availlable from the National Bicycle Dealers Association (www.nbda.com). I helped write the NBDA guide to negotiating dealer agreements, and one of your options is for you to negotiate and get agreement on a "guranteed market potential" which is defined as the brand giving you the geography to sell the number of their units on an annual basis that you mutually agree on. Such a guranteed market potential can be re-negotiated annually, and if you don't perform by selling (or purchasing from the brand) the agreed to number of units the penalty is you no longer have all the geography. The other big hot button in your agreement is seeing if you can get the brand to change from litigation to settle disputes to binding arbitration - which moves the relationship from one where the biggest player has all the leverage to a relationship where both parties are on a somewhat equal footing as concerns settlement of any disputes that arise.

The bottom line here is - yes you could end up with a company concept store in your market. The fact that your lead brand is interested in your becoming a concept store is a compliment to the good job you have done with creating your retail environment. The question is - can you negotiate a win-win agreement with the brand relative to your becoming a concept store, or is your path to business wealth staying independent in your market.

Please let me know if you have any additional questions on this subject.

Jay