Winter is Coming (Again)

November 19, 2015

We’ve been having some stormy/snowy weather here in the NW and the riding season is winding down. We got a big delivery of firewood last week and the stove’s been lit everyday. It’s downright cozy in here.

Orders are fewer in the winter, and Nicole (who’s been working part-time since Tiffany joined) has another business she’s involved with, so she’s going to focus on that over the winter and reduce her Mosko hours accordingly. We’re done with the summer rally/show circuit, so we unpacked the show trailer, put it in storage, and the remaining trailer inventory is going back to the warehouse next week. Our show stuff – flags, samples, etc – got loaded into the big Husky boxes we use to ship it around from show to show in the winter, and sent off to the Sacramento and Long Beach shows.

Winter Show Circuit

We’ll be at several motorcycle shows this winter but we’re not taking inventory to sell, because we’re flying in for those shows, so no trailer.  The Portland and Sacramento shows already happened. In addition to those, this winter we’ll also be attending:

• Long Beach, CA (Nov 20)
• New York (Dec 11)
• Vancouver BC (Jan 22)
• Cleveland (Jan 29)
• Chicago (Feb 12)

Come visit us at a show! Andrew is working the Vancouver show. Dusty is working Long Beach, New York, Chicago, and Cleveland, I’m joining him in Long Beach. After that, in March/April, we’ll load up the trailer again and the whole traveling circus starts over.

Big thanks to Glenn Manning who’s showing our Backcountry kit at the motorcycle show in Sydney, Australia this weekend!!

2016 Product Line

We’re finalizing our 2016 production order now. The redesign of the Backcountry wedge/frame as a molded piece and the redesign of the Reckless 80 as a 3-piece system took up a bunch of development time, plus we had a private label design project that kept us busy for a good chunk of the summer, so the tank bag and tool rolls won’t be ready for a spring 2016 launch like we originally hoped. We’re working on them now, planning on a late season or 2017 launch. For 2016, we’re using what we learned in our first full year in business to make sure the Backcountry and Reckless systems are solidified, perfected, and continually in stock starting next spring. We’re setting up for a big launch in 2017, which will include apparel as well.

Backcountry Frame/Wedge

Last time we checked in on this, we were testing the 3D printed versions of the wedge/frame, and making final edits. Since then we paid for the new molds (~$25,000, which is a lot of money for us). They’re currently being manufactured and we’re expecting factory prototypes in December. We’ll order materials right away, take a few weeks to personally test the prototypes, make final tweaks, and start production when the materials arrive in January. Originally we hoped to have our bag factory do final assembly, but there’s no time left, so we’ll do another big assembly run in Portland next spring.

Reckless 80 Redesign

We received our new Reckless 80 prototype and it’s basically perfect with just a few small changes left to make, which we hope will not require another prototype, because that would almost certainly delay production.

Unboxing and inspecting the new prototype this week. There’s always this feeling of nervous anticipation when we open a new box of protos…

The holes for the leg connections looks great.  Really clean melt.

All the connection and compression straps are now doubled over the edges, and the ends are hot-melted.  Some of the subtle construction changes we made in this version.

The center harness and legs look great.

The primary change we want to make is at the spot where the center harness meets the side legs. There’s a small area where the top harness rubs on the side leg.  The legs in this version were a little shorter anyway, so we’re just going to make them longer to fix this.

For the internal drybags we’ve been looking for a new welding factory, and we have a good contact to one in China that does some really nice work. They have our redesigned leg/rear bag specs/samples and they’re working on first prototypes, but it’s not clear whether we can get the production done in time for Spring. We may go ahead and order R80s with the same drybags as last year, and then when the new ones are ready, we’d swap out the old for the new.  That, or maybe just ship two sets of drybags with every R80.

The new drybags will be welded with molds instead of a hand-fed welder, so they’ll be a lot cleaner. Also we may be able to introduce some color options as well, depending on material MOQs. We’re currently thinking we’d do a majority in grey, then a small run of orange and blue as well. Orange and yellow – the high vis/warning colors – are obvious choices, and are standard fare for moto bags/gear. Ideally we’d like to try something different, although we’re struggling with that a bit, because orange and yellow both look pretty cool.

A couple samples from the new welding factory. You can see the high quality of the welds on these bags. Really clean.

Looking at color options next to the new R80 sample.

Cinch Straps

We got our first sample of the Cinch Straps back and they look awesome. More on these in a future post.

Production Run

Lee spent a bunch of time in Portland finishing up assembly of our production order from last spring. This is the last batch of product we have in stock, so when this sells, that’s all we have until spring. Stock status is pretty good on most items at least through the end of the year, except the Reckless 80, which is still sold out. After New Years we expect things to start selling our sporadically.

We’re anticipating a price increase for 2016. Definitely order before the end of the year if you want to save a few $$. The biggest increase will be on Backcountry panniers.

West Africa

I’m planning a trip to West Africa this winter. The idea is to land in Accra, Ghana, figure out some kind of a bike (probably a small local bike) and explore. I’d like to visit some nearby countries like Cote D’Ivoire, Togo, and/or Mali. If anyone has contacts in that area – especially in Accra, Ghana – they would be much appreciated. I’m still waiting on visas, but assuming those come through, which they should, I’ll be leaving in January. Planning to take the new Reckless 80 on that trip since I have no idea what kind of bike I’ll be riding. With the new three-piece design it should be a lot easier to fly with.

Oh yeah, we got a new-to-us (donated) fridge this week. We’ll fill that bad-boy up with beer & whiskey to get through a long, cold winter. Thanks Matt Loikkanen!!

How We Set Prices

November 6, 2015

Margins are like salaries; if you have a good one you’re supposed to keep it to yourself, if you have a bad one you’re supposed to keep that to yourself too. In this blog post I want to slay that sacred cow and talk about margins & money.  If you already have a sense for how consumer goods are priced, then none of this will be surprising. But if you’re seeing it for the first time, you might be interested to know where the retail price of a product actually goes.  It’s fresh on my mind because this topic came up several times at the Portland motorcycle show last weekend.

Most outdoor and action sport companies are manufacturing at the same/similar factories using the same/similar materials, and sometimes even the same/similar designers, because designers move around. Companies try to mask this through fashion and aesthetics – i.e. by developing their own distinct ‘look’ – or with all kinds of marketing and branding stuff that increases the ‘perceived value’ without changing the cost of the product. But there’s only so much a company can do when they face the same basic economics as everyone else. At retail, you typically get what you pay for.

Here’s the highlights:

• A bag you bought in a retail store for $400 cost around $100 to make, a 4X markup over factory cost is normal in soft goods.  
• The store where you bought the bag paid ~$200 for it, then they doubled the price before selling it to you for $400.
• The company would love to sell you that bag for less than $400 if they could, but if they did their retail stores would drop them.
• If you buy from a company that only sells direct (like Mosko) you’re paying as little as 2X (instead of 4X) the factory cost.  

Traditional Model

Soft goods make four stops on their way from factory to consumer.

The product gets marked-up at each stop, and nearly half the cost is tacked on at the very end by the retailer. I’m not suggesting that retailers are getting rich off this arrangement; retail is a really tough business and they need every penny of markup to cover their payroll, rent, advertising, etc. It’s expensive to feature a product on retail shelves and have it merchandised and advertised in a way that consumers find appealing. Even when you’re doubling the price, it’s still hard to make money in retail.

Companies are OK with this arrangement because a) they depend on retailers for most of their business, and b) when a company sells direct through their website at the full retail price, they’re making a 75% gross margin.

I should note that in the motorsports industry, retailers tend to take a slightly lower margin than in some other outdoor markets like skiing/cycling gear, but the total markup comes out about the same: 3.5-4X factory cost.

Direct Sales Model

In a 100% direct sales model – i.e. no retailers involved – the product skips the last stop on its way to you, and a company like us can afford to sell it for much less than what you’d typically expect to pay.

In the past, most companies who sold direct typically packaged their offering in one of two ways:

1. Really Low Prices: For an example of this, picture the late-night commercials advertising ‘factory direct pricing.’  The fundamental message here is that ‘our products are just as good as everyone else’s, but we cut out the middle man and pass the savings on to you.’
2. Really High Margins: These companies set their prices at the same level as companies that sell through retailers, but they keep the extra margin for themselves, often spending it on marketing, catalogs, or company-owned stores.

Our strategy is different: we take the ‘retail margin’ and put it back into the product itself. In other words, we design the bag without regards to cost, adding whatever features, hardware, and materials are best, then we mark it up the same as any normal company would. Our margins come out the same, but our prices seem a lot better because there’s no retail markup. The price you’re paying would normally be considered ‘wholesale’ or ‘pro deal’ pricing.

A consequence is that we can’t offer the same show specials and seasonal promotions as other companies, because we have a smaller delta between factory cost and retail.  We’re not trying to be the lowest price option, we’re trying to create the design flexibility to produce a more evolved product. Actually our bags are some of the most expensive on the market right now, but viewed as a multiple of factory cost they’re also the best deal. In retail stores they would cost nearly twice as much.

Two Models Compared

Here’s what the two models look like side-by-side.

We’re still a tiny company that recently introduced our first products, but we want to grow our bag assortment and expand into riding apparel as well. This direct sales model is part of how we can carve a niche for ourselves. There’s an opportunity here to make better gear without moving already-high price points even higher. Without retailers, we’ll always miss out on walk-in business, but for folks who do their own independent research we can offer something really cool.

Oh yeah, the Portland show was great!  Thanks for coming out despite the rain!!