George Gatto

Tue, 9/8 11:05AM • 48:42

SUMMARY KEYWORDS

Harley, bicycle, bike, business, people, industry, dealer, brand, Harley Davidson, sell, buy, motorcycle, f&i, group, bike shop, pandemic, retailers, sports, vehicles, margins

SPEAKERS

George Gatto, Rod Judd, Tara Kuipers, Pat Hus, Kent Cranford

Rod Judd  00:10

You are listening to bicycle retail radio brought to you by the National Bicycle Dealers Association.

Pat Hus  00:17

Good morning and welcome to another edition of bicycle retail radio presented by the National bicycle dealer Association. My name is Pat who’s and I will be the host for today’s discussion. With me on the line is George Gatto. Welcome, George. That so George is the owner and president of Three Rivers Harley Davidson, Gatto, Harley Davidson, and Gatto cycle shop, which is a motorcycle shop but also owns Gatto cycle shop, the bike shop in the greater Pittsburgh market. George has been in the bike industry, motorcycle industry for years and years, and who’s going to share some of his background with you in just a minute. But I’m excited because I think this promises to be a great conversation George and I go way back to my Cannondale days and looking forward to catching up and sharing some of our war stories. But just a quick background on me. My name is again Pat, who’s been in the bicycle industry for 40 plus years hard to believe kind of scary that I can actually say that. My dad bought a bike shop when I was 14, and worked there for a number of years ran a shop and college led to an outside independent rep position, which led to an opportunity at Cannondale. I was at Cannondale for about eight years, a great time there during the 90s in their heyday, eventually went on to American bicycle group down in Chattanooga, Tennessee. And that led to an opportunity to run boutique mountain bike brand Titus cycles back in the early 2000s. And from there I went on to a brief stint at Eastern Bell sports, and eventually landed at Interbike and I ran Interbike for about seven years, unfortunately till its demise in 2018. I’m still sad about that one. And then I was at a brief stint, most recently with Bravo sports, which was nutcase, helmets, and 661. And today I’m doing some consulting work in the industry and looking for that next opportunity, hopefully, something in the very near future. So that’s me, but George, tell us a little bit about you and your family and in your background and bikes and what you’ve been doing lately.

George Gatto  02:24

Well, let’s see, you’re my dad. So I’m the second generation. My dad was in his 80s. Started in 1964. When auto body shop, he was a car guy. He did a lot of fiberglass work and he was one of the few guys around that did fiberglass work. So he did a lot of Corvettes, so I have this affinity for old Corvettes and muscle cars from my dad being a kid. He brought motorcycles into the sideline, and my mom who was equal partners in the business, that dad was a typical entrepreneur. It’s selling it and mom did the books. She understood the numbers and they made a great partnership. So he went from the auto body, motorcycles as a side He opened up a little bicycle store in the motorcycle shop. And about that time is when he got out of the autobody business. I was in like 10th grade. And the person that ran the bicycle shop left for some health issues, and my dad said I needed to run the bicycle shop. So that’s how I got in the bicycle business. I ran this little store within the motorcycle store. I grew up in a motorcycle store in 10th grade, I was running my own bicycle dealership.

Pat Hus  03:24

That’s awesome. All right, so now you’re in the bike business, but it’s kind of a secondary business to the motorcycle, but at some point, the family decided we really should put more emphasis on the bike side. What year are we talking about where you guys

George Gatto  03:38

said, Let’s go bigger and bikes. So it was really when I got out of college, which would have been 8485 I decided that I loved the bicycle business. I love the people, people to know me no more a business guy than I am an enthusiast. And that’s really what I’m enthusiastic about it probably muscle cars and snow skiing and boating and I’m not in that business. Businesses work. You know, I was a college done with college started bicycles. I bought a second, third, fourth fifth store. We’re doing about 4 million bucks a year and bicycles. I was loving it. And then the ground started to crumble beneath my feet. There was a lot of consolidation. I mean, you live through that, Pat. Oh, it was ugly. Yep, it was ugly. And when that happened, I sat down with my parents and said, you know, emotionally I am 101% tied to this bicycle business. But monetarily, you know, we’re not making a lot of money with it. And we were making a lot of money with our Harley store. So I decided at that point to buy a second Harley Davidson dealership that was in Oh, seven right before the recession. Great timing on my part, about our largest competitor in Pittsburgh. Right before the recession, I had monthly payments that were more than probably most people in the bicycle industry make in a year. And we made it through and I split our existing store into Harley and power sports. And back in those days, I was actually thinking about getting out of power sports, because the margins were so good. And Harley is just an awesome, awesome company to do business with. They were great partners. But you know, times have been tough on Harley, and this year, you know, kind of feels like there’s been this massive paradigm shift. And the metric business that the power sports business is booming, and only businesses struggling.

Pat Hus  05:23

Yeah, I’m gonna dive into that a little bit later on in the conversation because I definitely want to hear what’s going on in that world. So in that decision to acquire your competitor, is that simultaneous with you guys deciding to exit before other stores?

George Gatto  05:38

Yes. And that was really my decision. I was the bicycle guy. My dad, I love him to death. He’s a great guy, but he’s, I was the oldest son of four and he was really hard on me and bicycles. While I was profitable, he let me do what I wanted. And, you know, he’s Italian, you know, and with Italian comes that temper, you know, bicycles. You know, I could do what I wanted. laws have made money and you left me alone. And then when it started to consolidate, you know, I just sat down with him. And it was really emotional back. I mean, I’m not an emotional guy, I’m pretty even killed. And I sat down with him and said, You know, I hate to say this, but this bicycle thing going down the toilet, we need to look at something else. And there was hardly staring me in the face. You know, I was comfortable being a bicycle dealer, and I was comfortable with all the people. You know, Harley, it was a different breed back then. And it was very uncomfortable for me to take me two years to get comfortable with it. So you

Pat Hus  06:27

sold for there you closed for stores? If I’m not mistaken. You didn’t even sell the businesses

George Gatto  06:32

did you talk about selling it? I’ve several people interested in buying it, but they wanted our last name, which is Gatto, which was our brand. I cleared all the last names. And at that point, as you said, Fine. I’ll just I’ll close one at a time. I’ll sell the buildings or I’ll walk you know when the leases are up. So I’ve methodically you know closed one store at a time is the leases came up where I was able to sell the property and we walked away from it except what we kept one store. You know, we walked away from all that we didn’t lose money. You know, I didn’t have to go through Some liquidation or closeout, or whatever it was, was methodically thought out, and we made money with it. And it all worked out.

Pat Hus  07:06

any regrets looking back now? I mean, was it the right decision? Or do you? Is it parts that you kind of go down? I wish I still had those stupid things.

George Gatto  07:13

Well, I miss the people. I mean, I miss you. I miss you know, you make friends for life. I made a lot of friends when I was on the NBDA board. I mean, Chris Cagle. I mean, what a loss Chris Kegel what a loss lesson bomb. Jay Graves. I picked up the phone not long ago called Jay graves and said, Hey, buddy, I haven’t talked to you in years. What are you doing? I saw a podcast. Yes, he is. And I’m still working six-day weeks. Wondering is the smarter to listen to Dan Thornton’s podcast not long ago. And you know I met Dan Thornton the NBDA Board so really a long answer to a short question. I missed the people and that’s really all I miss is the people.

Pat Hus  07:52

Well, so tell me about the shop that you guys have. What brands do you guys carry? What’s Is it a healthy business? Is it something that you guys, it’s kind of an afterthought. How do you view the bike shop that you guys still have?

George Gatto  08:04

So I had a guy that worked for me for many, many years. I made the mistake of saying, if it stays profitable, we’ll keep it that loses money it goes. He can stay profitable. So it’s still there. Awesome. That’s great, though. Yeah, brands we still carry Cannondale. I mean, we carry Cannondale back before they made bicycles. You know, we used to buy the bags from Connecticut. Love dealing with Scott and Joe Montgomery and the crew up there. We still carry giant, we recently picked up Batch, we do GT, you know, we have a few Schwinns I mean, right now there’s no product so you know, the forest pretty much sitting there empty. If I could find somebody that bikes I find them but it sounds like everybody’s out of the product. So

Pat Hus  08:43

well, nice segue because that was gonna be my next conversation pieces to talk about. You know, what’s happening with the craziness of the pandemic. And then obviously, in your world, you’re experiencing the same thing that we as an industry are all experiencing and that’s the supply line. Just being drained completely. But you know, you can’t get angry about it because nobody saw this coming. And everybody trying to react has, you know, you can see it, but it’s just not filling the pipeline. And I don’t know how long that’s going to take to where the bike industry gets back to, you know, availability. It’s going to be a little while. I talked to JT a giant, he said, Pat, we’re, we’re in a position where we’re going to be scrambling all the way through the first two quarters of 2021. And I don’t think he’s unusual. I think everybody’s facing that same battle right now. But talk to me about how things are going on the bike side, from your perspective, and then what’s happening in the motorcycle world. How is this pandemic impacted your business in moto?

George Gatto  09:44

Well, the bicycle side. I mean, it’s such a small portion of our business. I mean, we’re over $20 million a year. So you know, the bicycle side is it’s tiny. It’s probably about a half a million bucks a year at that store. That used to be a million-dollar store years ago. We don’t put the effort into it. We should I mean, we don’t really advertise it, it just kind of exists. But you know, I’ll back up and say that with all the talk and everything I keep reading about, you know, e-bikes are upon us, and seeing some parts of the country starting to sell you bikes, we did bring some e-bikes in, we’ve not been really successful with them. But you know, even you know, I’m going across composites 20 groups and a lot of discussions with Powersports dealers about e-bikes. I mean, you know, there are guys picking them up, there are guys looking at picking them up. So, you know, I get off on a little tangent here. But, you know, one of the reasons that we stayed in bicycles could work out that, you know, e-bikes take off, we’re already ingrained in that business. As far as getting a product, you know, there’s nothing you can’t get anything and bicycles and you can’t get helmets, tires, tubes. And although I’m not angry, I mean, I’m sure all the other retailers. See how angry the customers get when they come in saying, you know, I need a tire for my mountain bike. It’s like we don’t have any. When will you get some more? We don’t. We can’t get them. What do you mean, you can’t get them? Can’t you order them? Yes, they’re in order. When are you going to get them? We don’t know. What do you mean? You don’t know. It ends up being this big long conversation and they start to get mad. And, you know, we’re seeing the same thing in the power sports business, Honda Suzuki Kawasaki Yamaha sold out everything can’t get in one of our largest power sports distributors, great distributor. The president of that company is actually a gentleman that I know from Harley Davidson. And he basically told me their fill rate is 57%. That’s it. I mean, we can’t get half of what we order. And they’re working diligently to fix that. But the problem is manufacturing, they can’t fill the demand quickly enough, early on the other hand, so Harley PNA. And accessories have been a problem. But with the issues with Harley so what we’re seeing in the power sports industry, people with stimulus money, and people with you know, unemployment making, you know, they’re making more money than they’ve ever made. They’re coming in they’re buying, lower priced. So like street bikes, 750 cc and down, can’t keep them on stock, especially 600 400 to 50. Can’t keep them the good news. There is those are a lot of news. riders coming into the industry. Yeah, you know, Harley and some of these other companies have spent massive amounts of money to get new riders. And it was working a little bit, you know, took a pandemic, to get people to start buying small street bikes. So there’s a lot of new riders coming in. So that’s a big plus for the industry. The other big plus kids, people are buying kids dirt bikes, kids ATVs, they’re buying ATVs and side by side UTVs because they can do it as a family. So we’re seeing a lot of new riders coming into that side of the sport, which is a big plus for the industry. And again, it took a pandemic for that to happen, but the motorcycle power sports side, a lot like bicycles can’t get anything. Partly, the parts are hard to get. But the new vehicles are not selling as well as they used vehicles are and it’s because of the differentiation of the price of new to use. The negative with using this, the prices have gone through the roof. So yours is really scarce. Harley, they brought a new CEO in and he was the guy that turned Kumar around years ago, and he basically has cut back on new vehicle production, which they probably needed to do. But personally, I think he cut it back too much. So new vehicles are really scarce and we’re going to be scarce for the rest of the year. So there’s a long explanation to it. Another short question.

Pat Hus  13:18

No, no, no. But you know what the parallels are very interesting because the bike industry is seeing the same thing. We’re seeing new entrance, right we’re seeing people in the kid’s thing, not unlike moto is blowing up in the bike. Kids bikes were the first things that were wiped out on the shelves in the bike shops because all these people are home with their kids going how do we entertain these kids? Get them outside? Yeah, so we’ve had a ton of new entry ton of the repair business has gone off the charts as I’m sure you’ve seen in moto as well and not having tires and tubes. People are wheeling these old bikes in with spiderwebs and saying can you change the tires and there are no tires to put on them in a shop that I talked to is two weeks to 30 days on Repairs?

George Gatto  14:03

Yeah, it’s crazy. We are too.

Pat Hus  14:05

Yeah, it’s a good problem. But it’s a bad problem. Because if we turn people off now we can’t satisfy that spike in demand, it’s going to be a missed opportunity. But the other thing we’re seeing is embracing mayors and musical groups that want to create more places for people to ride. So there’s a huge opportunity as an industry, to take advantage of that wind in our sails, and get some of these things that we’ve kind of been fighting to get. Now we’ve got momentum, let’s go get this stuff done, and create safer places for people to ride and keep this new insurance engaged, keep them excited about riding bikes. That’s the part that I get excited about.

George Gatto  14:47

That’s a great point, Pat, because I mean, you got to control what you can control. We can’t control that, you know, we can’t control we can’t get the product, but you can control it. You know how you treat people. And then of course have places arrived. That’s really good stuff.

Pat Hus  15:02

It’s exciting. And you know, peopleforbikes is the advocacy arm of our industry, and they’re all over it. And they’ve got new leadership there, but and she’s just Jen dyes is terrific. And she’s got marching orders, and she’s going after it. So I’m confident we’re going to be able to capitalize on this but just can’t happen fast enough in my mind. So shifting gears a little bit, you know, I think it’d be interesting for our audience George to talk a little bit about the parallels, and then the differences between bicycle and motorcycle industries. And I know you’ve alluded to some of this stuff already. So let’s talk a little bit about the differences. So, you know, in the world of bicycles, you know, like margins are what they are. And accessory margins are where you want to make your that’s where the real opportunity that and labor, is it the same in moto? How are things different? How does it vary between import brands and Harley for As another example,

George Gatto  15:55

that difference between the metrics and a metric comes from Harley cars The guys in my metric 20 group are always telling me it’s power sports, George’s power sports, we’re gonna find you every time you say metric. But that’s 30 years of being a Harley dealer. I keep saying metrics, but they’re very different from each other. On the power sports side. Traditionally, the margins on new vehicles were very low. There were too many dealers, there was too much product, we always had a lot of aged inventory. So we’re always dumping inventory, the vendors always had aged inventory. And they’re dumping you know, 123-year-old vehicles. So the margins on the new were not very good. The brands or I could make a better margin or the brands we focus our business on, even though I may like the brand, or they may have a better name, we go where we can make the money. What’s changed now is that because there’s such a shortage of product, we’re making full pop on every vehicle that we sell, there are no discounts. We’re also getting freight and prep. And then we make a little bit of money in the f&i side with the financing you’ll make a little bit of money on the interest on the loan, you’ll make a little bit of money if we all buy life or extended service. policy, which is an important thing to have, especially for off-road vehicles. So it used to be we didn’t make a lot of money in the unit, we’d make the money in the f&i. We’d make money on parts, accessories, clothing, and service. Now we’re making most of the money on the new unit on the f&i, the PNA business on the power sports side, a lot of it’s gone to the Internet, and it’s been a real problem. I know it’s the same thing that happened in bicycles that are still happening in bicycles. Harley, on the other hand, we made our money on the unit upfront. We made money on the f&i the margins on clothing or not good when they’re typically 30, maybe 40%. At the lowest, yes, low margins, and Harley clothing is not cheap. I mean, you know, 100 bucks, a hundred 20 bucks for a shirt is no big deal. You know, 40 bucks for a T-shirt. That’s what they are. So the margins there aren’t really strong. PNA margins are stronger. We used to sell the vehicle and then they would accessorize the heck out of it. When money gets tight, they back off on the accessory. They just don’t accept it. As much as they buy less clothing so really, Harley’s been the money. There have been the units in the f&i, not the other products.

Kent Cranford  18:09

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Pat Hus  18:28

Well, so in terms of margins on the bikes, like in the bicycle industry, I think, you know, most people on this listening to this podcast would say that their margins on bikes are typically anywhere from you know, 30 to 32 on the high-end bikes up to as much as 40 points on some of their higher volume, sub thousand dollar price points, and they are not happy about it. And understandably, when you shake out to an average margin of 3435 points, and your cost of doing business is close to that it makes it kind of hard to make it work, but I don’t think they understand motorcycle unit margins. What would you say are your margins on average import versus Harley?

George Gatto  19:07

So before the pandemic, I would say the metric side was probably up Powersports. I said that wrong power sports, I’m gonna get fine. Okay, the Powersports side was probably five 6%. A front end gross. Now you got to add your f&i dollars in there too, which can be fairly substantial back some cases, you’re making more in f&i than you are on the front end gross of a vehicle. Now, you know, we’re probably making 15 16% front end gross plus the f&i dollars. On the Harley side, you’re probably I don’t know how you’re probably 18 19% on No. Plus the f&i dollars which are substantially used depends on how well you buy and what it takes to refurbish them. So, guys, I’m like 20 groups, I’ve seen them as low as 14%. I’ve seen guys as high as probably 22% on use. So you’re looking at much bigger dollars, you know, you’re looking at, yeah, the cheapest Harley is $8,000 and they go up almost 50 Grant.

Pat Hus  20:00

So right, yeah, you’re not selling $500 front suspension bikes? Correct. So, we’ve talked a lot about Harley. And you know, it’s a brand that’s been admired for years and years. And it’s, it’s such an iconic brand. And you know, I think there are brands in the bike industry that like to compare themselves to Harley, which is a, I always kind of chuckle because I just feel like Harley’s taking it to another level. And I don’t think there’s anybody in our bike industry that can align themselves with Harley at this point. I know they aspire to it, but right now, I don’t see them being there. So talk to the bike shop owners, how does Harley treat its region? How does it support its retailers? Because it’s you and I’ve had this conversation before. And it’s been a great lesson for me to learn and just go, you’re kidding. Wow! Why don’t the bike suppliers to listen to do this? So maybe give me some a couple of examples and why Harley so important to your business?

George Gatto  20:58

So I mean, Harley is one of the nicest brands in the world. So you know Harley Davidson there, I’ve seen reports that they have a better brand recognition than Coca Cola or Ford, or you know, Chevrolet I mean, that’s how well recognized they are. So they are in a complete another category when I hear bicycle companies back in the day that would try to compare themselves for Harley. I did more than chuckle I mean, I did lol because bicycles are a commodity compared to Harley Davidson. So Harley is the company. So I mean, part of it is people. Now the new CEO, I don’t know. He’s only been there a few months. I don’t know him. The former CEO. I had a cell phone number. I could call him anytime I wanted to call him and I did call him he knows me by my first name. I know him by his first name. We had a great relationship with most of the upper management at Harley, and that’s how they operate. They have the best in industry training for their dealers. So I know that there are a few bike vendors that started to do training for their dealers, and I applaud them for that. I know that you know, when I was on the MBTA We had worked really hard to do a lot of training. They were in the process of putting 20 groups together when I left. And I know that they do have 20 groups. Now, that’s very important. I mean, training is good, but a 20 group when you can look at numbers of your peers, and you can see where you’re doing a great job and where you’re doing a bad job. And then you can communicate with those dealers that are doing a great job or I’m not and I can, you know, they’ll share with you what they’re doing, because you don’t compete, and it’ll help you improve those areas. So 20 groups are just huge. Harley has a point of sale system, it’s fully integrated. We do everything from selling the vehicle the f&i Harley knows what we’re selling when we’re selling so they know you know, not just vehicles but they know some little $2 part what they need to stock heavier on because they know what’s selling. We have access to some great reporting. To really measure everything in the dealership, I mean, my fingertips, I can look at reports to see you know, payroll percentage per department, aged inventory report. And frankly, that’s what I spend most of my time doing. I kind of oversee what’s going on with, you know, inventory levels, payroll levels, if we’re up against if we’re down, we set goals, are we hitting goals, you know, and Harley is where I learned all this, unfortunately, didn’t learn this at Penn State. We have reps that actually show up and do their jobs. I mean, when I was in the bicycle industry, and hopefully that’s changed now. But some of the worst reps on the planet were some of the biggest branded bicycle companies I dealt with. And it just blew me away. They also have training in the dealership, they had this program called performance consulting, they changed the name of it now, but they’ll actually send consultants to your dealership, and they’ll help you. You know, maybe you brought a new parts manager in, and they don’t know how to run the parts department, they’ll come and they’ll help you. These are the key measurements you need to look at. These are, you know, look at some of your measurements and where are you holding up? Where do you need to work? And they’ll send people in to the store to help you with these things. Now, you know, with COVID obviously, none of this is happening. You know, I’ve always taken full advantage of all the training they’ve had. I’ve taken full advantage of the relationships. And, you know, the 20 group thing. Again, I can’t say how important the con group is. It’s just I manage my business to the 20 groups.

Pat Hus  24:09

Well, you know, and I’ve been listening and hearing about Harley’s investment in the retail channel, and it’s, and obviously, their marketing is off the charts. Because it kind of if you go back and you look at Harley, it wasn’t because the product was the highest quality, standard set, Harley used to have a bad reputation. And if I’m not mistaken, you can speak to that better. But yet, despite that reputation, they built a rapport and a reputation with their retailers and gradually improved the product, of course, but when they started this whole March, it was not with a great product. It was more about the service and the support of the retailer. Am I right?

George Gatto  24:48

Yes. So, in the 70s, Harley Davidson was purchased by AMF, American Machine, and Foundry. Their goal was they were numbers-oriented. Let’s increase in production increases. production increased production, sell more, sell more, sell more. And they did that. The good news was Harley had a lot of antiquated systems and many antiquated manufacturing machines and processes, and AMF, the good part of emf was that they brought that up. Even though the volume was so high that the quality was bad. Harley bought themselves back off of AMF in 8182. And at that point, the benefit from AMF was that they had better quality manufacturing processes in place. So they took the production levels down to a regular, you know, more regular number. And they just focused on quality, quality quality. And the quality was pretty bad. They and after years, it wasn’t very good in the early 80s. By the mid-late 80s. Harley was booming. I mean, everybody wanted to ride a Harley Davidson and it wasn’t because it was, you know, quality or not quality was more it was the image. It was the brand. When you talk to corporate people from Harley, they talk a lot about the brand. You know, we as dealers We are stewards of the brand. And if you do something bad, and you’re not supporting the brand, you’re out, man. You know, there was a dealer. This is crazy, but he can’t somebody filmed a porn movie. And this guy’s dealership. Well, guess who’s not a dealer? You know, very quickly after that. There was recently a dealer down in Tennessee, that put some really nasty comments out there about Black Lives Matter. And the guy you know, the comments were the most racist, bigoted thing I’ve ever seen in my life. I guess he’s not a Harley Davidson dealer. They shut down right off, man. They don’t mess around. They’re great partners. But you know, you don’t represent the brand properly, man, you’re out.

Pat Hus  26:36

Yeah, good for them. I mean, that’s what that’s how you defend a brand. And I applaud that. Do you think that they’ve pulled up the industry in general, do you find the power sports, the import brands have learned from and watched Harley do what they have they elevated their game to match it?

George Gatto  26:53

Well, the Japanese brands, I mean, there are some great brands out there but they’re in Japan and they’re worldwide. You know, Harley is based here in Milwaukee, Wisconsin. And the bulk of their sales are US based, although they are worldwide. them, Harley being based here. It’s, it’s a little different like I know a bunch of people at Harley. And I, you know, six months ago, I knew more because they changed upper management. But there’s this whole relationship. I need something man, I know who to call, I can pick up the phone. Those guys. They’re in Pittsburgh, like Matt Levatich, the former CEO, when he was in Pittsburgh negotiating with the union. He stopped at my store. And he comes and says hi to me, but he spent half hour 45 minutes with my team, and even with customers, what’s working, what’s not working, you’re receiving over here? What’s your biggest issue with receiving What’s your biggest issue with a warranty? minutes, the CEO of a Fortune 500 company coming into my little store in Pittsburgh, asking all these questions. They did a thing. One point that was a guy to Kevin what they called it, they would actually send one of the executives to your store to work for like three or four days just to get a feel for retail because I gotta tell It most of the vendors and dealers, you know, we want to align our views, you know, we want to be partners. But vendors, goals, and needs are a lot different than what a dealer’s goals and needs are. So you’ve got to find that common ground. I will say a lot of people at Harley are manufacturing people, their distribution people, they may have marketing people, or they’re not retailers. And they at least had the interest to come in and learn about retail. And they needed to do that. Because again, they’re not retailers. They don’t see it. I’ll tell a quick story. I hired a guy that worked for Harley corporate for years, he actually would train service departments on how to run service. We hired them, love the guy, great guy, and His head was spinning. Even though he would train us how to run our service department when he was actually in the service department. You know, trying to run a service department. It’s a whole different ballgame.

Pat Hus  28:49

It’s a great point, George. I think that’s common in the bike industry. I think the wholesale side thinks they understand the retail channel, but in many cases, they don’t. Although Those lines are getting more and more blurred as the brands really dive deeper and deeper into owning retail trek is pretty clearly on a march to own distribution and specialized as their share and giants doing some of that as well. So they’re learning through their own stores. And that’s progress. I think that’s benefiting the whole distribution network. So it’s a good thing. So hey, I’m gonna shift gears again. We’ve seen what’s happening in e-bikes. You mentioned it earlier, you’ve dabbled a little bit. Harley is supposedly launching bikes. I don’t know where that stands today. But with KTM having a full and expansive line of E-bikes, you got Yamaha big time into the bike space with you know, their own dedicated motor their own product lines. There are giant and other brands that are, you know, adding distribution into motorcycle stores. What do you think it’s going to take for that to really get traction,

George Gatto  29:57

people buy in them. I mean, the last probably four group meetings I’ve had on the power sports side, a big portion of the meeting was actually, you know, what’s going on with e-bikes? Should we bring them in? You know, because Giant is aggressively pursuing our sports dealers. And it makes sense to me, Yamaha same thing, but I mean, we’re just not seeing e-bike sales. I mean, we’re seeing a few in Pittsburgh, but we’re not seeing a lot. I understand there are certain pockets in the US where e-bikes are selling really well. I think when they become more accepted, and you know, the prices continue to come down, we’ll probably see more of them. But I mean, I’m just not seeing it yet. And the Harley thing, everything’s up in the air right now with Harley, this new CEO is changing everything. They pushed it back from a, you know, a May June launch to a next year launch. But we don’t know when or if it’s ever gonna happen. So I’m not sure what’s going to go on there. And how well Will it work? I have no idea. Personally, I think I have a better shot of selling an E-bike through my power sports stores and I do so at a Harley store.

Pat Hus  30:57

Yeah, that makes sense to me. Because especially With you know, if you had a Yamaha or you had a KTM, or there is the crossover for sure. There’s plenty of motocross guys out there that are riding mountain bikes as their other recreation, for sure.

George Gatto  31:12

Exactly.

Pat Hus  31:13

Well, so I’m going to throw another question at you here that I think you’ll be interesting to hear how Harley’s tackling this. And this is they were watching the boomers age out George, you know that you and I are at the very tail Boomer group, and we were the ones behind driving Harley’s success back in the 80s and into the 90s. But we’re aging out. So what is Harley doing about this next generation? Are you concerned about it? Are you selling to this next generation? Where does Harley fall out in this? I’m just curious to see because we’re seeing it a bit in the bike industry where, you know, how do we market and cultivate that next generation.

George Gatto  31:50

So I was on Harley’s Dealer Advisory Council. They call it a DA C and you get a three-year term. You basically spend three, four trips to Milwaukee. And you spend three, four days with the powers that be at Harley to discuss whatever it is they want to discuss. And a lot of it is, you know, they want to understand retail, they want to understand what’s going on on the sales floor. You know, they want to know what’s happening. When I was on that CAC, we spent a lot of time talking about the baby boomers, and you know, what a huge bubble population it was. And at that point, I mean, they knew it was coming. They talked about it for years, and they knew it was coming. What they did is they marketed to new riders, and they spent a lot of money marketing the new riders, that was a, you know, an age that they were going for younger riders, they focused on, you know, younger male. The second category was probably female of all ages, after that was, you know, different ethnic groups, and they were fairly successful with it, but it wasn’t enough to make up for, you know, the guys my dad’s age that just couldn’t write anymore, and then my dad’s in his 80s you know, they could be really wanted to We could jump on a bike, but he’s just not comfortable doing it anymore. And he hasn’t been for quite a few years. So they came up with a trike. And you know, guys in their 70s Well, they were jumping on trikes, because they couldn’t balance, you know, two-wheeler anymore. So that helped. But, you know, once they hit that late 70s, they just got out. So, you know, the big thing with Harley, they spent a ton of money on marketing, as a dealer. A lot of it was walking the talk in that, you know, my staff at this point is very diverse. You know, when I first got into the Harley business, I felt very uncomfortable because I came from bicycles. My wife, still a physical therapist, and you know, she’s fairly fit. And, you know, we grew up doing bicycle rides, and, you know, he goes to shows and everybody was fit. I go to these Harley shows, you know, it was a whole bunch of guys that look like Santa Claus wearing leathers, and, you know, a lot of enthusiasts, and I was very uncomfortable with it. And you know, the language was different. You know, there’s a lot of dropping the F-bomb and, you know, a lot of beer drinkers and all there was a lot of beer drinking nearby. too, but I was very uncomfortable with it first. But as I found people that were like-minded and that were business people, and you know, I got very comfortable with it, actually pretty quick. It only took me a couple, you know, year two years to get very comfortable with it. But, you know, back to the original question, Harley spent a lot of money in marketing, they hired like if you go to the motor company today, last time I was there, it was before the pandemic and they had this big giant conference area on it’s on a fifth or sixth floor with a podium and upstage and there’s a whole bunch of chairs and such. They had a big LGBTQ luncheon, and it was for employees. And it wasn’t like there were six people it was, you know, there were more people who like account. But this isn’t the Harley Davidson that you know, that I was introduced to back in the 80s. And my dealerships are the same way. Now. I’m going to tell you that the bulk of my managers right now are female, my right hand, Lisa, she’s our general manager and our controller, and she’s been here for over 10 years, you know, female single mom of two. That’s not the way this business was. I mean, I have that African American employee, I have gay employees. It’s not what it was. So I think walking the talk is part of it. You’ve got to have people on the floor, you’ve got to have people at the motor company that walks the talk, and they know and understand this. And you know, they bring their friends in. And that’s how it looks. Now it’s a whole different ballgame. That makes sense.

Tara Kuipers  35:18

Have you heard of P2 groups and wondered what they are? P2 stands for the profitability project. And while profitability is that the focus of everything we do, we do so much more P2 group members share their expertise and their insights. They ask questions and they exchange resources to make sure every member is profitable and successful in every aspect of bike shop ownership. Reach out today so we can tell you more.

Pat Hus  35:53

Ya know, you’ve tapped into that next question, which was, I remember when you and I were talking earlier about you coming To speak at the IBD summit and we, we had a great conversation about diversity because it is an issue for the bike industry. And it’s, we face this challenge. I mean, we are not acting as an industry, recruiting people, different ethnicities, we’re just not it’s an old white, you know, male industry. And it’s, that’s not going to be sustainable. We’ve got to start thinking as our culture and our society as evolved, we as an industry need to evolve. And I loved hearing those stories about what Harley was doing. And I believe at one point, you mentioned that they were looking to recruit from a customer standpoint, Hispanic and African American. And there were incentives and prioritizations on bikes that were limited supply to those retailers that could demonstrate that they were actively engaging in those communities to recruit that customer. Is that still something that’s active within Harley?

George Gatto  36:56

Yes, it is. Now Harley has a point system they call it a bar shield, which is their logo. You get barn shield points for jumping through different hoops. And they’re typically a reward, not a punishment. Although if you do really badly, you can get put into a, what you call it Harley jail, where you’ve got improved or your franchise is in jeopardy. But they Yeah, they do reward on points. I mean, I tried to get my wife to reward me for points and she just won’t do it. But I can tell you it works. You know, we watch the points. We want the points you win a trip, in the end, you can win we’ve had trips to Madrid, we’ve had trips to went to Ireland. You know, they have these wonderful trips every year and you’re basically spending time with the who’s who of dealers and all the Harley exacts and you’re going to dinner with them. You’re going on tours, because there’s so much of this business, it’s a relationship. It’s so important as the relationship side. Yes, they definitely get rewarded for jumping through the right hoops. Well, because I think that’s what it really

Pat Hus  37:55

comes down to is it’s, we can talk about it at the supply level that we need more diversity, we need this, we need that. And we can go out and try to recruit for, you know, employment at the corporate wholesale level. But if we’re going to really tech, if we’re going to embrace diversity, we’ve got to start at the retail level, in my opinion, we’ve got to go out into those communities and get those ethnicities involved in the sport, whether it’s motorcycles or bicycles. And I think there needs to be incentives and tools provided to retailers on how to go do it, because I think it’s, it all sounds well and good. But until you hand somebody some toolkit that says, here’s how you do it, it may never happen. And unfortunately, I think that’s where we are in the bike industry.

George Gatto  38:41

What I failed to mention with Harley is, you know, all my time in the bicycle industry and all my time in the power sports industry. It’s a push business model. You know, the vendors want you to buy more products. They’ll give you a reward if you buy more products that give you a reward if you sell more products, but its Push, push with Harley to get Vehicles, you have to jump through those hoops and you have to get points, or you don’t get more vehicles. So it’s a pole system. So for me to get new Harley’s to sell, I gotta jump through hoops, or I don’t get them. But what brand besides Harley Davidson has that? You know, I don’t know what the word is, but I mean, I don’t know another brand that could get away with that. I mean, if Honda said that to me, I will be you know, I love you, Honda, you make some of the greatest products on the planet, but, you know, I’m just gonna sell the other brand. It’s called leverage. Harleys its the exact opposite. They had leverage they do they have leverage. Exactly, yeah, that’s one product. We’re gonna jump through the hoops. And typically, it’s making good business decisions, jumping through the hoops. I mean, Harley is not a perfect world and, you know, I could spend hours talking about some things that I don’t like with Harley, but you know, for the most part, if you make good business decisions, you get rewarded by getting more vehicles and vehicles drives everything else for us by selling new Harley Street Glide, I know that that person is going to spend X amount of dollars on parts and accessories They’re going to spend X amount of dollars on average on clothing, they’re gonna spend X amount on service over the next three to five years. So you want to sell that vehicle to capture all those other dollars. Um, the other thing I didn’t touch on was the diversity. I didn’t intentionally try to hire, you know, most of my managers being female, it just happened. These ladies were the best person to be in that position. And the same with you know, other ethnic groups that we have working here are people that you know, have different sexual preferences than I do. I don’t care about that stuff. I don’t care if you’re pink, blue, orange, I don’t care what car you drive, you know what color you dye your hair. What you know, if you like men, female dogs guy, I don’t care. It’s about doing a good job. I spend more time with the people I work with within my own family. You know, I like to surround myself with people that I like, and people that do a good job, and it just happened so it wasn’t like it was intentional for us.

Pat Hus  40:53

Now it’s great to hear that too. And it’s great. You know, I think a motorcycle has a more diverse audience in general. bike, but I could be wrong. But I feel that in my gut that it’s, it’s been more diverse, especially in the street world, you have a unique situation there. And I believe that the bike industry can start to find more diversity by starting with getting more people on bikes if we can create passionate cyclists out of, you know, newcomers that are coming into space now, those people become the feeders to the wholesale level to the whole, I mean, everything starts the diversity starts to expand, but it to me It almost starts at the consumer enthusiasts level.

George Gatto  41:38

Makes sense? 

Pat Hus  41:40

So, George, I, first of all, I want to thank you for your time today and for the conversation but I before we tap out, I want to just put one last thing in front of you and just say you got any advice for our like retailers out there today and these things, any pearls of wisdom that you could share or would like to share?

George Gatto  41:59

So I belong to this business group called YPO Young Presidents Organization and I actually joined it because remember Jim Bellis the bicycle exchange the Savior? Sure. Jim is who got me involved with YPO. YPO has been an awesome organization. It has opened many doors for me, just like the NBDA Board did. Dan Thornton and talked in the webinar that he did not too long ago about, you know, how the people that you meet, being on the NBDA board. I mean, you know, my first NBDA meeting, I’m sitting there with you know, Jim Balas, who was like, you know, he was a god, he had 13 stores in the DC market. I met Jay graves to the NBDA board. I met Chris Kegel. I mean, Chris was on the board for CABDA back in the day, and CABDAwas blowing up. When I was like, we got to get Chris Kegel on our board, you know, there’s a great guy. And like I used to go see Chris when I was in Milwaukee, visiting Harley, I’d have dinner with him or, you know, we hang out even it was for a few minutes, we just meet up, but I got to meet people like that being on the NBDA board. That was huge for me. YPO was huge for me. 20 groups are still huge for me, it gets to a point like, you know, onboard, like even Harley DAC, a dealer Advisory Council. The first year you’re learning everything there is to learn about Harley corporate. The second year, you’re engaged like crazy as the third year you’re like, get me the fit, or I’ve had enough. But you know, the people you meet and the quality of retailer, I mean, you are who you hang out with, you know, when you’re hanging out with the likes of, you know, Chris Kegel, you’re gonna bounce great ideas off each other. And you’re gonna learn from each other, and you’re gonna help each other and when you’re in a 20 group. I mean, some of the dealers are in 20 groups that I’ve been in because I’m going to 20 groups for the Harley stores. And I’m going to 20 groups of the power sports store. So I have three trips a year for each of those. And numerous webinars. Now the zoom webinars were on these things. I mean, during the pandemic, my 20 groups, we saved each other’s butts, through the pandemic. I mean, I was the first one to get shut down in Pennsylvania. I shared this, you know, detailed information of what was going on when we were getting shut down and all the uncertainty and did this is what I’m doing guys, I laid everybody off accordingly sign up for employment. I shut off you know all my advertising I slid off-cycle trader I called the garbage company and shut off the garbage pickup. And the guys in the 20 group were like thanking me when they got shut down, at least not all of them got shut down. But the guys that got shut down, they’re like George, you gave us a list of what to do. We didn’t have to come up with that list. And then when those guys were reopening before I did, they were telling me what was going on. Those guys in my Powersports group were like, George, how much inventory you got?  God, between three stores to Harley in a metro store. I’m probably sitting on 6 million bucks where they inventory I’m scared to death. I don’t know when our Governor is going to let us open. We’re going into the busy season. They’re like George, buy more inventory. I’m like, What? I’m not buying any more inventory. You guys are crazy. They’re like to buy more inventory. We’ve sold through our inventory. And we’ve already bought what’s in the US there is no more inventory. If you don’t place orders, you’re not going to get anything. So I placed orders and I get a full show run right now because The guys in the group, you know, we don’t compete. We share everything. We were texting every night we were calling, In fact, we still call each other almost daily. But you know, we saved each other’s butts. So you know, join it to the group, you get the opportunity to be on something important like the NBDA board, like the people you meet and the things you learn. You don’t get that from a college education. YPO you know, you got to be pretty big volume to get into YPO. But there are other organizations like it that are more broad-based. It’s not just you know, your industry. Guy. What else can I tell you? I think when we did the bicycle business conference, we talked about vote with your dollars, support the vendors that have you know, business models are the same ideals as you do. And the ones that don’t, no matter what their name is, drop their ass. I was a Polaris dealer. They’re one of the highest volumes off-road vehicle companies on the planet. I did not like their business model. In fact, I hated it. I dropped Polaris and it cost me some money to drop them. But you know what? I’m in a much better place today not having to deal with the latter. Bicycle vendors. I don’t know who’s who anymore. So I can’t speak to that. Beyond that guy, what else can I tell you to manage your expenses and the 20 groups, Sam Dantzler and Tony Gonzalez from garage composites? These guys are always saying, You’re not going to go out of business by having too much inventory. What do you get too much inventory? You know, they’re always looking at inventory levels, and how much can you sell? And, you know, we have floor plans that can be big, big numbers, so we really watch our expenses. You know, it’s not just about selling more product, training, training, training, training, take advantage of everything you could do. I mean, I’m a sponge. I’m not the brightest guy. I just, you know, I’m a sponge I’m just always trying to learn,

Pat Hus  46:37

Boy, you just put the ball on the tee for me. And I will say this and I mean this insincerity, Brandee. And the board at the NBDA has been they’ve been working their butts off to help retailers. And there are tools and resources that are available today. That can truly help every retailer that’s out there joining the P2 groups, the webinars that she’s got going on, she’s revamped the website. She’s just, she’s kicking ass as the executive director. She’s doing a fantastic job. And I think, you know, the industry, the retailers who shrug their shoulders at the NBDA need to take another look. There was a period where it was a little off course but it’s back and since she’s taken the helm it’s really become a valuable resource to bike shops out there and you’re crazy to not take advantage of it. That’s if I could say anything. That’s what I’d like to wrap this up with is you know, this is a clear demonstration of that is putting these podcasts together, they’re not easy. It takes time there’s an investment to be made but there are great lessons learned in all of this and George just wants to thank you from the bottom of the heart for doing this great to catch up. Let’s stay connected. And I’m sure our paths are gonna cross in the not too distant future, my friend. 

George Gatto  47:53

Hey, before I hang up, I want to say that I wish we had the NBDA in the motorcycle industry. We do not have an organization like the NBDA here, and we could really use it especially right now because even though things are booming, if you make bad decisions, you’re out of business and there are a crapload of dealers closing up right now Harley and Powersports both.

Pat Hus  48:14

Wow, well, a great insight rally cry, go get them Brandee.

Rod Judd  48:18

This has been bicycle retail radio by the National Bicycle Dealers Association. For more information on membership and member benefits, join us @nbda.com