Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=202964
Story Retrieval Date: 5/21/2013 5:52:31 PM CST
Ace Motorcycle and Scooter Co. focuses on customer service in a niche market.
Chicago shop focuses on cycles and customers
It takes about 35 minutes to excavate the shop every morning.
Ace Motorcycle and Scooter Co. is always crammed full of bikes when 41-year-old Chad McDade arrives. They line the walls and fill the middle of the room. There are so many it’s hard to walk between them. There are even a few bicycles—clunky British bicycles, the kind old Oxford dons tool around on—hanging from the rafters.
But by 9:30 a.m., McDade and his handful of employees have about two dozen of them lined up in the parking lot and are ready to start working.
Ace’s main mission is to repair vintage motorcycles, but McDade and his crew can work on just about any bike. They primarily work on old British, Italian and Japanese bikes from the ‘60s and ‘70s, as well as Vespa-type scooters. McDade does occasionally sell a bike, but the majority of his business comes from repairing temperamental—yet classic—rides.
McDade and his wife, Bee Kirchgatterer, incorporated Ace in June 2007 and opened their shop, a 2,800 square-feet bare-bones place tucked in between a commercial bakery and a public school on Jackson Street in the West Loop.
McDade had to sell some of his favorite bikes, including a much-coveted Velocet Venom, to come up with the start-up money. Despite the recession and the growing pains that accompany any small business, Ace has been able to steadily, if slowly, grow each year. The key to its success is a focus on a niche market and providing good service to a dedicated clientele.
“A year after we opened, the recession hit,” McDade explains with a shrug. “But collectable stuff is collectable all the time. A lot of people who have old bikes tend to have some money so they weren’t hit as hard as others.”
The recession slammed the motorcycle industry as a whole. According to the Motorcycle Industry Council, sales plummeted by 40 percent from 2008 to 2009 and then again by almost 15 percent in 2010. Numbers essentially leveled off in 2011, but the industry still has a long way to go just to get back to pre-recession numbers.
And yet smaller, specialty shops such as Ace have been well positioned to succeed while giant retailers suffer. One major reason: Ace was and still remains relatively tiny, so Chad and Bee have the enviable problem of being so busy that customers have to get on a waiting list to have their bikes repaired. That contrasts with many big dealers with lots of employees and showrooms that were filled with shiny, unaffordable merchandise.
“We went from having a labor rate of $65 per hour to $85,” Kirchgatterer says. “This fall it went to $100 an hour and there was no choking off of the work flow. We get so many phone calls I hear the phone ringing in my sleep. There could be 10 more shops like this in Chicago”
The 35-year-old is one of those habitually happy people, always upbeat and smiling, even when she talks about the mistakes Ace has made as it grows. She has experience in business management, in her previous career she was a “fixer,” somebody who goes to foundering retail businesses and makes them more efficient and profitable.
“I grew up in household with two family businesses,” she says. “Mom had a bar and dad ran a tool-and-die facility. At Ace we’re always learning and always changing.”
Recently, the shop began to focus on clientele who understand the nature and cost of maintaining vintage motorcycles and scooters, people who want high quality collector’s bikes and aren’t out trolling for bargain basement prices.
“People buy inexpensive bikes not because the bikes are cheap but because the people are cheap,” explains McDade. “Entry-level riders have not been profitable. I mean, it’s not like I get all my parts for free and then just make up prices.”
Ace’s three full-time mechanics also focus on trying to keep bikes as close to the original as possible. They can even fabricate parts that are hard to come by. Few shops are willing, and fewer mechanics are able, to do such custom work.
“New mechanics replace stuff--those guys fix stuff,” said Charles Harper, 35, who has been an Ace customer since 2008. He is a rarity around the shop: a Harley-Davidson owner. “Even though some say it’s a boutique, I think this place has the opposite of a boutique mentality. Everybody’s welcome and they do a much wider range of services than the big dealers.”
Harper, a union representative with two vintage bikes, has only one complaint about Ace: “They just need to move into a bigger spot and do more work.”
Approximately 85 percent of Ace’s sales come from repairs. (In five years, Ace has done 4,156 repair jobs, not including oil changes and on-the-spot fixes.) The remainder comes from sales of used and consignment bikes as well as boots, helmets and leather jackets.
Ace’s approach to selling jackets and helmets is novel. McDade says, “We’ve gotten rid of the stuff that you can get more cheaply online.” In other words, Ace only stocks high-end jackets and helmets that, due to across-the-board pricing policies, cost the same whether a customer buys them online or if they purchase them at the store. This gives potential buyers an incentive to come to the store. After all, they are looking at a $500 leather jacket and most want to try it on in person.
Kirchgatterer says that in its first year, Ace racked up about $80,000 in revenue but start-up costs landed the company in the red. By last year, revenue had grown to about $500,000 and Ace had turned profitable.
But costs have been rising along with revenue even though McDade only draws minimum wage and Kirchgatterer isn’t even on the payroll. Employees are expensive: health insurance, taxes and fees all add to the costs of hiring, and Ace now has six employees, three in the front office and three fixing bikes.
“The biggest threats to a new business are probably cash flow and a lack of access to capital,” says Michelle Dorvil Agbejule, executive director of the Institute for Entrepreneurial Studies at the University of Illinois at Chicago. “Problems arise as accounts receivable come in more slowly.”
In charge of the front office, a room stuffed with parts catalogs and invoices, Kirchgatterer says that Ace is essentially debt free. There’s no long-term debt, little inventory and customers settle up bills quickly. She says Ace rarely uses credit with suppliers.
Most customers praise Ace Motorcycle and Scooter. Of its 40 reviews on Yelp.com, an online customer rating site, only one failed to garner five-stars, the highest score.
To be sure, Ace does have some blemishes. The Better Business Bureau gives Ace a “B” rating, stemming from an unresolved complaint from 2010. The long waiting list and $100 an hour labor costs turns some consumers off. The shop also needs to strengthen its online presence and social media activity, as Chad and Bee admit.
But improving social media presence is not the owners’ biggest priority. They simply want to capitalize on the momentum they have and make Ace more profitable. While the recession was an obstacle, the biggest threat to the young business has been local government and taxes.
“The economy is actually our secondary concern,” Kirchgatterer says. “It would be nice to get out of Illinois—not because I want to live on the beach—but because of taxes.”
Chicago can be less than friendly towards businesses. McDade has spoken to other cities that have offered tax incentives to move his business out of the city. Chicago has never offered them a tax break of any kind, has complicated compliance codes and not always reliable public utilities. During a recent interview, a faulty transformer outside the shop went out and the front office lost power. Bee says these mini-brownouts happen at least 10 times per year.
“I think it’s difficult to do business in Chicago,” Dorvil Agbejule says. “When you’re trying to get licenses and permits, you’re trying to be an entrepreneur in a system not designed by other entrepreneurs.” Chicago is trying to fix these problems, but it takes time to do so, she added.
For now, McDade says Ace needs to focus on attracting more upscale customers and trying to move to a location in a more business-friendly city.
“We’ve worked way too hard to earn way too little,” he says. “Sometimes it’s hard not to feel like a fish in a barrel. I’d just like to make some more money without having to work so hard.”