IT'S ALL UPHILL FOR BICYCLE MAKER

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, March 12, 1993                   TAG: 9303120186
SECTION: BUSINESS                    PAGE: A-5   EDITION: METRO 
SOURCE: By Chicago Tribune
DATELINE: CHICAGO                                LENGTH: Long
IT'S ALL UPHILL FOR BICYCLE MAKER
UNLESS MOTORISTS by the thousands abandon their cars for bikes when the price of gasoline goes up, Schwinn may be facing a stiff marketing headwind for some time to come.\
When the new owners of Chicago's nearly century-old Schwinn Bicycle Co. recently discussed the future of the reorganized firm, they boldly predicted a reversal of the company's fortunes.
But analysts say the bicycle market has weakened so significantly that the road ahead may not be easy for Schwinn, or other makers, either. For American makers, in particular, the outlook is bleak.
For one thing, the U.S. bicycle industry, like other American transportation businesses, including automobiles and airplanes, is faced with increasingly stiff competition from firms outside the United States.
In addition, Schwinn, which was forced to file for bankruptcy in October, and other bike makers in the U.S. market - foreign and domestic - are finding that the demand for bicycles here has leveled off, in part because of the economy and in part because the nation's population is getting older.
Bike sales, in other words, are flat, and chances they will soon emerge from their rut are slim, unless, of course, the economy improves dramatically or motorists by the thousands abandon automobiles for bicycles as a result of huge gasoline price increases.
Bicycling, a $3.2 billion business in the United States, including bikes, parts and accessories, historically has been an industry of peaks and valleys. And right now it's stuck in a rut halfway between the all-time peak of 15.2 million units sold in 1973 and a low of 6.8 million units sold in 1983.
"If it [bike sales] increases at all, it's likely to go up only a couple of percentage points," said Ralph Murray, Schwinn's president and chief executive. "We're just going to have to wait and see what effect the policies of the new administration will have on the economy to know for sure what's going to happen."
Murray became Schwinn's president earlier this year after the company was bought from the Schwinn family and taken out of Chapter 11 bankruptcy protection by Scott Sports Group, a joint venture of Idaho-based recreation-equipment maker Scott USA and Zell/Chilmark Fund, the Chicago-based investment fund.
Schwinn, a name once synonymous with bicycles, has seen its Schwinn and other bike makers are finding that the demand for bicycles in the United States has leveled off, in part because the nation's population is getting older. U.S. market share dip since 1950 from about 25 percent to 7 percent or 8 percent, or fewer than one of every 10 bikes sold here.
Among the factors that drive the demand for bicycles, Schwinn officials pointed out, are real income levels and the cost of alternative forms of transportation. Physical fitness, environmental concerns and demographics also influence demand.
Much of the sales increase in the early 1970s, for example, resulted from the sharp rise in gasoline prices initiated by the OPEC oil-producing countries. The increase in sales in the mid-1980s, on the other hand, was a result of the physical fitness craze that swept the country, Schwinn officials said.
The competition within the U.S. market has been changed over the past 40 years by the influx of foreign bike makers and the growth of such foreign and domestic mass merchandisers as Huffy, Murray and Roadmaster.
Foreign manufacturers such as China's China Bicycles Co., the world's largest bike exporter with more than 1.8 million units sold worldwide, and Taiwan's Giant Manufacturing Co., the second-largest exporter in terms of volume with more than 1.3 million bikes exported annually, have bitten off huge portions of the market once dominated by Schwinn.
In fact, the two Asian bike-makers not only sell bikes under their own labels within the United States, but also have been supplying virtually all the 500,000 to 600,000 bikes that Schwinn has been selling annually in the United States in the past few years.
Schwinn officials recently estimated that more than 85 percent of the bicycles sold in the middle- to high-end market segment - bicycles priced at more than $200 each - are manufactured overseas.
Ironically, it was Schwinn that provided the two Asian companies with the money and technology they needed to succeed in the industry.
One of the chief reasons foreign bike makers have made such a huge dent in the U.S. marketplace, industry officials say, is a perception among American consumers that foreign-made bikes are technically superior to U.S. brands.
A few new U.S. manufacturers have entered the market in the past several years with a variety of specialty bikes, further eroding Schwinn's once-commanding presence in the market and making it that much harder for the Chicago company to recapture some of its old market share.
Wisconsin-based Trek USA, for example, which started with hardly any presence in the early 1980s, has become one of the world's powerful specialty bike makers, generating revenues nearly comparable to those of Schwinn and selling more than half the number of bikes that Schwinn does within the U.S. market.

by Archana Subramaniam by CNB