When Schwinn Bicycle started selling bikes to Wal-Mart, Target and other chain stores two years ago, Palatine dealer Mikes Bikes decided to stick with the historic brand.
For this spring, however, the store hasn’t ordered any Schwinns and now plans to cultivate sales for smaller labels such as Raleigh and Gary Fisher.
The problem: Mikes Bikes sells a 20-inch Schwinn boys bike for $130 while discounters sell it for $70.
“And the one in the chains has features that we don’t have,” lamented John Fearncombe. “It’s a losing battle.”
The move to the mass market has been good for Schwinn and its parent, Madison, Wis.-based Pacific Cycle LLC. But the new distribution has hurt independent shops such as Mikes Bikes that prospered when the brand had limited distribution.
The early growth of Schwinn, which was based in Chicago until its first bankruptcy in 1992, was largely due to a loyal cadre of about 2,000 dealers, many of whom were “100 percent Schwinn.”
But today the choices are tougher: Either compete with the mass merchants by stressing service and a better selection or give up the Schwinn brand and cultivate other lines.
Indeed, many prescient Schwinn dealers diversified long ago. For those who did not, it is difficult to land bikes from industry leader Trek, which does not want to cannibalize its own dealer network.
Dealers say it is easier to get bikes from Giant, Specialized and a variety of smaller brands such as Haro or Fuji. But some dealers have decided they have come to the end of the road.
Glenview Schwinn, for example, is closing its doors after 49 years in business. Sales had been declining for the past several years, and owner Annette Lemke says she is sure Schwinn’s move to the mass market “had something to do with it.”
The opening of a Galyan’s sporting goods store hurt, Lemke said.
“You can’t compete with that,” she said.
She also notes that with bikes selling so cheaply at chain stores, many customers will simply discard an old bike and buy a new one–instead of spending more on one that will last.
“We’re a throwaway society,” she said.
Industry experts estimate that the number of independent dealers is shrinking not only because of Schwinn’s shift in strategy, but also because of the weak economy and because kids are spending more time playing video games.
Industry consultant Jay Townley, a former Schwinn executive, said 375 independent bike shops closed last year, leaving 4,982. That is 20 percent below the 6,270 shops that were operating in 2000, before the start of the latest economic downturn.
For Schwinn’s parent the move into the world of big box retailers has been profitable. In its heyday Schwinn sold 1.5 million bikes a year, but it was down to 500,000 annually when the company was acquired in 2001 during its second trip through bankruptcy court, says Chris Hornung, chief executive of Pacific Cycle.
Current sales figures were not available, but Hornung says the introduction of Schwinn to “broader distribution” has been successful, having doubled Schwinn sales to more than $1 million.
Consultant Townley notes that Schwinn has been most successful with kids bikes in the mass market, where parents do not want to pay a lot.
But the chains’ attempt to win the adult market was a flop, Townley said, noting that adults balked at spending $200 to buy a Schwinn at a Wal-Mart.
Hornung acknowledges that Schwinn tested and found its limits.
“Schwinn is expensive in the mass channel,” he said. “We are the most expensive bike at Toys `R’ Us.”
By entering the mass market, Schwinn lost two-thirds of its dealer base, leaving it with about 800 stores that represent about 40 percent of the brand’s sales.
“About what we expected,” Hornung said.
He maintains that Schwinn dealers can do well by providing service and a better selection and also capitalizing on their expertise to sell more bikes, especially to adults.
But some dealers remain skeptical.
George Garner Cyclery in Northbrook, one of the earliest Schwinn dealers, dropped the brand shortly after it was rolled out to the mass market. The store currently carries Trek and Specialized.
“We were told the bikes would be different,” said George Garner Jr., son of the store’s founder. “When it came down to it, they were not that different.”
The economics do not make sense, he says. Although Schwinn reduced prices to dealers, helping them improve their margins, the implication is, “you’ve been overcharging us all this time,” Garner said. And even with improved margins, the bike stores cannot beat the chains on price.
“We don’t need the line,” Garner said. “It causes a lot of confusion. It’s important to differentiate.”
Similarly, Bicycle Connection in Schaumburg–once known as Schaumburg Schwinn Cyclery–also dropped the line and is touting Giant, the Taiwanese firm that once supplied Schwinn and later became a rival. It added Specialized, the California firm that commercialized the mountain bike.
By going to the mass merchants, Schwinn was “biting the hand that feeds you,” said manager Josh Swiderski.
The loss of the brand contributed to sales declines in recent years, as did competition from roller blades, the Internet and video games.
Still, it was difficult to cut the ties.
People come in asking, “`Do you have Schwinn?’ We get five to 10 calls a week, a lot more in summer,” Swiderski said.
Jim Lynch has experienced a similar downshifting in sales at Evanston Schwinn Cyclery. Lynch says he sold only 32 bikes for Christmas this year, down from 50 last year and 85 two years ago.
And competing against Wal-Mart is difficult on a number of fronts. The bikes have their differences, but it’s not a “night and day difference” to the average eye, he said.
“People are shopping for Barbie stuff or video games [at Target or Wal-Mart] and they see a bike and say, `Let’s just get it; it’s one trip’ he said.”
Still, Lynch is sticking with Schwinn.
“It’s my bread and butter,” Lynch said. “It’s in the title of my store. People have been coming here since the 1950s.”
Consultant Townley predicts that things will get better for independent dealers as the economy improves, once it has become evident that mass merchants can only sell so many adult bikes.
At Mikes Bikes, Fearncombe said he is optimistic that the shop can thrive with Raleigh and Gary Fisher–sales were up 12 percent last year.
“We may lose a few people here and there, but it’s more the older generation that is into Schwinn,” he said. “It will be kind of interesting to see how it pans out.”
