Schwinn Bicycle Company
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The Schwinn Bicycle Company was founded by Ignaz Schwinn in Chicago in 1895, and grew to become the dominant manufacturer of American bicycles through most of the 20th century. The story of its rise illustrates many principles of sound business operations, and its fall, which occurred in the face of the burgeoning of cycling in the United States in the 1970s and 1980s, demonstrates the opposite.
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[edit] The founder
Ignaz Schwinn was born in Germany in 1860, and he gravitated early to working on the two-wheeled ancestors of the modern bicycle which appeared late 19th century Europe. Frustrated with the unwillingness of local manufacturers for whom he worked to accept his design suggestions, Schwinn emigrated to the United States in 1891, where he found similar difficulties with American bicycle makers. In 1895, with the financial backing of fellow German American Adolph Arnold (a successful meat packer), he started the Arnold, Schwinn Bicycle Company. These were the peak years of a bicycle craze throughout the western world, and Chicago was the center of the industry in America, with 30 factories turning out thousands of bikes every day. Bicycle output in the United States grew to over a million per year at the turn of the century, and Arnold, Schwinn's were recognized as among the finest. Ignaz was not only an ingenious designer and an exacting supervisor; he was an astute businessman as well, so Arnold was able to be the ultimate "passive partner".
This first bicycle boom was short-lived, as automobiles soon replaced bikes as the preferred means of transportation on American streets. By 1905, output nationwide was one-fourth of what it had been but five years earlier, and only 12 bicycle makers remained in Chicago. Competition for parts and for the cooperation of the department stores which sold the bulk of the bicycles became intense. Schwinn saw opportunity where others saw only gloom. He bought out failing firms cheaply, and built a new factory on Chicago's west side. Interested also in motorcycles, he purchased Excelsior Motorcycle Company in 1910, and added the Henderson Company four years later, to form Excelsior-Henderson, one of the country's foremost motorcycle builders. Both businesses thrived while their independent competitors failed.
[edit] Surviving the Great Depression
At the close of the 1920s, the stock market crash and resulting economic downturn decimated the American motorcycle industry, taking Excelsior-Henderson with it. Deprived of this income, Schwinn, Arnold Co. (as it remained in name until 1936) was on the verge of bankruptcy. Ignaz' son Frank W. "F.W." Schwinn, now running the company, did his father proud and selected a bold course. Instead of trying to cut corners, he insisted on turning out a product that would distance Schwinn from its competitors. After travelling to Europe to get ideas, the hard-driving F.W. returned to Chicago and in 1933 introduced the Schwinn Aerocycle, the biggest change in bicycles since James Starley introduced the revolutionary "diamond frame" some fifty years earlier. F.W. had persuaded American Rubber Co. to throw out the mold and make two-inch diameter balloon tires to yield a more comfortable ride. He added streamlined fenders, an ersatz fuel tank on the frame's top, a chrome-plated headlight, and a push-button bell, and the customers (mostly children) who could afford a $35 bicycle loved it. Such "cruiser bicycle s" quickly became the industry standard, as other manufacturers imiatated Schwinn's innovations.
Similar models followed, some high end and some more affordable, but all turned-out with top craftsmanship and with cutting-edge styling, suggestive of the flamboyant automobile styles of the era. The Schwinn brand became associated with quality a cut above the competition, and by the 1950s was established as the Cadillac of American bicycles.
[edit] The Cadillac of American bicycles
Being known as the best-made American bicycle would not alone have satisfied founder Ignaz Schwinn. Neither was it enough for son F.W. nor grandson Frank V. (for Valentine) Schwinn, who took over the company following F.W.'s death in 1963. About 1952, F.W. added marketing whiz Ray Burch, then General Manager Bill Stoeffhaas, and also design supervisor Al Fritz to the management team. They aimed to be tops in marketing and distribution, and in service. A former racer, head engineer Frank Brilando made sure everything worked before being marketed. For years, bicycle distribution had been haphazard. Most companies sold bikes in bulk to department stores, who in turn sold them with the label of a store brand. Except for the B.F. Goodrich tire stores, Schwinn did away with this practice in 1950 and insisted on the Schwinn brand and guarantee appearing on all their products. Their distributors however long retained the right to send Schwinns to whichever hardware store, toy store, or bicycle shops wanted to carry them. In the 1950s and 1960s, Schwinn cultivated a loyal cadre of bicycle retailers dedicated to selling mostly, if not all, Schwinn bicycles. Messy, grimy, local bike shops were replaced by Schwinn dealers with glittering storefronts, uniformed salespeople, and long, tidy rows of only Schwinn products. Company newsletters lavished praise, and more lucrative bonuses, to the 1000 Club, whose members topped that number in annual bike sales. Service experts from headquarters made the rounds to be sure that shops knew how to properly fix the rare Schwinn which needed repairs.
Through the 1970s, Schwinn also kept up with changes in consumer demand. They were quick to pick up on the West Coast phenomenon of attaching motorcycle-like "high-rider" handlebars and long "banana seats" to small-frame bikes. Calling their model of such a bike the Stingray, Schwinn dominated the market in this genre as well. When teen and adult riders looked for models more sleek than the Black Phantom, which was the nation's most-wanted bicycle in the 1950s, Schwinn responded with the Varsity and Continental ten-speed "racing" bikes which topped sales as well. During the yet-unmatched bicycle boom of the turn of the century, annual national sales of bicycles had briefly topped one million. While bicycling in the 1960s was not nearly as popular as before, Schwinn sales alone were topping that magic figure by the end of the decade. But despite Schwinn's unparalleled success and yet another bicycle boom to come, there were clouds on the horizon.
[edit] The anti-trust suit and its results
On the surface, Schwinn's marketing campaigns matched its engineering and design efforts, step for step. Department store brands were seen as poor imitators of the real thing. Schwinn's distributors, though, balked at restrictions the company put on their ability to send some of their Schwinns to shops not part of the Schwinn network. In a ten-year legal battle, many of Schwinn's allegedly restrictive practices were upheld by the courts: judges ruled that they certainly had the right to have their bicycles sold by retailers who knew the product and were equipped to service the bikes as well as sell them. However, in a decision eventually decided by the US Supreme Court in 1967, Schwinn was ruled to have violated restraint of trade principles by preventing its distributors from shipping some of their bicycles to unapproved dealers. The company decided to stop working through independent local distributors and constructed four huge regional warehouses from which their bicycles would—legally—be sent to individual shops. Initially successful, this policy made it more difficult for the main office to keep in touch with the buying public, whose desires were about to change.
The mini-boom of the 1960s accelerated in 1970, with U.S. bicycle sales doubling over the next two years. While everyone's profits soared, and Schwinn went on to record sales of over 1.5 million bicycles in 1974, much of the growth was in lighter weight European and Asian imports. Schwinn's outdated factories, and their corporate thinking as well, was wedded to heavy, steel, welded frames. Meanwhile, younger buyers were becoming more interested in lighter frames composed of new alloys which could be lug-fastened and brazed together. Schwinn did offer a series of lightweight fillet-brazed models including the hand built fillet-brazed Schwinn Superior (later named the Sports Tourer in the early 1970's) from 1938 to 1978, and the top of the line Schwinn Paramount from 1938 to 1994, which was also hand built using lugs and Reynolds 531 tubing. The problem was that the Paramounts carried a high price for those who wanted the very best, so they were sold in small numbers. Schwinn even took a loss on the Paramount overall, as they wanted a premier bike that was the finest available in the marketplace, and considered it to be worth taking in on the chin, so long as it supported the large volumes sold in their lower priced bikes. It was all about the public perception that "Schwinn" meant "Quality". The more reasonably priced Superior/Sports Tourer though hand built and of a high quality, had an image problem. They were visually indistinguishable from the heavy mass-produced models like the Varsity and Continental, and were thus overlooked by riders looking for high-performance bikes. Schwinn did a poor job of marketing those fillet built bikes and ended up missing the train on the lightweight craze. Furthermore, many older riders became disillusioned with the lack of comfort afforded by dropped handlebars and narrow seats, and these riders dropped out of the market altogether. In the mid-1970s, Schwinn took the radical step of allowing some of their dealers to sell imported brands, and even started to put their own label on a line of Japanese imports they marketed as their LeTour and Traveler models.
While they had been quick to jump on the high-rider fad, Schwinn missed out on the next California craze to capture the children's bicycle market: BMX racing. After first claiming this new sport was too dangerous to warrant involvement, management changed their tune—too late—when they introduced their Predator BMX line, which captured a mere 8% of the market. A more long lasting development, mountain biking would similarly pass Schwinn by in the 1980s. In the midst of these income-depleting crises, management considered consolidating their outdated Chicago factories and relocating to a huge single facility to be built in Tulsa, Oklahoma. Financing this heroic maneuver would have required bringing in outside investors, perhaps even foreign ones. Frank V. Schwinn and his conservative board balked at this step in 1978, and everything went downhill from there.
[edit] Bankruptcy and demise
By the early 1980s, a fourth generation Schwinn, Edward R. Jr., was in charge. He favored slick new managers with M.B.A.'s over ex-mechanics, alienating the management team he inherited. Worker dissatisfaction, seldom a problem in the company's early years, grew; the Chicago plant voted to affiliate with the United Auto Workers in 1980. This move, plus the decaying condition of the 80-year-old facility, led Schwinn to move operations to Greenville, Mississippi. Labor there was cheap, but skilled metalworkers were difficult to find, and parts took a long time to get there from Asian suppliers. Profits turned quickly to large losses, and creditors, including those who had financed the ill-advised relocation, were impatient.
Schwinn staved off bankruptcy for a few years with some clever maneuvering. They renegotiated loans by putting up the entire company and the Schwinn name as collateral. They also ramped up production of their Aerodyne exercise bicycle, which had been a consistent moneymaker even in bad times. Even more effectively, the company began to import bikes from China as well as Japan, where costs were going up. Initially they dealt in China with Giant Bicycles, gradually increasing total imports to over half a million bicycles a year. Schwinn sales flirted again with the million mark, and the company turned a profit again in the late 1980s. Management knew it was perilous to depend so heavily on one supplier, and behind the scenes they negotiated a better deal with a Chinese upstart firm, China Bicycle Co. Not taking kindly to being double-dealt, Giant decided to aggressively push their own product to Schwinn's own retailers.
Upstart domestic manufacturers like Trek also cut into Schwinn's market. In addition the now struggling company had to cope with the flourishing of component manufacturers such as the Japanese firm Shimano. Sophisticated cyclists now often selected vehicles by their components rather than the bike's actual brand, causing the Schwinn name to be devalued. Schwinn was forced to tighten its operations and closed the Mississippi plant. They also established company-operated shops, which were at first successful but alienated the independent retailers whose business they threatened. This led to further inroads by both domestic and foreign competitors. A downhill spiral ensued, and after declining many offers from outside buyers, Schwinn went into bankruptcy in 1992. The company and name were bought by the self-described corporate vulture firm Zell-Climark in 1993. Zell shortly moved operations to Boulder, Colorado, where the Schwinn name continued to be stamped on a varied line of products.
Finally, in 1993 Richard Schwinn, great-grandson of Ignaz Schwinn, with business partner Marc Muller, purchased the Schwinn Paramount plant in Waterford, WI., where since 1980 the exclusive Paramounts were hand built. They founded Waterford Precision Cycles, which is still in operation today. As of 2003 they employed 18 workers building custom, ultra-lightweight bicycles.[1]
[edit] Sale to Pacific
In 2001, Schwinn was purchased at a bankruptcy auction by Pacific Cycle, a company known for mass-market brands. In 2004 Pacific Cycle was, in turn, acquired by Dorel Industries. Schwinn bicycles are now being sold in discount stores like Wal-Mart, Target, and Canadian Tire. Higher quality Schwinn bicycles, however, are still being sold at specialty bike shops. Based on consumer reviews, Schwinn bicycles sold at mass retailer shops attract customer by their price and looks.
[edit] External links
- Official Schwinn Bicycle website
- Orange County Schwinn Collectors Group - a site for the fans of old Schwinn bicycles
- Official Waterford Precision Cycles website
- Ignaz and Frank Schwinn page at Mountain Bike Hall of Fame
- Official Pacific Cycle website
