Luxembourg Buyer : Huffy Will Sell Ailing Raleigh Bicycle Unit
Saying it’s been rough going in the bicycle business this year, the nation’s leading bike maker announced Thursday that it will sell its money-losing Raleigh subsidiary to a Luxembourg firm.
The announcement Thursday came from Huffy Corp. of Dayton, Ohio, which produces roughly 60% of the bicycles made in the United States. It said it would sell Raleigh Cycle Co. of America to Derby International Corp. S.A. of Luxembourg for an undisclosed amount.
“We determined that Raleigh would not meet our long-term goals for profitability,” said Harry A. Shaw III, Huffy’s chairman and chief executive, “and we have taken this action to eliminate the operating losses and to redeploy our efforts and assets in more productive areas.”
The Bicycle Manufacturers Assn. estimates that 10 million bicycles will be shipped to U.S. stores this year, 2.6 million fewer than in 1987 and the first drop since 1982. Experts are divided about whether the industry is going through a periodic downturn or whether it is headed for a round of consolidation.
Huffy President Richard L. Molen said in a statement: “While the decline in the bicycle market has had a significant impact on our results for the last six months, it appears that bicycle orders for our Huffy business are picking up, and we anticipate an increase in production in the near future. . . . We believe that the bicycle slowdown is temporary and is essentially over at this point.”
Since 1982, Huffy has had exclusive rights to make and sell Raleigh bicycles in the United States, and in 1986 it introduced Raleigh’s new Technium bicycles with an aluminum-bonded frame. In announcing the sale Thursday, Huffy noted that last year Derby acquired most of the worldwide operations of Raleigh and that Derby plans to continue operation of the Raleigh Technium manufacturing plant in Kent, Wash.
Huffy, which reported in July a 47% drop in net income for the second quarter, said its third-quarter earnings report due out later this fall will reflect a $2.9-million loss in connection with the sale of Raleigh. In trading on the New York Stock Exchange, Huffy stock closed at $14.125 a share, up 75 cents.
Some bicycle industry analysts said the announcement by Huffy illustrates an accelerating consolidation of the industry.
“Consolidation began about two years ago,” said Ash Jasing, the president of the Bicycle Market Research Institute in Boston. “It’s going to be a trend. The large companies will be doing most of the buying. It’ll be an increase in consolidation, meaning somebody buying out a company or somebody going out of business--one of the two.”
He predicted that, by 1990, 10% of the more than 100 companies selling both bicycles and bicycle parts will go out of business.
But Mike Kershow, a spokesman for the Bicycle Manufacturers Assn. in Washington, insisted that the industry is expanding rather than shrinking. “The importance of Huffy’s sale of Raleigh cannot be seen as consolidation,” Kershow said. “It’s not like companies are buying each other out or leaving the industry.”
He cited the expansion plans of Kent Bicycle Co. and Schwinn Bicycle Co. as proof that the industry is not about to witness a shakeout. He also noted that Spalding and Wilson, two major sporting goods manufacturers, are about to enter the bicycle industry.
Still, Huffy’s announcement comes as sales and shipment figures are slumping for both foreign and domestic bike companies for the first time in four years. The last time shipment figures dropped was in 1982, when they fell to 6.2 million.
The industry also foresees an improvement this year in U.S. manufacturers’ share of the U.S. market. Kershow said the association expects that domestic and foreign manufacturers will evenly split the U.S. market, an improvement from a 58% import share in 1987. He said a weaker dollar has boosted the cost of imports.
“The drop in sales and shipments has hurt everybody,” said Jasing of the Bicycle Market Research Institute. “The main reason (for the drop in overall sales figures) is that sales in the BMX-Freestyle market have declined.”
Jasing said the market for the two models, which are often grouped together because of their resemblance, is expected to drop by 20%. Jasing declined, however, to release his sales estimates.
Kershow linked the slowdown in the industry to a cycle of depression that he said the industry experiences every six years. “It’s the industry’s natural cyclicality,” he said. “After 55 or 65 million bikes go into the market, the market gets saturated. Everybody who wants a bike has one.” Kershow added that the cyclical sag usually lasts two years at the most.
Kershow also said the recent resurgence of videogames may have contributed to sagging bicycle sales. A spokesman for a California-based bicycle publication echoed Kershow’s comments.
“The industry has definitely reached the saturation point,” said Doug Adler, an account representative for California Bicyclist. “Whether it will fall backwards, I can’t really say.”
Meanwhile, Los Angeles bicycle dealers said they have not suffered.
“We have not experienced any drop in sales,” said Greg Stokel, the general manager of Bikecology Santa Monica. “There really doesn’t seem to be a lot of that among brands we represent.”
“Our bike sales have been good,” said Paul Herrera, who owns Paul’s Bike Shop in El Monte. “Bike sales are seasonal. You sell a lot in July, not a lot in January, and so on. We are on schedule.”
U.S. SHARE OF BIKE MARKET Market share of domestic bicycles declined steadily through last year, but because of the declining dollar it should climb back to 50% by year-end.
1978 80% U.S.-made bicycles 1986 41% U.S.-made bicycles 1988 (projection) 50% U.S.-made bicycles Source: Bicycle Manufacturers Assn.
Los Angeles Times
