Exciting, uncertain times for Taiwan's bike industry
A rollercoaster of Covid-19 challenges, opportunities keeps local companies coasting
By Douglas Habecker
It’s another recent, typically-busy day at Source Solutions, a small Taichung-based company focused on helping supply international customers with all things bicycle-related. In an upstairs suite of attractive offices, staff are busy looking at specifications and drawings of parts and components submitted by clients, handling sales orders and other paperwork, and talking to European customers via a live conference call—a Covid-19 imposed necessity that has replaced previous personal visits. In a large space downstairs, employees sit around a table meticulously hand-labeling boxes that will hold bike components for a customer whose focus on Amazon sales requires attractive packaging; outside a 20-foot container awaits their finished products. In a lab next door, technicians are using a variety of equipment and tools to carry out quality control tests on parts.
General Manager Jennifer Hung, who started this company in 2001 as a bike-focused trading company, walks around the warehouse area, pointing out samples of the approximately 30,000-40,000 different bike parts, components, accessories and complete bicycles that her company now handles, mostly for European and American customers. The variety is staggering, including a wide range of e-bikes, bikes for a large US bike-sharing company, kids’ bikes, cargo-carrying tricycles, recumbent bikes, titanium and carbon-fiber frames for road-racing bikes, saddles, pedals, pumps, grips and even bike bags and carriers.
Working from Taichung and Tainan, as well as local suppliers’ factories, Hung and her 30 employees focus on—as the company name hints—finding economical, quality sources and solutions for over 50 foreign customers, assisting in design, production, quality control and other stages as well as coaching suppliers. While her business has been stable since Covid-19 emerged early this year, she says it has had its share of ups and downs and apprehensive moments, necessitating cooperative flexibility on all sides as both bicycle industry customers and suppliers have grappled with the impact of a global pandemic.
In January and part of February, her shipments were large and stable. With hindsight, she notes she was fortunate to make all her deliveries before the Chinese New Year holiday. However, she became apprehensive with the China lockdowns in mid-late February, followed by Taiwan’s 18 March closure to foreign visitors. She also “panicked” during the early stages of the outbreak as she had 10,000 e-bikes in production that she feared would be cancelled.
In early April, with lockdowns affecting key German customers, who closed their offices, Source Solutions began receiving requests for shipment delays of three weeks. Relying on her long-term relationships, Hung asked her suppliers if they would accept delayed payments and hold shipments. By the end of April, however, customers said that there was no further need to hold shipments and instead asked if they could be expedited. Then May brought an “explosion” demand for more shipments. This has continued and Hung says she’s had to pay her sales staff bonuses in June and July because they’ve been “typing orders like crazy”.
Despite its relatively small size, Source Solutions is a microcosm of Taiwan’s enormous bike industry, centered around Greater Taichung, which is widely considered the global bike industry capital. Big and small alike, bike companies have generally experienced similar challenges in the time of Covid-19. Just a few kilometers from Source Solutions is the sleek, modern new headquarters for Giant Manufacturing Co. Ltd., the world’s largest bicycle manufacturer, which last year produced around five million bicycles from its eight factories in China, Taiwan, the Netherlands and, as of July, Hungary. Working through 14 100%-owned sales companies around the world, Giant generated NT$6.3 billion in 2019 sales revenues.
According to Giant Deputy Spokesperson Irene Chen, the Covid-19 outbreak initially had a negative impact on the company, particularly around February when lockdowns caused Chinese factories to close and European and American lockdowns began hurting sales. In a May report, Giant reported that its first quarter net income and consolidated revenue fell by 7.96% and 9.33% respectively year-on-year, while shipments were down 20% in the same period, mostly due to the EU market.
However, the bounce back was explosive as the company’s US April sales shot up 40% year-on-year on growing demand for mid-to-high end products, mostly by leisure, sport and commuter bicyclists. Giant’s sales in Europe alone jumped 140% in June, mostly driven by e-bike sales. Chen said that both US and European markets also saw double-digit growth by May, June and July, giving the entire company 7.5% growth for the first half of the year. Among the reasons she gave for this new surge are more people biking for recreation and commuting, and subsidies that governments in Europe and elsewhere are offering to purchase or fix bicycles.
Statistics coming in from various sources have all supported this assertion. Market research firm NPD Group reported that in March year-on-year US sales of commuter and fitness bikes grew 66%, while leisure bikes were up 121% and electric bikes were up 85%. According to bicycle manufacturers and retailer coalition People for Bikes, overall US online and in-store bike sales were up 81% to US$1.1 billion year-on-year for May. In Europe, leading sporting goods retailer Decathlon reported 2-3 fold increases in overall European bike sales, while in China bike sales reportedly have grown five-fold since Covid-19 lockdowns ended.
“Boom, boom, boom,” said Steve Fenton, CEO of Pro-Lite International Ltd., describing the situation for his company and the industry from March on. “We can’t make stuff fast enough.”
Although the pandemic’s disruptions to international flights have left Fenton stuck in his Valencia, Spain home since late February, unable to return to Taiwan, he has been working non-stop to handle orders from European, North American and Asian customers of the Taichung-based company he founded 20 years ago, a supplier of very high-end bike components and the world’s biggest producer of hand-built wheels. With the demand for wheels up 500% year-on-year, he has had to extend lead times for deliveries significantly or simply say no. He added that sales at a UK-based cycling/triathlon/rowing clothing business he is invested in are up 1,500% year-on-year.
“Because of the virus, people have so much time to get into sports because they’ve been furloughed. In the UK, the government said that bicycle shops are ‘essential businesses’ and said that people need to exercise two hours a day,” he said. “People have realized how important bikes can be in your day-to-day life. A great example is that people don’t want to use public transport and want solitary travel instead.”
Merida Industry Co., Ltd. Senior Vice President and spokesman William Jeng said that very big demand for his Yuanlin, Changhua County-based company’s bikes started first when China began reopening, followed by Germany and North America in May, when shipments were up 25.3% year-on-year. Although Merida—a leading mid-to-high end bike manufacturer as well as a top maker of e-bikes—reported net income, revenues and bike shipments respectively fell by 1.77%, 5.72% and 9.68% in the first quarter of 2020, year-on-year, Jeng said that a “biggest ever” 100-200% jump in demand meant that the losses were made up for in the second quarter. In an early sign of this pendulum swing, a 60% February drop in revenue transformed into 7.6% year-on-year March growth. The North American market, for example, saw almost 100% growth in June, followed by 65% in July. Future demand is also expected in markets such as Latin America, still in the depths of the pandemic. Already a bright spot as the fastest-growing sector before the global outbreak, e-bikes sales are also accelerating, despite higher prices, as commuters look for power-assisted alternatives.
“The swiftness this has changed is something I’ve never seen before. Everything is selling,” said Taichung-based Ritchey Asia GM Kevin Putzke, who has spent three decades in the bike industry, including over 20 years with Trek and the last four years with California-based Ritchey, a pioneer and premier manufacturer of road and mountain bike steel frames, as well as “everything else you find on a bike”.
Putzke said that in January suppliers in China suddenly notified him that they would be taking a longer Chinese New Year break, with a lack of information from the mainland and slowing air freight and shipping out of Taiwan causing lead times to grow. Italy then suddenly announced a ban on outdoor bike riding, with California following suit. This “grim-dark period” lasted 2-3 months, leaving Ritchey with greatly-reduced revenues and Putzke and his colleagues by late March looking for ways to cut costs and delay deliveries.
“Then, in late May, it was like someone threw a switch and customers started saying, ‘We need everything you got and, by the way, we need twice as much,’” he said, adding it had been “an emotional swing the last six months.”
He attributed the drastic upturn to a variety of factors, including bike shops being deemed “essential businesses” in many countries, old and new bicyclists buying or upgrading bikes, and bicycling being considered a safe exercise alternative in a time of social distancing. “It represents a shift in lifestyle for many people for a ton of reasons. It does feel like people are grabbing bikes and saying, ‘Hey, I don’t have to drive to work.’ Places also initially locked down but then said you could exercise an hour a day outside.”
“I can remember nothing like this. There have been financial crises in Europe before but nothing going so down and so up so quickly, or so unpredictable,” said SRAM Corp. Director of Manufacturing Asia Joao Pires, noting that the recovery since mid-May had been very strong. “The whole bike industry was doing very well before Covid-19. In March and April, there was a blip there and now it’s time to get back to normal, with some spikes as channels adjust.”
The Chicago-based SRAM, a leading supplier of high-end bike components and suspension, wheel, drivetrain and other systems, has operated for about three decades in Taiwan, where it has manufacturing facilities. Like most of his industry colleagues, Pires and his company have had to make adjustments, upgrading efficiency and flexibility, to meet the new demands, even as they consider whether this is an enduring trend or not.
“To be honest, we are wondering how long this will last. As the industry continues to evolve we are starting to see big changes, as people start to focus on bikes to go green and as transportation. I think this is a trend that will stay,” he said, pointing out EU policies promoting green mobility and sustainability. However, he adds that not all markets may react the same way and that there remains a lot of uncertainty about the pandemic. “We might see recessions and are not sure how that might impact things. It’s very early and I think that at this moment everyone is thinking, what is the next step and what will happen next? Will there be more lockdowns and a second wave? We have some projections but all these are subject to what will happen next.”
Merida’s Jeng said that his company is still trying to ramp up its production capacity to meet demand. After many overseas factories were forced to shut down by the virus in the first two quarters, production is now about 60% of normal with hopes that this will head towards 100% in the fourth quarter of 2020. Although Taiwanese factories were lucky to escape lockdown-related disruptions, they were affected as many components come from abroad. At the same time, he says that the current Covid-19 crisis is not the basis for a long-term strategy shift, as it continues towards goals like becoming a major e-bike supplier, focusing on quality over quantity. He does not expect the current levels of demand to last into next year but, rather, anticipates 3-4 months of continued demand before returning to normal. Nevertheless, he feels that Covid-19 has boosted the base market for bicycles and is helping to usher in a “new normal” lifestyle change that sees more longer-term bicyclists on the roads.
Over at Ritchey, which does most of its contract manufacturing in Taiwan, Putzke is optimistic overall and sees the current trends continuing for a while, due to lifestyle changes for many people—from the growing popularity of bike trails to working from home—although he say that first quarter of 2021 should offer more clarity as it remains to be seen if people will keep riding in the colder weather and what impact economic situations have on disposable incomes. In the meantime, he is dealing with capacity limitations that have led to the longest production lead times—5-6 months versus a normal six weeks—that he has ever seen. While measures such as increasing factory work shifts and adding some labour have boosted capacity, there are technical barriers and other limitations, such as a local reliance on contract workers from Southeast Asia.
“The nicest thing in business is huge demand that you can satisfy. The worst thing is huge demand that you can’t satisfy,” he said, adding that some changes and efficiency upgrades in distribution and warehousing were helping.
Back at Source Solutions, Jennifer Hung says that seeing the bike industry as a “people business” and having good mutually beneficial relationships with suppliers in Taiwan, China and elsewhere over the years provided the cooperation and flexibility essential to weathering Covid-19 challenges and ensuring no supply delays for her from March to date. This includes flexible cooperation with the leading component makers that make up the Taiwan bike industry’s well-known “A-Team” companies, whose members have been able to cut Hung’s lead times by arranging partial shipments of heavily in-demand items. “The bike industry is this way—if you have 99% of the bike done and one item is delayed, you can’t finish the bike,” she points out.
Irene Chen at Giant said that there have been manufacturing challenges in China, where 70% of the company’s production capacity is, and in Taiwan and Europe, with the remaining 30%. Right now, Giant’s production is running at over 90% with labour challenges a Chinese and Taiwanese hurdle to adding more shifts. Chen’s company sees demand continuing to at least the end of the year, perhaps the beginning of next year. “Longer-term, we’re afraid people are riding because of Covid-19 but that, after stability returns, they will continue driving again. We’ll have to see if people develop biking habits longer-term. We think that because of environment protection and ecological concerns the demand for regular and e-bikes should see growth,” she said, adding that e-bikes already made up 27% of Giant’s sales and saw great potential for growth, especially in Europe.
To illustrate the current supply-demand situation, Pro-Lite’s Fenton listed typical current lead times for components on his end of the market: nine months for saddles, eight months for pedals, 6-8 months for chains, 10 months for handlebar groups, and six months for tyres. On the lower-end, mass-produced end of the market, lead times are even longer. Consequently, he is in the process of telling his customers they need to be booking orders now for items for delivery between February and September 2021.
Fenton describes his approach as a combination of optimism and caution, pointing out that there will be winners and losers in situations like this, with potential winners being those who effectively manage their business and all of their customers, plan well for the future, and continue to carefully monitor various countries and clients: “If you just sit back and count your money but don’t have a clear indication of what you’re doing in 2022, good luck. Covid-19 isn’t going away and may be with us for a long time, so we have to carry on with a degree of normality and common sense. The bottom line is that Taiwan manufacturers need to communicate with each other, look after each other, and protect what they have.”
Douglas Habecker is a writer, Compass Magazine co-publisher and current Taichung AmCham chairman