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GT Bicycles

GT Bicycles

2001 E. Dyer Road
Santa Ana, California 92705
U.S.A.
(714) 481-7100
Fax: (714) 481-7111
Web site: http://www.gtbicycles.com

Division of The Schwinn-GT Co.
Incorporated: 1979 as GT Bicycles, Inc.
Employees: 700
Sales: $200.0 million (1997)
SICs: 3751 Motorcycles, Bicycles & Parts; 5091 Sporting & Recreational Goods; 5136 Mens & Boys Clothing; 6719 Holding Companies, Not Elsewhere Classified

GT Bicycles is the nations leading supplier of dirt-track racing, or bicycle motocross BMX, bicycles and one of the nations biggest sellers of adult mountain bikes, as well as over 4,500 different parts and accessories, ranging from bicycle frames and componentry to helmets, locks, and apparel through a distribution network.

Headquartered in Santa Ana, California, the company designs, manufactures, and markets some 143 mid- to premium-priced bicycle models, including 48 mountain, 73 juvenile BMX, and 22 road and specialty bicycle models sold under the companys brand names Auburn, Dynamo, Dyno, GT, Powerlite, and Robinson, ranging in price from $200 to $3,000.

A Decade from a Garage to a Giant, 1979-89

GT Bicycles was founded in 1979 by BMX racetrack operator Richard Long and engineer and former drag racer Gary Turner, who had been building customized bicycle frames in his garage in Santa Ana, California; the finished bikes were ridden by Turners son in area races. Named GT after Turners initials, the company was created to manufacture BMX bikes for boys. Their first products were chrome-moly steel frames, which made a bicycle light and sturdy, and designed to enhance performance. By 1981, from a single bicycle shop in Anaheim, the company was selling complete BMX bicycles, and sales reached $4 million, with gross margins of nearly 70 percent due to the low overhead of manufacturing in Turners garage.

In 1984, the company entered the fast-growing (and higher-priced than BMX) mountain bike industry, introducing its own line of mountain bicycles and going head-on against segment leader Cannondale, then a Pennsylvania-based manufacturer led by Joseph Montgomery.

The company acquired Riteway Distributor in 1987 and then proceeded to purchase three more distributors in the United States, to help market its products in the nearly $3 billion parts and accessories market. Revenues reached $41.2 million in 1989.

The 1990s

To compete with Cannondales direct distribution network, complete with sales representatives, the company, from 1991-96, began shifting from outside distributors, spending nearly $20 million in that period on a nationwide distribution chain for bicycles and parts. President and cofounder Long began a continuous personal promotion campaign, going to weekend bike races to meet customers, dealers, the trade press, and vendors, and total revenue for 1991 reached $61 million. The following year revenues climbed to $93 million.

The company was incorporated in Delaware in August 1993 as GT Holdings, Inc. Two months later, the company acquired all of the outstanding common stock of GT Bicycles California, Inc. A line of road bicycles was introduced during that year, as well as a subsequent line of specialty bicycles, featuring cruisers and tandems.

Also during November of that year, the companys management led a leveraged buyout (LBO), purchasing the company for an undisclosed sum, and cofounder Turner departed from the management of the company, leaving Long alone at the helm. Though the leveraged buyout depressed net income, the company still remained in the black for the year, posting revenues of $123.8 million and a net income of $3 million. Competitor Huffy, meanwhile, posted a year-end 1993 loss of $4.9 million.

By the end of 1994, the U.S. bicycle market, which comprised only about 20 percent of the world market, began to stagnate, as sales dropped from 13 million to 12.5 million bicycles, well down from the all-time record of 15.2 million set in 1973. GT Bicycles accounted for over a million childrens bicycles in the United States from 1994 to 1997.

Despite the slump the company posted net income of $882,000 on total sales of $145.8 million, while its top competitors, Cannondale Corp. (by now relocated to Georgetown, Connecticut) and Miamisburg, Ohio-based Huffy Corp., posted a loss of $600,000 and a profit of $17.4 million, respectively.

Beginning in 1995, and over the next two years, sales of high-end bicycles, costing $600 and up, began bucking the generally slow bicycle market, with sales rising 10-15 percent in that period, according to analysts.

In July of that year, the company acquired the assets of a bicycle and accessory distributor for approximately $3.3 million in cash. The present name of the company was adopted the following month.

In October, the company completed its initial public offering, selling 4.7 million shares at $14 a share, bringing in approximately $65.8 million. Most of the money was used to repay Bain Funds of Boston and Jackson National Life Insurance Co. of Chicago, two of the key investors who financed part of the $66 million restructuring in 1993 following the management-led LBO. Montgomery Securities, Smith Barney Inc., and William Blair & Co. were the underwriters for the offering. In the companys first day as a public entity, stocks dropped $0.75 as the company issued a recall on nearly 8,000 bicycles built with potentially defective front forks.

By the end of 1995, the mountain bike fad had settled down a bit, and the segment dropped for the first time in a decade, down from $1.6 million to $1.5 million that year. Nevertheless, by December, GT had a development center in Colorado, distribution centers in four states, and was attributing approximately half of its income from its parts and juvenile BMX bikes sales and claimed some 40 percent of the youth-driven segments. Even though the company withdrew from the Chinese market, overseas sales were growing for the company as well. GT Bicycles posted a net income of $2.8 million on total sales of $168.9 million and, in 16 years of business, had never posted a loss.

Tragedy Strikes, 1996

By 1996, nearly 60 percent of the companys revenues were derived from the mountain bike segment, but Cannondale was still the segment leader, with their barn-manufactured, 100% American made, unique fat tire bicycles sweeping the market, making, in 1995, $13.5 million in operating profits on total revenues of $122 million compared to GT Bicycles $8 million against sales of $169 million in the same period. Cannondales success was partly attributable to the fact that its local manufacturing allowed it to quickly respond to market changes; most of GT Bicycles mountain bikes and BMX bikes were being manufactured in Taiwan. But the company invested $750,000 that year to improve its manufacturing process. In April, the company purchased its first wholly owned and operated distribution center outside the United States, a distribution facility in Nancy, France. That year, the company was named the number one brand in Germany by readers of Mountain Bike magazine.

Just as things were looking up, cofounder Richard Long was killed in a motorcycle accident in July on his way to a mountain bike race in Big Bear, California, following a rigorous ten-day cross-country road show in which he was furiously trying to convince analysts and investors that the company was equal to Cannondale in the market. An article in the August 1996 issue of Forbes stated that Only 46 years old, Long had been under intense pressure. In an interview a few weeks before his death, the founder of GT Bicycles showed dark shadows under his eyes and the drooping shoulders of a man wearied by the competitive struggle. The companys stock dropped approximately 10 percent at the news, but GT soldiered through the loss and subsequent hard blows.

Michael Haynes, who became the companys chief financial officer in 1989 and a member of the board of directors in 1993, replaced Long as interim president and CEO, and Geoffrey Rehnert, managing director of Bain Capital of Boston, GTs biggest shareholder, stepped in as chairman. GT Bicycles helped sponsor two athletes at the 1996 Summer Olympic Games in Atlanta, Georgia in the first-ever Olympic mountain bike event, where the U.S. Bicycle Team, riding the companys new Superbike (a $70,000 custom hand-crafted, ultralight, all-composite-framed racing bike that took two years to develop), brought home two silver medals. The company picked up a slight sales boost from the hours of international television exposure the games provided.

By the summer of 1996, the companys Riteway Products distribution subsidiary chain had accounts at approximately 4,000 of the estimated 6,800 independent dealers in the United States, an 80 percent market share which outpaced its biggest rivals, and had created a budding presence in countries such as France, Japan, and the United Kingdom. In July of that year, the company opened a 40,000-square-foot distribution center in Jacksonville, Floridas Westside Industrial Park in order to help GT better serve its customers in Florida, Georgia, Louisiana, North Carolina, and South Carolina. Also in July, the company acquired Caratti Sports, Ltd., its distributor in Bristol, England, for approximately $14 million, gaining direct access to more than 3,000 independent bicycle dealers in Britain.

Company Perspectives:

We endeavor to create and profitably market the best bicycle products in the world.

In late 1996, GT Bicycles formed a partnership with Monrovia, California-based AeroVironment to create Charger Bicycles, LLC, which planned to produce and market an initial production run of approximately 2,500 units of an electric-assist bike called the Charger, in which the design incorporated a 375-watt electric motor into a fully integrated bike and would feature the Impulse System, a human-power sensor enabling the bicycle to respond to the riders efforts, enabling the bicycle to match or multiply the riders physical effort. It retailed for $1,500.

GT Bicycles would go on to spend nearly $6 million on advertising throughout the year. Japan accounted for 25 percent of the companys business that year, and the company net income reached a record $11.6 million on total revenues of $208.4 million. Cannondale posted $146 million in total revenue.

Bouncing Back, 1997

By May 1997, retro-style bicycles were making a comeback. To compete with other industry leading models, such as Schwinns Black Phantom (a single-speed remake of the same model from 1949which cost $70-$90 thencomplete with replicated fenders, horns, tires, chrome, colors, and coaster brakes, retailing at $3,000), Schwinns Cruise Deluxe (with 1955 replicated frame, forged-steel stem, gas-tank-style center piece, rear rack, grips, pedals, chrome steel fenders, and white-wall tires, retailing at $480), and Huffys Causeway (featuring classic looks, old-fashioned frame, seat, 26-inch chrome rims, and white-wall tires combined with a state-of-the-art six-speed shifting system, retailing at $140), the company released the Dyno Roadster Ltd. model (featuring a low-rider frame, heavy duty, shock-absorbing springer fork, oversized balloon fenders, white-wall tires, and rims with chrome-plated 10-gauge spokes, retailing at $490). The company also signed an agreement with American pop culture icon Harley-Davidson Motor Co. to build a limited edition of 1,000 numbered bicycles resembling Harley-Davidson motorcycles, complete with black frame, a 1950s-style chain guard, chrome accents, thick red-and-cream colored fenders, a motorcycle saddle, a simulated horn tank, and a Harley-Davidson insignia on the front, combined with a modern, quick-shifting, seven-speed internal drive train and custom suspension fork. Built at the companys Santa Ana, California headquarters, the bicycles retailed at approximately $2,300, were released for the Christmas market, and brought the company an estimated $2.3 million in new business. Montagues Backcountry mountain bike (featuring oversized tubing, flat handlebars, water bottle mounts, and an 18-speed gear system, weighing 30 pounds, folding in half for easy transport, and selling at $500) joined the old-timers at the top of the industry.

The bicycle industry saw some consolidation, with manufacturing giant Schwinn being acquired by Questor Partners. Also in 1997, the companys bicycles were prominently displayed in a new summer movie remake of Leave It to Beaver, Nike began selling GT-brand bicycle jerseys at its Niketown stores in the United States, and Coca-Cola purchased several thousand bicycles in a promotional giveaway it sponsored for its Fresca brand name drinks. By the end of the year, Popular Science magazine named the companys electric-assist bicycle the best new recreation product in 1997. The companys total revenue for 1997 was $216.2 million.

Hoping to broaden its exposure and market reach in March 1998, GT Bicycles, together with sponsors Pioneer and Honda, spent nearly a half-million dollars to create a new television show called Crank, featuring riders on BMX racing bikes performing stunts, wild rides, and aerial feats to loud music, computer graphics, and flashing lights. The 19 episodes of the half-hour program debuted on The Fox Sports Network and focused on racing, freestyle riding, and other bicycle sports.

Early in 1998, the company entered into negotiations with Questor Partners to be acquired. In July, under the aegis of Schwinn, Questor acquired all of the stock and debt of GT Bicycles for a price of approximately $180 million. Following the acquisition, Cannondale remained the last publicly traded bicycle company in the United Sates.

Combined with Schwinns brand-name recognition, GT Bicycles innovation and history of profitability, the company was in a position to remain a leader in bicycle manufacture into the 21st century.

Further Reading

Beckert, Beverly, Mission Possible!: First to Market, Industry Week, July 17, 1995, p. 1A.

Furchgott, Roy, Rebel Without an Engine, Business Week, September 15, 1997, p. 8.

GT Bicycles Inc., New York Times, August 14, 1998, p. C5(N)/D5(L).

GT Bicycles Inc., Wall Street Journal, May 8, 1998, p. C16(W)/C28(E).

GT Bicycles Inc. to Open Distribution Center in Jacksonville, Fla., Knight-Ridder/Tribune Business News, May 24, 1996, p. 5240085.

Hardesty, Greg, Santa Fe-Based GT Bicycles Gets Cranking with Fox Sports Show, Knight-Ridder/Tribune Business News, March 26, 1998, p. 326B1001.

La Franco, Robert, The Battle of the Bikes, Forbes, August 26, 1996, p. 60.

Mouchard, Andre, GT Bicycles Founder Richard Long Killed in Motorcycle Crash, Knight-Ridder/Tribune Business News, July 16, 1996, p. 7160299.

------, GT Bicycles Hopes to Beat the Rap on Bike Makers, Knight-Ridder/Tribune Business News, December 8, 1995, p. 12080218.

------, Not-So-Smooth Sailing As GT Bicycles Raises $65.8 Million in Offering, Knight-Ridder/Tribune Business News, October 15, 1995, p. 10150226.

The Orange County Register, Calif., Business Briefs Column, Knight-Ridder/Tribune Business News, March 13, 1998, p. 313B0949.

The Orange County Register, Calif., Business Briefs Column, Knight-Ridder/Tribune Business News, August 15, 1995, p. 8150147.

Pargh, Andy, Pedal Back in Time with New Retro-Bikes, Design News, May 19, 1997, p. 134.

Purchase of GT Bicycles for $80 Million Is Settled, Wall Street Journal, June 23, 1998, p. B4(W)/B4(E).

Rowe, Jeff, Santa Ana, Calif.-Based GT Bicycles to Make Harley Bike, Knight-Ridder/Tribune Business News, August 8, 1996, p. 8080088.

Schwinn to Purchase GT Bicycles of California, New York Times, June 23, 1998, p. C4(N)/D4(L).

Teague, Paul E., Gold Rush!: Software, Sensors, Motors, and More Help Athletes Go for the Gold, Design News, June 24, 1996, p. 130.

Daryl F. Mallett

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