A Short History of Schwinn: The Tumultuous 1980s - Doug Barnes

Wednesday, November 17, 2021

A Short History of Schwinn: The Tumultuous 1980s

Schwinn World is Still a Model Brand in 1987
(Image: Schwinn Catalog, 1987 modified by Doug Barnes)

Edward Schwinn, Jr. has been roundly criticized for the demise of Schwinn Bicycles as a family company. Although not all of his decisions were stellar, the blame was somewhat unfair.

Family businesses rarely last longer than the three generations, so the surprise is that the Schwinn family-owned bicycle company lasted so long.  Jonathan Ward (1987) in his work on family business succession indicated that 30 percent of businesses last through the second generation. This figure is reduced to 13 percent by the third generation. Only 3 percent of family businesses are still alive and kicking by the fourth generation (Zellweger, Nason, and Nordvist 2012).  Edward Schwinn, Jr. was a fourth-generation president of a family business.

Although these figures are a bit dated, the odds of family business survival are generally accepted to be low for several reasons. The charisma of the early founder fades and business conditions change. The next generations often have other interests. Successors may not be qualified for the job. Finally, nepotism and family feuds are inevitable. 

The Fourth Generation of Schwinn Managers

Schwinn was not the exception to this rule. The Schwinn family bicycle company was very strong for two generations.  The third generation Schwinn manager Frank W. Schwinn did not have the drive of his father.  

Second and Third Schwinn Generations: Father Frank W. Schwinn (Center)
with Sons Frank V. (Right) Edward, Sr. (Left), Late 1940s

(Image: Made in Chicago Museum ND)

The fourth-generation manager Ed Schwinn, Jr. placed too much emphasis on financial models and was not interested enough in modernizing the family factory.  He also had to deal with a bicycle industry that was in the throes of manufacturing globalization. These conditions would challenge even the most nimble companies.

Eward Schwinn Jr. wanted to carry on the Schwinn family business tradition but he also was handicapped by the Schwinn family trust. Not uncommon in an era of paternalism, in the 1920s the founder Ignaz Schwinn had set up a family trust for the company that contained both shares and of the company and its name. The stock shares of Schwinn were then passed down to the oldest son of each generation. The consequence was that by the 1980s, the stock of the company family trust was divided up among  16 family members. 

Schwinn Catalog Cover, 1980
(Image: Schwinn Catalog, 1980)

Edward Schwinn, Jr. only owned about 3.4 percent of the company himself and family members held the rest. Even though he made all the major business decisions for Schwinn, he also had to deal with family politics.

The sometimes unhappy family shareholders felt entitled even though they were not contributing anything to the company. Although they did not take large amounts of cash flow from the company, a big problem was that the family wanted to keep Schwinn entirely under private control. The Schwinn family did not want to dilute their shares by offering stock to the public or other major investors. Appointing an outsider as a chief operating officer or offering stock to gain much-needed capital for modernization was out of the question.

Made in Chicago Factory Closed

The first trouble for Schwinn came in the early 1980s with a factory strike in Chicago. The “Made in Chicago” badge on Schwinn bicycles was always a matter of pride for the company. In its heyday, the factory produced almost everything in a Schwinn Bicycle but the steel tubing. Up through the 1950s, continual investments were made to upgrade the capability of Schwinn to build bicycles entirely from scratch in Chicago.

The factory floor in Chicago was an amicable place to work in the 1940s and 1950s. Frank W. Schwinn made it a point to know the factory workers by name. Workers trusted Schwinn and did not require a detailed written contract. An element of paternalism was evident between Schwinn and its employees but it was always correctly assumed that Schwinn would take care of its workers. This tradition was eroded in the 1960s and 1970s with the rise in the volume of Schwinn sales.

Schwinn Bicycle Assembly in Chicago Factory, 1945
(Image: Made in Chicago Museum, ND)
As Schwinn cranked out more bicycles, the new hires to produce them were quite different from the original Chicago workers. The original Polish, German, and Irish workers were being supplanted with blacks, Hispanics, and Koreans (Crown and Coleman 1996). Older workers fondly remembered the old system in which they were personally rewarded for their accomplishments.

The new Schwinn workers rightly worried about their job security. In this environment, outreach by unions to organize the factory was met with a positive response by the workers. After the death of Frank W. Schwinn, the communication gap between the factory and Schwinn management widened. This culminated in a 1980 vote by workers to unionize the Schwinn factory. 

Both Edward Jr. and Frank V. Schwinn felt betrayed by the workers. When approached to negotiate a contract with the new union, Schwinn management stonewalled. The strike was settled in 1981 and the union made modest gains in salaries and benefits. The dye had been cast in the minds of the Schwinn managers. The vote to unionize had reinforced Schwinn’s desire to close the Chicago factory. The factory was closed in 1983 but it would be a pyrrhic victory for Schwinn (Crown and Coleman 1996).

Globalization versus Made in America

With the winding down of the Chicago factory, in the early 1980s Schwinn increasingly looked to overseas manufacturers for bicycles.  During the factory strike, Schwinn turned to a small bicycle manufacturer in Taiwan called Giant. Anything but a Giant, the company desperately wanted to produce bicycles for the dominant company of the era. Once Giant got its toe in the door, Schwinn was quickly won over. Schwinn managers realized that low-cost, high-quality manufacturing in Asia rather than in the USA was a real possibility.

Giant further endeared itself to Schwinn during the strike by delivering on a promise to pick up the slack in manufacturing capacity. Giant agreed to provide Schwinn with an additional 80 thousand bicycles. By 1984, Giant ratcheted up production to 500 thousand bicycles for Schwinn which accounted for about two-thirds of Schwinn sales (Crown and Coleman 1996).  To a financially-oriented manager like Edward Schwinn, Jr., once the quality of the Gaint-produced bicycles was confirmed, reducing costs while at the same time eliminating the headaches caused by the Chicago factory seemed like a no-brainer.  Schwinn was hooked. 

Despite the successful imports, Schwinn was not ready to give up its “Made in America” branding. While winding down the antiquated Chicago factory, in 1981 the company opened a new bicycle production facility in Greenville, Mississippi. The company had high hopes for the new factory. The region was anti-union so they imagined that their labor problems would be solved. Thoughts of putting an expanding new company called Trek out of business with high-quality “Made in America” bicycles swirled in their heads.

Debates raged inside Schwinn about whether to abandon its “Made in America” identity. Low-Cost Mississippi seemed like the solution. Schwinn eventually decided to produce its high-quality bicycles in the Greenville factory and low-quality bikes in Asia. This was a reasonable strategy and similar to one being followed Trek.

1983 Schwinn Le Tour Made in Greenville, MS Factory but with Chicago Badge
(Image: Doug Barnes)
The dreams did not pan out. The Greenville plant was trouble from the very beginning. Attracted to the site by the low-cost labor, Schwinn had not factored in logistics and the availability of skilled workers. In the early to mid-1980s, sending derailleurs, brakes, and freewheels from Asia to a town in rural Mississippi without an interstate highway was no easy task. The bicycle industry of the 1980s required skilled welders and metalworkers. Such skilled workers were not easily found in Greenville. Additionally, Schwinn management joked that it was easier to get to Taiwan than to Greenville.  One bicycle retailer questioned, “How can you run a plant in Mississippi from Chicago?” (Crown and Coleman 1996, p. 222)

Schwinn made a last gasp effort to correct the problems with the Greenville plant. Edward Schwinn, Jr.’s brother Richard Schwinn volunteered to move to Mississippi to oversee the factory. He made significant progress in improving the quality of bicycles coming from the plant but it was too little and too late. The new factory in Greenville Mississippi never generated a positive cash flow and also was destined to be closed. Trek and Specialized were snapping at Schwinn’s heels. In retrospect, the failure to upgrade the Chicago factory to make high-end bicycles was a profound mistake.

Diversity of New Bicycle Models

Schwinn was not idle in developing new bicycle models. After being late to the party, Schwinn finally developed a mountain bicycle that could live up to its reputation. They first rolled out a mountain-style bicycle in 1982 called the Sidewinder. Sidewinders were nothing more than modified Schwinn Varsities or Continentals with large tires and regular handlebars.

Schwinn Sidewinder, 1983
(Image: Schwinn Catalog, 1983)
In 1983 Schwinn finally offered a high-end mountain bicycle. The new chrome-moly mountain bikes were called the Sierra. This was followed in 1984 by an even better bike called the High Sierra. Both models were built for Schwinn by Giant in Taiwan. Sales went through the roof and dealers had a hard time keeping them in stock (Crown and Coleman 1996, p. 172). The High Sierra and sales doubled for three years in a row.

Schwinn Sierra and High Sierra, 1984
(Images: Schwinn Lightweight Bicycle Catalog, 1984)
Schwinn had a lot of competition in the business of mountain bicycles. Specialized had a head start on Schwinn by introducing the Stumpjumper in 1982. Trek would follow with their popular multitrack bicycles first introduced in 1990.

In 1983 Schwinn also produced its first catalog dedicated exclusively to BMX bicycling. They introduced the Predator series the same year.  All predators had chrome-moly tubing. This finally established Schwinn as a maker of high-quality BMX but it was too little and too late.  Mongoose and Diamondback had become established competitors in the BMX market.  

First Schwinn BMX Catalog Cover, 1983
(Image: Schwinn BMX Bicycle Catalog, 1983
Schwinn diversified into the bicycle exercise equipment and put veteran Al Fritz in charge. Given the 1980s youth movement at Schwinn, it seemed that the young managers wanted nothing more than to get Al Fritz out of their hair. Fritz surprised them all by developing the very popular Schwinn Air-Dyne.

The Air-Dyne was an innovative machine relying on specially designed fan blades instead of a traditional wheel to provide resistance to pedaling.  At the same time, it created a gentle breeze for the rider. Schwinn sold a high of 67,000 Air-Dynes in 1986 with a high price tag of $595.  The profits from the Air-Dynes helped keep Schwinn afloat during a time of declining bicycle sales.

Schwinn Air Dyne, 1985
Schwinn Lightweight Bicycles Catalog, 1985

Schwinn Expansion Strategy Backfires

Schwinn also had visions of grandeur. They had an opportunity to purchase a 45 percent share of a factory in Hungary for about $1 million.  At the time of the purchase in 1988, this was a venture that Schwinn could not afford. The  Hungarian factory was old and would need investments to bring it up to speed.  Schwinn was tempted into buying the factory because the company wanted to become a global player in the bicycle business.  The idea of purchasing the factory was to make bicycles for Europe and to expand the reach of Schwinn bicycle sales. 

The factory in Hungary was partially successful in producing the Schwinn Woodlands, but many of the imported bikes had to be warehoused due to quality issues.  For a company struggling with cash flow and being supervised closely by its banks, this was not the time for Schwinn to gamble on becoming a global player. Schwinn pulled the plug on the unsuccessful venture in 1991 just one year before bankruptcy.

Schwinn saw its relationship with its Taiwanese manufacturer Giant turn from a partner to a competitor.  Giant helped save Schwinn during the 1981 strike at the same time that it was launching its new bicycle brand label. By the late 1980s, Giant started to aggressively market its own bicycle brand in the USA and increasingly became a competitor to Schwinn.

Schwinn saw the writing on the wall with Giant. The company began to diversify its Asian manufacturing. To accomplish this, in the mid-1980s Schwinn purchased a one-third share of a China Bicycles factory in Hong Kong (Crown and Coleman 1996). The goal was to reduce its reliance on its main Asian manufacturer Giant. With the Hungary and Hong Kong ventures and with the Greenville plant, Schwinn planned to be secure a bicycle supply base that was not overly dependent on one manufacturer.

Schwinn’s “Made in America” reputation undermined its ability to pivot its entire production offshore. The “Schwinn Approved” label did not fool any customers. They understood that Schwinn bikes made in Asia were just like all the other imports. The “Made in America” quality branding no longer distinguished Schwinn from its competitors. In retrospect, the move to manufacture bicycles in Asia was a necessity given the growing globalization of manufacturing but it didn’t fit in well with Schwinn’s branding. Schwinn had started the decade as an entirely “Made in America” company and ended it with 80% of its bikes imported from Asia under the “Schwinn Approved” label.

"Schwinn Approved" Imported from Asia Voyageur, 1980
(Image: Schwinn Catalog, 1980)
Because of an antitrust case, in the mid-1980s Schwinn began establishing a direct supply chain to dealers that cut out its wholesalers. These wholesale suppliers turned to other brands including Giant and others that would compete with Schwinn. The increased competition along with a downward trend of bicycle sales in the late 1980s put Schwinn in a precarious position.

Schwinn Challenged on Multiple Fronts

Looking back, Schwinn had suffered from a thousand cuts during the 1980s. Schwinn was juggling a lot of balls to keep the company afloat. This included the closing of a longtime factory in Chicago, starting a new factory in Greenville, Mississippi, buying a 40 percent share of a plant in Hungary, and purchasing a one-third interest in a factory in Hong Kong. Spurred by the era of globalization, by the end of the decade, Schwinn outsourced most of its manufacturing to Asia.

Schwinn also was being challenged by new competitors in niche markets such as the mountain, BMX, and high-end road bicycles. Japan and Europe also were competing with Schwinn in the US market. This was made worse by Schwinn abandoning its wholesalers who then were freed up to market these other bicycles brands.

Schwinn also didn’t want to part with all of its tried and true children’s market and this meant that bicycle shop inventories proliferated out of control with too many bicycle models. Selling children and adult bicycles was an awkward mix for Schwinn dealers. During the late 1980s, all of these companies were competing for a shrinking piece of the bicycle pie. Bicycles sales declined by 20 percent from about 12.6 million in 1987 to 10.7 million bicycles in 1989 (National Bicycle Dealers Association, 2021).

In the face of all these challenges, Schwinn would have been required to get many things right to stay as a family business. A young Edward Schwinn, Jr. had created a youth movement among Schwinn management bringing in financial specialists that had sometimes limited experience in manufacturing. The new team was not up to the job.

At the end of the 1980s, bikes coming in from overseas piled up in Schwinn’s warehouses. Eventually, Schwinn was not able to pay the Asian manufacturers for these unsold bicycles. The bankers perceived the trouble at the Greenville factory and the misadventure in Hungary as a hit to their confidence that Schwinn could manage its financial woes. This combined with lower Schwinn bike sales set in motion a series of actions that put the company under financial stress starting in the 1990s.

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