BY DOUG MCCLELLAN
TAICHUNG, Taiwan—For Taiwan’s bicycle industry, flat is the new up.
While no one expects a bang-up year, industry leaders predict 2009 will be flat or slightly down compared with a stellar 2008. In this economy, staying level would be no mean feat.
“We are happy we are in the bicycle business and not in the car business,” noted Tony Lo, managing director of Giant.
The Taiwan manufacturers entered this year with a full head of steam. Giant and Merida, the world’s No. 1 and No. 2 manufacturers, expect to report 2008 sales increases of 25 percent.
“2008 has been a wonderful year for the bicycle industry. Most of the people have enjoyed a good or fair profit,” said Ying-Ming Yang, chairman of the Taiwan Bicycle Exporters Association.
“Going into 2009, I think everybody’s lots more conservative,” he added. “Most of the people don’t think their business in 2009 will be any better than 2008. All we hope is to maintain about the same level.”
The bicycle industry has been a bright spot for Taiwan, whose major exporting industries are suffering.
“In Taiwan, the computer companies and the automobile businesses are pretty bad right now. Only bicycles will keep on going,” noted Michael Tseng, general manager of Merida.
Tseng said Merida posted a third consecutive record year in 2008. According to preliminary results, sales rose about 25 percent to $461 million, Tseng said.
Although he is projecting flat results for 2009, Tseng said Merida might eke out another increase. A new Merida factory in Shandong, China, opened last summer and will contribute to 2009 results for the full year. Tseng said the northern China factory should help Merida gain business in Japan and Korea as well as the Chinese domestic market.
Tseng is also chairman of the A-Team, a group of some of Taiwan’s leading bicycle companies. He said the outlook for A-Team members depends on the market segments they are in.
A-Team members who depend more on the mass market may be in trouble compared with companies that focus on the specialty market, Tseng said.
Giant also plans to report that 2008 sales rose 25 percent to about $1.25 billion, Lo said.
“This is quite a good result so we are happy with that,” he added.
Lo said one of the strongest segments was electric bicycles, with sales doing well in China and in Europe.
One factor that has kept Taiwan factories humming is the island nation’s surprisingly strong domestic market. Until recently, Taiwan residents have never taken to cycling for recreation despite their country’s reputation as the world’s source of high-end bicycles.
A cycling boom in the past 18 months has lifted all of the country’s manufacturers. Lo said bicycle sales have increased by about 60 percent in that time period, with Giant nearly doubling its sales in Taiwan.
Lo still expects growth but at a more moderate rate.
“Starting this year, the growth rate will flatten down and get back to a more normal course,” Lo said. “I still believe the Taiwan market this year will continue to grow 10 to 20 percent. That is no problem. Of course, you will not see 50 percent or double.”
Lo said Taiwan’s experience points to a dynamic that will help the bicycle industry stay in relatively good shape. While established markets such as the United States will be hit by the economic crisis, Lo said cycling is catching on in other markets such as Korea and Japan.
“It really depends on how these two forces, one positive, one negative, will play out,” he said.
The global economic crisis has depressed prices for basic materials that go into a bicycle, including aluminum and oil. But Lo said retailers and consumers should not expect prices to fall.
When raw material prices were going through the roof, he said, manufacturers had to stockpile expensive inventory.
The biggest wild card will be currency rates, Lo said. As an example, he noted the Japanese yen has weakened from more than 120 to the dollar in June 2007 to about 90 in early February.
Lo said Shimano and SRAM have already signaled price increases for the next model year.
Giant will decide in April or May on prices for the next model year.
“This kind of challenge is very fair to all the players. There might be some players that are not as healthy, or do not have the resources, who may be hurt, so that could provide opportunity for some stronger players to gain market share if they do everything right,” Lo said.