The Schwinn Bicycle Company was founded by Ignaz Schwinn in Chicago in 1895 and became the dominant manufacturer of American bicycles through most of the 20th century. The company's rise and fall in fortunes over its lifetime has been widely used to illustrate the issues faced by entrenched companies in a dynamic and changing marketing environment.
History
Founding of Schwinn
Ignaz Schwinn was born in Hardheim, Germany in 1860 and worked on two-wheeled ancestors of the modern bicycle that appeared in 19th century Europe. Frustrated with the unwillingness of manufacturers for whom he worked to accept his suggestions, Schwinn emigrated to the United States in 1891, where he found similar difficulties. In 1895, with the financial backing of fellow German American Adolph Arnold (a meat packer), he started the Arnold, Schwinn & Company . Schwinn's new company coincided with a sudden bicycle craze in America. Chicago became the center of the American bicycle industry, with thirty factories turning out thousands of bikes every day. Bicycle output in the United States grew to over a million units per year by the turn of the century.
The bicycle boom was short-lived, as automobiles and motorcycles quickly replaced bikes on American streets. By 1905, bicycle annual sales had fallen to only 25% of that reached in 1900. Many smaller companies were absorbed by larger firms or went bankrupt; in Chicago, only twelve bicycle makers remained in business. Competition became intense, both for parts suppliers and for contracts from the major department stores, which retailed the majority of bicycles produced in those days. Realizing he needed to grow the company, Ignaz Schwinn purchased several smaller bicycle firms, building a modern factory on Chicago's west side to mass-produce bicycles at lower cost. He finalized a purchase of Excelsior Motorcycle Company in 1912, and in 1917 added the Henderson Company to form Excelsior-Henderson. In an atmosphere of general decline elsewhere in the industry, Schwinn's new motorcycle division thrived, and by 1928 was in third place behind Indian and Harley-Davidson.
Depression years
At the close of the 1920s, the stock market crash decimated the American motorcycle industry, taking Excelsior-Henderson with it. Arnold, Schwinn, & Co. (as it remained until 1967) was on the verge of bankruptcy. With no buyers, Excelsior-Henderson motorcycles were discontinued in 1931. Ignaz' son, Frank W. "F.W." Schwinn, took over day-to-day operations at Schwinn. Putting all company efforts towards bicycles, he succeeded in developing a low-cost model that brought Schwinn recognition as an innovative company, as well as a product that would continue to sell during the inevitable downturns in business cycles. After traveling to Europe to get ideas, F.W. Schwinn returned to Chicago and in 1933 introduced the Schwinn B-10E Motorbike, actually a youth's bicycle designed to imitate a motorcycle. The company revised the model the next year and renamed it the Aerocycle . For the Aerocycle , F.W. Schwinn persuaded American Rubber Co. to make 2.125-inch wide balloon tires, while adding streamlined fenders, an imitation 'gas tank', a streamlined, chrome-plated headlight, and a push-button bell. The bicycle would eventually come to be known as a paperboy bike or cruiser , and soon became an industry standard as other makers rushed to produce imitations.
Schwinn was soon sponsoring a bicycle racing team headed by Emil Wastyn, who designed the team bikes, and the company competed in 6-day races across the United States with riders such as Jerry Rodman. In 1938, Frank W. Schwinn officially introduced the Paramount series. Developed from experiences gained in racing, Schwinn established Paramount as their answer to high-end, professional competitive bicycles. The Paramount used high-strength steel chromoly alloy tubing and expensive brass lug-brazed construction. During the next twenty years, most of the Paramount bikes would be built in limited numbers at a small frame shop headed by Wastyn, in spite of Schwinn's continued efforts to bring all frame production into the factory.
Industry dominance
By 1950, Schwinn had decided the time was right to grow the brand. At the time, most bicycle manufacturers in the United States sold in bulk to department stores, which in turn sold them as store brand models. Schwinn decided to try something different. With the exception of B.F. Goodrich bicycles, sold in tire stores, Schwinn eliminated the practice of rebranding in 1950, insisting that the Schwinn brand and guarantee appear on all products. In exchange for ensuring the presence of the Schwinn name, distributors retained the right to distribute Schwinn bikes to any hardware store, toy store, or bicycle shop that ordered them. In 1952, F.W. Schwinn tasked a new team to plan future business strategy, consisting of marketing supervisor Ray Burch, general manager Bill Stoeffhaas, and design supervisor Al Fritz.
In the 1950s, Schwinn began to aggressively cultivate bicycle retailers, persuading them to sell Schwinns as their predominant, if not exclusive brand. During this period, bicycle sales enjoyed relatively slow growth, with the bulk of sales going to youth models. In 1900, during the height of the first bicycle boom, annual U.S. sales by all bicycle manufacturers had briefly topped one million. By 1960, annual sales had reached just 4.4 million. Nevertheless, Schwinn's share of the market was increasing, and would reach in excess of 1 million bicycles per year by the end of the decade.
In 1946, imports of foreign-made bicycles had increased tenfold over the previous year, to 46,840 bicycles; of that total, 95 per cent were from Great Britain. The postwar appearance of imported 'English racers' (actually three-speed 'sport' roadsters from Great Britain and West Germany) found a ready market among U.S. buyers seeking bicycles for exercise and recreation in the suburbs. Though substantially heavier than later European-style 'racer' or sport/touring bikes, Americans found them a revelation, as they were still much lighter than existing models produced by Schwinn and other American bicycle manufacturers. Imports of foreign-made 'English racers', sports roadsters, and recreational bicycles steadily increased through the early 1950s. Schwinn first responded to the new challenge by producing its own middleweight version of the 'English racer'. The middleweight incorporated most of the features of the English racer, but had wider tires and wheels.
The company also joined with other U.S. bicycle manufacturers in a campaign to raise tariffs across the board on all imported bicycles. In August 1955, President Eisenhower's administration implemented a 22.5% tariff rate for three out of four categories of bicycles. However, the most popular adult category, lightweight or 'racer' bicycles, were only raised to 11.25%. The administration noted that the U.S. industry offered no direct competition in this category, and that lightweight bikes competed only indirectly with balloon-tire or cruiser bicycles. The share of the U.S. market taken by foreign-made bicycles dropped to 28.5% of the market, and remained under 30% through 1964. Despite the increased tariff, the only structural change in foreign imports during this period was a temporary decline in bicycles imported from Great Britain in favor of lower-priced models from Holland and Germany. In 1961, after a successful appeal by bicycle importers, the Eisenhower tariffs were declared invalid by the Court of U.S. Customs Appeals, and President Kennedy imposed new a new tariff rate at 50% on foreign-made bicycles, a rate which remained in place until 1964.
While every large bicycle manufacturer in the world sponsored or participated in bicycle racing competition of some sort in order to keep up with the newest trends in technology, Schwinn had restricted its racing activities to events inside the United States, where Schwinn bicycles largely predominated. As a result, Schwinns became increasingly dated in both styling and technology. By 1957, the Paramount series, once a premier racing bike, had atrophied from a lack of attention and modernization. Aside from some new frame lug designs, the designs, methods and tooling were the same as had been used in the 1930s. After a crash-course in new frame-building techniques and derailleur technology, Schwinn introduced an updated Paramount with Reynolds 531 double-butted tubing, Nervex lugsets and bottom bracket shells as well as Campagnolo derailleur dropouts. The Paramount continued as a limited production model, built in small numbers in a small apportioned area of the old Chicago assembly factory. The new frame and component technology incorporated in the Paramount largely failed to reach Schwinn's mass-market bicycle lines. Another change occurred in 1963 following the death of F.W. Schwinn, when grandson Frank Valentine Schwinn took over management of the company.
Marketing and anti-trust issues
By the mid-1960s, Schwinn's exclusive marketing practices were well entrenched in the United States, practices that had ensured a dominant position in the U.S. bicycle market. However, Schwinn's distributors continually balked at restrictions the company put on their ability to market Schwinn bicycles to shops outside the Schwinn network. In a ten-year legal battle, many of Schwinn's practices were upheld by the courts
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