Trek Bicycle Corporation Business Information, Profile, and History

Company Perspectives

We are a dynamic, innovative company that will compete in global markets and strive for excellence in every aspect of our business. The foundation for our commitment will be to: provide our customers with timely delivery of quality products and services at competitive values; create and maintain a positive environment for our customers and employees; and to reward our employees and stockholders for the company's performance. To achieve this mission, we will endeavor to: timely design, engineer, manufacture and/or market world class products with satisfactory financial potential in which we are or can be an industry leader; encourage proactive change, create major innovation, and accept risk and failure as building components for ultimate success; and commit the necessary financial and qualified human resources to support the strategic and tactical growth plans of the company.

History of Trek Bicycle Corporation

Trek Bicycle Corporation is the largest U.S. manufacturer of bicycles sold by specialty retailers. Distributors in more than 65 countries sell Trek's mountain, road, children's, recumbent, police, and BMX bikes. As a sponsor of racing teams and athletes, Trek had the good fortune of signing Lance Armstrong in 1997. Armstrong became the first American to win the Tour de France in 1999 while riding on an American team and on an American-made bike. The bike he was riding, Trek's OCLV Carbon 5200, quickly became one of the most popular road bikes in history. Trek and Armstrong experienced marked success in the early years of the new millennium--by 2005 Armstrong had won seven consecutive Tour de France races.

Early History

Trek was established in 1976, at the peak of the 1970s bicycle boom. Its founders were Dick Burke, president of Milwaukee-based appliance and electronics distributor Roth Co., and Bevill Hogg, the proprietor of a chain of bike stores, one of which was located in nearby Madison. With financial backing from Roth's parent company, the Brookfield, Wisconsin-based Intrepid Corporation, Burke and Hogg launched Trek in an old warehouse in Waterloo, Wisconsin, located halfway between Milwaukee and Madison. With a workforce of about five, the company began making high-quality, lightweight steel bicycle frames by hand. From the outset, Trek committed itself to selling bicycles primarily through specialty bicycle stores, rather than through general retail outlets. This decision helped the company to maintain its image as a supplier of equipment for serious bicycling enthusiasts. Trek quickly became a favorite brand among that connoisseur market, and independent bicycle shops have remained Trek's most important outlet.

Competing primarily against European and Japanese manufacturers, Trek began to have an impact quickly, gaining industry attention both for the quality of its bikes and for being an American company. Trek bicycles were especially popular in the Midwest, the company's own backyard. By 1978, however, Trek was distributing to both coasts, as well as to other bicycling hotspots, such as Colorado. After only three years in business, the company's annual sales had grown to $750,000.

By 1980, Trek had outgrown its original plant. The company moved to a new facility in Waterloo, and there it began mass-producing bicycles. Sales were so brisk that Trek also contracted a Taiwanese firm to produce some of the company's bikes. Among bicycling enthusiasts, Trek was quickly gaining a reputation as a producer of the very highest caliber of bicycles available, and its sales reflected that reputation. During the early 1980s, sales virtually doubled each year.

The Age of Mountain Bikes

In 1983 Trek became a fairly early entrant into the mountain bike market, with the introduction of its 850 model. Developed in California in the late 1970s, mountain bikes featured more comfortable seats, fatter tires, and more gears than the ten-speed road bikes that dominated the market at the time. Fueled in large part by the surging popularity of mountain bikes, Trek sold more than 45,000 bikes in 1984. The company also launched its Trek Components Group that year.

During the 1980s, Trek was one of the very few American companies that stood in the way of an all-out takeover of bicycle manufacturing by Taiwanese factories. Although even Trek continued to import some of its bikes from Taiwan, the company found that it was able to offset the somewhat higher costs associated with manufacturing in America by saving on ocean shipping and cutting out other middlemen. Even labor costs proved to be a relatively minor problem, since making bikes was seen by young employees, many of them avid bicycling hobbyists themselves, as a fairly glamorous job, and those employees, therefore, were willing to work for rather modest wages. As Trek expanded its facilities over the next several years, it was able to rely less and less on imports.

After a conflict with cofounder Burke, Hogg left Trek in 1985 to start his own bicycle company in California. In spite of the changes, Trek continued to grow at an impressive rate. In 1985 the company introduced its first aluminum road bike, Model 2000. Its first carbon composite road bike, Model 2500, hit the market the following year. By 1986 sales had soared to $16 million, and surging demand led to the addition of 75,000 square feet to the company's Waterloo manufacturing facility.

A New Philosophy for 1990

Ten years of startling growth did not come without problems, however. As Burke explained in a 1996 Capital Times (Madison, Wisconsin) interview, "In all fairness, Bevill [Hogg, company cofounder] was more of a dreamer than a manager." Although sales remained solid, Trek began to experience difficulties in a number of areas. Unsold inventory began to pile up, and as a result the company was losing money. With morale nearing rock bottom, Burke decided to take over the day-to-day management of the company. He instituted a "back to basics" approach, emphasizing sensible business practices and quality service. His new mission statement had four components: "Produce a quality product at a competitive price, deliver it on time in a positive environment."

Burke's new approach began to pay off quickly. Improved efficiency and marketing, combined with Trek's ongoing reputation for turning out quality products, breathed new life into the company's sagging bottom line. Sales doubled in each of the next three years. In 1987 Trek successfully introduced a new line of mountain bikes, and their popularity helped the company sell a total of about 100,000 bicycles in 1988.

Trek continued to find innovative ways to make money during the last years of the 1980s. In 1988 the company introduced a line of bicycling apparel. The following year, Trek entered the stationary bicycle market with Trek Fitness bikes. In 1989 the Jazz line of children's bicycles were introduced, and the company opened subsidiaries in Great Britain and Germany. Within five years, international sales accounted for about 35 percent of the company's business. By 1990 mountain bikes made up nearly half the bicycles sold in the United States, and Trek was prepared to claim a strong share of those sales. The company sold 350,000 bikes altogether that year. Trek's sales grew to about $175 million for fiscal 1991, and the company had about 700 employees by that time.

The High-Tech Decade

During the first part of the 1990s, Trek remained at the technological forefront among bicycle manufacturers. Throughout the 1980s, the company had succeeded in developing advanced materials that enabled it to maximize the lightness and strength of its bicycle frames. These breakthroughs led to the 1992 development of the Optimum Compaction Low Void (OCLV) carbon fiber lamination process. Using the OCLV process, Trek was able to make the lightest production frames in the world, weighing in at a mere 2.44 pounds. Trek's first OCLV carbon road bike, Model 5500, was introduced in 1992, and its first OCLV carbon mountain bikes, Models 9800 and 9900, were unveiled a year later.

Meanwhile, another expansion project took place at Trek's Waterloo plant, which now measured 140,000 square feet. During the early 1990s, the bicycle industry in the United States experienced a bit of a sales slump. To compensate, Trek looked to boost its sales in other areas. The company continued to emphasize international growth during this period. Sales in Japan, for example, grew by about 40 percent per year from 1991 through 1993. Trek also concentrated more on sales in Europe, where it was gaining a solid reputation among bicycle buyers who had long thought of American bikes as heavy, clunky monsters built for kids.

In addition, the company began to focus more on the sale of bicycling accessories. Beginning in 1992, Trek assembled helmets out of parts purchased from other companies at a new plant in Oconomowoc, Wisconsin. By 1993 the plant was making helmets at a rate of about half a million a year, double its total from 1992. Trek also launched a small line of tandem bikes in 1992. Although a relatively small market, the tandem bikes proved popular among family fitness buffs.

In 1993 Trek acquired the Gary Fisher Mountain Bike Company, the company founded by and named for the originator of the mountain bike. Gary Fisher's sales increased tenfold in its first year as part of the growing Trek empire, from $2 million to $20 million. Altogether, company sales reached $230 million for 1993, a $20 million increase from the previous year. That modest increase was impressive considering that it came during a period so difficult for bike makers that it saw longtime industry giant Schwinn sink into bankruptcy. Having passed competitors Specialized and Cannondale, Trek was now the clear market leader in specialty bike shop sales. By this time, exports generated $80 million of Trek's sales, and the company maintained seven overseas distribution operations--one in Japan and the other six in Europe.

Trek passed the $250 million mark in sales in 1994. By that time, the company was manufacturing 65 different models in its Wisconsin plants, including road bike, mountain bike, hybrid, and tandem styles. Trek expanded its children's bicycle business that year with the introduction of a line called Trek Kids. A number of major developments took place at Trek in 1995. That year, the company opened a new state-of-the-art manufacturing facility in Whitewater, Wisconsin. The Whitewater plant, capable of producing 3,000 bicycles a day, dwarfed the company's other factories.

Acquisitions Mid-Decade

Trek also bought out two smaller niche-market competitors in 1995: Bontrager Bicycles, based in Santa Cruz, California, and Klein Bicycles of Chehalis, Washington. Those companies' plants remained in operation after the purchases. On top of those additions, Trek signed a ten-year licensing deal with bicycle-racing superstar Greg LeMond to use his name on a line of road bikes. In addition, the company introduced a new line of mountain bikes featuring an innovative Y-shaped frame. Trek's Y-frame received an "Outstanding Design and Engineering Award" from Popular Mechanics magazine, and the U.S. Secret Service even bought a few Y-frame bikes for patrolling the grounds of the White House.

Mostly on the continuing strength of mountain bike sales, Trek's revenue grew to $327 million in 1995, a jump of nearly 19 percent. In early 1996, the company announced plans to add another 45,000 square feet to its Oconomowoc distribution center. It also announced its intention to build a distribution center in Atlanta to go with its existing centers in New Jersey and southern California. Around the same time, Trek revealed that it was joining forces with Volkswagen of America to form a professional mountain bike team. The Trek/Volkswagen alliance went further yet, with the introduction of the Volkswagen Jetta Trek, a car that comes equipped with a mountain bike and rack.

In 1996, Trek also began planning a retail "superstore" on the west side of Madison, Wisconsin. The announcement did not sit particularly well with the specialty retailers already selling Trek bikes in the area. Although the company had dabbled in retail operations before (Trek had another retail store already operating in Madison, and flirted briefly with part ownership of a chain of stores in northern California), Burke insisted that it was not about to plunge into retail as a major part of its operation. The company eventually withdrew from the retail market in 1999, leaving the sale of its bikes in the hands of independent distributors and specialty retailers.

Meanwhile, Trek continued to beat out much of the competition in terms of quality and service, as it sought to solidify its position at the front of the high-end bicycle pack. Its ability to thrive during a period in which the bicycle industry as a whole was more or less stagnant suggested that Trek was poised to maintain its dominant position.

Trekking into 1997 and Beyond

Indeed, Trek's popularity skyrocketed in the late 1990s due in part to the signing of soon-to-be record breaker Lance Armstrong. Armstrong joined Trek and the U.S. Postal Team in 1997 shortly after he was diagnosed with cancer. Two years later, Armstrong became the first American riding an American-made bike to win the Tour de France. The Trek OCLV Carbon 5200 he was riding quickly became one of the fastest-selling bikes in the United States. Armstrong's athleticism would eventually go down in history; he won his seventh consecutive Tour in 2005.

During this time period, the company remained steadfast to its goal of providing superior products and service. In 1998 the company established its Advanced Concept Group (ACG). ACG's focus was to test new material applications and suspension technology. In 1999, Trek became the official licensee for Nike cycling products. One year later, the company launched a new line of bicycles and accessories designed specifically for women. By this time, Trek's parent, Intrepid, had sold off its other businesses and adopted the Trek name.

Trek entered the new millennium under the leadership of Burke's son, John. The company continued to expand its offerings and move into new markets. Trek's Project One program, which allowed customers to design and build their own bike, debuted in 2001. Through Project One, customers could design a one-of-a-kind bike by selecting everything from the bike frame to colors and wheels. After finishing the design online, customers could take their order to a Trek dealer and then have their customized bike delivered to the store in approximately six weeks.

The company also launched new bike designs, most often after Armstrong won the Tour de France riding a new product. Armstrong rode the new Madone SL in 2004 and the bike became available to biking enthusiasts shortly thereafter. Two new bike designs, the TTX time trial bike and the Madone SSLx made with OCLV Carbon Boron, were used by Armstrong during the 2005 racing season and made available to the public in 2006. The company completed construction on its 43,000-square-foot addition to its Waterloo factory early that year. The new space was created to house a larger OCLV carbon plant and engineering and research and development departments.

Along with bolstering its product line, Trek focused on strengthening its international business at this time. As part of this strategy, Trek added Swiss bicycle company Villiger to its arsenal in 2003 as well as Diamant, the oldest bike company in Germany. Trek Travel also was created that year to offer bicycling vacations in locations across the globe. The company moved into the Chinese market in 2005 when it opened two stores in Beijing and signed deals with 20 Chinese distributors.

Trek appeared to be poised for future growth. The company had become a favorite among biking enthusiasts thanks in large part to Armstrong's star quality. Trek bikes could be found across the globe and were used by children, novices, ardent fans, and professionals. Even residents at 1600 Pennsylvania Avenue were known to ride Trek products. In fact, when asked in 2005 what type of bike he rode, President Bush responded, "I'm not supposed to endorse products, but it's called a Trek."

Principal Competitors

Cannondale Bicycle Corporation; Pacific Cycle Inc.; Specialized Bicycle Components Inc.

Chronology

• Key Dates
• 1976 Dick Burke and Bevill Hogg establish Trek.
• 1983 Trek enters the mountain bike market.
• 1985 The company introduces its first aluminum road bike, Model 2000; Hogg leaves Trek.
• 1992 Trek develops the Optimum Compaction Low Void (OCLV) carbon fiber lamination process.
• 1993 Gary Fisher Mountain Bike Company is acquired.
• 1997 Trek signs Lance Armstrong.
• 1999 Lance Armstrong wins his first Tour de France.
• 2003 Trek Travel is launched; Villiger is acquired.
• 2005 Armstrong wins his seventh consecutive Tour de France.