Honeymoon between sharing-bicycle companies and traditional bike makers comes to an end
A year-long “honeymoon” between sharing-bicycle companies and traditional bike makers is likely to come to an end.
In past one year, the three major bicycle factories have reached cooperation with the sharing cycles. In 2016, Tianjin Pigeon Bicycle factory was the first to cooperate with ofo in July of that year, U-Bicycle company reached a cooperation with Shanghai Forever bicycle factory. And in May 2017, the Phoenix bicycle factory officially announced the strategic cooperation with ofo.
However, some signs imply that this “honeymoon” will not last forever. Tianjin Avant the Aowei bike companies both told The Economic Observer that currently, sharing bike companies have reduced their orders. A contractor of ofo bicycles in Beijing has recently been told that ofo will not invest a lot more cycles in the Beijing market anymore due to market saturation, and their cooperation in this period has come to an end.
When bicycle factories are not so busy producing the huge amount of bikes ordered by sharing-bike companies, they have found their traditional sales channels are seriously impacted by the new business model. Beijing Bicycle Industry Association offers a set of data to The Economic Observer that in Beijing in Q1 2017, 50% of bike stores closed up.
When the wave faded, traditional bicycle factories also face some other problems. For instance, how to settle the production lines that have been expanded to meet the huge orders from sharing bicycles. In this wave of mass production, how to digest the increasing costs of spare parts and labor cost?
China was once the “kingdom of bicycle”, but with the urbanization and the improvement of urban transportation infrastructures, the number of bicycle used in cities has sharply declined. For quite a number of urban residents do not choose bicycles for travel. The recovery brought by sharing bikes may be temporary, and traditional bicycle factories are still facing a long road to transform.
Guo Jinzhi, the chairperson of Beijing Bicycle Industry Association, told The Economic Observer that, there were still a number of consumers that had some attachment to traditional bicycle brands like Phoenix, Forever, and Pigeon. Thus, now the most important task for traditional bicycle manufacturers is to find their accurate positioning, to safeguard their own brands, to increase investment in R&D, and to give up their past extensive development.
“The attachment to these brands is actually an love for Made in China.” Guo told The Economic Observer
Order Declines
Mass production of Shared bikes has brought a disruptive change to traditional manufacturing.
Official documents released by Beijing Bicycle Industry Association show that every year 80 million bicycle are produced in China, while only 25 million or so of them were sold in domestic market. However, only Mobike and ofo alone will order more than 25 million bikes in 2017.
At the same time, the traditional bicycle manufacturing industry also provides the production capacity for the mass release of sharing bicycles and their frequent upgrades. A marketing manager of Pigeon Group told The Economic Observer that on the one hand, Internet companies have little experience in the bicycle industry. On the other hand, the traditional bicycle industry also lacks the ability to cooperate with them to meet the design concept. These are what needs constant communication and improvement in cooperation.
In fact, bicycle factory also have some worries about the sudden increase of bicycle orders. The characteristics of sharing-bicycle production line are single standard and low-and-mid-end quality. But this mode of production requires a huge capacity. The manager thinks that in the mass production of such scale, brands of traditional manufacturers may be gradually marginalized.
In 2017, Pigeon bicycle factory received order of up to 5 million bikes from ofo and in May the same year, Phoenix also took a 5-million-bike order, which is 1.6 times of its production capacity in 2016.
What is more serious is that mass orders will not last forever. Tianjin Avant and Aowei companies both have told reporters that the number of orders from sharing bicycle companies has fallen sharply. There have been sudden suspensions of orders that have been put on the production line.
The decline of orders from sharing bicycle companies also means that there will be a surplus of production capacity that have been temporarily expanded in the past year to finish the order of sharing bicycles. The marketing manager of Pigeon Group told The Economic Observer “for an enterprise, it’s important to be prepared to deal with this problem. The surge in orders has boosted the number of workers, but these workers are likely to be fired when the order reduces.”
Whether it is cold or warm is known by oneself
While traditional bicycle factories were busy dealing with massive orders, dramatic changes occurred in the sales channels and bicycles markets.
Guo Jinzhi offered a set of data to The Economic Observer that in Beijing in Q1 2017, sales declined by over 50%, bike sales channels fired a lot of staff, shut down stores or transformed and 50% of bike stores closed up.
A bicycle shop with “Phoenix Bicycle” sign-board in the east gate of Tsinghua University has been running for almost 17 years, while in this year, the owner wants to change the shop. “I’m going to do business that can’t be shared.” He said.
The shop owner told The Economic Observer that although the bicycle business had fallen a bit in previous years, the fastest decline was in the wake of the rise of the sharing cycle. The shopkeeper said that the deposit and fare of sharing bikes is low. The cost of manufacturing sharing bike is between a hundreds yuan to several thousand yuan. Sharing bikes mainly to solve the “last one kilometer” problem and it overlaps a great deal with low-end and cheap bicycles. Thus, sales of bikes under 1000 yuan are affected most seriously.
When the demand market continues to change, the supply side also changes. Reporter visited several bicycle stores in Beijing and one shop manager said from last November to August this year, although there were not so many buyers, the retail price of some traditional ordinary bicycles increased by about 30 yuan. He thinks that the rise in prices is that factories have to buy production materials for higher prices to produce traditional bikes due to the huge amount of bicycle capacity occupied by sharing bikes.
The individual cases in Beijing still couldn’t demonstrate the trend of the overall bicycle sales market, and sharing bicycles not only brings negative factors to the market. Some bicycle dealers believe that the spread of sharing bicycles has some positive effects on selling traditional bike. Dealer of XDS in Tongzhou District, Beijing told The Economic Observer, “We have received a lot of orders. Customers came and by bikes after experiencing sharing bikes because they don’t think sharing bikes are good enough.”
After the Decline
The “honeymoon” between traditional bicycle factories and sharing bikes is drawing to a close, and factories have a clear understanding of this. The marketing manager of Pigeon told The Economic Observer that both Pigeon and its peers should upgrade the industry. If they only do the manufacturing and become a foundry, they may face the risk of integration.
At one end is a shrinking number of orders from sharing-bicycle companies, and on the other end are changed channels and market. For traditional bicycle enterprises, the industrial transformation is the road to be taken.
The attempt has been ongoing. Phoenix which takes a large number of ofo orders has added its golden phoenix logo on ofo’s new product “princess bikes”. Both the Phoenix and Pigeons have also launched bike models aimed at different ages. For instance, they target at consumers over 40 who have certain attachment to brands with long history. In addition, they combine with other industries and extend the industrial chain. Bicycle companies can be connected with education, medical health or fitness programs so as to form industrial connectivity.
But for the traditional bike makers, the difficulty of the transformation lies in capital operation, technology upgrade and distinguishable products. The marketing manager of Pigeon told The Economic Observer that “the ‘Internet+’ is a way of development. The core is to attract users, but it also needs the support of capital and technological products.”
The market space of bicycle as a sports equipment is expanding rapidly after its function as travel tool is gradually reduced and replaced. Reporters from The Economic Observer visited a number of sports bike stores and found that their sales weren’t affected seriously after the rise of sharing bikes.
But in this market segment, the dominant brands are not time-horned ones like Phoenix, Forever and Pigeon. The dominant low-and-mid-end brands are Giant and Merida from Taiwan while the mid-and-high end brands are Lightning and Trek from the United States.
A senior sports bicycle player still uses bikes for commuting tools. He thinks that if bicycles don’t actively adapt to the change from transport tool to sports equipment, and remain its appearance design and performance in the 1970 s, sports fans won’t choose them. He believes that in the era when sports cycles develops rapidly, established bicycle factories have no core technologies and no featured products, which is the biggest problem.
Guo offered some suggestions to traditional bicycle factories. She believes that the most important thing for traditional bicycle manufacturers is their positioning. And they can’t leave their brands alone. Traditional bicycle companies can draw lessons from some other brand manufacturers. One bicycle brand set up a separate factory for orders from sharing bike companies while its original factory still operates traditional business without throwing away its own brand.
This article originally appeared in The Economic Observer and was translated by Pandaily.
Click here to read the original Chinese article.
