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City bikes: Upmarket trend gains strength

Midrange and high-end selections are expanding with the release of safer, more durable models in lightweight constructions.

Efforts to shift the sales mix toward higher-value models are gathering momentum among China's city bike manufacturers. Suppliers are encouraged by rising demand for the line in the industrialized countries of North America, Europe and Asia, where health and environmental awareness is strong. Surging gas prices are also increasing uptake in the regions, as well as in developing economies and the domestic market.

City bike
  Kespor's Maxx folding bike has a 20in aluminum alloy frame.
While exports slid 20 to 40 percent at most companies, units for urban commuting accounted for a greater share of bicycle shipments this year. The category constituted nearly one-third of products sent abroad, 10 percent more than in 2008. In coming months, suppliers are anticipating the gradual recovery of the global economy to push sales forward.

Another reason for the growing strength of the upmarket trend is the rising cost of key manufacturing inputs. Compared with the same period the previous year, rates for steel tubes increased 5 percent to $700 per ton in October 2009. Spending for aluminum went up 3 to 5 percent to over $2,000 for each ton.

The labor shortage in Guangdong province and other major production centers is also contributing to surging expenses. Currently, workers earn from $220 to $290 per month, about 15 percent higher than last year.

Most companies raised the prices of their existing models by 10 percent to cover additional costs. In coming months, however, many are reluctant to lift quotes further, as this may dampen emerging demand. These suppliers are willing to shoulder the increases and sacrifice margins.

Shifting the sales mix toward midrange and high-end designs enables makers to maintain overall profitability despite the strategy mentioned, since they may experience losses in some lines but gain in others. Moreover, it reduces their vulnerability to fluctuation in cost drivers, allowing them to offer stable quotes.

To obtain larger margins, a number of enterprises will also be generating savings by streamlining operations, reducing wastage and conserving electricity.

R&D endeavors
Products & prices
Industry composition
R&D endeavors

In line with the upmarket move, suppliers are exerting more effort in studying the latest technologies and trends. Many are collecting information from a variety of sources, including buyers, trade shows, exhibitions, news articles and industry reports. In addition, Xiamen Runhong Stone Co. Ltd and a few others are collaborating with research or academic institutions.

For many enterprises engaging in ODM or releasing designs under in-house brands, R&D work comprises improvements in construction and aesthetics.

Recent releases include units with internal-gear hubs instead of external derailleurs. Priced about $40 higher than versions fitted with the latter, these bicycles have gears enclosed in the hub, protecting the components from dirt, inclement weather and impact.

For lighter weight, components traditionally in steel are being replaced by versions made of metal with less density. Screws, for instance, now come in aluminum, while spokes are in stainless steel.

Further, in the collapsible bike category, suppliers are making designs more compact and portable by employing foldable stems.

In the electric line, specifically pedal-assist systems, among the latest developments are units with 1:2 and 1:3 power-assist ratios. In such designs, about 30 percent of the power is generated by the cyclist£r pedaling, while 70 percent comes from the motor.

As regards aesthetics, makers are offering designs in a range of colors. Models targeting the Japan market, for example, are offered in solid hues such as white, silver and red. Those for the US are in bright colors.

Products & prices

Designed for urban commuting, city bikes are typically fitted with lights, reflective strips and horns or bells for safety. In addition, designs incorporate security and convenience accessories such as locks, chainguards, fenders, baskets and pannier racks.

Unit prices start at $35 and increase depending primarily on the frame material, tires, mechanisms and components adopted.

For the frame, steel alloys, in particular those of the CrMo family, are employed in the low end. Aluminum grades dominate the midrange and high end, but a few makers use magnesium alloys, titanium and carbon fiber.

In terms of braking systems, models at the lower end of the price scale often come with direct-pull cantilever types. Upscale products have the disc variants.

For tires, derailleurs and other components, suppliers usually procure from domestic sources those for use in low-end and midrange constructions. Versions from Taiwan, Japan or farther abroad are found in the upscale segment.

Standard constructions: Conventional nonelectric, nonfolding models currently account for the majority of city bikes produced in mainland China, although specialized designs are growing in number. Prices in this category range from $35 to $350.

Models below $70 come with steel frames and cantilever brakes. Most are not equipped with derailleurs or suspension systems.

Units that go up to $140 have frames in steel or aluminum alloy. These are fitted with either cantilever or disc brakes and Taiwan-made tires.

In this segment, derailleurs and suspension systems are standard features. These and other mechanisms are typically from local suppliers.

For more expensive constructions, disc brakes are the mainstream, while magnesium alloy frames are optional. Gear and suspension systems are often sourced overseas.

Foldable constructions: Folding or collapsible models constitute about 20 percent of output.

Quotes start at $40. In this line, design is a major consideration in product positioning and pricing, as it determines how convenient a model is to fold and carry. The unit£r size is also a concern.

Collapsible constructions below $70 can typically be folded only at one point, often near the pedal. Those priced up to $150 have at least two joints, one at the pedal and another at the handlebar. More expensive designs can be bent at the pedals, handlebars and frame joints.

Electric units: Positioned in the high end, electric units account for nearly 30 percent of production. About 30 percent of output in this line is shipped overseas and the rest go to the domestic market.

Most models are capable of running 20 to 25kph, covering a distance of 20 to 50km when fully charged. Units are typically fitted with 150 to 350W motors, but some have more powerful versions. The common battery options are 24 or 36V lead-acid, NiH or lithium-based formulations.

Entry-level units are available at $200. These bicycles have steel frames, cantilever brakes, lead-acid batteries and up to 250W motors. Their various components, including tires and derailleurs, are sourced locally.

Models between $310 and $450 come with steel or aluminum alloy frames, and cantilever or disc brakes. With motors capable of producing 250 to 500W, NiH and lithium-based batteries are common in this segment. Tires from Taiwan and Japan-made mechanisms are often seen as well.

At the higher end of the price scale, units with magnesium alloy frames are offered. Their motors can have power ratings exceeding 500W.

Industry composition

The mainland city bike industry consists of about 1,000 makers, most of which offer other bicycle styles. Among suppliers of electric models, related lines such as golf scooters and utility vehicles are available as well, as these require similar materials and equipment.

Locals own the majority of manufacturing facilities, but there are several Hong Kong- and Taiwan-invested operations as well. A few foreign-financed enterprises are also present.

Small and midsize companies account for the bulk of the industry. The former is capable of producing fewer than 50,000 bicycles per month, while those operating on a medium scale can turn out up to 150,000 units. Annual sales of these businesses generally do not exceed $10 million and $40 million, respectively.

Manufacturers with larger operations are relatively few, but they account for the greater part of production and overseas shipments. In fact, the top 50 suppliers are responsible for nearly 70 percent of aggregate exports.

In 2009, China is estimated to have sent abroad $600 million worth of city bikes. Twenty percent consisted of models bearing in-house brands, while the rest were under contract agreements.

This article "City bikes: Upmarket trend gains strength" is originally posted in Global Sources.

Note: All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.

Disclaimer: All product images are provided by the companies interviewed and are for reference purposes only. Those product images featuring products with trademarks, brand names or logos are not intended for sale. We, our affiliates, and our affiliates' respective directors, officers, employees, representatives, agents or contractors, do not accept and will not have any responsibility or liability for product images (or any part thereof) which infringe on any intellectual property or other rights of a third party.

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