Huffy Corporation

Contact Information:

HEADQUARTERS: 225 Byers Rd.
Miamisburg, OH 45342
PHONE: (937)866-6251
FAX: (937)865-5470
URL: http://www.huffy.com

OVERVIEW

Huffy Corporation is involved in both the manufacturing and marketing of consumer products, ranging from bicycles to lawn and garden tools, and the sales of services to the retail sector. On the consumer products side of its operations, Huffy is divided into five core companies: Huffy Bicycle, Huffy Sports, True Temper Hardware, Washington Inventory Service, and Huffy Service First.

Huffy Bicycle Co., the world's largest seller of bicycles, markets bicycles made in the company's U.S. factories as well as some lower-priced models made for Huffy in Asia. To maintain its position as the world's largest seller of bikes, Huffy has had to take steps to better compete with lower-priced models produced in Asia. Huffy Sports Co. is North America's leading supplier of NBA-licensed basketball backboards, as well as other basketball equipment. True Temper Hardware manufactures and markets a wide range of lawn and garden tools for use at home, on the farm, or by contractors. Washington Inventory Service provides a variety of inventory services to the retail industry through its nationwide workforce equipped with state-of-the-art technology. Huffy Service First is the country's only nationwide supplier of retail services that range from in-home and in-store product assembly and repair services to merchandising services.

COMPANY FINANCES

In 1997 Huffy Corp. posted net earnings of $10.1 million on revenue of $694.5 million, compared with 1996's net of $6.5 million on revenue of $701.9 million. For 1995, the company reported a net loss of $10.5 million on revenue of $684.8 million, compared with net income of $17.4 million on revenue of $719.5 million in 1994. Sales of consumer products accounted for 74 percent of the company's total revenue in 1997, while the remaining 24 percent was derived from sales of retail services.

HISTORY

Founded by Horace Huffman in 1924, Huffman Manufacturing Company produced and marketed equipment for service stations, including one of its own inventions, a rigid spout to dispense oil from large drums. During the Great Depression, Horace decided he could make money by providing a more inexpensive means of transportation and, in 1934, Huffman began producing bicycles.

When Horace brought his son into the business a few years later, Horace Jr. was able to double production and increase sales to more than __BODY__ million by 1940. Horace continued to guide the company through World War II and the post-war recession by implementing modern management and manufacturing policies.

The introduction of the company's Huffy convertible bicycle in 1949 proved a big hit with the public. The bike was equipped with training wheels that could be removed once its young users had learned to ride. Huffman's business continued to grow through the 1950s and 1960s. In 1968 the company went public.

The 1970s gave the company's bicycle sales a shot in the arm with the rapid expansion of retail chains opening up a promising new market. In 1977 Huffman Manufacturing changed its name to Huffy Corporation, and the company acquired Frabill Manufacturing, a manufacturer of fishing and basketball equipment. Other acquisitions designed to diversify Huffy's product line followed. In 1982 the company bought YLC Enterprises, a company specializing in product assembly, and Gerico, the producer of Gerry and Snugli baby products. Six years later, Huffy purchased Washington Inventory Service. In 1990, the company bought True Temper, a manufacturer of lawn and garden tools. In 1997 the company acquired Royce Union Bicycle Company, a manufacturer of high-end bicycles.

Mounting competition from foreign bicycle manufacturers, particularly Asian, and a generally sluggish retail market combined to cause a hefty loss for Huffy in 1995. The company answered the competition aggressively with the 1997 introduction of 16 new BMX models.

To tighten the focus of its portfolio, in 1997 Huffy divested Gerry Baby Products Co. Gerry had failed to meet Huffy's criterion of ranking number one or two in its industry, and the company felt that it would need to make a very substantial investment in order to move Gerry into the desired position. Huffy determined the money could better be spent to fund "the internal growth and acquisition strategies to further enhance the number one or number two position held by each of our five core businesses."

STRATEGY

In late May 1998, Huffy Bicycle Co. announced a major restructuring plan to better position itself to compete with Asian manufacturers in the global bicycle marketplace. Under the plan Huffy would reconfigure its manufacturing operations, resulting in a sharp increase in finished goods production at its Farmington, Missouri, plant.

Huffy's goal in restructuring was to maximize operating efficiency by eliminating excess production capacity and reducing annual bicycle operating expenses. An 18-month-long analysis of the international bicycle market by the company revealed a sharp drop in comparable bike prices in the United States in the four years between 1993 and 1997; this decline in prices was blamed on fierce global competition, for which the company said there was no end in sight. This left Huffy with no choice but to fight back aggressively by cutting excess capacity and costs. The long-term goals for its new strategy were to "satisfy consumer demand for value-priced bicycles and to solidify Huffy as a viable U.S. bicycle supplier." Huffy hopes these actions will help it achieve its overall objective of maintaining its leadership in the bicycle industry despite competitors that have successfully driven down retail prices and eroded Huffy's profit margins."

One unfortunate consequence of its restructuring plan, Huffy said, was the need to close the company's 40-year-old bicycle factory in Celina, Ohio, in order to reduce production capacity. Other elements of the plan called for the leasing of a 100,000-square foot U.S. facility to make parts to support its Farmington, Missouri, factory and the continuation of its Asian import program to bring in opening price point bikes.

Huffy said the restructuring reflected some very basic changes in U.S. consumers' buying patterns. It pointed out that in 1997 nearly 60 percent of the bikes sold in the United States were produced by foreign manufacturers. The company said bicycles produced in Asia typically cost 10 to 20 percent less than comparable U.S.-produced models. This leaves companies like Huffy with no alternative but to adopt a competitive mix of domestic and non-domestic products. Huffy said it also planned to develop Mexican sources as alternatives for opening price point bikes currently imported from Asia.

Huffy has outlined five goals to help the company achieve its mission of being "the leading supplier of name brand consumer products and retail services designed to improve consumer lifestyles and enhance the business performance of its retail customers." According to company literature, Huffy "will achieve its vision by attaining prominence in every category of business in which it participates; by directing assets to value-adding activities to become the low-cost supplier of products and services to ensure the highest value to its retail customers and to consumers; by building strong relationships with customers and suppliers to be as efficient as possible; [by having] no single business unit [account] for more than 33 percent of total operating profits; [and by] achieving profitability that ensures consistent returns of at least 15 percent on beginning shareholder equity."

INFLUENCES

One of the forces that has helped shape Huffy's corporate strategy in the 1990s has been the continuing demand from consumers for "new and improved" products. Huffy has tried to answer that call and credits the positive consumer response to many of it product innovations with fueling its turnaround since 1995, when the company suffered a net loss of $10.5 million. During 1997, new products and services—including BMX bikes; the Hercules basketball system, marketed by Huffy Sports in Wisconsin; and expanded in-home assembly services—delivered additional sales in higher margin markets.

CURRENT TRENDS

In early 1998, Huffy expressed optimism that the momentum achieved in 1997, the second consecutive year of increased earnings, would help fuel the continuing financial turnaround that began in 1996. Leaving nothing to chance, in May 1998 the company announced a major restructuring program designed to help the company better compete against Asian bicycle manufacturers. The restructuring plan was designed to eliminate excess manufacturing capacity and trim operating costs.

Introducing the restructuring program, Huffy CEO Don Graber said, "When the restructuring and reconfiguration are complete, Huffy Bicycle Company will be a viable, long-term competitor. We expect performance for 1999 and beyond to be enhanced as a result of this restructuring."

PRODUCTS

Huffy operates in two distinct businesses: consumer products and retail services. Among its consumer product operations, Huffy Bicycle manufactures and markets bicycles and cycling equipment, while Huffy Sports is the leading North American supplier of NBA-licensed basketball backboards, as well as other basketball equipment. True Temper Hardware manufactures lawn and garden tools for use at home or on the farm. Among its retail service companies, Washington Inventory Service, based in San Diego, uses state-of-the-art technology to provide high quality inventory services to retailers. Huffy Service First offers a variety of services, including in-store and in-home product assembly and repair.

GLOBAL PRESENCE

Huffy is engaged in a battle to preserve its leadership in the worldwide bicycle market, challenged by fierce competition from foreign manufacturers, particularly those in Asia. In order to maintain the proper price mix in its bicycle product line, Huffy imports some lower-priced models from Asia, but it hopes to explore the possibility of developing Mexican sources as an alternative supplier of bicycles.

SOURCES OF INFORMATION

Bibliography

"Huffy Corporation." Hoover's Online, 18 May 1998. Available at http://www.hoovers.com/premium/profiles/10754.html.

"Huffy Corporation Announces New Bicycle Manufacturing Plan to Confront Fierce Asian Competition." PR Newswire, 28 May 1998.

"Huffy Plant to Lay Off Workers." Associated Press, 5 June 1998.

"Identity." Huffy Corporation, 1998. Available at http://www.huffy.com/identity/index.html.

For an annual report:

on the Internet at: http://www.huffy.com/balance_sheet.html

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Huffy Corporation's primary SICs are:

3423 Garden Hand Tools

3568 Drive Chains, Bicycle and Motorcycle

3751 Bicycles and Parts

3949 Basketballs and Basketball Equipment and Supplies

5261 Garden Supplies and Tools