The fact that Pat Cunnane has spent his entire working life in the bike industry is not uncommon. But growing a bicycle company from annual sales of around $8 million to $107 million in under 13 years is just a little less common.
Pat has achieved this as President of Advance Sports International, best known for its brands Fuji, Breezer, SE, Kestrel and Oval. As you will read, Australia has played an important role in this massive growth.
Throughout this period he’s also spent countless hours as one of the global bike industry’s most proactive bike advocates, doing everything from serving on high powered boards to working with local street kids.
In fact, Pat had so many compelling things to say about both his industry and advocacy experiences, that our interview will be split into two sections. To read Pat’s thoughts and experiences relating to advocacy, please go to our July online edition of Bicycling Trade at www.bicyclingaustralia.com/trade
Meanwhile, here are his bike industry insights.
Bicycling Trade: I read that you started working part time at your local bike shop from just 12 years of age. What is it about bikes that makes them a lifelong passion for some people?
Pat Cunnane: You know it’s a mystery that a lot of people share! (laughs) I don’t know what it was that attracted me. For me it was the place I hung out after school.
BT: Can you briefly summarise your bike career since then?
PC: From 1970 to 1978 I worked in bicycle retail at several different places in and around Philadelphia and the shore area.
Then I was an outside independent sales rep for a parts distributor. I was a sporadic college student, so I was in college, but always part time.
In 1982 I got lucky. I was hired at Ross Bicycles which at that time was the second largest quality bicycle builder in the US. Huffy, Murray and Roadmaster were on the mass side and Schwinn and Ross were on the dealer side.
A couple of months after I got there, the family split the company up. One family bought out the other side. I ended up becoming National Sales Manager at 23 years old for a $30 million company. In 1982 that was a lot of money!
I was sort of unleashed. I was involved in product and sales.
I started to come to Taiwan and China in 1984 and developed a lot of relationships that I still have now. I was at Ross from 1982 to 1987. They unfortunately went bankrupt.
At that time there was an opportunity that opened up in the market. Giant came in and I was hired by them as their first sales manager. I stayed with them for three years with the proviso that I could finish school. So I finally graduated from college with a four year degree, 13 years after I started.
I realised at that time, after the experience I had with Ross that I probably needed to get an education to get a job back at that level, but I probably needed to start my own business.
I started a company called Cunnane Bicycle in 1992. We were a company that did sales and marketing for mostly Taiwanese brands. We took a lot of other emerging brands at that time and my customer base was the US manufacturing base, primarily. Huffy, Murray and Roadmaster at the mass market end and Trek, Specialized and Cannondale, when they were manufacturing bikes in the USA.
When the US failed to pass an anti-dumping law against China, US domestic bicycle manufacturing went down from 6.8 million units a year to 600,000 units and so went my business! So I had to find something else to do.
I had an internet business that sold surplus inventory it was called bicyclesurplus.com. I sold that and gave myself a little breathing room.
I was offered a job at ASI (Advanced Sports International) in 2001 and I’ve been here since then.
BT: ASI is owned by Taiwanese investors and the manufacturer, Ideal, who makes your bikes, is a key stake holder, correct?
PC: ASI was formed in 1998 as an investor group who thought that Fuji was a great brand. It was an underperforming company. They bought it and maintained the same management and got the same results. By 2001 they wanted different results.
The company was doing 35,000 bikes, about US$7,500,000 per year and at that point was starting to do business in Europe, but the US was its main market and we were still selling a little bit in Japan.
When I took over, I went to the investors and said, ‘You have a choice. We can cut this company way back and be a profitable $7.5 million (Aus$8 million) company, or we can dramatically grow it and be a profitable growing company into the future. If you want the $7.5 million company, I’m not your guy. If you really want to turn on the heat and move this thing forward, I think we have a real shot at it.’
They bought in to that and gave me the support I needed to get it started. When I say ‘I,’ I mean the people that I brought in.
We got back to the basics. You can have the best brand in the world, but if it’s not backed up by quality product, then you’re not going to win.
We came up with a new plan, part of which was to enter into a strategic manufacturing agreement with Ideal Bicycle Corporation. So in 2001 we said, ‘This is what Advance Sports can do well. We can design and market bikes. You’re a bicycle manufacturer. You can be our engineering partner and take on the design from a certain point.’
So we ended up creating I think what’s been a very successful model where we don’t have overlapping overhead. We take a project to a certain point and then they take it from there. That’s been our business philosophy all along it’s a competitive advantage for us.
In 2001 we entered into this agreement. We became profitable in 2002, we had gotten some size, but we needed a capital infusion, so Ideal invested in 2004 and they now own 17% of ASI. The original investors are still involved. I now have equity in the company and we’ve continue to grow the business.
Sponsorship’s always been important to Fuji and at the time I was there we were sponsoring a really terrific team, Mercury, but they weren’t riding Fuji bikes. We were buying the bikes from (Australia’s) Peter Teschner.
The other side of the ASI story is, we wanted to grow fast and I believe that any brand including Fuji only has a certain bandwidth. It can’t do everything.
In 2002 BMX had become an Olympic sport and we thought, ‘Let’s do BMX and let’s do it well.’ BMX is never going to do well under the Fuji brand. Fuji doesn’t have that bandwidth. SE, which was a legacy BMX brand, was dormant. We bought it, brought it back to life and that is our second oldest brand but it’s also our second highest volume brand in terms of units.
When we looked in the market later in 2007, Kestrel was under performing and on the verge of going out of business and in the US market we looked at it and said the triathlon market is predominantly being served by online retailers.
At that time it wasn’t possible to have a mainstream brand like Fuji sell to these customers, but I felt strongly that the triathlon market was a really growing market and big, so we needed a brand with a legacy to grow with that market and that’s what we did. There’s very little overlap in Fuji and Kestrel dealers it’s often different dealers. Kestrel is available online.
In 2008 the US gas prices were $5 a gallon and people were buying bikes, fixing their bikes and riding bikes. I’d known Joe Breeze from the early 80’s when I was at Ross.
He had transformed his business into a transportation business in 2002 and I always kept in touch with him and watched it and I thought the timing is right for us. We’d just bought a European sales agent, we were going to go direct into Europe our market position in Europe with Fuji is a higher end bike than it is in the US in Europe and very strong in mountain bikes which is something we struggle with in the US.
We said we’d do our transportation bikes under Breezer. We really bought it to put some fuel behind Joe Breeze’s company. It was a simple transaction that in some ways because the bikes were already being made at Ideal. So we could put our horsepower behind his existing product line and offer the kind of terms and everything else that the dealers were scrambling for to make it a competitive brand.
We completed the deal two days before the economy crashed! (laughs) Transportation bikes in the US just went from everyone wanting one and being very interesting to being practically nothing. More than before, but not what it was.
With that, we said, ‘We bought it, we own it, we broke it, so we’ve got to expand it.’ We then set out to develop some mountain bikes. So we introduced some hard tail mountain bikes based on Joe’s updated 29” designs.
Just like he’d done in the 70’s, he created a geometry that’s now the industry standard: shorter wheelbase, slightly lower bottom bracket, a much more responsive bike to ride. That is what Joe’s all about. He knows bike geometry as well or better than anybody. Last year at Eurobike we launched the M Link full suspension design.
BT: What’s the picture of where you’re at today?
PC: We’re over $100 million (Aus$107 million) worldwide (sales per year), $65 million (Aus$70 million) of that in the US. We now sell over 300,000 bikes worldwide (per year) and our next threshold is 500,000 units. We believe our current organisational structure and people can get us to 500,000 units.
BT: Tell us about Australia. Where does that fit into the picture and how important is that to you?
PC: It’s very important. Oceania’s a terrific customer. (Melbourne based wholesaler Oceania Bicycles) We hooked them with SE. They had been an SE distributor a long time ago. They started with that and then our Australian distributor for Fuji really didn’t have the financial resources to do very much and just gave up. We went with Oceania and they had the financial resources and the passion and the reach to get Fuji into that market in a significant way.
They are really our full brand partner now. They’ve got Australia and New Zealand and they’re doing Fuji, SE and Breezer. Our brand manager for SE, Todd Lyons just spent 10 days visiting retailers down there and if you look at his Instagram or his Facebook you’ll see that he was in every BMX hardcore store in the country!
So they’re a strategic partner of ours meaning that we work with them in the earliest phase of product development and when needed, we give them market specific bikes.
For Fuji, Australia is among our top tier of distributors for market share and average selling price. For SE, Australia is our largest international distributor in units and dollars.
2014 represents our 10th year of working with David Hall and Oceania.
BT: You do Oval bars and components as well?
PC: Yes, we own Oval. We bought it because we noticed what was happening was that we were less competitive against Trek and Specialized. When we really looked at the spec, we realised that they had a proprietary brand where we were using third party brands.
In addition when you design a bike now, especially a TT bike, you have to actually design the handlebars and the stem and everything with it so you get the aerodynamics and the fit that you want to have out of that product.
So Oval now is our largest supplier to the ASI family of bicycle brands and we use it on Breezer, Kestrel and Fuji.
BT: Have you ever visited Australia yourself?
PC: I have. I’ve been there at least five times, but I don’t think I’ve been there in total for more than 10 days! (laughs) I’ve been to Brisbane, Melbourne and Sydney. I went to the Tour Down Under in Adelaide.
BT: Speaking of road racing, how did you feel when the news came out that NetApp Endura (which uses Fuji bikes) had been given a wildcard entry to this year’s Tour de France?
PC: Happy! (laughs) That’s what we were hoping for. It’s a game of chance and risk when you’re not with a Pro Tour team.
Elated and I think it’s based on their really good results and they’re a clean team. I think there’s some politics, they’re a German team and Germany’s not been as engaged in the Tour.
BT: About Fuji: 1899 Japan, 1950’s America, it’s very unusual history for a brand. How did that come about?
PC: In 1899 the company was established as Nichibei Fuji. It was a trading company and an importer and it started importing bikes from the US.
There was no bicycle manufacturing in Japan at the turn of the century. The US was the manufacturing hub for cycling in the 1890’s. Europe was making bikes, but not like the US.
BT: There were 300 bike factories in Chicago alone…
PC: Right. There were another 150 or so in Philadelphia.
So they actually bought the bikes in Chicago from Sears and brought them back to Japan. Then they became a manufacturer sometime around 1920. They became a significant exporter at that time into Southeast Asia and bicycles became the largest export from Japan.
In the 1920’s Fuji was the largest exporting company in Japan selling bicycles.
They ended up partnering with and then being purchased by Toshoku.
They were huge a food trading company.
In post war (World War II) America there was not much appetite for Japanese products. So in the 1950’s they did not sell them the Fuji brand. They tried and it failed so they went and sold to Montgomery Ward and to Sears (department stores).
But in 1971 Ken Moria, who was the President and the grandson of the founder, came to the US and he established Fuji Cycle, which became Fuji America. He ran it until it was sold in 1988 and he was the president until six months before I started there.
He was incredibly innovative for his time. They have some firsts that I think are significant. The first bikes they bought in were really high quality which was sort of a surprise, because Japanese products in the 70’s were not considered high quality.
With Sun Tour they innovated and developed the 12 speed when every other road bike was 10 speed.
They also were instrumental in Shimano’s transition from the lower end. Back in the 1970’s Shimano were making the ‘Schwinn Approved’ rear derailleur and Sun Tour was the premium brand from Japan, but Shimano was not considered anywhere near that.
When Shimano developed Dura-Ace in the late 70’s, Fuji created a bike with Dura-Ace. We actually have a trade mark agreement with them now, so we have the Fuji-Ace.
Fuji introduced Dura-Ace and at that time Shimano appreciated Fuji’s support because it needed a high value brand to bring them up a little bit. If it’s good enough for Fuji then it’s good enough for anybody was sort of the essence of the ad and the marketing push behind it. It’s not that way for Shimano anymore!
So Fuji was always innovative, but its demise, if you want to call it that, came from staying in Japan too long as a manufacturer, combined with the growth and boom of the mountain bike and their late arrival in Taiwan. They survived, but they eked along.
Toshoku at the same time was having its own problems and was in some sort of bankruptcy, so they just took their eye off the ball, which you cannot do in the bike business.
BT: You’re a great believer in collecting industry wide bike sales statistics, aren’t you.
PC: They’re absolutely critical for understanding your business.
Selling product in Australia and not having any idea what’s going on in that market other than jumbled up import statistics is not any way to effectively run your business, manage your business or grow your business.
Cooperate on advocacy and cooperate from statistics, because you will benefit by sharing. There has to be a way for you to do it. In the US even having the sell-in data, which means you’re just hire an independent person, at least we know what US suppliers sell in to retail.
That will help everybody. If you can start there and then expand to sell-through data, terrific!