As of spring 2016, Shulz folding bikes were being sold in Belgium, Germany, France and the Netherlands. In only few short months, this Russian brand of bicycles sold over 700 units. Despite the market being saturated with competitors from Europe, the United States and Asia, Shulz came out on top due to its slim design, packaging (designed by St. Petersburg-based artist Alisa Yufa) and carry bags.
Alexander Ivanov, the brand founder, made the daring choice to expand into the European market even as bicycle sales in Russia started to stagnate. At the moment, the company's annual turnover is in the range of 70 million roubles ($1.08 million). Ivanov talked to SECRETMAG about the bikes, his company and his hopes for Shulz bikes in Europe.
Bike Rentals in St. Petersburg
In 2006, Alexander Ivanov launched a bike rental shop in St. Petersburg. Prior to this business venture, Ivanov, a graduate of the St. Petersburg State University of Aerospace Instrumentation, worked in advertising and promoted luxury online retailers. One day, he became so enthralled with bicycles that he decided to create one of his own – a folding model, easily stored in a car boot. “That was just after my second child was born,” Ivanov recalled. “I wanted to spend more time out in the country and I wanted to have a particular kind of bicycle for that.” He teamed up with his engineer friends and together they came up with the Goa-3 folding bike, assembled from components produced in Chinese factories.
It took almost a year to sell the first shipment of several dozen units. Unfazed, Ivanov further financed production in partnership with two friends, and they opened a shop on Goncharnaya Street in St. Petersburg. At first, sales were slow and their debts were growing, and Ivanov decided to buy out the shares of his partners. “All the money we invested was borrowed; I guess it scared them off. We remained friends, but they were no longer my business partners,” Ivanov explained.
Despite the challenges, the entrepreneur was determined to expand his business. Each year he added at least one new model to the Shulz lineup (the online store currently offers nine models). Ivanov also opened another brick-and-mortar store – this time in Moscow, at the Aviamonornaya metro station. He also began branching out to other cities through regional dealers.
Made in China
Ivanov and his team work on each step of the design process, from the core engineering to the choice of colors and decoration for the frames, packaging and carry bags. Once completed, the designs and blueprints are sent to Chinese factories, where the components are produced and shipped to Russia. These components are then assembled in Shulz stores and workshops.
Shulz hired a technical director to oversee production, and the technical director visits their factories three to four times a year. Initially, Shulz bikes were assembled at the same factory that produces US-designed Dahon bikes; however, Ivanov was unhappy with their production quality. “We moved to a small factory in Tianjin, the same one that produces Giant and Merida bicycles. Such companies often outsource the assembly of particular models to small enterprises,” Ivanov explained.
“We do the same. If we discover a factory making frames similar to ours, we use it to produce our frames, and we order other components from other factories.”
Ivanov believes you need to control everything that goes on in China, from paint jobs to assembly and packaging. “When we made the first orders, we thought they would arrive 100% ready. We were wrong,” Ivanov said.
“Once,” Ivanov recalled, “we didn’t pay enough attention to the packaging process and discovered too late that the luggage rack was unprotected. On its way to Russia, it was rubbing against the box and it arrived here all scratched. It was an obvious defect, and we had to paint them over and sell with a discount. Another example: our roads are sub-par, with lots of potholes, and consumers want thicker tires. The Chinese factory obliged, but installed fenders designed for thinner tires. So the wheel rubbed against the fender. We had to replace the tires with thinner versions for a whole shipment. Each mistake like that negatively impacts the bottom line.”
Stores in Russia
Shulz has two factory stores in Russia, each earning about 3 to 3.5 million roubles ($46-54,000) per month in revenue during the summer season. Bulk orders account for 20 million ($30,000) roubles per season. Sales drastically decline in winter. Shulz’s key demographic is adults from 30 to 50 years old who like to travel and take their car to the countryside. Prior to the latest economic crisis, the Goa model was the most popular. It has since been replaced by Max, the cheapest model (13,900 roubles, or $215). The third most sold model is the Krabi Coaster, with 24-inch wheels and a soft saddle (27,900 roubles, or $430). “We realized that a bike has to be either cheap or comfortable,” Ivanov noted.
Ivanov tries to sell bicycles with a 170% mark-up, which is the lowest profitable mark-up. Sometimes, however, he has to lower it, “We may go as low as 50%, such as when we realize that the price is too high and no one is buying a particular model.” The factory stores in Moscow and St. Petersburg fully satisfy the demand for Shulz bikes in their cities. However, regional sales are lagging – dealers sometimes buy a couple of units to expand their line-up. This is why Ivanov prefers to stock his warehouse for trusted partners who preorder Shulz bicycles. Ivanov’s team also teaches dealers how to assemble and tune the bicycles. As Ivanov explains, “Anything good about your bike can be easily overshadowed by poor assembly. Some stores simply take the bicycle out of the box and give it to the buyer. No one is overseeing assembly and tuning – a single improperly attached component may lead to an expensive breakdown, and the consumer will think that the bike is a waste of money.”
Around 4.5 million bikes were sold in Russia in 2014. Half were imported from overseas, and the rest of the market was divided among Russian manufacturers: Velomotors (a Stels brand), Forward, Stern and others. Despite being somewhat of a niche market, competition in the folding bike market in Russia is quite fierce. Shulz sells around 5,000 bikes per year and has to compete with the American Dahon, British Bickerton, Chinese Langtu, Russian Stels, Forward and others. The cheapest Shulz model costs 13,900 roubles ($215) while Stels sells bikes for as cheap as 8,000 roubles ($125). Dahon’s cheapest model, in comparison, is 18,000 roubles ($275). Ivanov is certain that his service puts him at the top of the competition. “Shulz is a small company with a personal approach to clients,” Ivanov said. “We are the only ones who offer three years of free service. We hire more and more mechanics every year. We also offer trade-in, when clients can exchange their old bikes for a new one and pay the difference.”
Ivanov admits that while company revenue and sales were growing before the recent economic crisis, revenue and sales have remained at the same level for the past two years. The businessman sees no growth opportunities in the Russian market in the near future. Bearing this in mind, Ivanov decided in 2015 to expand to Europe.
German Expo and Sales in Europe
In 2015, Shulz bikes were shipped to Germany to participate in their first Eurobike trade show. “We spent around 25,000 Euros on the trip – that’s a lot of money for us,” Ivanov said. “It was like, well, a fashion week for the bike crowd. The bicycle event of the year for those in the bike business, with participants from all over Europe and former CIS states.” It was there that the entrepreneur made connections with European partners and future dealers: “Europeans don’t make snap decisions. They’re interested in the brand, the quality and the reviews. We made acquaintances and spent a lot of time negotiating; we were feeling each other out.”
While Shulz bikes come to Russia directly from China, the company has to re-export them from Taiwan and Bangladesh due to protective tariffs against Chinese products. Over the last year, the company exported several hundred bicycles to Europe, and most of them (around 400) went to Germany. Shulz folding bikes cost around 1.5 times as much in Germany as in Russia. However, their sales have yet to yield a profit. While foreigners like these Russian bikes, the small company has a hard time dealing with bulk buyers in Europe.
“We are quite adequate for the European market in terms of design, presentation and equipment – everything but the financial service. We simply cannot offer a half-year deferred payment. We would have been quite popular if we could have said, ‘here, take our bikes, put them in your stores and give them back to us if they’re not sold within the next six months.’ Unfortunately, we can’t do this,” Ivanov explained.
European businesses work with long-term deferred payments, usually lasting six months to a year. A store rarely purchases bikes directly from the warehouse. Usually, the goods are bought by a bulk buyer, which then sells them to retailers. “In Russia, we take out dollar loans with a 24% annual interest – an insane figure for Europeans. If we started giving out bikes with no money down, we would not make any money. Well, we didn’t make any money anyway: we just covered our expenses. The revenue we made from selling a full shipping container went to repaying our debts, the shipping overhead and so on,” Ivanov said.
To circumvent the deferred payment model, Ivanov came up with another sales model. He decided to turn dealers into distributors. Several Dutch and French partners already agreed on placing preorders and receiving units directly from factories. They will then become intermediaries in the sales chain and will set the retail prices themselves. “If this model works, we will grow and start to make money in Europe,” Ivanov believes.
Kirill Ostapenko, general director, Velodrive
We sell Shulz bikes and we plan on purchasing more of their bikes for next year. Why? Because I’m certain their bikes are well above the competition, especially in St. Petersburg, where locals are particularly fond of folding bicycles. Thanks to a well thought out approach, Shulz makes better bikes than their competition. It’s not just about the quality of the hardware; it’s also about design and caring for their clients. These bikes have a convenient kickstand, and they’re sold with a carry bag. Shulz models are true St. Petersburg natives at heart – caring and intelligent.
Stepan Mokretsov, head of Sales at Veloolymp, the official distributor of Dahon bikes in Russia
Comparing Dahon and Shulz is like comparing BMW and Zhiguli (a Russian low-end car maker). Dahon was founded in 1982 and it entered the Russian market in 2004. The American company owns a huge factory in China. The St. Petersburg company is too small and too young. Moreover, Shulz does not have a single proprietary technology. Anyone with $50,000 can buy frames from a catalogue, assemble a bunch of bikes and slap their name on them. It doesn’t make them good bikes. As far as service is concerned, I believe it’s possible that Shulz has good mechanics. But they’re only good in St. Petersburg and Moscow. If you buy a Dahon bike, you can travel abroad with it and receive maintenance in countless licensed service centers. Folding bikes in Russia peaked two years ago; today, I think, people are somewhat over them and demand is declining.
Andrey Shvaybovich, former commercial director of the Moscow branch, Forward
I think the Shulz guys will be just fine, as long as they deal with the fierce competition in the folding bike market. They should introduce new models more often, since people always want something new. Forward bicycles, thanks to being made in Russia, cost less and target a wider audience. Just like Stels, Forward sells hundreds of thousands of units per year, and Shulz’s volumes are not comparable. I’m glad they’re trying to secure a foothold in the Western market. The weak rouble makes the European market especially appealing now. If these guys make it, I’ll shake their hands. Forward exported their bikes to Cuba (until the country resumed economic relations with the United States), and as far as I know, some of their models are sold in Spain and other European countries.
Author: Maria Sosnina