2012 marks a major milestone for Giant; two decades have passed since the Taiwanese brand first forayed onto the mainland. Following a tour of Giant’s impressive new factory in Kunshan, Cycling iQ sat down with Giant China’s GM of domestic marketing, Kevin Zhu, to get a status update on the company’s progress in China.
MARKET CAP | SNAPSHOT
Has Giant been able to estimate how many bicycles are sold in China each year and where does the company get its data?
“Annual sales of bicycles in the Chinese market are stable at around 22,000,000 units. We get this information from the Chinese Bicycle Association.”
Giant China sales* (units):
*Not including electric bikes
Apart from Giant, what do you consider as two other nationally-recognized brands?
“Phoenix and XDS”
Giant also owns two other brands. Can you tell me about them?
“We have ‘Momentum’ (launched in 2010; 170,000 units sold since) for China and Taiwan. Momentum’s target customers are commuters, and the bikes are priced between CNY500-2,000. We also have Liv (launched in 2008; 30,000 units sold in 2011), which is a women’s brand, with matching clothing line and stores in Taipei and Tokyo. Liv is designed to bring fashion and cycling back together.”
What percentage of Giant’s annual production is allocated to mountain bikes and road bikes? Is demand good for both?
“Mountain bikes take about 47-48% of annual production; road bikes take about 5%. On the China mainland, production of Giant bicycles is not sufficient. The market here is huge and the economy is growing. So in the near future, demand will still be greater than production. So we need to focus on increasing our production. Remember we have also offer 700 different Giant bicycle models internationally.”
How many “high end” road bikes did Giant sell last year?
“We think road bikes above USD1,000 account for no more than 3% of all sales in China. Giant takes half the sales in medium-to-high end products in China; more than 10,000 bicycles (with a retail price above USD1000). The most popular price point in China is CNY2,000 (USD320).”
Five years from now, in 2017, what percentage of Giant’s domestic sales do you expect will come from road racing bicycles?
“It will change slowly. However, honestly, in the next 5 years, mountain bikes will still be the mainstream. The growth of road bikes depends on how the leading brands will lead the market. But in the next 5 years, it’s hard to see a booming point. Personally, I think it will be nice if road bikes can take 10% of the whole amount.”
Giant’s entry-level road bike in the Chinese market, the OCR 3700, comes with a recommended retail price of CNY4198 (USD660)
DOMESTIC RETAIL NETWORK
How many people does Giant employ to pursue domestic sales?
“More than 100. They are spread across our (Kunshan) head office and offices in the east, north and southwest China. They service more than 2000 independent stores around the country.”
In terms of retail development, you reportedly have more than 2,500 dealers in China. How are they categorized and managed?
“We have Tier A and Tier B stores. Nearly 100 stores are Tier A, the rest are all Tier B. Tier A dealers can open its own shops, and appoint new dealers. This applies more in areas like Shanghai, which has an intensive business network. We appreciate each dealer and we encourage dealers to learn from each other and make progress together.
Nationally, there are seven major sales divisions [Note: essentially, regional sub-distributors]. Retailers who belong to these sales divisions represent about 20% (500 stores) of the domestic network. There are 20-50 staff at each (sub-distributor), in charge of supplying their different areas.
There are 20-30 stores that we own 100%. Shops that are fully managed by Giant (within the seven sales divisions) represent a very low proportion – about one-sixth. In most cases, we are only in charge of service and backup support; we basically allow (sub-distributors) to open their own stores in their region. China is really large and each area has its own advantages. We have a 10% elimination rate (of retailers). If one store fails, we will open a new dealer to fill in or make his area smaller; we also create competition to push them.”
How about concept stores?
“Our concept stores are called ‘Giant Cycling World’, which we have been promoting recently. We opened our first one in Nanjing last year. This year, we plan to open 17 more around the country. So by the end of 2012, we will have 18 ‘Giant Cycling World’ concept stores.”
What are the minimum requirements that Giant has before opening a new point of sale? What criteria must a retailer meet before Giant sells bicycles to that store?
“We have basic rules for the general business. First, we will check the values of this person, if they fit in the culture of Giant. Sincerity is a must. Second, there should be no existing customers in a range of 3-5 miles that will be interrupted. Third, there must be several shop options to choose from. Fourth is basic financial ability.”
Let’s talk about that; how many dealers have an account with Giant? How many have to pay first before they get the products?
“All stores transfer the money to Giant first, and then we give them the products. We used to give 30 day terms to our long-term dealers, if they could prove they had enough bank savings.”
When did that change to pre-paid sales happen?
“Basically in 2008 [Note: time of the GFC]”
How many bicycles each year will your best dealer sell?
“The best sales division has sales of CNY500m (USD78.8m) and 150,000 units. The best single store has sales of CNY20m (USD3.15m). This is retail value; purchase value from Giant is nearly CNY300m (USD47.2m). Our smallest stores would sell CNY200,000 (USD31,500).”
There are many more independent bicycle retailers (IBD) in China selling multiple brands, including Giant, than concept stores
What are the biggest challenges in marketing to Chinese consumers?
“There are several. First, like many investments, you never know where you lose 50% of your investment. We have been in this industry for 20 years, but we still face these problems from time to time. Second, consumers in China are diverse and changing all the time. How to better understand customers and target the right groups is not easy. Third, the investment we put in improving cycling development is huge. How to unite more people in the industry to work with us and promote cycling together is another issue.”
Can you describe the ‘Giant Cycling World’ concept? What experience can I expect as a potential customer?
“These stores are totally customer oriented, which differs from all the other stores we have. From the design of a bicycle, to the product and other elements, we aput the practicality of customers in consideration. We imitate the environment of a customer riding and understand their purpose in order to help them choose the most suitable product. Also we will guide the customer for getting the best riding experience and creating new fun. In this store, you can feel the deep connection people have got to bicycles.”
In terms of popularity of road cycling, do you think Chinese consumers really want to participate in racing or enjoy the leisure?
“The people who buy the real Rabobank team bikes have dreams of being riders. This October in Beijing, there will be a exhibition hosted by the Chinese Cycling Association which is focused on competitive-level sales. Giant will bring our high-end products in to exhibit, and show the sports equipment of different national teams and provincial teams.”
How useful is the Rabobank team to your domestic marketing? Do Chinese consumers understand the importance of a team in the Tour de France?
“The Tour de France has been broadcasted in China for years. More and more Chinese people get to know the top-performing products and teams. So we conduct several events in spring and summer time, combining with the broadcasting of the Tour de France. Last year we had a few UCI cycling events, like Tour of Beijing. We arranged activities there with the Rabobank team. We have two versions of Rabobank team products: the professional version and public (replica) version, which are all sold in our stores.
Under the Rabobank team, we also have Max Success Pro Cycling* team and Giant Women’s cycling team. Also, we have top-level riders like Wong Kam Po (currently riding for the Giant-sponsored Hong Kong National Team). So we have a complete cycling team system from top, down. We have the best marketing platforms and product to build up a high-end brand image of Giant.”
[*Note: UCI Continental level. Giant hoping to recruit Taiwanese cyclists next year to make Max Success Pro Cycling a “pan-Asian” team]
How many team bikes do you sell then?
“The number of Rabobank team bikes (TCR Advanced SL RABO ISP; CNY 46,800) sold annually is only about 100 units. But it will certainly grow in future.”
[Note: a Giant representative at Taipei Cycle show informed Cycling iQ that Giant supplies 300 framesets each year to the elite Rabobank mens team]
Sponsorship page on Giant China’s website
Obviously, each province has different requirements to sell products. Which would be the most challenging province so far to sell Giant bicycles?
“Generally, provinces that are more populated, and coastal areas with fast growing economics, tend to have more sales of medium-high bicycles; such as Jiangsu and Zhejiang Provinces. Provinces with better road conditions also get more sales; for example, like Henan, Hebei, Shandong provinces.
North China: Hebei, Henan, Shandong
South China: Jiangsu, Zhejiang
Northwest China: Sichuan
What developments are the government making for the future? Are there any government plans you know about that will help Giant’s sales in the future?
“In China, the government is supportive but it all relies on the efforts by the bicycle industry. Government doesn’t offer any specific support.”
Do you think foreign brands expect too much from the Chinese market? What would you say to a foreign brand that wants to succeed in China? How should they realistically expect to develop?
“For these global brands, they have more experience in global markets. I hope they can bring good thing to Chinese markets. Giant will be humble and learn from them. We always believe the successes of the past will become the biggest mistake in the future. That’s why we never stop innovating and developing.”
Do you think there are some rules Giant has made for the domestic markets that other companies can apply?
“Some brands are not focusing on developing cycling. Giant always stands at the front line of the industry; it is a demonstration by our industry that we are down to earth. Giant wants to appeal to other cycling brands to work together and promote the development of cycling. We always want to pass this information to consumers: a bicycle is not only cheap transport; it is also a recreation and a good way to be healthy. Our chairman (King Liu) has promoted this way highly”.
In 2009, with a group of 28 supporters from Taiwan, Giant’s Chairman and founder King Liu rode 1,668 kilometers from Beijing to Shanghai “with the goal of promoting the positive aspects of cycling in China and around the world.” King Liu’s ‘Tour of China’ bike was a Shimano Duraace-equipped TCR Advanced (in foreground)