Baldwin

Colin Drury, Management and Cost Accounting – Baldwins Bicycle Company

Baldwin Bicycle Company*

This case looks at "private label" opportunity for a small "mid-market" bicycle manufacturer. Analysis of the problem requires a blending of financial, marketing and strategic considerations. The case was originally set in the early 1980's. In May 2000, Suzanne Leister, marketing vice president of Baldwin Bicycle Company, was mulling over the discussion she had had the previous day with Karl Knott, a buyer from Hi-Valu Stores, Inc. HiValu operated a chain of discount department stores in the Northwest. Hi-Valu's sales volume had grown to the extent that it was beginning to add "house-brand" (also called "private-label") merchandise to the product lines of several of its departments. Mr. Knott, Hi-Valu's buyer for sporting goods, had approached Ms. Leister about the possibility of Baldwin's producing bicycles for Hi-Valu. The bicycles would bear the name "Challenger," which Hi-Valu planned to use for all of its housebrand sporting goods. Baldwin had been making bicycles for almost 40 years. In 2000, the company's line included 10 models, ranging from a small beginner's model with training wheels, to a deluxe 12-speed adult's model. Sales were currently at an annual rate of about $10 million. The company's 1999 financial statements appear in Exhibit 1. Most of Balwin's sales were through independently owned retailers (toy stores, hardware stores, sporting goods stores) and bicycle shops. Baldwin had never before distributed its products through department store chains of any type. Ms. Leister felt that Baldwin bicycles had the image of being above average in quality and price, but not a "top of the line" product. Hi-Valu's proposal to Baldwin had features that made it quite different from Baldwin's normal way of doing business. First, it was very important to Hi-Valu to have ready access to a large inventory of bicycles, because Hi-Valu had had great difficulty in...