Custom Chrome, Inc. History

Address:

16100 Jacqueline Court
Morgan Hill, California 95037
U.S.A.

Telephone: (408) 778-0500
Fax: (408) 778-7001

Public Company
Incorporated: 1970 as Custom Chrome
Employees: 369
Sales: $93.9 million (1996)
Stock Exchanges: NASDAQ
SICs: 5013 Motor Vehicle Supplies & New Parts

Company History:

Custom Chrome, Inc. is the world's largest independent supplier of aftermarket parts and accessories for Harley-Davidson motorcycles. Controlling approximately 15 percent of the estimated $550 million aftermarket, the company is second only to Harley-Davidson itself. The approximately 13,000 products offered by the company include replacement parts, custom parts, and accessories and apparel, which are distributed to more than 4,700 dealers nationwide from warehouses in Louisville, Kentucky, in Harrisburg, Pennsylvania, and in Visalia, California. The company generates more than two-thirds of its annual revenue through the sale of its own products, ranging from transmissions to leather chaps, which are marketed under brand names such as RevTech, Premium, Dyno Power, and C.C. Raider. It also serves as a distributor of products offered by other manufacturers, such as Dunlop, Champion, Hastings, and Accel. The winner of several national advertising awards, Custom Chrome markets its products through a copyrighted 848-page catalog supported by a national telemarketing program, active participation in trade shows and consumer events, and advertising in magazines targeting the Harley-Davidson motorcycle market, which includes more than 1.2 million riders.

Early History

Custom Chrome was founded in 1970 by Ignatius "Nace" Panzica, a 27-year-old mechanic who worked at a new car dealership and enjoyed racing and fixing up motorcycles. As an extension of his hobby, Panzica, along with three of his friends, opened a motorcycle accessory store in downtown San Jose, California. The new store, which they named Coast Motorcycle Accessories, was designed to meet the growing demand of the many riders they knew who customized their motorcycles with homemade parts not available on the market. The fledgling shop at that time had not yet limited itself to Harley-Davidson products; it carried parts and accessories for all brands of motorcycles. The company's first order, in fact, was for Honda motorcycle bars. The most popular requests in the early days of the small shop, though, were for 16-inch rear wheels and spoke kits.

Panzica's original plans were to operate the business as a one-person shop, with the other three working only part-time, around the schedule of their full-time jobs. As Vice-Chairman and co-founder Ty Cruze explained to Business Journal's Scott Hildula, "I just started at the shop as a part-time job and then bought in as an investor. It was just through us being enthusiasts that we found we could purchase things at prices better than most dealers could ... and it just grew." The success of the business prompted Panzica to alter his plans. Two years later, he diversified his retail store operation into wholesale parts as well, becoming a distributor as the dealer industry grew. In an attempt to reach Harley riders outside of the California region, Panzica and his friends came up with the idea that would define the company's marketing strategy for the next 25 years. Working on a kitchen table in one of their homes, they created the first Custom Chrome catalog, publishing the first edition in 1973 and providing the advertising tool that made future growth possible.

Expansion in the 1970s

By 1975, Panzica's modest expectations for his one-person motorcycle parts shop had been surpassed: that year the company generated one million dollars in sales. The original store could no longer hold the inventory his growing customer base demanded, and the company leased a 5,000-square-foot warehouse down the street to make room for a wholesale operation. As the population of Harley riders (who as a group are noted for their obsession with making their bikes distinctive) continued to grow, the need for further expansion arose. In 1978, the company again moved its operations, leasing a 10,000-square-foot building nearby, its first industrial-type warehouse. Before the end of the decade, the company again doubled its size by relocating its business to a new 20,000-square-foot building in east San Jose.

As Custom Chrome entered the 1980s, it benefited from the increasing popularity of Harley-Davidson motorcycles and worked to obtain a dominant position in the market by the middle of the decade, supplying 60 to 70 percent of all aftermarket Harley parts, excluding the motorcycle company's own aftermarket production. In 1982, Custom Chrome completed its fourth move in six years, opening in a 40,000-square-foot building in Morgan Hill, California. A combination of several factors contributed to such rapid growth. First, the company skillfully cultivated its relationship with Harley-Davidson, both the primary source of its business and its chief competitor, by promoting the image of individuality so much a part of the Harley mystique and the Harley Owners Group (HOG), the 250,000 member riders group. Taking advantage of the almost fanatical desire Harley riders have to personalize their bikes as a statement of their individuality, Custom Chrome became an easily accessible source for customizing parts, supplying aftermarket shops to which the manufacturer, with a network of only about 600 dealers, could not sell. At the same time, Custom Chrome was able to offer its customers prices ten to 15 percent lower than the competition, passing along the savings gained by manufacturing many of its parts in Taiwan. What is more, the company, which stocked parts for Harleys produced as early as 1936, was able to meet the unique needs of Harley enthusiasts who needed parts for their older bikes, ones that the manufacturer no longer carried.

Aggressive advertising also played a key role in the company's average annual sales growth during the early 1980s. Custom Chrome's marketing strategy at this time was carried out largely through its distinctive catalog, which not only provided attractive pictures of its product line, but supplied detailed information about the parts and offered suggestions for customizing and restoring as well. In 1982 the company's marketing department received its first Dealer's Choice "Best Catalog" award for its then 300-page publication, an award the company would receive again in 1983 and 1984.

Having emerged from the culture of Harley enthusiasts it now served, Custom Chrome knew firsthand the importance of customer service and the necessity of shipping orders as quickly and as inexpensively as possible. Accordingly, in 1985, the company introduced its "Eagle Express" freight program, enabling customers throughout the United States to receive their orders in three days by United Parcel Service (UPS) air shipment but at UPS ground shipment prices. As the company continued to develop its extensive warehousing system through technological upgrades and new buildings, rapid delivery time continued to set the company apart from the competition and contribute to sales growth.

The Late 1980s: Blending Harley Valueswith Corporate Success

By 1986, Custom Chrome had developed into a 170-person company with sales in excess of $20 million. In addition, it now produced enough Harley parts to introduce a complete motorcycle kit. Although it had obviously come a long way from its origins as a small "biker hangout," it worked hard to project the unconventional image commonly associated with Harley-Davidson. Although Panzica and Cruze skillfully assembled a work force that included alumni from such companies as Hewlett-Packard Co. and Varian Associates Inc. and invested heavily in the latest computer technology to track inventory, they still ran the company with a laid-back attitude, preferring blue jeans and cowboy boots to pinstriped business suits, a strategy that managed to keep employee turnover lower. They decorated the walls of the corporate offices with Harley memorabilia rather than Ivy League degrees, underscoring the company's blue-collar roots and its commitment to its customers, many of whom were touring Harley-Davidson riders and Vietnam War veterans with a strong distaste for mainstream corporate values.

Maintaining this biker-friendly image and marketing strategy, however, did not prevent the company from building a state-of-the-art administration and 110,000-square-foot warehouse facility as its corporate headquarters in 1987. That same year, the company launched another first in the industry by organizing a Harley-Only Warehouse Dealer Show. Dubbed "The Greatest Show on Earth," the show was highly successful among Harley enthusiasts and vendors alike, setting the stage for what would become a mainstay in the Custom Chrome marketing strategy. Not only did the company make the show an annual event, but it began taking an active role in other consumer events for Harley-Davidson enthusiasts, such as the Black Hills Motorcycle Rally, a popular annual event held in Sturgis, South Dakota, and the annual Bike Week in Daytona, Florida. Participation in such events enabled the company to stay carefully attuned to the needs of its best customers and advertise its products at the same time.

As the decade drew to a close, business continued to prosper, especially in the eastern part of the United States. Harley-Davidson--in contrast to other domestic vehicle manufacturers such as Chrysler, Ford, and General Motors--managed to boost sales and market share in the face of increasingly strong foreign competition. To keep up with the increasing demand and improve upon its delivery time, the company again expanded its facilities, opening a new 85,000-square-foot building in Louisville, Kentucky in 1988. A year later Custom Chrome was awarded the Dealer's Choice Award for "Best Consumer Advertising," for the third time in a decade.

Although Custom Chrome benefited greatly from the success of Harley-Davidson during the 1980s, the relationship between the two companies has not been free of conflict. In 1989, the motorcycle manufacturer accused Custom Chrome of patent and trademark infringement, taking issue with its use of a brand name "Hawg," which closely resembled Harley's familiar trademark "Hog." At the same time, Custom Chrome brought a complaint against Harley-Davidson for packaging its products in a way that closely resembled the former's so-called "trade dress." A year later the two parties settled their differences: Custom Chrome agreed to stop using the "Hawg" name by 1992, and Harley-Davidson agreed to stop using the distinctive packaging style.

Custom Chrome Goes Public in 1991

Although operating income continued to rise into the new decade, the company lacked the cash needed for further expansion and product research. A management-led leveraged buyout in 1989 by the Jordan Co. had resulted in the accumulation of enough debt to threaten the company's future growth. In 1991, after enduring two years of interest payments on the heavy debt load, Panzica took his 20-year-old company public to alleviate the debt burden. Having generated $39.6 million in revenues the previous year while consistently enjoying annual profit margins surpassing 40 percent for several years, the company hoped to raise enough capital to pay off the principal and accrued interest on loans and strengthen its credit line.

With its balance sheets stabilized, Custom Chrome was again ready to expand, creating the infrastructure for continued growth in the 1990s. A year after its initial public offering, the company opened a new 65,000-square-foot warehouse facility in Harrisburg, Pennsylvania. The new distribution facility made it possible for the company to provide one- to two-day delivery service for its customers in the entire New England area and on most of the East Coast.

The 1990s and Beyond

The early 1990s proved to be years of strong growth for the company. Between 1991 and 1994, revenue jumped from $43.6 million to $74.9 million, while net income over the same period rose from a loss of $2.6 million to a profit of $6.4 million. Twice the size of its nearest independent competitor, the company enjoyed both the economies of scale and the financial strength to offer competitive prices and lead the industry in new product development at the same time. Despite such advantages, the company saw its market share decrease slightly in 1992 and 1993, primarily as a result of moves by small regional and national aftermarket competitors to undercut Custom Chrome's pricing on nonproprietary parts. In 1994, the company took several aggressive and highly publicized measures to ensure that its prices were indeed competitive. Such strategies included stamping the phrase "We Will Meet or Beat Any Printed Price" on its sales invoices and repositioning certain items within product lines in an attempt to make it easier for dealers to make comparisons with competitors' products. The intensive marketing program also stressed the company's record of superior performance and quick delivery time, qualities illustrated by three consecutive Dealer's Choice "Aftermarket Manufacturer of the Year" awards.

In October 1994, Custom Chrome was able to build upon its already strong reputation for customer service by constructing a new, and larger, 100,800-square-foot distribution facility in Visalia, California. The new site replaced Morgan Hill as the central distribution point for the company's markets throughout the western United States and was selected after talks with UPS confirmed that the Visalia location would improve the efficiency of Southern California deliveries, an important factor considering that the state accounted for 17 percent of the company's business. Once the company completed the monumental task of moving 13,000 part numbers to the new facility, it was able to guarantee one-day delivery to all of California and most of the western states.

As Custom Chrome entered the late 1990s, it sought to expand sales, first, by cultivating relationships with existing customers, realizing that repeat customers generate most of its revenue. In addition to bolstering its telemarketing program, the company increased its presence at motorcycle events throughout the country, transporting its newly assembled "mobile showroom"--a custom-built truck and 48-foot trailer housing six Harley-Davidson motorcycles outfitted with the latest in Custom Chrome parts&mdashø several events each year. Attendance at trade shows and events enables the company to monitor customer satisfaction and introduce the more than 300 new products it usually develops each year.

Although Custom Chrome has traditionally derived most of its business from existing Harley-Davidson owners, its long-term growth prospects may be dependent upon future sales of new Harley-Davidson motorcycles. With an estimated 100,000 new bikes produced each year during the mid-1990s and both domestic and foreign demand on the rise, the company, according to most analysts, appeared to be in a favorable position.

Principal Subsidiaries: CCI-Far East (Taiwan).

Custom Chrome, Inc. History

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