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John Gardner of J&J Cycles in Kingston rides a high-end Cannondale bicycle manufactured by Dorel Inc. (Paul Weeks/Paul Weeks)
John Gardner of J&J Cycles in Kingston rides a high-end Cannondale bicycle manufactured by Dorel Inc. (Paul Weeks/Paul Weeks)

Cyclists are warming to Dorel. What about investors? Add to ...

Schwartz saw the shortcomings but also the opportunity. In a zero-sum competitive market, there was more upside for a respected but undernourished brand with a new lease on life than a market leader trying to defend its position. “The dealers we talked to said they would support Cannondale,” says Schwartz. “Everyone was looking for, not necessarily the number one brand, but a strong number two. We thought we could take it to a much higher level.”

Rather than try to hide its relationship with Walmart, Dorel portrayed itself as a well-financed and motivated owner that understood bicycles and would invest in the brand. It sent a key message by splitting management of its bike business in two. “We said, ‘Give us six months, okay? And if we’re in the mass merchants [with Cannondale], don’t buy from us,’ ” says Schwartz. “And it calmed down and went away.”

Dorel spent the next four years turning the brand around. Dealers say the transition has been slower than hoped—supply problems persist—but welcome. “There have been growing pains, no question,” says Gardner. “It’s getting better daily, and they’re fixing it.” Dealers like Duhamel worried Cannondale’s quick decision to shift production to Asia would cost it customers, but the veteran outsourcer Schwartz wasn’t worried. “Listen, we’re probably the last ones to be manufacturing anything in the States,” he says. “[Everyone] realizes it. This was really a non-event.”

Schwartz is particularly proud of the reviews Cannondale has been getting. Bike Magazine declared that Cannondale’s Jekyll Ultimate “might just be the ultimate mountain bike.” Road Bike Action Magazine called the new $5,500 Cannondale SuperSix Evo “probably the most intriguing bike for 2012.” Even better, German magazine Tour anointed the $12,100 SuperSix Evo Ultimate as the best road bike in the world over the past 10 years. Skeptics, please note: All three bikes were developed after Dorel bought the company.

Cannondale is winning more floor space with existing dealers and adding new ones. Bob Laughton, owner of Bushtukah in Ottawa, began selling the brand in 2010 and has been surprised by customers’ positive reaction. “As an owner, Dorel has to be thrilled by what they have been able to do with Cannondale,” he says. “They’re displacing some manufacturers from dealer shelves.”

* * *

Cannondale may be getting all the attention, but Dorel’s juvenile products division is what rules the stock. Economic weakness and rising material costs have taken a toll. Further growth opportunities are limited in North America and Europe, so Dorel is expanding into faster-growing South America and Eastern Europe. Its assemble-it-yourself furniture division, one of the 10 largest in North America, has posted five consecutive years of sales growth. But operating profits have declined for three years.

It all adds up to a pretty unimpressive run. On the other hand, Schwartz is right to say the company has held up well amid economic uncertainty: “If I start comparing us to a lot of other companies out there, I would say we did quite well.” And he is sensitive to investor frustrations. He acknowledges the company would be worth more if broken up, “but that’s very short-term and in our eyes it’s quite foolish,” he says. Others would like the company to drop the dual-class share structure that allows Schwartz and his kin to maintain voting control while holding just 17% of the equity. “It’s something we’ve looked at,” he says. Raising Dorel’s 15-cents-per-share quarterly dividend is another option. “We’re thinking of something,” says Schwartz.

You have to feel for Schwartz. His family has built a solid company and proven a Canadian-based manufacturer can thrive in low- and high-end retail and survive through downtimes. But he’s just turned 64. He won’t lead Dorel forever, and “there’s no family succession” scenario. It must be humbling to know that, after all that, his best chance to improve shareholder value is by selling out. The question appears to be more “when” than “if.” “I haven’t put a date to anything,” Schwartz says. “We manage the company as a group, the four of us, the family. We’re in together, we’re out together.”

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