Deep Dive: Fox Factory [Part 1]
The following deep dive includes the following sections:
History
Industry Analysis
What do they sell?
How do they sell it?
To whom do they sell it?
Where do they sell it?
The purpose of this first part is to explain everything you need to know about Fox Factory’s business model.
The analysis of Fox’s financials, its future growth plan, management team and final valuation will be included in the second part of this deep dive, which will be published next week. FOXF 0.00%↑
Mission
“Our purpose is to challenge the impossible and lead in the never-ending pursuit of maximum performance.”
History
Fox Factory Holdings traces its origins to Bob Fox, an amateur motocross racer and mechanical engineer. In 1974, he started racing using his own motocross suspension designs, which he machined in a friend’s garage and tested himself, along with the help of professional riders.
After receiving various encouraging comments from professional athletes, he decided to start a small business distributing suspension components for motocross bikes with his brother Geoff.
It was in 1975, when he and his brother marketed an air shock absorber designed specifically for professional motocross, called the Fox Airshox. Bob sold 200 of these units in 1976.
However, Fox’s true success came after Kent Howerton won the AMA 500cc championship in 1976 and Marty Smith won the AMA championship in 1977 with Fox-equipped motorcycles, catapulting the company’s sales to 10,000 units in 1978.
With his success, Bob started Fox Factory, Inc. in 1978 to focus on the production of Fox Air Shox and suspension-related products (This was after Fox had already separated from Geoff’s company Fox Racing, which focused on racing apparel).
In the 1980s, Fox was forced to diversify into other markets in order to survive, and expanded into the Indy car, off-road truck, quad, dune buggy and snowmobile markets, building itself a reputation as a producer of high-quality, high-performance suspension components.
This was a somewhat simple move for Fox, as not much changes inside a shock absorber when you go across different vehicles:
“The cool thing is; although the weights and dimensions of the vehicles in the markets we serve vary greatly, the same laws of physics apply to all. For example: the classic F = ma is always valid. And good suspension is mostly about properly controlling motion. I suppose that’s a bit of an over-simplification, but there’s also a lot of truth there.”
—Bob Fox
If anything, the most ‘complex’ change was when Fox entered the mountain bike business in 1992 with their first bike rear shock. This was Fox’s first time dealing with a vehicle that used human power for locomotion, which made a huge difference for suspension design.
This was one of Fox’s most challenging products due to the cyclist’s lower power output and the specific demand for extremely light-weight components. However, they quickly found success in this market, getting specced on Cannondale Bicycles in 1993 with their first line of dual-suspension mountain bikes.
It then took Fox almost 10 years (2001) to release its first mountain bike fork, being somewhat of a late entrant into the market.
Fast forward 20 years and Fox-equipped bicycles have become the gold standard for competition and recreational riders.
Today, Fox’s shocks continue to dominate podiums in mountain biking and are also very dominant in the off-road trucking scene with events such as the BAJA.
From the start, Fox’s product philosophy has been to refrain from introducing a new product unless it believes it can be the best in its category, with the end goal being to offer high-performance components.
“Notice the qualifier 'high-performance.' That’s important. We don’t want to waste our time making 'commodity products' for markets where a 'commodity product' is good enough - and all that matters is the lowest possible cost. That’s not what we’re interested in, that’s not what we’re good at, and that’s not what we want to do.”
—Bob Fox
The company went public in 2013, 5 years after being bought by the private equity firm Compass Diversified Holdings, which bought the company for $80.9 million.
Industry
Bikes
For this article, I’ll be focusing on the mountain bike industry since we’ve already covered to some extent the off-road vehicle industry in the BRP Deep Dive, which comprises a significant of Fox’s Powered Vehicles sales.
I also chose to focus on mountain bikes, as these are the bikes where Fox’s products are predominantly specced due to their use cases in off-road settings, where more advanced suspensions are needed to navigate through rough terrains such as hard rocks, loose dirt and muddy or grassy tracks.
The overall mountain bike industry is expected to grow in the mid-single-digit range over the coming decade, however, the premium segment is expected to continue to outperform the overall industry as it has done in the past (historically, the mountain bike industry has outperformed overall bikes, while high-end mountain bike has outperformed overall mountain bikes).
Overall, the leisure segment is expected to see significant growth as young people worldwide adopt this activity as a healthy and environmentally friendly way to spend their free time. This is because mountain biking is considered to be a great form of physical exercise, offering various health benefits. As a result, more health-conscious individuals seeking to adopt a healthy lifestyle are turning to cycling as a form of exercise and lifestyle maintenance.
Besides the leisure segment, composed of more “average” riders, the demand in the competitive scene has also steadily increased, driven by an increasing number of tournaments allowing participants to earn money while practicing something they’re passionate about.
Tailwinds
The adoption of e-bikes has been and is expected to continue to be one of the primary growth drivers of the mountain bike industry, where participants have greatly benefited from the emerging segments of electric mountain bikes, E-SUVs (electric sport utility vehicles) and gravel bikes.
The fastest-growing category has been the E-MTB, which recently grew 62% YoY in 2021. These bikes are equipped with electric motors that assist the riders in pedaling and have therefore opened up the sport of mountain biking to a wider range of riders including:
Those who may lack the necessary fitness level or technical skills to ride traditional mountain bikes.
Older demographics who may have strayed away from the sport due to their age.
The adoption of E-MTBs also allows all riders to do more biking than they could have done with traditional MTBs, driving further usage. This was a trend that was first widely adopted in Europe but has recently begun gaining traction in NA as well
Another major product introduction that’s been driving industry growth have been E-SUVs, which are relatively new bikes that are somewhat in between a city and a mountain bike used mostly to carry the canteen, groceries and so on.
Finally, the gravel market has recently seen 25% YoY growth in NA. This growth is estimated to come from road riders migrating into off-road settings and it is a relatively new category. These bikes usually have mountain bike suspensions while maintaining the speed and agility of road bikes.
Regional Analysis
Currently, NA accounts for the biggest share of the mountain bike market, followed by Europe where countries such as Germany and France are very predominant.
Getting to Know the Business
What do they sell?
Fox designs and manufactures products intended to improve the performance of vehicles, of which a significant portion are suspension products. These suspension products dissipate the energy and force generated by bikes and powered vehicles while they are in motion.
“At its very core, what a shock is, is an energy dissipation device, that’s all it does. It takes mechanical energy and it turns it into heat.”
—Tom Fletcher, PVG President
The importance of suspensions on vehicle performance relies on the fact that, assuming the engine is good and the chassis is as rigid as possible, how the car handles, its ability to put its power down and behave in the way a world-class driver asks of it is almost totally down to the suspension.
99%+ of Fox’s sales come from the sale of products, with the remaining less than 1% coming from royalty income and service-related repair work.
Due to its history, the Fox brand is associated with high-performance and technologically advanced products featuring race-level components. This has led to the company being called the “Rolls-Royce of shock absorbers”, allowing the company to justify selling its products at a premium price.
“I think customers who buy Fox want to buy and own the best, and feel confident that that’s what they are getting. We take pride in producing the highest-performance, highest-quality suspension available. That’s what our customers want. That’s what we give them”
—Bob Fox
Fox’s products are mostly predominant in off-road applications, and the company’s sales are divided in two groups: Specialty Sports Group (SSG) and Powered Vehicles Group (PVG).
Although Fox began as a motocross suspension business, most of its initial growth in the early 2000s came from the bicycle market, eventually becoming its most relevant product line. However, ever since their first OEM deal with Ford for the 2009 Raptor, PVG has grown to eventually outsize SSG as you can see in the chart below.
The two most aggressive YoY changes happened in 2014 and 2018, with both of them being caused (mostly) by the launch of new Ford Raptor models.
Although Fox was forced to diversify its product lines in the past in order to survive, today, the management team is actively seeking to diversify across as many platforms as they can in both SSG and PVG, which we will cover a bit more in-depth below.
Specialty Sports Group
In SSG, Fox offers products for performance mountain bikes, e-bikes and road bikes under the following brands:
Fox.
Race Face.
Easton Cycling.
Marzocchi
Under the Fox and Marzocchi brands, the company mostly sells bike forks, rear shocks and dropper posts, being the #1 and #3 global brands for such products respectively.
Primarily for the mountain bike market, Fox offers mid-end (Marzocchi) and high-end (Fox) front fork and rear suspension products designed for all types of uses, and these suspension products are sold in five series and under the Marzocchi brand:
Marzocchi BOMBER series, designed for a rider who values ease of use over adjustability. ($300-$1049)
FOX Rhythm series, designed to provide Fox performance at the entry price point of the high-end mountain bikes segment.
FOX Performance series, designed for demanding enthusiasts. ($769-$989)
FOX Performance Elite series, designed for experienced and expert riders. ($859-$1,149)
FOX Factory series, designed for maximum performance at a professional level. ($949-$1819)
Through these offerings, Fox has created a 5-step stairway for aspirational riders to climb over time, with the offered performance increasing along with the price tag across every step.
Under the Race Face and Easton brands, the company mostly sells wheels, cranks, handlebars, pedals, among other bike components and related apparel. The position of both of these brands is not as strong as that of Fox and Marzocchi, but they are still strong players in their respective markets.
Fox’s focus has always been, and is expected to continue to be in the premium segment of bike components (Fox defines the premium bike segment as the $1,500 USD and above price point) that are critical to the performance of these bikes, where the customer’s purchase decisions are driven by technical features, component performance, product design, durability and reliability.
Fox’s most recent product launches consist of its forks and shocks designed specifically for E-Bikes, where more robust builds are needed to deal with these bikes’ higher weights. Among these offerings, we can find the Adventure Without Limits (AWL) fork, which is a purpose-built suspension for E-SUVs
As a demonstration of how Fox’s products are used at the top level of bike competitions, their newest dropper post and updated 34 Fork were featured in the Tokyo Olympics, where they claimed two medals.
Powered Vehicles Group
In its powered vehicle product categories, Fox offers premium products under the following brands:
FOX.
BDS Suspension.
Zone Offroad.
JKS Manufacturing.
RT Pro UTV.
4x4 Posi-Lok.
Ridetech.
Tuscany.
Outside Van.
SCA.
In this segment, Fox offers solutions for side-by-sides, on-road vehicles with and without off-road capabilities, off-road vehicles and trucks, ATVs, snowmobiles, specialty vehicles, motorcycles, and commercial trucks. All of these have the intent to maximize performance and comfort.
Fox’s products have also been used on limited quantities of off-road military vehicles and other small-scale select military applications such as the GMV 1.1 back in 2015.
Recently, management decided to bifurcate the existing Powered Vehicles Group into two new product groups that better align the company’s go-to-market strategies and product synergies. These two product groups will consist of, firstly, the PVG legacy suspension business; and secondly, Fox’s portfolio of non-suspension aftermarket applications in upfitting. These changes are expected to be completed by the end of the year.
“This realignment will accelerate go-to-market strategies, better address customer needs, accelerate the pace of innovation and optimize product development. For example, as a market leader in off-road and power sports, this realignment enhances PVG’s focus on innovation and speed to market to deliver superior suspension solutions to our customers, while AAG innovates around performance packages and customer engagement capabilities.”
—Mike Dennison, CEO (2023 Q2)
In terms of how much of Fox’s PVG sales come from powersports and automotive products today, we sadly don’t know much as management is reluctant to share this information. However, back in 2018, they reported that 14% of Fox’s total sales (or 26% of PVG sales) came from powersports, which I would expect has either stayed flat or slightly declined since then, as Fox has continued to gain automotive OEM deals and acquired the upfitting business.
Below, we’ll dig a bit deeper into Fox’s offerings in the PVG segment.
Legacy Shocks
This segment is quite simple and it is comprised of the shock absorbers Fox has sold since its foundation back in the 70s. These shocks can come installed on vehicles from the factory or customers can install them as an upgrade on their existing vehicles
Suspension Kits
Fox also offers lift kits and components under the BDS suspension (premium), Zone Offroad (entry-level) and JKS manufacturing (Jeep specific) brands with its shock products and aftermarket accessory packages for use in trucks.
The company got into the suspension kit business by acquiring Sport Truck USA, which was its largest aftermarket distributor before the acquisition.
In addition, Fox manufactures suspension systems that enhance the handling and ride quality of muscle cars, trucks, sports cars and hot rods under the Ridetech brand.
Tires and Wheels
Fox recently added vehicle wheels and tires to its portfolio through the acquisition of Custom Wheel House in February 2023. In this business segment, the company sells off-road and performance-oriented wheels for various vehicles under the Method brand and off-road tires under the Tensor and GMZ brands.
These products are tested in the US, however, CWH is not the manufacturer. It uses contract manufacturers, mainly in China, and is starting to use some in Thailand and other places.
Upfitting Business
Through the upfitting category, Fox takes vehicle models from OEM and improves them by implementing proprietary products such as suspension kits (from BDS or Ridetech), shock absorbers (obviously from Fox), superchargers, interior accessories, wheels, tires, lighting, body enhancements, etc. These products are sold under brands such as Black Widow, Rocky Ridge, Badlander, Black Ops, Harley-Davidson and Shelby American, creating vehicles that can’t be found anywhere else.
With this business, Fox leverages its partnerships with Ford, GM, Jeep, Nissan and RAM, which allow it to obtain vehicle chassis directly from the manufacturer’s facilities to then modify them. The company is required to place a deposit on all vehicle chassis that the dealer purchases directly from the OEM, however, that deposit is refunded when the chassis is sold through to the end customer.
Once the vehicles are finished, Fox sells them to a broad network of automotive dealerships.
As an example, Tuscany (Fox’s upfitting subsidiary) worked closely with Harley Davidson to create a vehicle that resembles a Harley motorcycle, even adding a custom exhaust that makes it sound like a Harley. For these models, Harley Davidson directly oversees every step of the upfitting process before they sign off the truck.
It’s also important to note that these vehicles are highly limited. For example, in 2019 Tuscany made about 500 Harley Davidson F150s.
Similarly, as another example, SCA (also a Fox subsidiary) takes an F-150, which has a $67,000 MSRP, and adds a package on top that adds $34,000 USD to the equation, making it a $100k+ truck, as can be seen below.
In these upfitted models, there aren’t usually any modifications made to the vehicle engine, except for some Shelby models where Fox implements superchargers.
Setting trucks aside, the company recently introduced itself into the van upfitting business through its Outside Van acquisition. In this category, Fox takes the best Mercedes sprinter available and takes it even further through various upgrades.
Tuning & Servicing
One of the most important aspects of suspension systems is personalization and custom tuning that fit the driver’s style/preferences, mainly because what might feel good to one rider might not feel good to another. This is why, in December 2021, Fox decided to add suspension tuning services to its portfolio of businesses with the acquisition of Shock Therapy.
This also happened because the management team acknowledged that their servicing department for the bike market was very good, while its powered vehicle service was more on the lackluster side. This was an evident move for Fox, as providing a high level of service for its customers is essential to maintaining Fox’s reputational excellence in the marketplace.
Besides customization, one not commonly known thing about shock absorbers is that, for them to operate at their top level they need servicing. The most common examples include that the oil inside might need to be replaced, nitrogen gas needs to be recharged or seals need to be checked out. However, serviceability and being rebuildable are exclusive characteristics of high-end shocks, while lower-end shocks need to be completely replaced by new ones after a certain amount of time/usage.
To fulfill its shock servicing and tuning operations, Fox currently has 4 service centers owned by them and 53 service centers operated by distributors trained by Fox.
As an example of servicing periods, Fox suggests for riders that are not at the top level to service their bike suspension products every 125 hours of riding or once a year, while powered vehicle shocks are recommended to be serviced at least every 50-60 thousand miles. Both of these processes are very complex, require special tools, knowledge and skills and is not something the company recommends for a DIY project, a trend I expect to gain further importance as these devices continue to become more complex.
Summary
To summarize the previous information, we can see how management has achieved its previously stated goal of offering its suspension products in whatever form fits the customer’s needs. This means either offering standalone shock absorbers, suspension kits or straight-up complete vehicles including their products. This leads to greater market leverage, margins, and connection to the end user.
“The power of having brands that you can stack together to create those trucks that you guys walked by when you walked in the door is incredibly powerful, because not only do I get to put a lift kit on it, then I get to put a shock on it, then I get to do a bunch of other cool things to that truck to make it a hero truck, and the sum of those parts is greater than the pieces.”
—Mike Dennison, CEO
How do they sell it?
Fox sells its products through two channels:
OEM: Where its products are specced on bikes/vehicles right out of the factory.
Aftermarket: Where consumers install Fox products as an upgrade on their current bike/vehicle through Fox’s global network of dealers and distributors.
Fox currently sells to approximately 100 OEMs and distributes its products to more than 5,000 retail dealers and distributors worldwide.
The management team’s goal has always been to maintain a healthy balance between the two channels.
The 12% YoY change in 2014 was due to the Sport Truck USA acquisition, and Fox’s aftermarket sales have slowly grown to reach an almost 50-50 balance between both channels.
This balance is important as the aftermarket channel serves as a hedge against possible issues at the OEM level. For example, during the pandemic, various OEMs had to shut down their operations and later had troubles finishing their vehicles, leading to a decline in OEM sales. This trend can be seen in the chart above as well.
In terms of customer concentration, over the last 3 years, no single customer has represented 10% or more of Fox’s sales. However, in the past Fox did experience some degree of customer dependency in both the SSG and PVG side.
The concentration of Ford sales can be attributed to Ford Raptor sales, while the past concentration of Giant sales can be explained by the fact that Giant acts as a contract manufacturer for other bike OEMs, meaning that all of those SSG sales were not exclusive to Giant-branded bikes.
In terms of pricing, in the aftermarket segment, Fox has the ability to change pricing at any time, while in the OEM segment pricing is more contractual in nature and tied to various commodity indexes. Below we’ll dig deeper into the dynamics of each channel.
Aftermarket
In the aftermarket, Fox typically sells suspension products to dealers and distributors, with dealers being mostly utilized in the US while distributors are mostly utilized overseas. Dealers sell directly to customers, while distributors sell to independent dealers which then sell directly to customers.
Fox does not have long-term contracts with the majority of its dealers and distributors, and they usually buy from Fox on a purchase-order basis. It is important to note that many of the company’s international distribution contracts contain exclusivity arrangements.
The aftermarket channel is very important for Fox, as the company’s strategy consists of entering new markets in the aftermarket to drive end-consumer adoption and brand value, which often leads to OEM spec wins.
“Our heritage really stems back from the strength that we have in the aftermarket that attracted the attention of the OEs that allowed us to grow the business the way we have.”
—Tom Fletcher, PVG President
A recent trend that has been accelerated by the effects of the pandemic has been the purchase of Fox’s aftermarket products through online platforms.
For example, currently, 40% of SSG aftermarket sales are sold through retailers with online storefronts, which is anticipated to grow to 60% by 2025 (either through Fox’s own site or through its retailers).
Similarly on the PVG side, since 2020 Fox has seen the retail business of its large distributors and retailers go down with their online business going up.
Aftermarket shocks are built specifically for vehicles, and since the technology of these devices continues to get more and more complex they are increasingly becoming more purpose-built for a certain model.
Some of Fox’s aftermarket offerings can be installed by the customers themselves, however, a lot of its high-performance products require trained installers to put those products into the vehicle.
OEM
SSG OEM customers include:
Specialized
Trek Bicycles
Giant
Orbea
Canyon Bicycles
PVG OEM customers include:
Ford
BRP
Polaris
Toyota
Kawasaki
Yamaha
Honda
Indian Motorcycles
Triumph
Fox has long-standing relationships with most of those OEMs, especially with those in the bike market (First SSG OEM win was Cannondale back in 1992) and with Ford, the company that gave Fox its first automotive OEM deal with the Raptor back in 2008.
The company employs different approaches for OEM deals in its two business units:
In SSG, Fox presents its prospects with a product line.
In PVG, it presents its prospects with a technology portfolio.
Particularly in powered vehicles, these OEM contracts are very long-term in nature and the management team usually becomes aware that they’re going to be included in a vehicle long before it gets announced, with production for vehicles usually starting six months before they are expected to be available at dealers.
Another important aspect to keep in mind when it comes to OEM contracts is that these usually don’t have any kind of cost reduction expectations or requirements. Meaning that, in general, any efficiency gains that Fox gets in the manufacturing/distribution process are for it to benefit from, going directly to its bottom line.
OEMs often prominently display and incorporate Fox’s products to improve the marketability and consumer demand for their performance models (as these are known for their proven high performance), which reinforces the company’s brand image.
The company is very selective when it comes to being specced on a vehicle model, as you can see in the following quote:
“Our decisions of what products we go on are primarily a function of: if our product can help you sell your product, that’s a good partnership for us. If we’re a component on a system where we get buried, that’s probably not a good product for us.”
—Tom Fletcher, PVG President
The advantages of the OEM business when compared to the aftermarket channel is that it creates predictable and sustainable manufacturing for Fox. It also can become vertically integrated and gives the company the ability to forecast utilization/sales as it doesn’t change daily like the aftermarket segment. The tradeoff, however, is that it can be a more volatile and cyclical business than the aftermarket, something we will further comment on below.
Fox has also managed to build a diversified OEM customer base over time, especially in PVG, where back in the early 2010s it would have been pretty much a Ford-only show with the Raptor. This becomes more evident by analyzing the following chart:
The OEM-Aftermarket Virtuous Cycle
Something you may have noticed so far in this writeup is that Fox’s initial aftermarket business led to OEM deals, and these OEM deals then drove further aftermarket adoption, leading to more OEM deals, creating a virtuous cycle for the business.
Fox’s main job to put this cycle to work is to release great products in the aftermarket. We can take a real example from Fox in the Jeep market: Jeeps are very popular trucks used in off-road settings, and Fox shocks became a common upgrade people made to these vehicles. This eventually led Fox to become part of the 2020 Jeep Gladiator Rubicon platform right out of the factory.
Continuing with the cycle, once people see that new Jeep models are coming with Fox shocks out of the factory, they are more likely to consider upgrading the suspension of their old Jeep model to a Fox suspension, leading to stronger aftermarket sales. This can then get Fox into talks with Jeep to further spec models with its products from the factory.
Marketing
Most of Fox’s advertising comes in the form of professional racing athletes and team sponsorships.
The Fox brand has historically benefited from the success of professional athletes who use its products in elite competitive events such as the Olympic Games, the Union Cycliste Internationale Mountain Bike World Cup, the X Games, the Baja 1000, among many others.
The exposure Fox’s products receive from these events, where its athletes win podiums, positively influences the purchasing habits of enthusiasts and other consumers seeking high-performance products, creating a loyal following of repeat-purchasing enthusiasts who want best-in-class products.
Since its origin, winning races has been an essential part of Fox’s legacy, as the PVG president comments below:
“Fox was born in racing. When we started … we had podiums on Sunday, we’d sell on the aftermarket on Monday and eventually the OE came and wanted our products on their vehicles because the Fox name helped them sell products.”
The way these sponsorships work, for trophy trucks, for example, is that the best drivers in the world get to choose what equipment goes on their rig. Obviously, sponsorships come into play, but top-level athletes wouldn’t want to get sponsored by a product that does not enable them to race at absolutely peak performance, and this is where Fox’s proven track record of peak performance comes in. This is why, for example, if you look down the list of winners of the Baja 400, the majority of them are Fox athletes.
In summary, racing creates excitement around the Fox brands which helps it expand its customers base and stimulates the Fox brand loyalty.
Besides racing sponsorships, the company also holds various events where it showcases new products and technologies by allowing industry influencers and key media to test them, usually demonstrating how much better the Fox-equipped vehicles feel compared to other alternatives.
To whom do they sell it?
Fox’s customer demographic has always been composed of recreational and professional users who want best-in-class features and performance, seeking to emulate the performance of elite athletes who use Fox products.
The management team has made it clear since the start that they’ll never release products for the mass market. For example, you’ll never see a Fox product come out for bikes that you can find at your local Walmart.
Fox’s target customer is usually a more salaried person than average, and the company’s goal is to, through innovation, give these enthusiasts a reason to go out and keep buying a new bike every ∼2 years.
As an example of the price tag of Fox’s products for both segments:
In SSG, you can buy a new fully-functioning mountain bike at Walmart for about $300 USD. Or you can instead buy a Fox Factory fork for about $1300 USD and you’d only be missing the rest of the bike.
In PVG, Fox shocks are usually twice as costly as those of Rancho or Bilstein. Also, Fox’s upfitted trucks have a $100,000+ USD price tag.
“The products that we make, as you know, are fairly costly. So they're not at the low end of the range and so you need somebody who has the financial wherewithal to be able to purchase them.”
—Mike Dennison, CEO
Where do they sell it?
Most of Fox’s sales, especially in the PVG segment, come from NA. The SSG business has a considerable presence in Europe (35% of SSG sales back in 2015), but Fox’s overall sales are very limited outside of these two regions (For example, sales in China account for less than 1% of Fox’s revenue), giving it tremendous room for growth in the future as it begins to expands internationally.
Fox recently decided to cease all business in Russia back in the end of 2021 due to the ongoing conflict, however, the sales in the region were negligible.
It is important to note that sales attributable to countries outside the U.S. are based on shipment location. This, however, does not necessarily reflect the location of the end users of Fox’s products, as many of its products are incorporated into bikes and powered vehicles that are assembled at international locations and then shipped back to the U.S.
Manufacturing
Fox manufactures and completes the final assembly of most of its products. By controlling the manufacturing process of its products, Fox can maintain its strict quality standards, customize its machines and processes for the specific requirements of its products, and quickly respond to feedback it receives on its products in development.
Most of Fox’s manufacturing employees are in the US and the company leverages temporary employees to help them meet seasonal demand from customers.
PVG (Owned)
Fox used to manufacture its suspension products in Watsonville, California a few years ago. However, the company began experiencing labor supply challenges in the area, which paired with inflationary wage pressures and limited capacity led to the decision of transferring this manufacturing capacity to Gainesville, Georgia, where the management team believed could get access to a better labor pool.
The building process of this facility was finished by the end of 2021, and Fox fully transitioned its operations into it by Q1 2022.
The Gainesville Facility is used for manufacturing, warehousing, distribution, office space and has top-of-the-art equipment, including one of the best anodizing facilities in the country.
“There are absolutely opportunities for efficiencies in manufacturing and supply chain. I would say it's even greater than just the people impact. Clearly access to labor, access to talent is going to be easier for us in Georgia than it is where we're at in California. But more importantly, you've got supply chain that is vertically integrated. Most of them are housed in the buildings, so within one building versus within suppliers and hubs and nodes all over the Western part of the United States. So it's just a much more efficient supply chain where you can get the machining, anodizing and manufacturing all in the same building.”
—Mike Dennison, CEO
SSG (Leased)
Fox also used to manufacture its SSG suspension products in California. However, the company decided to move its manufacturing facilities to Taichung, Taiwan back in 2014, a place where it eventually transitioned the manufacturing of Marzocchi, Race Face and Easton products too.
Taiwan is known as the "Bicycle Kingdom", and possesses the only high-end bike cluster in the world in the areas of Taichung, Changhua and Nantou. Having a production site there allowed Fox better access to the bike manufacturers that assemble their bikes in Taiwan (which are the majority of high-end mountain bike manufacturers). This also lowered the previous delivery times Fox had to deal with to and from the USA, as 80% of bicycle-related companies, like Giant and Merida, are situated within 70 kilometers and 1-hour driving distance of the site
Another advantage of the area is that Taiwan is a very low unemployment country, having unemployment rates near 0.
The Taiwan facilities were expanded during 2020 Q4 and the Taiwan government recently presented the Fox team with the Best Place to Work title and Golden Merchant Award in 2022 Q4.
Cyclicality/Seasonality
Cyclicality
Most of Fox’s products are recreational in nature and are generally discretionary purchases by consumers, this makes it so that consumers are more willing to purchase them during periods of favorable economic conditions.
Although the company’s end-user demographic is highly resilient due to its higher-than-average economic position and is usually a very passionate consumer, Fox is not immune to economic recessions.
The segments that are related to the sales of new vehicles such as the upfitting and OEM automotive business are especially vulnerable to economic downturns, due to the hefty price tags these vehicles can command.
The aftermarket segment gives Fox a degree of countercyclicality, as when things soften up a little consumers who can’t go and buy new trucks or bikes might decide to do an upgrade to their current vehicle and keep it for another couple of years.
In summary, although Fox has a resilient business model due to the strength of its customer base and the aftermarket channel, it would be normal to see it experience some pain during an economic downturn.
Seasonality
Although it may be hard to notice due to Fox’s abnormal performance in recent years, the company’s sales have historically experienced a lot of seasonality.
While the seasonal fluctuations of Fox’s sales are becoming less material as the company has managed to diversify its product offerings it still experiences some seasonality due to:
The unpredictable timing of customer orders and new model launches.
Lower mountain bike sales at the beginning of the winter.
Closing
And that’s all for the first part of this deep dive! Hopefully you found this helpful in order to understand everything about Fox’s business model.
In the second part of this deep dive, which will be published next week, I’ll be digging into the numbers (margins, returns, expense management, valuation). Make sure to subscribe below if you don’t want to miss it👇🏻
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Thanks for a brilliant read!
This is great. Thanks for sharing.