Britain's Rapha hopes Wal-Mart scions will propel elite retailer
into U.S. market
By Saabira Chaudhuri
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 15, 2017).
LONDON -- A bike apparel retailer favored by Britain's cycling
elite is hoping the grandsons of Wal-Mart Stores Inc.'s founder can
help it pedal into the big leagues in the U.S. and beyond.
London-based Rapha last week said it had sold a majority stake
to a U.S. investment firm founded last year by the grandsons of
Wal-Mart founder Sam Walton in a deal valuing the business at over
$225 million, according to a person familiar with the matter.
The investment by Bentonville, Ark.-based RZC Investments,
backed by Tom and Steuart Walton, comes as the 13-year-old apparel
brand looks to accelerate in the U.S. as Americans appear willing
to pay top dollar for upmarket cycling clothes and accessories.
Through its stores, which it calls "clubhouses," Rapha aims to
foster a sense of community -- and sell memberships -- that will
keep customers coming back for its $295 cycling glasses and $385
bib shorts. It's a strategy that has been deployed successfully in
recent years by other luxury athletic brands such as Lululemon
Athletica Inc.
Rapha and other upscale bike apparel retailers like Pearl Izumi
and Assos are looking to exploit a U.S. cycling apparel market that
climbed 15% between 2000 and 2016 to hit $757 million, according to
the National Sporting Goods Association, despite adult ridership
numbers staying flat over the past decade at 25.5 million.
While some may balk at Rapha's price tags, the retailer is
counting on a crop of largely male consumers with high disposable
incomes and a love of recreational cycling. In Britain, such men
are popularly called Mamils, or "middle-aged men in Lycra."
OC&C Strategy Consultants estimates that 70% of U.S.
spending on bike apparel comes from enthusiasts who cycle at least
once a month.
"I have no interest in a customer who just buys a jersey and
disappears, " says Rapha founder Simon Mottram. "Our customers
don't just buy products, they come on rides, buy food and drink at
clubhouses, consume publishing from us."
The company's sales rose 37% to hit GBP67 million ($87 million)
in the year to Jan. 31 and are forecast to roughly double over the
next three years to GBP131 million. Last year, Rapha made a profit
of GBP4.5 million in earnings before interest, taxes, depreciation
and amortization, up 6.7% from a year earlier.
Mr. Mottram plans to use RZC's investment to open more stores --
including adding to the five already in the U.S. -- and potentially
expand into new areas such as nutrition, speed tracking and
physiotherapy services.
"We liked that Rapha is well-positioned in the sport of cycling,
which is very likely to continue growing," said RZC partner Jared
Faciszewski, a former professional racer. "It's in its infancy
today on a global spectrum, and there is significant opportunity to
grow in the U.S."
Other high-end cycling apparel retailers have also attracted
investor interest. In 2015, New York-based private-equity firm TZP
Group was part of a consortium that bought a majority stake in
Swiss brand Assos, which makes shorts, jackets and helmets, and
whose motto is "suffer in comfort."
"We believe there is a significant business opportunity at the
intersection of innovative, performance-driven apparel and luxury
experience," TZP partner Dan Galpern said at the time.
Jonathon Puleston-Jones, a London-based Deutsche Bank executive,
is what Rapha describes as a typical customer. A member of the
company's cycling club, he comes by Rapha stores to shop, socialize
and go on rides.
"Socially, I feel a sense of community being part of the club,"
said Mr. Puleston-Jones.
Rapha has invested heavily in its 17 stores in Europe, Asia,
Australia and the U.S., using them largely as product showrooms,
with TVs showing races and cafes serving coffee and quick eats like
avocado on toast. About 70% of its sales are generated online. Its
11,000-person strong cycling club gives members free in-store
coffee, a biannual magazine, access to special rides, and the
ability to rent high-end canyon bikes, among other perks.
"Going in there reminds you of what you like about cycling,"
said Swen Graham, a New York-based Foursquare employee. "If you're
in the know about Rapha, you kind of know your shit."
Other sports brands have adopted similar approaches, using their
stores to position themselves as purveyors of a lifestyle.
Lululemon has stores in big cities like New York, London and
Toronto that offer weekly classes, cafes serving protein shakes and
experts to give advice on activities. Nike organizes runs departing
from its stores, while Puma's Boston store provides workout
sessions involving Pilates, barre, cycling and other
activities.
Americans' interest in cycling still lags behind that of
Europeans. While the bicycle has long been an important mode of
transportation in Europe, the U.S. has been more
automobile-focused, particularly after President Dwight D.
Eisenhower built the interstate highway system, says Jay Townley, a
partner at U.S. bicycling market-research firm Gluskin Townley
Group.
But Mr. Mottram sees scope for growth in the U.S. "There are
lots of people who are vaguely engaged and are early in the process
of becoming cyclists," he said. "We can help them become more
sophisticated.
(END) Dow Jones Newswires
August 15, 2017 02:48 ET (06:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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