Rapha founder and CEO says owners the Walton brothers are in for the long haul

Rapha founder and CEO Simon Mottram insists that the heirs to the Wal-Mart fortune who bought a controlling stake in the business in 2017 are in for the long haul and that rumours the business is struggling are wide of the mark.

Steuart and Tom Walton, whose grandfather Sam Walton founded the US grocery retail giant, took control of Rapha in a £150 million deal through RZC Investments, the private equity firm they run.

In an interview with the London Evening Standard, Mottram rejected rumours that following that deal Rapha had discounted too much stock, leading to the brand becoming devalued, and that the  business was struggling, although parent company accounts filed at Companies House for the six months to January 2018 show a pre-tax loss of £20.2 million on turnover of £42.2 million.

“There are two stories here,” he maintained. “One that’s wrong and one that’s right. It’s very easy. “We have a new owner, who is invested for the long term and they’re helping us to make the business stronger.

“It’s not as interesting a story, but that’s the real story, and it’s less of a headline, isn’t it?”

Mottram, who trained as an account and worked in brand consultancy before launching Rapha in 2004, said: “We’re not making lots of profit, I can tell you that, but that’s not what we need to do for the next three years. That’s the decision we’ve taken.

“If you want to get back in control of pricing, you don’t do that by growing 40 per cent. We’ve had to consciously take a step back in terms of growth and drive more of that into full-price sales so the profit margin gets protected, but at a low level.”

He said that he wanted closer integration between the brand’s online operations, which account for the vast majority of sales, and its 22 Clubhouses around the world, as well as moving into wholesale. Meanwhile, the company has axed its loss-making Travel business, resulting in some staff being made redundant.

“That was tough. We didn’t just do that for fun. It was a shame to lose it, but it’s the right thing to do,” he explained.

RZC now owns 90 per cent of the business, with Mottram retaining a 5 per cent stake and remaining in charge of day-to-day operations.

Speaking of the Walton brothers, who are both keen cyclists, he said: “They have deep pockets and they are backing the business.”

Rapha, of course, is a brand that polarises opinion among cyclists; for everyone who buys into its ethos and design aesthetic, there’s someone else who sees it as an overpriced brand worn by poseurs.

“It’s a cross we bear — Rapha is expensive,” admitted Mottram, who has said in the past that Rapha is well aware of who its target audience is and that it wasn’t concerned about what the critics say.

“The value for money is significantly more than anybody else because the quality of the construction, the fabric, the customer service, the free repairs we offer and the product itself are so much better than the competition,” he said.

But he told the Standard that future growth would really in slightly lower price points to enable more people to afford it, balanced by the introduction of higher-value products to maintain margin – that final point also tying in with a reassessment of how much discounting it undertakes.

He said it would be “incredibly good” if 70 per cent or more of sales were made at full price, and that “we’d like to get as close to that as we can.” Although the company hasn’t reached that point yet, he said it was “significantly better than we were last year.”

Mottram conceded that his passion for cycling meant that Rapha had become “something that was higher-end and probably more perfect than it needed to be to get lots of growth.

“Of course we could have gone much faster, and we still could, but we don’t want to lose who we are,” he added.

“The key thing that we are is our brand, our culture. Those things start to get destroyed if we go too fast.”

It should be noted that the £20.2 million loss that has grabbed the headlines are found in the accounts of new holding company Carpegna Limited, covering the period 3 August 2017 to 28 January 2018.

Most of that loss was related to one-off costs due to the change in ownership – £1.9 million in the form of acquisition costs and £13.5 million in respect of “the unwind of the cost of goods sold from the fair value of uplift of inventory which was required as a result of the acquisition accounting,” as further discussed in a note to the accounts.

Separate accounts filed at Companies House in November for Rapha Racing Limited and covering the year to 28 January 2018 show turnover up 26.2 per cent from £44.6 million to £56.3 million, with earnings before interest, tax, depreciation and amortisation down from £3.7 million to £1.2 million.