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news
Rapha founder Simon Mottram.jpgRapha boss explains how brand is reducing reliance on discounts
In the second part of our interview with Rapha founder and CEO Simon Mottram, he reveals how the company “got it wrong” on relying on discounting to help drive sales, and the steps it is taking to get the balance right to help restore profitability.
Accounts filed last month at Companies House showed that in the year to 27 January 2019, the business made an operating loss of £30.4 million on sales of £75.6 million.
In an interview with the Telegraph shortly before those accounts were filed – the first since its acquisition in August 2017 by an investment vehicle controlled by Steuart and Tom Walton, heirs to the Wal-Mart grocery fortune, Mottram admitted “We’d taken our eye off the ball.”
Besides noting that the company had become increasingly complex since the decade and a half since it was founded, he also said that it become too dependent on discounting to chase sales and clear stock at the expense of profits.
When we met Mottram at the company’s North London headquarters last week, he said that the company hadn’t gone for discounting as a specific strategy, pausing for thought before explaining how it had come about.
“There's a commercial imperative for lots of businesses, because our business is about designing and buying products and taking stock and then selling it. The great thing about wholesale is that you ask your wholesale partners what they want, you can then make that, and you know it's sold.”
In other words, for clothing businesses that don’t sell direct to the public, once orders have been taken from retailers for forthcoming seasons and the stock delivered, the onus is on the retailer to shift it.
Rapha, however, is a direct to consumer business – nowadays “probably 97 per cent” of sales, Mottram reveals. But, as he points out, that means that “you have to take the stock yourself, you take the stock risk, which is where there's more value if you can sell it, but actually where people get caught out is that if you don't sell it, you've then either got to sit on it, burn it, or sell it at a discount.”
So, while the potential rewards, in terms of margin, are greater, so too is the danger of getting left with a surplus of unsold stock, which as Mottram says, is where discounting comes in.
“I think as a direct to consumer business we'll never get the merchandising right,” he says. “We’ll never get it 100 per cent right. So, we’ll always have too much of a colour or too much of a size.
“Particularly when your business is growing, you don't quite know what you're going to need to sell, so we’ll get some things wrong, so we’ll always have to sell some things at a discount.”
There’s nothing wrong with discounting as such. Mid-season sales or outlets – Rapha has Archive Stores at Shepton Mallet and Bicester for example – are widely used to clear stock. But where it can hurt a brand is when discounting becomes so prevalent that many customers wait to see if a product will go on sale, affecting not only stock turnover, but also margin.
It's a difficult balance to strike, and Mottram acknowledges that Rapha is far from the first business to encounter that problem, saying: “Where we got it wrong like lots of brands is we got onto that treadmill.
“You're growing really fast so actually the bets in-season become even bigger because we grew at 25-30 per cent last year so you’re going to grow at 30 per cent next year, so you’re buying 30 percent more stock, so you’re making a 30 per cent bigger bet.
“So, you're ending up with more unsold stock at the end of the season and you have to discount more, and the more you discount the more immune to discounting the market becomes so you have to discount deeper.”
It was identified as an issue that needed to be addressed urgently in the wake of the 2017 takeover – there is a certain irony that the Walton family fortune was built on a stack-it-high, sell-it cheap model that turned Wal-Mart into the world’s biggest retailer – and Mottram outlined steps Rapha has taken to meet the challenge and restore margin and profitability.
“Our promotional days this year are 50 per cent less than last year,” he says, “and our full-price sales are something like 35 per cent higher. So, we're making a change.
“What we can't afford to do is to just go cold turkey or go ‘right, we’re not going to discount’ because we're sitting on stock and we've made commitments to buy product in and also you don't want to go backwards by 30 per cent in sales which is probably what you do.
“So, we've taken the decision to gradually wean ourselves off it, actually pretty aggressively – halving our days on discounts is pretty strong.
“Black Friday this year is a couple of days less than we did last year and the discounts available a little less than last year, and that stock pile is a bit less but actually we've done more sales, which is interesting because it suggests to me that by not discounting over a year, when you do have promotions there’s more demand for it.
“To some people it'll feel like we’re doing too much and we feel like it's still too much but we're on a journey to getting it right,” he says.
“We're actually really pleased with how it's going. The worst thing would have been if we'd not discounted through the summer and then when you do have a discount sale, and nobody wants to buy,” he adds.
“That would mean you’ve got something really badly wrong because there’s no demand unless there is a discount all the time, and that doesn't seem to be the case.”
In the next part of the interview, we'll be hearing how the Rapha Cycling Club concept will be an important part of the company's startegy in the coming years; meanwhile, you can read the first part of the interview at the link below.
Simon joined road.cc as news editor in 2009 and is now the site’s community editor, acting as a link between the team producing the content and our readers. A law and languages graduate, published translator and former retail analyst, he has reported on issues as diverse as cycling-related court cases, anti-doping investigations, the latest developments in the bike industry and the sport’s biggest races. Now back in London full-time after 15 years living in Oxford and Cambridge, he loves cycling along the Thames but misses having his former riding buddy, Elodie the miniature schnauzer, in the basket in front of him.
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23 comments
I buy Rapha for design and quality. There delivery to NZ is really quick, too. Sales are a bonus, but actually, like most sales, often a disappointment - sizes/colours etc.
As someone here said earlier, keep making quality kit and I'll keep buying it. Not as often as some others though, because it's made better.
I've always bought Rapha stuff second hand. Amazing how many people buy it, never wear it, then sell it at 30% of what they paid for it a year later. Often with the tags still on.
Amazing how many people buy counterfeit stuff from China (with the seemingly correct tags still on) at bargain prices, then flog it via ebay or even amazon at a tidy profit (to them).
After some professional experience with counterfeit goods (trying to stop the flood, that is) I've become extremely wary of any online sales outside the official brand store. Even then you'd better check that it's REALLY the official store.
If they can't make a decent profit selling 50 Euros shorts for 250, then they should maybe think about packing up and going home.....
How's your tour business going?
Rapha has painted themselves in a corner. They have always been premium priced... in an area of the market where a savvy consumer can easily find big discounts if they wait. Cyclists can wait, few people don't have kit to use. While Rapha product is very nice, it is really no better than loads of other product. When it comes to clothes there is not a huge difference in premium product, a $250 pair of shorts is not twice as good as a $125 pair and if the $125 pair is on sale for $80 then it really is an easy choice. Rapha can not introduce lower priced kit because then people will more it and less of the higher end stuff hurting margins. But they can not sell enough of the high end stuff at full price because at the end of the day the product is not different enough to warrant the price in a competitive market.
Combine all those marketing problems (competitive market place and substitute goods) with decreasing numbers of people buying high end bikes and kit and Rapha is in trouble.
Which is just of fancy way of saying- "the world simply did not need another pair of $270 shorts".
Awesome videos though....
What were they selling that was "cheap"? I must've missed it.
Yes. 30% is a massive discount.
It's news to me that they're reducing reliance on deep discounts. I just bought the Yorkshire jersey and a Pro Team training jersey at 30% off.
I tend to agree with the comments above that the range is too complex, but that's easy to say when you don't have the sales figures in front of you. Maybe they sell loads of toiletry bags and sunglasses, and bugger all classic jerseys. We just don't know.
Did you read the article?
To people saying they should abandon Wiggle, they pretty much have already, only a very few things are on there in odd colours and XXS or XXL type sizes, I think it's just stuff from months ago that isn't going to shift.
I only bought from Rapha in sales in the past, and nothing last few sales because the discounts are not enough, you can get similar or better kit cheaper elsewhere now.
'“This is an exciting day for Rapha,” Mottram said. “The arrival of RZC Investments as a shareholder means we can pursue our mission to elevate cycling as a global sport and recruit more participants by engaging them and enabling them to ride with us at all levels.” '
(The Guardian, August 7, 2017)
The above exemplifies what went wrong (the wrong turn had been taken a few tears earlier). From super high end, both quality and price-wise, they decided there was more money to be made by expanding and developing more wallet-friendly lines and going for volume. Private equity wants results, fast.
Quality suffered (boosting the margin...), and with the discounts, exclusivity also started suffering. Debt servicing permitting, scaling down and refocussing on the essentials doesn't seem like a bad idea. Stay away from the online sales platforms, they're poison if you want to sell high end kit. You don't see Gucci and Hermès on Wiggle (well, not the genuine article) so keep out of there, it's not the market segment you want to be in as the only way to create value there is by large volume, low price which you don't want to do. Sell everything via your own online channel, return to superhigh quality and charge for it. Those who appreciate such gear will pay for it, you don't want the others.
Not always - depends on the firm, the investment and the fund (if it's part of one).
In this instance, the RZC guys are quite interesting. The driving figures are bike nuts - albeit mountain more than road.
They've already developed - and donated - 400 miles of bikes trails in Bentonville, Arkansas. They've plans to develop a further 600. They really seem to want to get people using bikes more.
https://www.citylab.com/transportation/2018/05/how-arkansas-became-bike-...
This makes them a little different to the big PE houses like KKR, etc for whom it is all about the money.
However, an operating loss of £30m on £75m is clearly unsustainable. Rapha have got to reduce their discounting and this necessarily means improving their forecasting. They need to look hard at product, range and channel profitability, and they need to look at their cost base.
I think the comments on brand dilution are also fair. They've moved away from a stated mission of 'making road cycling the most popular sport in the world' to 'making cycling the most popular sport in the world' and this easing has allowed them to stretch into areas where perhaps - in retrospect - they shouldn't have.
When Rapha started, or their first 3-4 years, their products appeared to be a simple, straight forward range of austere, super high quality garments that targetted people that understand the value of premium products, albeit at higher prices.
They broadened their product offering to include other catagories including accessories, footwear, and even non-cycling casual wear, and while keeping their luxury level pricing. It almost seemed like they were tasked with adding as many sku's as possible, and it seemed like super expensive sunglasses, belt, or moleskin was incongruous with their identity.
Once all these products are added, and the seasons turn, the stuff just can't sit on their shelves.
I credit Rapha with improving the quality and designs availalbe for cycling apparel, and accessories and keeping a decent value propisition despite the higher prices.
I got an email today informing me of Rapha's indoor training range. Hmm.
I'm with you, @Freddy56, a nice, local brand going, well, who knows where.
agree totally though I was labelled a brand snob for suggesting it last time, weirdly I kind of get their logic for the indoor stuff,well apart from the indoor cycling sweat cap,but Id probably just stick to using old kit in that situation, so its a solution looking for a problem like alot of their stuff of late
the thing I liked more is the new Colourburn, or ombre, jerseys,albeit the womens range only has the one colour option at the moment, thats literally the first piece of kit theyve produced in almost 2 years Ive thought I really really want some of that...but not at £150.
Interesting - especially because I ONLY bought Rapha during their sales.
If this really is their plan, I hope that they average their prices between the price of their goods when on sale, and their 'normal' price. The current 'normal' price is too high a premium to justify. There are many other hard-working companies that I'd rather give my money to.
I have multiple Rapha in the kit box. ALL bought on sale.I have noticed a decline in quality for 5-7 years ago and in a more crowded market, where there is huge choice, I think Rapha are broken.
I wouldn't pay this imaginary full price when you can even buy it from wiggle with AT least 10% off and if you use a code, usually 20% for over £100 spend.
Simon also side they are up 25-30%, they arnt. Spin. They are flying in sales up £68 to £75 in 12 months but their loss has went from £20million to £30million.Its their losses that have increased by a third. Thats £50 million in 24 months.
I love Rapha . So lets play a save Rapha game.
Step one: The shops are closed tomorrow. Simon just said the make up only 3% of turnover and must be a big drain.
Step 2. Cap the range. STOP with the stupid mechanics gear, the tooth brush bag, the pencil case and the Rapha bumbag.
3, Get out of Wiggle and CRC. you want rapha, buyit on rapha.cc
Design shorts and jackets and 3 short films a year. Sell them.
Prediction, they do none of the above.
Sales plateau in 2020 at 70 million because no one want to ride with bankrupt stock. Losses continue to grow at 20% digging another 35 million of a bank pit and the lovely London brand which I have supported goes belly up.
The shops are extremely useful. Trying stuff on, socialising, as ride hubs (especially getting riders back there after a ride and even if they're not spending £££ on clothes, chances are they'll still be buying coffee and food). Also you can appeal to the passing trade, you can host films and talks and potentially reach people who might not be "cyclists" but might have a cycling partner. Soho and Manchester have both had a good range of interesting talks and it's through those shops that events like the Manchester to London developed.
The range - I kind of agree with you there, there have been some clothing choices over the years where you're left thinking "hmm, just because you can make that doesn't mean you should" and the range has got very confusing and bloated and that leads to major stock overloads if you need to have (say) aero socks in 8 colours and 4 sizes, that's 36 permutations already. Some of the fitting has also varied wildly over the years because they use lots of different factories. No idea about the washbags, belts, coffee pods, inner tubes and phone pouches but maybe they make good gifts for the long-suffering partner of "the cyclist who has everything".
The whole point of them being on Wiggle / CRC was that it was a much more limited range of the mostly cheaper stuff (Core and Archive) designed partly to shift it but partly to get people into the brand. Many many thousands of people who cycle do not know anything beyond Halfords and Wiggle. Evans Cycles might get a look in if you live in London but basically, everyone knows that you buy a bike in Halfords and you buy everything else online. They literally won't have heard of Rapha. To change that you need to introduce them to the brand with the basics and then tell them that outside of Wiggle is another great website where they can buy MORE. These are not people who read cycling websites and obsess over breathability or weight or aero, they're people who kind of enjoy a pedal around the park or commuters.
The problem with the clothing thing though is that eventually you run out of people who need clothes. Most of it is decent stuff that lasts and even the biggest Rapha fan is not going to be buying new shorts, jerseys, tights etc every couple of weeks. I've got Rapha kit that's 6-8 years old and still going strong, I simply don't *need* to be buying another jersey tomorrow cos I've got loads (not just Rapha, other brands as well but unless I decide to do TransCon or Tour Divide, I'm pretty much sorted for all the kit I'm likely to need for the foreseeable future and will only buy new stuff as and when I wear out existing stuff). It's a difficult market to get right.
But in spite of offering all that perceived benefit,they only make up 3% of turnover, 97% we have to assume therefore is online sales. Which tallies with my experience I've got Rapha kit & made use of their free returns to try alternate sizes,I've never set foot in a Rapha store, so whilst they are burning money on rent & taxes with a set of shops they arent selling anything to me,they arent encouraging me to turn up at a talk as its literally 100s of miles for a round trip,they basically only serve a local community of cyclists, & I dont think that's a sustainable business model.
It would make far more sense for them to partner with Look Mum No Hands as a popup shop and share costs.
I think you've misunderstood the revenue figures. The figure is 97% direct to consumer sales, which does not mean online only. Direct to consumer also includes their own retail outlets, the 3% that isn't direct to consumers is presumably through Wiggle etc. The article doesn't mention what portion of the sales are from online and what portion are from brick and mortar stores, so drawing any conclusions about the sustainability of the business model based on your assumptions are wrong.
Maybe they should lower their starting prices and then not discount so much - just sayin'
I've been buying Rapha for pretty much a decade now. Sales were rare when I started picking up bits (the survey 15% and a winter and summer job) and that was fine with me. Keep making good kit Rapha and I'll keep buying it.