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Rapha records £20m loss in six months after being bought by Walmart heirs

Firm announced wave of job cuts in September

Rapha has recorded a £20m pre-tax loss just six months after it was bought for £156m by heirs to the Walmart fortune.

In August of last year, private equity firm RZC Investments bought a majority stake in Rapha.

Speaking at the time, the firm’s founder and chief executive Simon Mottram said the acquisition heralded, “the start of the next stage of our journey,” and was, “testament to the growth and potential that people see in Rapha and in cycling.”

At the time of the purchase, the firm’s profit sat at around £1.4m.

Retail Gazette reports that Rapha has now reported a £20m pre-tax loss on turnover of £42.2m in the six months to January 2018.

In September of this year, the firm announced a wave of job cuts following a series of uncharacteristically protracted sales over the summer, with many items also listed on the discount clothing website Sportpursuit.

Speaking at the time, a spokesman said: “As we entered 2018, we adjusted our trading strategy, prioritising long-term profitable growth above short-term sales. As part of this, we are simplifying certain areas of the business, in order to reduce costs, and consolidate and strengthen our position. These actions will result in the reduction of a limited number of positions in our London headquarters.”

Alex has written for more cricket publications than the rest of the road.cc team combined. Despite the apparent evidence of this picture, he doesn't especially like cake.

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32 comments

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GeorgeV | 5 years ago
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Regular Rapha customers (like me) already noticed a decline in quality, also the company seems to have lost focus, I find their renewed website worse than the attractive older one. Rapha, if you like them or not, made a tremendeous splash in the water, and were trendsetter; lots of older well known brands (Castelli amongst others) imitate the colors and styling of Rapha, which is, as we all know a form of flattering.

I think Rapha should rethink how they can hold (or regain?) their position that was established with the well known sport-merino jerseys in classic-inspired style that harked back to the old days of heroic cycling. Things are harder now, as a lot of competition has entered this market. Quality comes first, personally I am prepared to pay a high price for a very good quality garment in a unique style I like, but one can't ask high prices for below average quality, the customer, how snobbish he may be, is no fool. 

It takes a long time and a lot of effort to obtain a good reputation, but that same reputation can be lost in a very short amount of time. 

  

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SRRC | 5 years ago
0 likes

Big write downs like this are quite common when a company is acquired by private owners. The new owners will have taken a different view about such things as stock values, recoverability of bad debts, the value of goodwill etc. It will all have been factored into the purchase price.

If it has come as a surprise to the new owners then look out, the lawyers will be cranked up to claw back from the vendor.

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nickW1 | 5 years ago
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There is a slight feeling that the bubble might be about to burst, evans having trouble my local bike shop chain ( Five shops) sending out virtual begging e-mails about supporting your local shops, if you take a long hard look at the numbers of actual riders against the massive over supply there has to be re-balancing some will go some will survive, just hope to many dont lose thier jobs 

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nickW1 | 5 years ago
1 like

There is a slight feeling that the bubble might be about to burst, evans having trouble my local bike shop chain ( Five shops) sending out virtual begging e-mails about supporting your local shops, if you take a long hard look at the numbers of actual riders against the massive over supply there has to be re-balancing some will go some will survive, just hope to many dont lose thier jobs 

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Kloudy | 5 years ago
2 likes

Well private equity outfit ECI Partners did such a sterling job with Evans Cycles didn’t they so I’m sure nothing could possibly go wrong here?

A while ago I owned a business whose main customer was bought by ECI. 

I was told that their business plan was to treble turnover within five years. In reality it halved within twelve months and never recovered. 

Businesses should be run by businessmen and women not by accountants, by spreadsheet or PowerPoint.

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LRTom | 5 years ago
3 likes

I've been dealing with Rapha for a long time either through work or as a customer and the quality of both the product and customer service has really dropppped in the last 12 months. A real shame, but it's the classic downward spiral of trying to cut costs when profits dip which leads to unhappy customers which in turn leads to less sales so profits dip further.........

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CXR94Di2 | 5 years ago
1 like

I wont buy from them again.  I paid £150 for a pair of bibs, i doubled, tripled checked the sizing guide.  Tried on, far too small and wont accept returns. So no more business from me.   Ill stick with Castelli 

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cougie replied to CXR94Di2 | 5 years ago
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CXR94Di2 wrote:

I wont buy from them again.  I paid £150 for a pair of bibs, i doubled, tripled checked the sizing guide.  Tried on, far too small and wont accept returns. So no more business from me.   Ill stick with Castelli 

 

Just shows - Castelli sizes are all over the place for me. I tried to buy their shorts but their sizing was so wonky and the quality so poor that I sent them all back.  

Went with DHB instead at half the price and better quality. 

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cougie replied to CXR94Di2 | 5 years ago
0 likes

CXR94Di2 wrote:

I wont buy from them again.  I paid £150 for a pair of bibs, i doubled, tripled checked the sizing guide.  Tried on, far too small and wont accept returns. So no more business from me.   Ill stick with Castelli 

 

Just shows - Castelli sizes are all over the place for me. I tried to buy their shorts but their sizing was so wonky and the quality so poor that I sent them all back.  

Went with DHB instead at half the price and better quality. 

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don simon fbpe replied to cougie | 5 years ago
1 like

cougie wrote:

CXR94Di2 wrote:

I wont buy from them again.  I paid £150 for a pair of bibs, i doubled, tripled checked the sizing guide.  Tried on, far too small and wont accept returns. So no more business from me.   Ill stick with Castelli 

 

Just shows - Castelli sizes are all over the place for me. I tried to buy their shorts but their sizing was so wonky and the quality so poor that I sent them all back.  

Went with DHB instead at half the price and better quality. 

I think that that's the bit that lost them a customer. Surely it's illegal to deny a return, no?

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Yorkshire wallet | 5 years ago
3 likes

The trouble with quality gear like Rapha is you don't need to keep replacing it. This leaves you needing more cyclists and I think we're past the 'britpop' period of cycling now.

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RobD replied to Yorkshire wallet | 5 years ago
2 likes

Yorkshire wallet wrote:

The trouble with quality gear like Rapha is you don't need to keep replacing it. This leaves you needing more cyclists and I think we're past the 'britpop' period of cycling now.

I do think this is part of the problem they'll face, there's only so many new items that most people would buy even if the cost wasn't a factor, and going for the more restrained end of the design spectrum it's not like it is with someone like morvelo, or even the DHB blok range where a cool design comes out, isn't especially expensive and is something that you might just add to your collection of jerseys etc. Another dark coloured restrained designed jersey etc isn't likely going to make you purchase very frequently, no matter how well made it is etc, most people go for a little bit of variety rather than a uniform.

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cdean replied to RobD | 5 years ago
1 like

RobD wrote:

Yorkshire wallet wrote:

The trouble with quality gear like Rapha is you don't need to keep replacing it. This leaves you needing more cyclists and I think we're past the 'britpop' period of cycling now.

I do think this is part of the problem they'll face, there's only so many new items that most people would buy even if the cost wasn't a factor, and going for the more restrained end of the design spectrum it's not like it is with someone like morvelo, or even the DHB blok range where a cool design comes out, isn't especially expensive and is something that you might just add to your collection of jerseys etc. Another dark coloured restrained designed jersey etc isn't likely going to make you purchase very frequently, no matter how well made it is etc, most people go for a little bit of variety rather than a uniform.

 

Yes I completely agree. I started cycling a few years ago and own quite a bit of Rapha kit (and bits of varying quality from other brands) to cover most eventualities. I haven't bought anything from them in recent sales because there isn't anything I really need.

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Organon replied to Yorkshire wallet | 5 years ago
0 likes

Yorkshire wallet wrote:

The trouble with quality gear like Rapha is you don't need to keep replacing it. This leaves you needing more cyclists and I think we're past the 'britpop' period of cycling now.

After Britpop comes Bigbeat and Trip Hop and others, so your music analogy doesn't hold up. Unless you haven't listened to any music from the last 20 years.

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Yorkshire wallet replied to Organon | 5 years ago
3 likes

Organon wrote:

Yorkshire wallet wrote:

The trouble with quality gear like Rapha is you don't need to keep replacing it. This leaves you needing more cyclists and I think we're past the 'britpop' period of cycling now.

After Britpop comes Bigbeat and Trip Hop and others, so your music analogy doesn't hold up. Unless you haven't listened to any music from the last 20 years.

triphop and bigbeat weren't associated with this british rebirth of anything though, unlike britpop which seemed linked to 'new' Labour era of optimism and Tony Blair. 2012 was like that for cycling. It certainly wasn't like Exit Planet Dust or any shite like Tricky or Goldie.

New chart music is toilet. I read that the complexity level of music falling year on year along with the lyrical reading age. Apparently most chart songs are the product of a gang of bald norwegians and a computer algorithm actually 'listens' to them to decide what will sell. Progress eh.

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Organon replied to Yorkshire wallet | 5 years ago
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Yorkshire wallet wrote:

Organon wrote:

After Britpop comes Bigbeat and Trip Hop and others, so your music analogy doesn't hold up. Unless you haven't listened to any music from the last 20 years.

triphop and bigbeat weren't associated with this british rebirth of anything though, unlike britpop which seemed linked to 'new' Labour era of optimism and Tony Blair. 2012 was like that for cycling. It certainly wasn't like Exit Planet Dust or any shite like Tricky or Goldie.

New chart music is toilet. I read that the complexity level of music falling year on year along with the lyrical reading age. Apparently most chart songs are the product of a gang of bald norwegians and a computer algorithm actually 'listens' to them to decide what will sell. Progress eh.

That'll be a 'no' then.

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Paul J | 5 years ago
1 like

Wait for the massive sales. Sounds like Rapha are succumbing to the Vulpine effect?

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Yorky-M | 5 years ago
1 like

Rapha has played an important part in the growth of our sport and making it smooth to ride bikes. The sale to the Americans valued their 'Non tangiable asscets' at 90$million,  so I take it this is their email/customer list. This is hard won, so why they have adopted the new sell everything off at sale price method has just damaged the brand. My Rapha dressed friends and now 'waiting' for it to go on the regular sale. The new norm is a lower expected price to buy it at.

With the lower margins, There is no way they can send 4 lads and two camera men off to South Africa for 10 days to a 7 minute movie. This takes the 300% margin. Look at the comments above. ...waiting for the sale. 

- Chanel, the Paris-based brand burns its excess leather goods rather than sell them at a lower price. 

It will take time to recover. the Palma rapha store is just fantastic. Happy to pay the money. But the Chain Reaction store has a rail of 200 Rapha garments squished together under a rail of dhb . Awful.

Its is like there is a game to see how quickly they can break a legend.

 

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huntswheelers | 5 years ago
1 like

Oh well.... another company going to be asset stripped by Private Equity.... oh well... I'll carry on buying the kit I do, which is made in the same factory in Italy using better materials/pads and half the retail price...

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EddyBerckx replied to huntswheelers | 5 years ago
2 likes

huntswheelers wrote:

Oh well.... another company going to be asset stripped by Private Equity.... oh well... I'll carry on buying the kit I do, which is made in the same factory in Italy using better materials/pads and half the retail price...

 

Keep telling yourself that. 

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longassballs replied to huntswheelers | 5 years ago
2 likes
huntswheelers wrote:

Oh well.... another company going to be asset stripped by Private Equity.... oh well... I'll carry on buying the kit I do, which is made in the same factory in Italy using better materials/pads and half the retail price...

I'll bite. Who's that then?

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Stef Marazzi replied to longassballs | 5 years ago
1 like

longassballs wrote:
huntswheelers wrote:

Oh well.... another company going to be asset stripped by Private Equity.... oh well... I'll carry on buying the kit I do, which is made in the same factory in Italy using better materials/pads and half the retail price...

I'll bite. Who's that then?

I think its MOA

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Samtheeagle | 5 years ago
4 likes

Possibly a means to achieving a non-tax paying situation?

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Yorkshire wallet | 5 years ago
1 like

Why would you pay £156m for a business with so little profit margin?

I guess the founders are laughing all the way to bank though.

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CygnusX1 | 5 years ago
2 likes

Not sure this is down to people not buying it.

Annual turnover £67M (with £1.4M profit, or 2%) in the previous year.  Turnover of £42.2M in 6 months (so extrapolating about £84M for the full year) but £20M loss in the same 6 months.

So annual sales turnover has increased but either costs have increased or they are selling for less (or both).   

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Southy83 replied to CygnusX1 | 5 years ago
3 likes

CygnusX1 wrote:

So annual sales turnover has increased but either costs have increased or they are selling for less (or both).   

I am guessing the private equity firm didn't buy the company outright with it's own funds. So most likely used an element of debt to fund the acquisition. 

The article states they had a profit for the previous year, so they be looking to use this (and  previous profits) to offset some of the current "loss".

Therefore, the cynic in me says that they have saddled the company with debt and hope to build the brand to a point that it's worth selling on. Failing that, give it a couple of years and all the Muddy Fox kit will be rebranded as Rapha and available at a 70% discount at your nearest Evans Cycles/Sports Direct.

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CygnusX1 replied to Southy83 | 5 years ago
2 likes

Southy83 wrote:

CygnusX1 wrote:

So annual sales turnover has increased but either costs have increased or they are selling for less (or both).   

I am guessing the private equity firm didn't buy the company outright with it's own funds. So most likely used an element of debt to fund the acquisition. 

The article states they had a profit for the previous year, so they be looking to use this (and  previous profits) to offset some of the current "loss".

Therefore, the cynic in me says that they have saddled the company with debt and hope to build the brand to a point that it's worth selling on. Failing that, give it a couple of years and all the Muddy Fox kit will be rebranded as Rapha and available at a 70% discount at your nearest Evans Cycles/Sports Direct.

I suspect you're right - but without seeing the books we're speculating. Saddling a company with the cost of paying back the debts from the purchase is fairly standard MO for private equity firms though.

Edit: for grammar.

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Southy83 replied to CygnusX1 | 5 years ago
3 likes

 

[/quote]

Saddling a company with the cost of paying back the debts from the purchase is fairly standard MO for private equity firms though.

Edit: for grammar.

[/quote]

Not sure if that was an intentional pun at the start of the sentence. Although I suspect Rapha is now highly geared and it is likely that the brakes will be put on any investment in R&D.

They may also shift their focus towards the cheaper side of the market. Or they may have to backpedal if they don't perform well in that segment.

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ClubSmed replied to CygnusX1 | 5 years ago
1 like

CygnusX1 wrote:

Not sure this is down to people not buying it.

Annual turnover £67M (with £1.4M profit, or 2%) in the previous year.  Turnover of £42.2M in 6 months (so extrapolating about £84M for the full year) but £20M loss in the same 6 months.

So annual sales turnover has increased but either costs have increased or they are selling for less (or both).   

Usually after a new owner buying a new brand they either heavily invest in it  or restructure the debts so the first year looks to be loss making as the full return on that investment has not been realised yet.

I would assume that this so called loss coupled with the standard new owner restructures have been picked up by a reporter not used to business reporting and put 2&2 together and got 5

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Glov Zaroff replied to ClubSmed | 5 years ago
1 like

ClubSmed wrote:

Usually after a new owner buying a new brand they either heavily invest in it  or restructure the debts so the first year looks to be loss making as the full return on that investment has not been realised yet.

 

I would assume that this so called loss coupled with the standard new owner restructures have been picked up by a reporter not used to business reporting and put 2&2 together and got 5

 

On the money (excuse the pun) but your logical and informed answer doesn't generate revenue clicks and subsequent frothing posts from road.cc's prime chumps.

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