With New Investment, Cycling Apparel Maker Rapha Hopes to Break Away

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 14, 2017 07:14 ET (11:14 GMT)