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Torpedo7 and R&R Sport say I do to clicks and bricks merger

  • Venture
  • December 20, 2014
  • Owen Poland
Torpedo7 and R&R Sport say I do to clicks and bricks merger

Republished from NZRetail's December 2014 issue.

Integrating an online and offline business into a single omnichannel offering has a lot of power, according to The Warehouse Group chief executive Mark Powell.

“Bringing together Torpedo7 and R&R Sport draws on a 40-year heritage of outdoor and adventure sports offering Kiwis unprecedented access to high quality outdoor recreational gear at the best prices.”

For The Warehouse Group, the re-launch of Torpedo7 in late October was the culmination of 18 months of planning − beginning when TWG bought a majority stake in the Hamilton-based company in April 2013.

Torpedo7 subsequently acquired Dunedin-based R&R Sport and thoughts about a merged entity began to firm up.

In addition to a rebranded and revamped Torpedo7 website, supported by a new fulfillment centre in Hamilton, the new business consists of nine former R&R Sport stores plus two new Auckland outlets at Mt Wellington and Albany.

A tenth store is planned for Taupo before Christmas and, depending on the consumer response, there could be an additional store in Wellington.

“It’s an attractive market, it’s a growth market,” says Powell.

“People want to look good and stay fit when they get older, so we feel there’s growth characteristics to that.”

While Torpedo7 won the branding battle, the influence of R&R Sport is evident in the continued use of its tagline ‘see you out there’ − a nod to the dedication of sales staff who live and breathe the product range.

“Customer service, based on deep product knowledge, and a love of the outdoors amongst the whole team is a major advantage,” says Powell.

Torpedo7 has also inherited the R&R Sport loyalty programme, ‘Over and Above’, which offers an initial $10 discount for signing up − as well as a minimum ten

per cent discount in store and $2 worth of points for every $100 spent.

While there’s always a risk that consumers might not like what’s been done, Torpedo7 Group CEO Pejman Okhovat says that both sets of customers were kept fully aware of what was happening and there’s been overwhelming support.

“They’ve actually got more than they had before from product offering,” he says.



Obvious challenge

An obvious challenge was the need to manage the expectations of staff who had competed against each other online and in-store within businesses located at different ends of the country.

However, when they got the teams together, Torpedo7 chief operating officer Aaron Green says one of the key comments early on was “these guys are just like us.”

A series of road shows took employees through the ‘DNA’ of both companies and Green says bringing them together was a natural evolution − “or marriage made in heaven, as we like to say.”

Understanding The Warehouse Group’s way of doing things is also part of the team culture, so there’s a “common language” to solving problems − what Powell

calls the ‘Bs and Cs’, or benefits and concerns − which need to be voiced, weighed and resolved through a clear leadership and team model.

Existing team members have been integrated into the new stores to ensure consistency, and new recruits must have a good industry knowledge and understanding of the outdoor product range.

The induction programme also includes content on the history of the business, where it’s at and where it’s heading.

Yet another consideration was the reaction of R&R Sport suppliers, such as Icebreaker, who may have wondered whether their labels would somehow end up being sold at The Warehouse.

For Powell, it was matter of meeting with them to discuss the strategy and the positioning − and understanding each other’s perspective.

“As long as you’re honest and transparent, you build trust over the years and it’s synergistic.”

As it turns out, Icebreaker occupies a prominent position in the new 2300m Mt Wellington Torpedo7 store − previously occupied by Good Guys.

Situated just inside the entrance, the Icebreaker layout is a first globally for the brand and features a timber finish, rather than clinical white.

By combining the well-known brands of R&R with Torpedo7’s private label offering, the company says it now has more categories and a broader range than the likes of Kathmandu.

“It’s an exciting mix of leading national brands – like Icebreaker, Freedom Camping and Mons Royale,” says Powell, “as well as leading international brands such as Giant, Burton, Trek, O’Neill and Quiksilver.”

Plans are also afoot to extend the house brand range to include everything from children’s puffers to Tri Suits and tents. Compared to Kathmandu, Aaron says “we want to have a more realistic retail price as an entry level and then use the ‘Over and Above’ pricing to play with that.”

Maintaining quality will also be key a factor.

“We believe it will be a very good spec when we compare ourselves to others in the marketplace,” says Green.

Another feature of the new Mt Wellington and Albany stores is the inclusion of gym equipment retailer No. 1 Fitness and Shotgun Supplements, both now Torpedo7 subsidiaries, as a ‘store within a store’.

In addition to expanding its store footprint, No.1 Fitness has introduced new industry leading brands like Matrix, Vision and Horizon, and it has a new responsive website that will flex and change with specific devices.

For its part, the online Shotgun Supplements business has migrated to the new Torpedo7 platform and its products are also now available at No. 1 Fitness and The Warehouse.

What is not so apparent is the significance of the Australian market in Torpedo7s future strategy.

Trans-Tasman sales under the previous owners were reportedly as high as forty percent and, while the company will continue to have a presence in

Australia, Okhovat was not prepared to discuss sales figures or future plans.

“For now, the key focus is New Zealand − we’ve got a lot to do here,” he says, referring to the internal refit and refresh planned for the former R&R chain.

For the founder of Torpedo7, the venture has been a huge financial success.

Luke Howard-Willis was just 24 years old when he identified a gap in the market for high-quality mountain bikes and decided – 10 years ago − to create the online business.

According to its 2014 Annual Report, The Warehouse Group has outlaid $42m for its current 80 per cent stake. Luke and his father Guy hold the remaining 20 per cent and retain two seats on the Torpedo7 board.

However, Okhovat says other than providing guidance, advice and support “they no longer have involvement” in terms of the day-to-day running of the business.

Financials

The notes to The Warehouse Group’s FY14 Financial Statements also make interesting reading.

In addition to a cash consideration of $20m for the initial 51 per cent interest in Torpedo7, TWG agreed to pay a further ‘maximum performance based contingent consideration’ of up to $13m over three years.

However, an early settlement was negotiated in March for a reduced amount of $5.359 million because specified performance targets were ‘not met in full’.

In addition to the acquisition of Torpedo7, TWG agreed to pay almost $27m for No1 Fitness, Shotgun Supplements and R&R Sport and, while Torpedo7 Group sales were a respectable $107.7m in FY14, the operating profit of $1.1m represented a skinny return on the assets deployed.


But with the consolidation and rebranding complete, Powell says “we are now in a position to move forward in a number of areas, with ongoing growth driven by an ever improving product range and unbeatable service.”

Hopefully, a workout at No.1 Fitness, plus some Shotgun Supplements and less R&R will make all the difference.

Torpedo7 fit out

High-level signs for easy navigation, and the use of unobtrusive fixtures that maintain a low and clean mid-floor area without blocking sightlines, are key features of the big new Torpedo7 store at Mt Wellington.

Group Head of Retail Environment, Matt Hadley, says the challenge for the design team was to create an outdoor feel in a large format store.

Having toured Germany, Canada and the US to see what could be done in a mass market environment, they have drawn inspiration from the likes of popular North American outdoor company REI.

Natural fabrics and earthy colours are complemented by ‘wow’ points, such as fitting rooms with old villa doors – and recycled rimu at the cash point.

Another focal point is the ‘chillout’ zone with a sofa and computers for customers to use to search the extended range − which now includes fishing and moto-cross − and be encouraged to sign up to the loyalty programme.

The Torpedo7 fit out is consistent with The Warehouse Group’s strategic priority to leverage group competencies and scale − and to avoid duplication.

Fixtures, sourced from its regular Hong Kong supplier, have been modified to create a new look and feel, while fittings from local suppliers Retail Dimension include specially made ‘screens’ with vertical see-through pine slats to showcase product.

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