Burkle-Backed Sporting Goods Giant Signals Future of E-Commerce
Signa Sports United (SSU) recently announced it entered into a definitive business combination agreement with Ron Burkle’s Yucaipa Acquisition Corporation (a SPAC) and WiggleCRC Group (the second-largest online bike retailer). The combined company, tracking to do more than $1.6 billion in pro forma sales this year (fiscal 2021 ends in September), will become the largest e-commerce and tech platform in the sporting goods space, serving more than 7 million active customers, 1,000+ brand partners, 500+ connected retail stores and more than 15 million global sports community users. But as NPD Group senior sports industry adviser Matt Powell explained, it is SSU’s bespoke approach to the business—not its size—that is “so interesting. The future of e-commerce is personalization and curation; making the website feel like it is for [a specific user]. And there is nobody [else in the sporting goods business] really offering a highly personalized, highly curated approach.”
Our Take: While Signa Sports United may be the world’s largest sporting goods-focused e-commerce and tech platform, the company is not exactly a household name here in the U.S. That is largely because SSU is not its consumer-facing brand (Chain Reaction Cycles, TennisPro, Midwest Express, AddNature and Outfitter are among the brands they promote). They’ve also largely focused to date on the European market, where bicycles are more a means of transportation than recreational or fitness equipment. Less than 10% of net revenues will be generated stateside this year.
Growth capital was needed to fulfill Signa Sports’ M&A ambitions, so a public listing made sense. CEO Stephan Zoll explained the company chose to take the SPAC route, as opposed filing a traditional IPO, because a reverse merger would enable them to acquire WiggleCRC in parallel with the business combination, rather than wait until after the IPO to complete a deal. The SPAC path also enabled management to market a vision to prospective partners. “For a growth company with a lot of ambition and opportunity in the market to grow, that was a very valuable thing,” Zoll said.
Yucaipa Acquisition Corporation was a logical partner for SSU because they are big in “sports, technology, logistics and consumer retail,” Zoll explained. The publicly traded SPAC is also led by U.S. businessman (and Pittsburgh Penguins co-owner) Burkle. With ambitions to expand the business into the world’s largest sports market, “being listed in the U.S. [and aligning with a billionaire team owner] made a lot of sense for us,” Zoll noted.
From a timing perspective, SSU appears to be well-positioned to grow its U.S. revenues. Aside from the all-important shift to personalization and customization, “the categories that these guys play in went from being not very good to very good during the pandemic,” Powell said. “The bike business was up 60% versus 2020, when it began to surge, and racquet sports sales were up 65% during the first quarter compared to 2019. The short-term fortunes of these categories are really good….
“One thing we know for sure from this pandemic is that all of the models we were accustomed to have [since] been disrupted and are now going through a massive alteration,” he added. “What [SSU] is doing has great potential and could be showing us the new way to do business [in the sporting goods industry].”
The business consists of two parts. The bulk of corporate revenues (more than 98%) comes from the operation of highly specialized e-commerce shops across four categories (roughly, 15% of the products sold on the sites are private label, the balance come from third-party brands). But within the last year, the company has introduced a “technical and operational stack that powers third-party e-commerce businesses,” creating another revenue stream, Zoll said. The platform part of Signa Sports United’s business includes a white label e-commerce solution (the ATP is a client), “click and collect” services for offline retailers (think: brick and mortar mom and pop shop) and integration within the digital fitness ecosystem (think: Strava, Fitbit). While the company’s platform business only makes up 1.5-2% of revenues today, Zoll expects it to comprise 15% within five years.
SSU’s four categories are biking, tennis, team sports and outdoor activity (63% of revenues come from the biking category). Each vertical was chosen because it both makes up a “large chunk” of the total sports retail market and is growing as well as or better than most sporting goods categories (think: 6-8% YoY). They also all have a product to anchor the company’s sales efforts (think: a bike, tennis racquet or backpack). The logic is “if you nail that [anchor] product for the consumer, you can sell them all kinds of parts and accessories around it,” Zoll explained.
SSU’s bespoke approach to e-commerce (think: helping the rider find the right-sized bike frame), their large product selection (see: 89% of the bikes on their site are not available on Amazon) and ancillary service offerings—such as racquet stringing and bike assembly—help the company “nail” that anchor sale. Their holistic approach has also helped to differentiate the company from the general sporting goods stores and smaller specialty retailers that have historically dominated the categories.
Zoll says SSU has become the largest company within each of the four categories by both growing the business organically (i.e. providing a better shopping experience than the competition) and inorganically (i.e. M&A). Still, he believes there is tremendous opportunity for organic growth in the European market because “there a huge consumer shift going on from offline to online [there]. Consumers used to purchase their sporting goods in the brick-and-mortar world. [Now,] they are increasingly doing so online, and that’s our domain as the leading e-commerce and tech platform.” He also suggested there is organic growth potential in the U.S. (the market share they currently maintain in the States was achieved through a pair of acquisitions within the tennis category).
Of course, the continued acquisition of specialty players will also be part of the company’s short- to medium-term growth plan (hence the need for capital). Powell said, “The cycling industry, in particular, is ripe for consolidation. You really don’t have a national player in bicycles outside of sporting goods retailers, Walmart and Target. When you get to higher-end bikes, [the only option is] really the local guy. While the retail tennis business is not quite as fragmented, there are still a lot of one-off tennis shops out there that we don’t see in a lot of other categories.”
It should be noted that tennis and biking are relatively small categories in the U.S. “It’s not like there are hundreds of thousands of people playing tennis every day. We are seeing more and more municipalities painting over their tennis courts so pickleball can be played there,” Powell noted. For perspective, the entirety of the racquet sports category is just one-tenth the size of the golf category. Incidentally, Zoll mentioned golf as a sport that fits the characteristics of a sector SSU would consider entering down the line.
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