Backcountry made its first overseas investment last week by acquiring Bergfreunde.de, a rapidly growing online retailer poised to expand beyond German-speaking Europe at a time of rapid growth and consolidation in the continent’s e-commerce and sporting goods industries.
The deal provides Backcountry.com with a foothold in the heart of Europe’s much larger outdoor market, while providing rapidly growing Bergfreunde.de with access to capital and unparalleled expertise in how to scale their business. Near-term Backcountry hopes to help Bergfreunde.de pick up more brands, Backcountry CEO Jill Layfield told The B.O.S.S. Report. Long term plans include improving the German retailer’s fulfillment capabilities and launching websites to serve non-German speaking markets.
“They know the market more broadly beyond Germany, understand customers there and the nuances of the different geographies,” Layfield said of Bergfreunde, which translates roughly to “mountain friends.”
“They look to us for the ways we have differentiated our brand in the U.S. and operational excellence in merchandising, planning and fulfillment. We will evaluate where they are hitting roadblocks when it comes to scaling the business and what things are creating obstacles for them now that we may have already encountered.”
Backcountry.com’s roots are in backcountry skiing, but it has used acquisitions to expand into cycling, motorsports and now international markets. Layfield said Backcountry reached out to Bergfreunde.de in June after vendors said the retailer was doing a great job selling premium outdoor gear at full price on line.
“There is a lot of brand overlap, but a good chunk of their business is coming from brands that speak uniquely to the German customer,” Layfield said. “There is an opportunity to introduce some brands we carry to the German market and brands they carry to U.S. market. I would hope our prospective partners in Europe would be excited to work with us based on the experience we have built in the U.S. We love industry and are very much dedicated to providing a retail experience that sells premium outdoor gear and technical gear at full price.”
Bergfreunde.de co-founder Martin Theben said he looks forward to working with Backcountry to create a richer customer experience online. “We have always admired Backcountry’s robust community and focus on remaining authentic within the outdoor community,” said Theben.
A huge, but fractured outdoor market
Online retail has been slower to catch on in Europe than the United States, particularly in the specialty outdoor space, due in part to the fractured nature of the market. While The North Face and Germany’s Jack Wolfskin are emerging as pan-European brands, category leaders tend to vary from country to country due to consumers’ preferences for domestic brands. Online sales have accelerated, however, as vendors have sought to mitigate credit risk by partnering with a handful of well-financed pan-European e-commerce sites. (See sidebar below.)
Excluding motorsports, Layfield said research gathered by Backcountry indicates Europeans spend $13 billion annually on products it sells. That’s more than twice what Americans spend.
“I think Ecommerce market has lagged the U.S. in terms of innovation, but it’s rapidly catching up,” said Layfield. “I think the European outdoor industry is ready for an evolution of the experience around content and community.”
In August, the market research firm Mintel forecast that online retail sales in 19 European countries accounting for 95 percent of the continent’s retail spending excluding Russia, will double to €323 billion euros ($428.51 billion) by 2018.
Building a global e-commerce business
SGB magazine estimates Backcountry.com had sales of $350 million in 2012 and the company claims to be the largest online specialty retailer of premium outdoor gear. The company acquired CompetiitiveCyclist.com in August, 2011 and expanded into motorsports with its January, 2013 acquisition of MotoSport.com. It also operates dogfunk.com, SteepandCheap.com, WhiskeyMilitia.com and chainlove.com.
Backcountry is part of the $1.5 billion Ecommerce group at Liberty Interactive Corporation, which also owns QVC, Bodybuilding.com, Motosport.com, Provide Commerce and other businesses. While Liberty Interactive does not break out sales for those companies, it has disclosed that Backcountry’s margins have been squeezed the last two years by rising paid search costs and discounting of snow sports gear in the wake of unfavorable winter weather. Liberty Interactive Corp. announced plans in October to launch two new tracking stocks in early 2014 that will enable investors to track the performance of its much larger and more profitable QVC-related business separately from its Ecommerce Group.
The Pan European Scramble
October, 2013: Ontario Teachers' Pension Plan joins list of heavy weight investors buying stakes Zalando.de. The retailer broke the €1 billion revenue mark in 2012 – just five years after it was founded – by expanding from Germany to the rest of Europe. Zalando is considered Europe’s leading online retailer of fashion and sporting goods.
June, 2012: Zumiez Inc. agrees to pay €59.5 million plus earn outs to acquire Blue Tomato, which operates online stores in 14 languages and is reputed to be Europe’s largest action sports retailer.
December, 2011: Private equity firm Bridgepoint Capital acquires UK-based online bike retailer Wiggle from Isis Equity Partners for £210 million, or approximately 12-13 times earnings and says it will help the company launch 11 new websites overseas.