"Backcountry" Sold in a Near-Bankruptcy Exit...

[Latestart]

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Author: Eoin Comerford, Industry expert...

According to Pulse Ratings Inc., Backcountry (BC) has been sold to CSC Generation, a roll-up of distressed retailers like Sur La Table, One Kings Lane and more. The transaction took place in August but has been kept very quiet. In fact, the first outdoor media to cover the story was the Rock Fight Podcast with Colin True.

Prior to 2019, BC had used its online leadership and gearhead strategy to drive $1B in revenue and private equity owner TSG Consumer Partners was asking for close to 1X revenue from potential acquirers. Fast forward five years and, after selling off valuable European subsidiary Bergfreunde to DECATHLON FRANCE late last year, TSG has ultimately sold off the remaining BC assets for pennies on the dollar and a fraction of its $350M purchase price back in 2015.

So what happened? Ultimately, BC fell victim to many of the same challenges facing the whole outdoor industry, combined with the ecommerce profitability squeeze created by ever-increasing marketing and shipping costs… challenges with which I can certainly sympathize.

But the key issue was that TSG wanted BC to follow the playbook that drove the success of its other big ecommerce investment: REVOLVE, i.e., use fast fashion techniques to build out multiple private brands that sell at high margins. The private brand strategy led to a number of self-inflicted wounds:
1) In 2019, to protect the core Backcountry private brand, BC decided to sue any small outdoor brands and retailers that had “backcountry” in their name. This drew huge consumer backlash and lead to the firing of the CEO.
2) The fast fashion launch of multiple private label brands (Backcountry, Basin & Range, Stoic) drove very wide assortments but poor customer reviews for fit and quality. Ultimately, much of the line had to be liquidated at 60-80% off.
3) To drive sales of the private brands, BC embarked on a physical retail roll-out in expensive, glitzy retail developments like The Grove in Los Angeles or Stanford Shopping Center in Palo Alto, CA. Merchandised like outdoor boutiques, the stores were primarily filled with BC’s own brands with just enough other brands and gear sprinkled in for a little "authenticity".
4) In another effort to drive sales, BC attempted to sell its brands to other retailers, taking out a booth at Outdoor Retailer. I’m not sure if they made any sales but the general industry reaction was not positive.

It will be interesting to see where CSC Generation takes Backcountry. Continue to lean into the private brand and physical retail strategy or go back to the gearhead roots that made BC such a staunch competitor back in the day?

There are a lot of really fine outdoor lovers that work for Backcountry. For their sake, and the sake of the overall industry, I hope that the new ownership can return BC to better, healthier place.

[unterhausen]

I bought something from BC once, in 2018 I think. They were very tolerant of a mistake I made. Haven't had a need to order anything since, so I lost track of them. I only vaguely remember them suing people, which would definitely have me looking elsewhere for my purchases.

[prototoast]

Originally Posted by unterhausen

I bought something from BC once, in 2018 I think. They were very tolerant of a mistake I made. Haven't had a need to order anything since, so I lost track of them. I only vaguely remember them suing people, which would definitely have me looking elsewhere for my purchases.

Backcountry owns Competitive Cyclist, which is a place many more of us have likely purchased from.

[.RJ]

has private equity ever done anything good for a company

[klink]

Ordered a pair of R8000 hydraulic calipers from them a couple years back. Box included a bonus XX1 cassette. Was pretty happy about that. But doubt it's good for business.

[Tickdoc]

Originally Posted by .RJ

has private equity ever done anything good for a company

Imma say no. In my industry, Private equity allows the owners a fast exit, while eroding what made most of these companies great to begin with.

It's a cancer of democracy, IMO.

[ap_az]

I've spent quite a bit of money with BC and CC over the past 5 years, but as they evolved my spend went down. I always appreciated that they held a reasonably deep inventory and staff who were somewhat knowledgeable if I ever needed a question answered.

In the past year or so the quality of the staff knowledge has dropped a lot and their level of empowerment took a dive as well. In the end I just don't see a solid value proposition for the consumer so they don't get much of my money.

It's sad as if they hadn't gone down the growth at all costs route then they would likely still be thriving. They'd certainly be worth more money than they are now.

[redir]

I remember that causing a huge stir in my little Virginia town when Backcountry distribution center moved in. We had this little shop called Backcountry Ski and Sports in town since, I think, the 1980's and they closed down shortly after. Never bought anything from them because of it, even if it really wasn't related. They were bullies and no one like a bully.

[Mark McM]

Originally Posted by redir

I remember that causing a huge stir in my little Virginia town when Backcountry distribution center moved in. We had this little shop called Backcountry Ski and Sports in town since, I think, the 1980's and they closed down shortly after. Never bought anything from them because of it, even if it really wasn't related. They were bullies and no one like a bully.

There are other "trademark" bullies in the bike industry. The Specialized case against Roubaix Cafe in Canada was a particularly famous one, but Trek apparently leads the industry in bringing trademark infringement cases. They appear to the think the common and long used english language word "trek" was invented and is owned by them, and will go after anyone that uses the word "trek" in a title. For example, they went after Subaru after they introduced a new SUV they named the "Crosstrek", and they went after Cooper Tire after they named an off-road tire the "Rugged Trek".

[.RJ]

Originally Posted by Mark McM

There are other "trademark" bullies in the bike industry. The Specialized case against Roubaix Cafe in Canada was a particularly famous one, but Trek apparently leads the industry in bringing trademark infringement cases. They appear to the think the common and long used english language word "trek" was invented and is owned by them, and will go after anyone that uses the word "trek" in a title. For example, they went after Subaru after they introduced a new SUV they named the "Crosstrek", and they went after Cooper Tire after they named an off-road tire the "Rugged Trek".

lawyer tax is the new lantz tax?

[fa63]

I worked for Backcountry / Competitive Cyclist (CC) briefly during the pandemic, because I was curious as to what it would be like. They were allowing remote work at the time (I live in Atlanta).

Even back then, the people were nice but the culture wasn't great. I was amongst the top performers on the CC side of things, and even though I was doing great, they kept asking me to push things like stupid third-party insurance policies... I left after I told them to stop bothering me with those and they wouldn't

It was interesting to see that they stopped offering the insurance policies not too long after I left. I wasn't surprised though; as someone who studied statistics and probability at the graduate level, I made the case to the managers that there was no way the third-party company would survive with the prices we were charging and we should stop offering it before it leaves a bad taste in the customer's mouth. They didn't really care about what I had to say on the matter

[XXtwindad]

I’ve always had fantastic experiences with Backcountry.

[EB]

Generally the reasons that private equity exists as an investment category in the United States, and is so pervasive vs other kinds of investment, are:

1) leverage

Acquisitions can be made with borrowed money, structured as loans, bonds, and so forth, and those debts can be set up such that the assets and cashflows of the acquisition target itself are the collateral for the debt. This means that relatively small amounts of investor equity can be used to acquire relatively large companies. Without leverage, the PE model doesn't really work as the returns on ordinary equity investment aren't sufficient.

2) interest on debt is deductible on corporate tax - dividend payments are not

Typically equity owners would be compensated in dividend payments, but because interest payments are entirely tax deductible for the acquired company, acquired companies can safely pay much higher (often double) the interest that they could in dividends. This serves to increase the amount of leverage available, and incentivizes debt vs. equity investment structures.

3) tax treatment of carried interest in partnerships

Partners in private equity funds, hedge funds, venture capital firms, and so on are allowed under US tax law to invest the funds of their limited partners - not their money - and collect upside distributions from those investments as if were long-term capital gains on their own income for tax purposes. This is known as the "carried interest loophole" and there is an entire arm of the US lobbying industry devoted to protecting it in Congress. This creates yet another strong incentive for this kind of investment, since it effectively provides a salary that is taxed as if it were a personal investment risk that the partner made.

You will note that two out of three of these reasons are US government policy shaped by narrow lobbying interests.

Whether or not PE is good for US companies or not is hard to say - there are as many awful examples out there as good ones. Based on what I have seen, from a macro point of view, it is largely financial engineering that generally provides great returns for the PE firms, decent returns for their investors, and very little that is generally new or useful to the public.

[fa63]

There is a great series on Freakonomics on Venture Capital; highly recommended those who don't know much about VC to give it a listen.

The summary is: sometimes they are good, but more often than not, they are bad.

[fatsanta92]

Originally Posted by fa63

There is a great series on Freakonomics on Venture Capital; highly recommended those who don't know much about VC to give it a listen.

The summary is: sometimes they are good, but more often than not, they are bad.

Venture and PE are two different animals though.

However, a poor leadership team for both can impact a company negatively.