Interview with Humphrey Cobbold, CEO of Wiggle
Over the past few years Wiggle has taken the worldwide bike industry by storm and has revolutionised the way we shop for our cycling gear. Humphrey Cobbold, the CEO of Wiggle took the time to speak to me last evening and share their story of humble beginnings, future ambitions and his views of the industry as a whole.
Can you give us a brief history of Wiggle and how it all started?
Wiggle is a genuinely lovely entrepreneurial success story. Wiggle wasn’t founded by great corporate titans with lots of money. It was was founded by two guys [Mitch Dall and Harvey Jones] in 1998/1999 who thought they’d sell things online. They weren’t really sure what they’d sell online but they thought this online selling was going to be interesting. The reason they chose the name Wiggle was because they didn’t know what there was to sell and didn’t want to be constrained by anything. They certainly didn’t know there was an Australian pop group called the Wiggles when they chose the name. They started off literally in a spare room in ’98/’99 and started selling anything that would sell. In the early days that included contraceptives, sex toys, vibrators….whatever would move. I’m not sure if you remember but in 1999 there was an eclipse of the sun. They shifted tens of thousands of little glasses that allowed you too look at the sun. They would sell whatever sold.
By chance both of the people in the business had some interaction with the cycle trade. In particular, one of the two partners bought a building in Portsmouth that had a bikeshop in it, and one of the requirements of buying the building is that they had to keep the bikeshop open for at least five years. They had some excess stock at the back of the store and so he tried putting that online and seeing if it sold, and it sold pretty well.
We take all this for granted now but if you remember 1999 or 2000, that was the time of 28k or 56k dial-up internet access and it would take a minute and a half for a product page to download in those days. You had to be a pretty committed consumer to want to shop online. It was like sucking jelly through a straw. You didn’t get very much for the effort you put in.
It very easy for people to say it was obvious and easy, but it wasn’t at all. These guys were wackos in doing this. But they kept going and their original idea was that they’d build the business and if they turned over a million pounds and if they made a little bit of profit that would be great. In those days a really good bikeshop turned over 500,000 pounds in the UK, so that was a pretty aggressive target they thought.
They worked very hard to build the product range with brands. They started with no brand relationships and we now have 500. On average we bring a brand to the business every week for the last 10 years. That’s the source of momentum we had to build up and doesn’t just happen overnight. They build the business up and in 2005/2006 they realised that they needed bigger premises and that they wanted to realise some money from this, so they brought in a private equity group [ISIS Private Equity] who brought 40% of the shares from the original founders. They brought in a senior chairman and some more management who supported the business to continue to grow and develop.
In 2008/2009 one of the founders left the business entirely and sold all his shares. He just wanted to do some other things. The other founder didn’t want to go on running it anymore. It got bigger than he was used to and comfortable with and wanted to find a new Chief executive. So I was hired in 2009 with a specific brief to take on the business, continue growing it overseas in particular, and prepare the business for a change of ownership from ISIS to a new partner or ownership model in 2011/2012. And that’s what we did last year.
What is the sale to Bridgepoint going to allow the business to do? (Wiggle sold to Bridgepoint at Christmas 2011 for £180M) What type of growth targets will that enable?
We’ve grown strongly over the past few years. If it can continue to maintain something close to that rate of growth that would be a success. Growth gets harder to achieve as you get bigger. We had 30% of revenue last year and had to add new warehouses to have the space to deal with it. It’s not like you just grow within your given facilities.
The Bridgepoint investment will allow us to do what we’ve been doing, which has been developing the business. We don’t have to plow very much money into the business to grow, we don’t have to open 25 new stores every year or something of that nature. We invest a bit more on stock, we spend more money on marketing, we invest in people. We grow the business in that way. We probably will open a few stores but they would be funded largely within the businesses own ability to generate cash. What Bridgepoint gives us is a financial foundation to build over the next 5-7 years which gives us a very clear runway to continue developing the business.
In 2007 you turned over £17M in sales, 2009 £33M in revenue, 2010 – £55M and in 2011 – £87M….That’s between 50%-100% growth per annum. How big can it get?
That’s a really good question. I think it can get quite a lot bigger. Let’s talk about the market size that we operate in. The UK is about a £1.5B market, the Australian market is estimated somewhere between £600M and £1B. The worldwide market we operate in is about a £25B-£30B market. We’re still a very small player in the context of a very large market.
In Australia people say we’re a huge factor but we have below single digits market share in Australia. But we’re not big in the context that Rebel Sports is in Athletic footware and clothing, they’re a 30% market share player. I don’t think we’ll get to that, but there’s plenty of growth for the business. Our plans are very open. We want to build this into a business that’s north of £300M in turnover which is the next target worldwide. I don’t see it stopping there. This is a business that can keep on growing.
When do you see yourselves reaching that £300M target?
I think five to six years out. You don’t triple a business’ size in the matter of three years easily. You can grow too quickly as well. If you grow too quickly you grow beyond the business’ capabilities to execute and deliver customer service, and then you undermine what you want to do. So there’s an optimum rate of growth. Too slow is a problem because my investors give me a hard time, and too fast is a problem because we’ll screw up on what we’re doing for brands and we’ll undermine what we’re trying to create – which is a long-term sustainable enterprise.
I see that recently you’ve added Chinese and Russian locals and languages onto the Wiggle website.
The last time I looked there were 1.5 billion Chinese speakers in the world who are getting wealthier at an alarming rate. You don’t need many of them to be keen runners, cyclists or triathletes to believe that they’ll be looking at the brands on our site. That’s why we’ve done it. We have two people out in China next week negotiating local arrangements with local search engines, paying providers, logistics providers, so that we can get the basic fabric of being able to trade properly in those countries. We’re trading well in those countries but mainland China, Singapore, Taiwan, Hong Kong…those are all exciting opportunities for us.
You touched briefly on keeping shareholders happy. Do you personally still own shares in the company?
I invested a substantial amount of my personal wealth in the business and the whole of the management team are substantially tied into and financially committed to the business. This is absolutely the skin of the game environment. We’re owners and managers of the business and we take that very seriously.
Do you see a risk of becoming a “faceless” entity with all your business being done online?
The quick answer to your questions is yes, there is a risk of that. So how we’re catering to that, we have three or four elements that specifically pertain to that. One of the things we’ve done most of in the UK and looking into Europe and Australia is events. Events are a very powerful way for people to come and feel like they’re interacting with Wiggle. We’ll be running 44 events this year. Cyclo Sportifs, mountain bike events, running and triathlon events, that we want to sponsor and be very actively engaged in. That’s route one.
Route two is we’ve put a lot of effort into social media and connections in the past year to eighteen months. Facebook, Twitter and a range of other platforms we’ve been building social media activity. Sydney is our largest social media city in the world. There’s been good pick-up from people in Australia.
The third thing we’ve been doing and we’re really open about this is we’re kicking off in the next week a process to create the first Wiggle stores in the UK. People tell us that they love Wiggle and they’d love to shop at a Wiggle store. If we do a Wiggle store the way we’ve done the Wiggle website they think we’d do it really well. There’s an economic rational to do it as well. And we’ll certainly do that in countries outside the UK.
And finally I think we’ve reached a stage and a scale where it’s absolutely right that we should be putting something back into society and community. Later this year we’ll be launching a program of charity support and interaction. We’re not just doing it because it’s nice but we think it’s an important part of what companies do that have a real soul. This is a company with real soul, presence and enthusiasm to it. We have to find a way of communicating that to people. And it’s good for businesses to make a contribution. We’re talking to a large medical charity who does fantastic work and does a lot of good cycling and sports related fund raising as part of their activities and we think we can make a real difference to that. There are also some global charitable activities in the cycling arena that we’re looking at supporting as well and that will be developed before long. We have a couple of contacts within Australia and I think it’s important that we localise some of the contributions that we make within local markets.
You make a very good point. It’s important that we don’t become a faceless computer screen. This is a business with heart. I know it doesn’t always come across as a business with heart to local retailers in Australia, but we do. And we do care about people participating in our sports and what else is going on in our world.
You’ve opened up Service Points in Australia. Can you describe how those work?
It’s a very simple model. We wanted customers who buy either whole bikes from us or componentry who may need or want guidance on setting those up to feel like there’s some in that place who they could go to. We’re well aware that your average local bike shop feels aggrieved about Wiggle and at times have turned customers away who have bought things from us. We’re aware of that. We don’t think it’s particularly sensible by those retailers. We’re not planning on going away so they may as well make some money out of people who are buying things from us. But if that’s their decision then fine. We wanted to create some connections with retailers who took a different point of view. That was the simple rational and we got those set up. It’s early days but we’re seeing customers take bikes in for service and hearing some good feedback about some of the experiences they’ve had.
You spoke about opening up physical retail outlets. If you were to do that in other countries such as Australia, does that not take away your competitive advantage? How do see the economics of that working?
The economics of operating a store are very different than that of operating an online business. I’ll be clear, the economics of operating a store are not as attractive as the economics of operating an online business. However, they bring other advantages. They bring customer connectivity and direct relationships. The experience from online retailers and “distant selling retailers” (catalogues and mail-order) who’ve opened stores in general, is that you both acquire a number of customers who don’t start by shopping with you online started in stores, and your existing online customers buy more from you in stores and more from you online because they feel like they’ve got a stronger and closer relationship overall. So we will have to manage the economics of the stores carefully to make sure they’re operating profitable but we see them as part of a mix in seeing the overall relationship with the customers being most important, not just a narrow definition of the the economics of the stores being the only element of whether or not we’re successful with them.
One very important part in our market we have to be mindful of is that we have two very different businesses here. In the cycling goods market we have whole bikes, which are of a particular nature – very large and purchased infrequently. And we have parts & accessories – some are larger purchases and some are quite small and made frequently. We significantly under-participate in bike sales hence we’d expect our stores to over-participate in bike sales and larger elements. Maybe GPS units or wheelsets, those sorts of things.
What do you continue to find as barriers to selling into Australia?
There’s a principle barrier, it’s called 18,000kms or whatever it is. It’s quite a barrier. I’ll be quite honest, I pinch myself when I see the number of orders we get, not just from Australia, but from far away and across the world. We’re dealing with a very dedicated set of enthusiasts where some of them say, “I will take a chance on buying something from a retailer I’ve never seen, from far away across the world, I’ll give them my credit card details, and I’ll sit there for a week or so and hope the product arrives.” If you stand back and think about it, that’s quite a risk for customers to take on. That’s the single biggest barrier. Everything we can do to reduce the risk of that is a good thing. What do we do: we make payment methods as secure as we possibly can and appropriate to specific countries, we work very hard with the carriers – we get most of our airmail packages into Australia within 3 or 4 days. That significantly reduces the perceived risk of shopping with us.
We work hard on returns as well. We’re looking into local returns in Australia. It’s not right that we ask Australians to buy from us and if it’s not right then they have to post things all the way back to us in Portsmouth in the UK. It’s high cost and a pain in the neck.
You’re aware of the sentiment towards Wiggle from the local bike industry in Australia. Should they be worried? Is the current business model broken? (read a good post by CyclingIQ on the traditional supply chain of the cycling industry)
I’m puzzled by this to be honest. Should they be worried? I don’t know. It’s absolutely within the industry’s capacity to do whatever they want. I’m puzzled by Australia. Except for one or two exceptions, I’m puzzled why nobody in the industry had the entrepreneurial spirit or appetite to do what Wiggle and others in the UK have done. As I said, Wiggle is not coming from something where someone put £50M on the table and said go open an online business. We build from the bottom up, day by day trading, and doing the right things for customers. Anybody in Australia could have done that. Put aside that there are some justifiable concerns and the whole GCF question, I accept that there are some advantages we’ve got, I’ll get back to those. Those aren’t the factors that are determining why we’re being successful in Australia. The fundamental reason is the obvious fact that nobody in Australia has bothered to do it. Cell Bikes who are a good bunch of guys run by an incredibly entrepreneurial, non-industry person. You’ve got one or two others. There’s CyclingExpress, they come a bit more actively from the Azurri bike business. But the reality is that the industry tried to close down the internet. You know that and I know that. They were telling people not to sell online. They thought they could do it. I genuinely have some empathy for small retailers, but for the industry as a whole, you make your bed and you lay in in.
It’s pretty clear that customers like buying stuff online and having a broad range of products to choose from, better value and getting great customer service. We’re fulfilling that need. People forget that we do a huge amount to stimulate cycling activity. You know how it is. They more you cycle the more you want to treat yourself to more gear to make it more fun. We all like the gear thing. The more gear you have the more you want to cycle. We’re stimulating that.
Also remember that we get huge amounts of traffic. We get good conversion rates for online shopping; 3-4% in Australia. But 96% of people come to our site and look at product and don’t buy from us on that visit. Most of them go off presumably and buy product in local stores. We’re providing a service where people can come and understand more about cycling products from what is said on the site and what people leave as reviews so you can make a more informed choice about what you buy – whether you choose to buy online or in store.
We hear lots of stories, and they all get blown out of proportion in my mind, of people who come into a store, try on a pair of SIDI shoes, and walk out and buy them from Wiggle. Everybody talks about that. Nobody talks about the dozens of customers who go in and review a product on our site and they’re very clear that they want to buy an Ultegra cassette, then go away and buy it from a store. The vast majority of what Australian consumers, and consumers in general on our site, is that they’re reading and learning about product and deciding what they’re going to buy next. Be definition they’re not buying from us. I know the trade complains endlessly about us but that element is completely lost. I know this works, because when the Garmin launched their EDGE 800, we did a dedicated global email campaign for them to all of our core cycling customers. They couldn’t believe how successful the launch was and what they put it down to is that people were coming into stores saying that they heard about this from the email activity that had gone out from Wiggle and one or two other retailers.
I understand that the industry tries to defend where it’s coming from, but what we’re really doing is driving a massive upsurge in interest for cycling products. Most of which will continue to be bought through stores. Of course what I’m saying is that stores should be thanking us rather than having a go at us, I know they’ll never do that. But if you think about making product information and understanding more available to obsessive enthusiasts, which is what we’re dealing with, they know they need to buy from Joe’s bikeshop, because they want to keep them in business. We have customers saying to us that they would buy more from us but they’re not going to because they want to keep Joe in business as well, and it’s embarrassing to walk in there all the time asking him to fit components I bought from you. He won’t be there if I do that. There’s a natural balance there.
I don’t think the model is dead. I do think in Australia that they need to look very carefully at the margin and pricing that people have been taking in stores; I don’t think that’s sustainable in the market. Australia has got too many stores relative to the number of people in the population. In the long run, good bike stores will continue to make good money and serve people well.