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Everything old is new again… How to value a retro

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I love seeing people dressing Retro with such style and class. When they wait on a train platform, heads turn and there is a sense of appreciation for the effort they have made to be different, special.

I live near King St Newtown that has a number of retro fashion shops so I know these people are not wearing old clothes tarted up. When they come into St Luke’s Op Shop and I try to sell them our pre-loved clothes, real Retros smile and politely decline. They know quality. They wait to invest in the Real thing.

But it was a different retro that captured my attention - the sale of Australia’s , born in a shop in Malvern Victoria way back in 1903 - to a Swiss Group that wants to market it into Europe and South America.

What’s happened to Malvern Star over the last 113 years that suddenly an overseas company wanted this ... our... classic brand? I started reading (1). It turns out that Malvern Star has been owned by private or listed companies where it became one brand of a ‘Sporting Goods’ business, so we can't get detailed financial information that usually tells us the product's life story.  

This is the hook from Pacific Brand’s annual report 2008 - the year it sold Malvern Star

                   

Why, then, would you sell a classic?

The more I read, the more I realised that the history of Malvern Star became the common challenge of a good ‘product’ getting lost in a growing range of new shiny, ‘can-do-anything-you-want-except-make-you-a-cup-of-tea’ products. A classic thrives on nurturing and innovation, not the addition of bells and whistles.

Malvern Star’s history also fits well with the Boston Consulting Model of portfolio management – this model is also a Retro (published in 1970). If only its owners had used this model to guide their strategy. Let's see how it works. 

                                   

The theory proposes that a new product needs to attract attention and grab market share. You need everyone to want one to justify further investment. Think of the TV program Shark Tank – the Sharks are looking for a question mark product with potential. Notice, though, the limit that the Sharks will invest - Question Mark products are high risk.

In 1903 Tom Finningan launched a bike business with his winnings from the Austral Road Race and helped fund the first Australians (Kirkham and Munro) to ride the Tour de France in 1914.

In 1922, 17 year old student Hubert Oppenham (Oppy), who delivered telegrams on his school bike, was attracted by the prize for the Cycle Traders 160km road race - a new £10 Malvern Star. He came third but caught the attention of the Malvern's new owner (Bob Small 1920) who offered him a role with the company and allowed him to race on a company bike. Oppy competed in the Tour de France (1928 and 1931) and won a total of 50 endurance road races, broke 100 records and by1945, there were 1000 Malvern Star outlets in Australia.

The theory argues that once your product has captured market share and proven itself, it needs a lot of investment and capability (nous, knowledge, innovation, commitment … obsession…from the owner). The risk is that an owner wants the financial return - a quick buck (well, lots of them) - more than owning the product. 

Malvern Star held its international performance status when Sid Patterson won a world sprint title in Copenhagen in 1949, then Ian Browne and Tony Marchant won a gold medal on a Malvern Star tandem at the 1956 Melbourne Olympics.

The company was sold to Electronic Industries in 1958 and Peter Bartels won a Commonwealth Games gold medal on a Malvern Star in 1962.

Dutch electronics multinational, Philips, purchased Electronics Industries’ bundle of businesses in 1970 and it didn’t take Philips long to realise that a bicycle business was not a ‘good fit’ within its core ‘electronics’ business strategy (surprise!). Thankfully Malvern Star was sold to Raleigh, the British bicycle manufacturer, in 1980. Was it a company that valued a Retro product? The risk is that the term 'Retro' as a stamp of quality assurance wasn't used then so maybe Malvern Star was just considered 'dated' especially as it lived with many other international brands, competing for attention and funds.

The theory argues that if you reduce your investment other aspects (especially innovation or business skill) will also drop. The product becomes a ‘cash cow’, churning enough return-on-investment to justify keeping it to generate cash to invest in other businesses. The shine goes off the Star and talented managers will lose interest or move to another company.

While a brand can be owned by an overseas parent, the local business can survive if it secures the investment and strategic support of the parent. That becomes more challenging when the parent company is listed on the stock exchange and is pressured to focus on financial market performance.

External drivers can also take the shine off a Star. Apart from exchange rate deregulation in 1983, tariff reduction in Australia meant that the overseas parent companies sought to save money by moving manufacturing to Asia. Meanwhile, Malvern Star continued to be an international performer, though dismissed as a ‘standard bike’ when the Australian Team Pursuit team beat the much-favoured USA Team that expected to win with itslatest technology (carbon fibre) at the 1984 LA Olympics.

Changes in company ownership are also a risk to Cash Cows - Raleigh's parent company sold Malvern Star to Pacific Brands in 1992.  Was this a good move?

The theory tells us that, while the product might keep producing sufficient cash, it risks slipping to Dog status where the strategic choice is to massively invest to reposition the product back to Star status or sell it.

Pacific Brands started life as the Dunlop Pneumatic Tyre Company in 1893, an Irish brand in Melbourne that sold rubber boots, footwear and underwear. Pacific Brands was formed in 1985 and grew by acquisition to become a text book ‘conglomerate’ supplying the consumer product-driven domestic market. Malvern Star was in a ‘Sport’ division; just one of a lot of international bike brands competing for attention and investment.

Business strategy sped downhill. Following the 1987 stock market crash, US business school rhetoric pushed ideas such as ‘Stick to your knitting’ and ‘Sell non-core assets’ and financial markets wanted a stronger focus on shareholder returns in a now-global market. Businesses deemed ‘no longer core to strategy’ were sold.

Pacific Brands was bought out by private equity in 2002. The new owners closed down the out-of-date manufacturing plants, contracted production to Asia, sold off what it could, put the debt on the balance sheet and listed Pacific Brands onto the stock market in 2004. It struggled and continued to sell businesses.

Pacific Brands did appointed a separate product manager for the bicycle division in 2008 who stayed when the NZ bicycle family company, Sheppard Group in 2011, bought the low-profit bicycle division at a price equal to the write-off asset value. That’s basically saying that the whole range of bikes – and the business – were worth nothing. 

The theory warns us that, while the product might keep on keeping on producing sufficient cash, it risks becoming a dog where the strategic choice is to massively invest to reposition the product back to star status or sell it.

Pacific Brands started life as the Dunlop Pneumatic Tyre Company in 1893, an Irish brand in Melbourne that sold rubber boots, footwear and underwear. Pacific Brands was formed in 1985, becoming a text book ‘conglomerate’ by acquiring businesses or brands to supply the consumer product-driven domestic market. Malvern Star was in a ‘Sport’ division; just one of a lot of international bike brands competing for attention and investment.

Business strategy sped downhill. In the 1990’s, following the stock market crash, US business school rhetoric pushed ideas such as ‘Stick to your knitting’ and ‘Sell non-core assets’ and markets wanted a stronger focus on shareholder returns in a now-global market. Businesses deemed ‘no longer core to strategy’ were sold to placate ‘the market’.

Pacific Brands was bought out by private equity in 2002. The new owners closed down the out-of-date manufacturing plants, contracted production to Asia, put the debt on the balance sheet and listed Pacific Brands onto the stock market in 2004. It struggled and continued to sell businesses.

PB did, though, appoint a separate product manager for the bicycle division in 2008 who stayed when the NZ bicycle family company, Sheppard Group in 2011, bought the 'low-profit bicycle division' at a price equal to the write-off asset value. That’s basically saying that the whole range of bikes - and their brands - were of no value!. 

The theory suggests this move is the ultimate challenge, an investment Tour de France. You need to be managed by people who know how to run the business, have money for innovation and hopefully, the passion to maintain the peddle power. And are brave or perhaps… disruptive (in digital language).

Innovation-focused sporting company, Scotts Sport CA (Swiss) bought a majority share in the Sheppard Group in 2015. Sheppard allows its brands to keep their Australian store presence, Malvern Star keeps its product and general manager but more importantly, it gains access to the innovation, investment and strategic global clout of Scotts.

Scotts Sport website (2) shows that the company is breathtaking in its innovation and design and using content marketing to sell experience, excitement and opportunities for those of like mind and deep pockets.

Global CEO Beat Zaugg said (3) ‘I recognise the true benefits of partnering with such an established team of staff, retailers and existing brand partners, and I strongly feel we can continue to grow the current brand portfolio’. Some media reviewers lamented that yet another iconic Australian brand was being bought by an overseas company. Apart from the fact that it had overseas owners at other stages of its life, Malvern Star is now owned by a focused, edgy, entrepreneurial company that appreciates ‘zip and retro styling’, 113 years of international performance and has a plan for its future at home with the engineers and designers who’ll craft its future. 


FOR YOUR BUSINESS UNIT OR PROJECT

Two issues to consider:

1. How to keep a Star shining when your product is not a priority

It’s difficult to keep executive attention if there are many products and some are struggling. Your product can get lost in the crowd; it can become a cash cow and milked to provide funds for new products or initiatives.

Strategic imperatives include:

  • Finding the right product managers with strategic nous
  • Educating the executive about your business and products. This is a common lament of managers who have grown with a product or business and are then bought by ‘professional managers’ who have never run a business
  • Articulating quality and its competitive advantage. Don't take short cuts or 'paint over the cracks'. Real Retro customers (like Scott Sports customers) will pay for innovation and quality.
  • Developing a detailed annual budget that always includes expenditure on some form of innovation. The budget becomes a tool to influence.
  • Designing a valid competitor analysis that is future focused. In ten years time, business will be very different.

2. Retro and quality are long-haul investments

In my experience it takes four years to turn a business around and then, with complacency or a lack of nurturing, three years for signs of cracks in performance to appear. By then you will be playing catch up. The looming challenge - apart from the digital reinvention of all aspects of business – is keeping a great manager who has to a strong team succession plan. Staff churn will become a business risk.

Two questions to ask:

  • Are you innovating?

You don't have to leave innovation to engineers and designers. Put 'small i' innovation in performance plans to require everyone one to innovate in some way: to do something be more efficiently, more effectively or develop new ideas. Remember that MIM used to required 70% of annual budget revenue to come from new products. 

  • Are you succeeding? 

In this time of rapid change and a focus on (employee's) self, rather than the customer, succession plans should be a priority for - a KPI of managers to ensure that the business is able to continue without them. So capability is not so much about individuals but the shared skills, shared learning and forward plans. 

Fortunately for , its long-term general manager Michael Howes and product manager Steve Paraskevas, continue to nurture it with, it seems, the right parent. 


(1) https://web.archive.org/web/20110225211557/http://bicyclehistory.com.au/MalvernStar/from_bikes_to_brands.htm

(1) https://web.archive.org/web/20110225211631/http://bicyclehistory.com.au/MalvernStar/malvern_star_timeline.htm

(1) http://collections.museumvictoria.com.au/articles/2065

(1) Malvern Star goes retro to get back on its bike; Simon Evans AFR 23 March 2016

(2) http://www.scott-sports.com/us/en/company/history

(3) press release: www.scottsportca.com

(4) www.malvernstar.com. au

For education purposes only

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