Flight Centre: travel agent turns bicycle retailer

Founded in 1981 by Graham Turner, Flight Centre today, Australia s largest travel agency is an extremely diversified group of companies. Amongst its portfolio of 36 mostly travel-related brands, a bicycle division is taking flight.

It s been a bumpy few years for the Australian bicycle industry. Whilst large companies like Pacific Brands are divesting their bicycle units, Flight Centre continues to believe.

Publicly listed in 1995, Flight Centre Limited s (FLT) annual report for FY2010/11, published 27 September 2011, showed well over half the company s global total transaction value (TTV is a measure of ticket sales before agent commissions, fees, etc, are deducted) of AUD12.2b was generated through its Australian-based business units, with record profit-before-tax (PBT) of AUD213.1m. In summary, FLT has navigated three decades and associated headwinds to become an enormous, profitable, multi-national corporation. But let s back up a few years.

Contained within FLT s FY2007/08 annual report, published 02 October 2007, a section titled acquisitions strategy foreshadowed a future move into niche products or services .

Five months prior to the release of that report Matthew Turner, Graham s 27 year-old son, opened 99 Bikes , a small bicycle retail outlet in Brisbane s inner-city suburb of Milton. According to a now-disabled about us page, the name was chosen as only 99 bikes could physically fit into the store [Cycling iQ note: A recent report in Brisbane Business News quoted Matthew as saying the name was chosen because it ticked all the boxes ]. Initially bankrolled by his wealthy father (the 2011 BRW Queensland Rich List valued the Turner family at AUD351m), Matthew opened two additional 99 Bike stores in Q4 2007 and Q2 2008, respectively.

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In May 2008, FTL issued a statement to the Australian Securities Exchange, announcing it was to acquire Advance Traders Pty Ltd, the Brisbane-based bicycle wholesale company that held an exclusive distribution license for the Merida brand of bikes. Of note, the statement also mentioned that joint-venture (JV) discussions with Gainsdale Pty Ltd parent company of 99 Bikes were underway.

In the background, Australian Business Register (ABR) records show Pedal Group Pty Ltd was registered as a private company on 25 June 2008.

The sale of Advance Trader s assets to FLT was finalized on 30 June 2008, at a cost of AUD1.145m. Two months later, on 31 August 2008, FLT invested into 99 Bikes. FLT issued a statement saying that Graham Turner was kept at arm s length during the JV discussion lifecycle, given Gainsdale is the private-investment vehicle of Graham and his wife, Jude.

Pedal Group Pty Ltd materialised as the JV platform and Advance Traders was rolled into the group alongside 99 Bikes. Pedal Group s ownership was thus split three ways FLT with a 50% share, Gainsdale Pty Ltd with a 25% share and Matthew Turner with a 25% share.

So, in the space of 18 months, Matthew Turner had thought of a business name, opened three stores, co-invested with a colossal publicly-listed company and now owned 25% of a wholesale company, too. Not bad!

In spite of a pitchy global economy, Pedal Group recorded bumper revenue growth. Advance Traders FY2009/10 revenue grew 100% (year-on-year), whilst 99 Bikes recorded a solid 70% increase in turnover for the same period. Profitability was impacted with the opening of three more 99 Bikes retail outlets all based in Queensland between 01 July 2009 and 30 June 2010, bringing the total to six.

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FY2010/11 results show Pedal Group s turnover increased to AUD22m. Further retail expansion meant an Earnings Before Interest and Tax (EBIT) loss of AUD100,000. Matthew Turner revealed that 99 Bikes turnover for the FY2010/11 period was AUD10m, suggesting the Advance Traders business unit was responsible for the remaining AUD12m turnover.

Now boasting 11 outlets (including two in Victoria and the most recent in New South Wales) and a nationwide online store, 99 Bikes has a 10-year objective of 50 stores and AUD120m annual turnover.

This is an ambitious target; especially given many major brands (Giant, Trek, Specialized to name a few) have directly entered the Australian bicycle market with high expectations. Some very basic (and assumptive) maths highlights the challenge:

Bicycle imports (FY2010/11) into Australia = 1,400,000 units Extrapolated linear annual growth of bicycle imports = 50,000 units Bicycle imports (FY2020/21) into Australia = 1,900,000 units Percentage of total imports as adult (not toys ) bicycles = 60% Total available adult bicycles to sell in the AUS market (FY2020/21) = 1,141,000 units Assumed average retail selling price per unit = AUD1,000 Total AUS market value of all imported adult bicycles = AUD1,140,000,000

99 Bikes FY2020/21 revenue target as percentage of total AUS bicycle market retail value = 10.5%

Now, obviously, this doesn t account for revenue from bicycle repairs/maintenance, parts/accessories sales, export-derived online sales (if the online store gears up for international sales), value-added services (travel), inflation, etc.

If we assume complete bicycle sales only accounted for 50% of its total revenue, 99 Bikes 10-year goal would represent a more modest 5% market share. If it s possible at all, there s no shortage of funding.

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Supplementary information:

Pedal Group Pty Ltd has a 100% shareholding in 99 Bikes and a 100% shareholding in Advance Traders. FLT s FY2010/11 carrying value is AUD1,444,000, compared to AUD1,818,000 and AUD1,939,000 in FY2009/10 and FY2008/09 respectively.

Gainsdale Group portfolio includes:
Spicers Group of luxury Retreats, Hotels & Lodges
Tailwind Promotions events company
Francis Leon retail store and national wholesale fashion brand Hidden Peaks Walks luxury guided hiking tours

Two 10,000+ acre cattle stations

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