CEO of Rapala VMC: ‘The painful Shimano divorce has proved to be a blessing’
The challenges of the pandemic were made doubly difficult at Rapala VMC thanks to an ambitious strategy already in motion to reconfigure the business. But, says CEO Nicolas Cederström Warchalowski, it is now in a powerful position to let loose – with Okuma and 13 Fishing filling the gaps left by the ending of Rapala’s long-term distribution deal with Shimano.
Financial results at Rapala VMC for 2021 show an exceptional turnaround. What have been the major factors behind that?
After having navigated carefully around a tight obstacle course, with steep ravines on both sides for some time, 2021 was an exhilarating year. With our new ONE RAPALA VMC operating model in place, helped by the strong tail wind from the ongoing surge in demand, we could now tell our team members to ‘hit the pedal to the metal’ and listen to the powerful Rapala VMC engine firing on all cylinders. Catching some wind in our hair again, reaping the first rewards of our new brand-centric business model and breaking some all-time-high financial records felt great. No team deserved this more after years of difficult re-construction work. I am especially proud of all our junior managers who were promoted into larger roles – they really stepped up and made us all proud.
You are one of the few CEOs who talks about his team having fun. How important is this to the success of the business?
It was hard for me to watch our team go from years of difficult re-construction work straight into overcoming a world pandemic. The health and safety measures in place during the pandemic were at times quite gruesome, especially in our production units, and over the last two years it has been more needed than ever before to inject a fresh new spark and a bit of fun whenever possible. Nothing in life happens without energy and nothing brings more energy than having fun at work doing your dream job. To see the smiles back again on our team members is, I believe, closely related to our product development and innovation (PD&I) pipeline filling up again with more creative launch ideas.
Why have you experienced a second half downturn in each of the last two years?
Both 2020 and 2021 have abnormal swings within the respective years due to inventory and order fulfillment effects. I would not read too much into this. To get the best possible insight into how Rapala VMC has performed over the past two years it is instead better to analyse the full year financial results. Compared to several of our competitors, we are blessed with not only a strong Spring/Summer business, but also an industry-leading ice fishing and Winter business. We see great opportunities for growth across all seasons.
How much of a problem will supply chain issues be going forward and how will you deal with it?
With Rapala VMC owning the full value chain for most of our group brands, we believe that the supply chain disruptions are manageable and perhaps even to our advantage compared to some of our competitors, who are more reliant on external suppliers. We have an amazing sourcing office in Taiwan with 55 team members working closely with our external suppliers in a true ‘win together’ mentality. Also, having a leaner product assortment, a less complex distribution centre set-up and improved sales and operations capabilities has improved the order visibility and helped minimise supply chain disruptions up to now.
How long will the termination of the distribution agreement with Shimano continue to impact on Rapala sales now that you are putting your own distribution networks in place?
Shimano will continue to impact our sales in both 2022 and 2023, but thankfully to a lesser and lesser degree. In hindsight, the painful Shimano divorce really proved to be a blessing in disguise for Rapala VMC in that we had to do some much needed soul-searching to devise a new sharper, brand-centric model. Several of our distribution units already sell a much leaner product range consisting of 100% group brands, compared to earlier levels of only 20% for some of our third party brand-centric distribution units. Even though some top line had to be sacrificed, these new brand-entric distribution centres already deliver a higher bottom line – and from day one in some instances. Importantly, our new operating model ties up far less capital and, having paid off our expensive hybrid bond in November 2021, our balance sheet is stronger than ever before.
Conversely, what are your growth expectations for the Okuma launch in Europe?
They are huge! And we really put our money where our mouth is because Okuma marketing investments in 2022 will be significant. Given the encouraging pre-orders into the 2022 fishing season, we have just taken the decision to up the Okuma marketing investments even further. Okuma is poised for success and the assortment width and depth is mind-boggling. To fill up the empty holes that the Shimano departure left in our European rod and reel showrooms is so satisfying and a real game-changer for our entire group. Okuma is hitting the ground running in 2022 and we look forward to taking the brand to the heights that it deserves in Europe over the coming years.
Which product categories will be at the forefront of Rapala’s sales in the next two to three years?
With significant rod and reel capabilities after all the years with Shimano we expect them to be the number one contributor in terms of incremental sales. 13 Fishing has taken market share in the ice fishing and baitcaster markets outside of the USA and we will continue to build on this great momentum. Okuma has already begun to move the needle in our group due to the wide range now added. In our core category of fishing lures, we are upping our expectations after some years of more stagnant sales behind our renewed focus on product development and innovation. Also, our flagship brand Rapala has significant unrealised potential in both existing and new categories. I am happy to see the PD&I pipeline filling up nicely for our the Rapala brand again.
Rapala has also made sustainability a key element of its strategy. What comes next in this plan?
You have phrased it exactly how we view it. At Rapala VMC, sustainability is not a supplemental strategy but should instead be integrated into everything we do. Rather than having separate sustainability meetings, I want our managers to add sustainability to their normal weekly and monthly meetings. We just published our sustainability report and proudly noted that some sustainability targets were reached a few years ahead of plan. Despite this, we still have a long way to go. Our next aim is to bring more sustainable products to the market faster and make it easier for consumers to choose products in our range that are more sustainable than others in a transparent way.
You recently said that the ‘transformational growth journey is only just beginning.’ So what is next for Rapala VMC?
We are busy preparing all team members for what is around the corner. Normality will return to the sportfishing industry and Rapala VMC needs to be well prepared for this.
Then, double-digit growth rates will again only be achieved by brands and companies that are able to win market share from fierce competition and demanding consumers. What is next for Rapala VMC is to continue having fun combined with continued hard work to trim in our new operating model. We are in the recreational fishing and outdoors industry. We are selling passion, enjoyment and a lifestyle and this is something that we live by. With this approach we will be strong enough to capture significant market shares in ‘normal-plus’ market conditions and become capable of supporting additional group brands.