Daybreak - Why Cult.fit wants to be more like Decathlon

Episode Date: April 30, 2024

In the last decade or so, French retailer Decathlon has managed to completely change how most of us shop for anything sports and fitness related. It replaced mom and pop sports stores by becoming a one-stop shops for all things sports and fitness related. Cult.Fit wants to pull off just that with the help of its in-house athleisure and fitness equipment brand, Cult.sport.But it doesn’t help that it’s been a pretty rocky ride for Cult.Sport this far. The brand hasn’t really taken off the way Cult had hoped. So with its heart set on an IPO, is Cult’s retail project a good idea? Or could it just end up being a distraction?Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcast, you've probably heard me, my interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission. We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture,

how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd.

To get an alert as soon as we release our first episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. In the last decade or so, French retailer Decathlon has managed to completely change how most of us shop for anything sports and fitness related. Think about it. Say you suddenly decide to take badminton lessons one day.

The obvious first step would be to get kitted out for the sport. You know, buy a basic racket, some shuttlecocks. Now, if you were doing this 10 years ago, you may have gone to your local mom-and-pop sports shop. But now, you almost instinctively end up at one of the decathlon's massive warehouse-style outlets. I'm going to delve into the decathlon strategy a little later in this episode, but like I'm sure you guessed from the title, this episode is not about the decathlon success story.

It's about a homegrown fitness unicorn that hopes to pull off exactly what decathlon did. I'm talking about cult fit. You see, like most unicorn startups, cult dreams of going public and soon. And to do that, sure, it needs to amp up its superstar product, its gym business. That's obvious.

But the company believes. it can only go so far with that strategy. We spoke to some senior employees and they said that the key to an IPO is flexing cult's muscles, pun intended, in the D2C space. Specifically with the help of its in-house at leisure and fitness equipment brand,

CaltSpot. Its dreams for the brand are pretty ambitious. To put it simply, like Culp Fit has become the Uber of gyms, the company wants CULT spot to be the decathlon of sports gear. But it doesn't help that it's been a pretty rocky ride for Kaltz sport this far. The brand hasn't really taken off the way Kalt had hoped.

So with its heart set on an IPO, is Kalt's retail project a good idea? Or could it just end up being a distraction? Welcome to Daybreak, a business podcast from the Ken. I'm your new host, Rahil Filippos, and I'll be joining Snigda every day. week to bring you one business story that is worth understanding and worth your time. Today is Tuesday, the 30th of April.

What do cult sport and decathlon have in common? Well, other than the fact that they both sell sports and fitness related products, not much. Let's look at where both brands stand. Decaathlon has over 100 stores in India and its sales are higher than Nike, Adidas and A6 combined. Kalt, meanwhile, only started setting up physical stores last year. It has about four so far. The brand's operating revenue is also one-sixth of decathlon's. So how exactly can Kaltz spot become a destination like decathlon rather than just a brand?

Well, to understand that, I want to zoom into what I call the full decathlon experience. Remember I started this episode by asking you to imagine a scenario, where you decide to take badminton classes. Okay, I'm going to need you to stick with me here. Let's take this badminton analogy to the next level. Imagine you're actually at your nearest echelon. Once you're there, you find the aisle with the badminton gear. You pick up an entry level racket

and toss a pack of 10 plastic shuttlepox into your cart. You then notice a great deal on a sturdy pair of sports shoes and think, what the heck? quite as well. On your way to the cash register, you see kids and adults trying out bicycles, playing ping pong, tripping over skateboards. You cross aisle after aisle selling just about everything sports and athletics related. Cricket, basketball, hiking, fishing, you name it. You pay for your items at one of Decathlon's self-checkout counters and you go home, happy and content, excited to pursue a new hobby. That is the DeCathlethala.

strategy in action. Yes, Decathlon has managed to get its pricing and marketing spot on, but it also manages to give its customers an immersive shopping experience every single time. All of these factors combined are what make DeCathlon a destination and not just a brand. And if you haven't guessed already, it's pretty hard to pull off something like that. cult is nowhere close at the moment. Remember, we are talking about a behemoth of the fitness industry that has higher sales than any major sports and athletics brand you can think of.

According to a former senior cult employee, cult sport is still very much a brand. But what does that mean? Well, to understand that, we have to first address why cult sport was created in the first place. Stay tuned. What's the first thing that comes to mind when you think about cult fit? Let me go out on a limb here and assume you're thinking about their gyms.

Or maybe their group exercise classes. Maybe even Ritik Roshan. That's because for most of us, when you think cult, you think fitness. And invariably, that means their gym business. That's because gyms are still the company's bread and butter. Most of its operating revenue still comes from its physical gyms. But that may not be the best thing for cult long term. You see, India's fitness penetration rates are not the best,

which means there is little scope for expansion into the market beyond Tier 1 cities. Cult realized this pretty early on, which is why the company diversified its business. It built brands in almost every health and health. fitness vertical you can think of. For nutrition, it had eat fit. For mental health services, it had mind fit. It even launched its own medical diagnostics business called CareFit. Some of these worked, others didn't. But none of them had quite the impact that the gym business did. Now, this is where cult sport comes in. Like I said, there is only so far cult can go with its

gym business. But the market for sports apparel and equipment is huge and it's only getting bigger every year. Cult recognized this and introduced cult sport. Its dream was to turn the brand into the country's next decathlon. It was introduced in 2019 at a price point slightly higher than decathlon, but way lower than legacy brands like Nike or Adidas. But the brand got off to a rather rocky start. A big reason for that was its pricing. Consider, for instance, the brand's initial foray into footwear. A former senior employee told again that the brand launched shoes at a steep price of around $3,000. But it didn't seem to work. The former employee said it was because the brand was seen as more massy than classy. So there weren't too many takers. As for the

other products? They didn't immediately take off either. So Cult had to very quickly return to the drawing board. Over the years, its pricing has improved considerably. While working on this episode, I checked out both Cult Sport and Decathlon's websites to get a sense of what they were offering and at what prices. To get a sense of pricing, I looked at one subcategory, men's shoes. Decaathlon had 264 options, while Cullspot had 244. From a pricing standpoint, the cheapest shoe on the cult website was for nearly 500 while Decathlon's was just under 700 rupees. Not too bad for Cullsport.

But of course, the brand still has a long way to go before it becomes the next decathlon. When I visited the Decathlon website, the first one of the first. The first thing I noticed was a sheer number of categories. It had categories based on every sport you can think of, from your run-of-the-mill racket sports like badminton and tennis to specialise sports like horseback riding and kayaking. Very early on, Kult recognized that it needed to diversify its products. This was when they realized they may have more luck with fitness equipment. At the time, Kult was in the middle of an acquisition spree.

Apart from acquiring a bunch of well-known gym chains, it also bought Tread, the maker of a premium peloton-like smart bike. And this segment very quickly took off. Kaltzport's revenue jumped over three times by 2023. Some current employees told the Ken that most of its revenue came from indoor fitness equipment like cycles and treadmills. But while yes, Kullsport's exercise cycles were selling, the gross margins were minimal because of high shipping costs.

So what does Kalt do? It increases its prices, which ended up being out of its target audience's reach. Like the tread bikes we just spoke about. They cost around $45,000. That doesn't really fit into the brand of Kaltzpot when you think about it, since it's meant to be more affordable. The market for fitness equipment is tricky for another big reason. Think about it.

How many people would be comfortable investing in an expensive piece of fitness equipment without trying it out first? There is a reason this is primarily an offline business. An online first approach doesn't always work. So cult had to venture into offline sales. As of now, it has about four physical stores all in Bangal with more on the way. Two of these very strategically have been placed. right next to DeKathlon outlets. A senior employee told the Economic Times last year

that the company plans to launch a new store every month. So it seems to be meeting its targets there. But even as Kaltzport slowly finds its feet, the company's identity crisis continues. The debate on whether Kaltzport should be a brand or a destination has been going on since its inception. But how does this fit into cult's IPO aspirations? More on that in the next segment.

Okay, let's take a look at where things stand for cult right now. After some intense post-COVID firefighting, things are looking up for the company. First and foremost, the primary gym business managed to switch from growth to profitability last year. The company also managed to raise another round of funding in February. With that, the company's post-money valuation stands at around $1.5 billion. Its other ventures, though, haven't been quite as lucky. 8-fit was hived off into an independent entity and operations were heavily scaled down for mind-fit and care-fit. Multiple employees told again that the big fear is cult sport will face the same fate.

The biggest crisis facing the brand right now is the recent. recent leadership vacuum. Since last year, at least three people at the top rung have either stepped down or are in the process of leaving. That puts the brand in a rather difficult position because constantly changing leadership usually means constantly changing visions. That could really get in the way of cult sports ambitious plans to become the next decathlon. And with its IPO aspirations? Cult can't afford distractions. Some former employees told the Ken

that they believe cult sport is just that. A distraction from cult's core brick and mortar gym business. On the flip side, now is the time for cult to think big. Like I said earlier in this episode, its core gym business can only take the company so far. Having a successful retail destination to its name,

could be just what cult needs. But pulling that off before the IPO seems unlikely. One thing is clear. Cult Sport really has its work cut out for it. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the Ken.com. and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippo's, produced by me Snigda Sharma, and edited by Rajiv Sien.