10 years for an overnight success with Mountain Warehouse

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Audio Transcript

Tim Smallbone

Hello and welcome to Inflexion Point, the podcast that explores those crucial moments in a company's journey that changed the trajectory of success. Through conversations with business founders and entrepreneurs, we'll explore what those moments look like and how to recognise and harness them. I'm Tim Smallbone and in my 20 years as a partner at Inflexion, I've been lucky enough to witness a huge number of those moments that are a part of every success story. In this episode, we'll delve into the journey of the visionary founder and CEO of outdoor clothing retailer Mountain Warehouse.

Mark Neale

It's been a very gradual process over a very long time and I think that's one of the benefits of being a founder, manager, of a business rather than being a hired in CEO for three years. It's the long-term approach. My wife calls it 10 years for an overnight success.

Tim Smallbone

Mark Neale founded Mountain Warehouse in 1997 after noticing a trend of people wanting to improve their physical and mental health by spending time outdoors. These people needed somewhere to buy affordable, outdoor clothing and so Mountain Warehouse was born. From opening the first store in Swindon almost 30 years ago, Mark has steered the business through a digital revolution, navigated international expansion, and weathered the challenges a global pandemic brought to the retail sector. Today, as a £50 million profit business with nearly 400 stores, Mark continues to steer the brand towards new horizons as CEO. Welcome to the podcast, Mark. Thanks for joining us.

Mark Neale

Hello.

Tim Smallbone

How did it all begin? Did you have work in retail before you came up with this idea?

Mark Neale

Well, after I graduated, I got a job initially as a strategy consultant, and I did that for about five or six years. But I'd always wanted my own business. And Mountain Warehouse was actually my 4th attempt to start a retail business.

Tim Smallbone

All clothing?

Mark Neale

First of all, this was 1994. I had four or five shops selling rollerblades, when rollerblades were very much of the moment. But I was worried that rollerblades weren't going to last forever so I sold those for a really small amount of money. I then had a shop for a while selling educational toys called Bright Sparks but that really was very, very difficult selling toys. I then had a shop selling greetings cards briefly. And then finally, two or three years after I started, I ended up with the business that's become Mountain Warehouse.

Tim Smallbone

Did you just stumble into the idea then of let's try clothing?

Mark Neale

Yeah, I met some private equity people actually who had recently bought the brand Karrimor, and they wanted to experiment with shops for Karrimor. And I'd tried my two or three formats, which had sort of some had been reasonably successful, but there wasn't really a big future out of them, and so I was looking for something to do, and so I teamed up with them and the business started actually opening shops for Karrimor on a sort of quasi-franchise basis. I didn't know anything about this sector at all, but I quickly came to learn that Karrimor on its own wasn't enough to sustain the shop, and so I started introducing other brands, Berghaus, Regatta, Craghoppers, other brands, and so it sort of became a house of brands, but still with Karrimor above the door in the very beginning.

Tim Smallbone

And as a house of brands is a model other outdoor retailers pursue, but you went a different way. Your first big inflexion point was where you started to create your own brand.

Mark Neale

Yeah, well, the reason it was a bit different was that we were very much at the discount end of the market, so the initial shops, including the very first shop, it was in a factory outlet centre. So the first shop was in the Mc Arthur Glen Centre in Swindon, and we were selling end of line last season, seconds, always at a discount. And so we were a bit different from all the other outdoor retailers in that sense. And we'd go to Karrimor, Berghaus, Regatta, all these other people and buy up all their surplus stock. And that worked quite well for quite a while until we got to about 10 or 15 shops, but then we started to run out of this surplus stock. The brands didn't have enough and it was really, really difficult for us to plan our ranges, we did well on footwear when the brands had surplus footwear.

Tim Smallbone

Yeah, when they got it wrong.

Mark Neale

Yeah, when they got it wrong, so if the season was bad, then suddenly there was a lot of stock available for us and that was quite good for us, but it was very hand to mouth and it was definitely not something that you know was particularly scalable. And so then in 2003, we started doing our own brand. And it was an inflexion point. In the beginning, it was really just to plug holes in the range. And so I just wanted to have a navy fleece in size large in stock the whole time. And I couldn't get that from these brands buying up their end of line and their surplus, so we went to China, we'd literally gone on a plane to China, went to see some factories and bought our first range of own brand product in 2003.

Tim Smallbone

So that change actually came out as a, it was a necessity. The business was sort of running out of road.

Mark Neale

Yeah, I suppose so, that's true, and it was an experiment, but it sold much, much better than we possibly imagined.

Tim Smallbone

You realised you were onto something.

Mark Neale

Partly because, we had sensible sizes and sensible colours, and we were making stuff that we knew our customers wanted to buy.

Tim Smallbone

That was branded Mountain Warehouse.

Mark Neale

Branded Mountain Warehouse. And, initially I thought that maybe we could get 10% own brand, but then it went quite well, we thought, this is quite good, maybe we can get 20% own brand, I never really thought we'd get more than half, but over a period, you know, five, six years, it just became the obvious thing to do was to gradually do more and more, and so for some of that time, myself and my colleague Chantelle, who's in charge of our product, we were going to China six times a year at some points to find new factories and to expand the range of our own brand products that we did. But what we found was that we could offer better prices to the customer because we were basically going direct, but we could also make better gross margins ourselves.

Tim Smallbone

And ultimately it became the point where you said, well, let's just forget it, we're just going to do own brand.

Mark Neale

Yes, so eventually it became 100% an own brand business.

Tim Smallbone

It sort of evolved from that necessity originally.

Mark Neale

Yes, exactly right, and we just sort of followed our noses really, and it clearly worked.

Tim Smallbone

And so from there it was expansion, store by store going across the UK.

Mark Neale

Yeah, so it took, I think, about 10 years really, from opening the very first shop to getting a business model that clearly worked, and my wife calls it 10 years for an overnight success. Because those 10 years were quite tough — I was in my late 20s, early 30s, I spent a lot of that time thinking, what am I doing here? Am I wasting my life, is this ever going to work? And all my friends from university were building their careers in, Goldman Sachs or KPMG, PWC. And I was sort of...

Tim Smallbone

Lonely entrepreneur.

Mark Neale

Lonely entrepreneur with my shops and my anoraks. And I'm wondering, was it ever going to work? And then after 10 years, you know, overnight success, suddenly everybody said, oh, look at this guy, he's come from nowhere, and everybody forgets about the previous period of soul-searching and trial and error and never having enough cash. The EBITDA of the business went from half a million to 2 million in less than a year. When you've only got half a million EBITDA, 2 million is a lot. So that was really quite transformational, and then that coincided with a real, I think it was sort of around the time of the financial crisis, a lot of people went bust, and so particularly in our case, Woolworths went bust and we ended up with six, seven, eight Woolworth's shops in some really cracking locations. And they are...

Tim Smallbone

That was an opportunity for you.

Mark Neale

So that was an opportunity for us, and they are still some of our best shops, you know, our shop in Keswick in the Lake District, Buxton in the Peak District, Fort William in the Highlands, St Ives down in Cornwall, they all used to be Woolworth's shops and that was... And we were only able to do that because the business model had finally come right.

Tim Smallbone

Did you benefit because you were on the up at a time when others were down, so it was relatively easy to get sites?

Mark Neale

I think we've definitely taken advantage of some of the challenges in the property market to get sites. And I think our position at the value for money end of the market has always, you know, has always been somewhere where I feel quite comfortable, so that if people haven't got an awful lot of money in their pocket, then coming to Mountain Warehouse is more affordable than going to some of our competitors.

Tim Smallbone

I'm sort of seeking what's the secret sauce. Is it the design, is it the merchandising? I wondered, it's obviously the sourcing is important, but what do you think is the magic?

Mark Neale

It's being close to the customer, really. We get the products made quite often in the same factories as, you know, other better known, more expensive brands. But we're selling them to our own customers only through our own shops and our own websites, so there's nobody in the middle of that chain, and that means it's a value for money, really. It's understanding what the customer wants, and then delivering it at the best possible price. At the best possible price, yeah.

Tim Smallbone

So how do you personally stay close to that?

Mark Neale

Well, I love the product and I spend, you know, not as much time as I used to, but because we've got such a talented and extensive team now, much better than I ever was, but I like staying close to that, and they know every time they show me something, one of the first questions is, I'm going to ask is how much are we going to sell that for? And so they come well prepared when they bring samples in to say this is going to be, this is going to be 20 quid and this is going to be 40 quid because the price that we sell it for is so important, it's surprising really.

Tim Smallbone

Sensitivity around price.

Mark Neale

The sensitivity around price is amazing. Selling something for £9.99 instead of £12.99, or selling something for £12.99 instead of £14.99, the difference it makes is remarkable.

Tim Smallbone

That's knowing your customer.

Mark Neale

Yeah.

Tim Smallbone

During that journey, you've started to go overseas. Did you decide, that's it, I'm going to take the business to Australia, or was it again, was that an opportunity when someone else went bust?

Mark Neale

Our first overseas shops really were in Poland, and we just opened a couple of shops in about 2010 I think. And actually, once you've done it, it's not that different from, opening shops in Scotland or somewhere else, it's just another, it's another place, another region, there are challenges around, VAT and tax and payroll and language and so on and tills, but it's not that difficult. And I suppose to some extent, because I started from scratch with literally one shop, then starting again from scratch in Poland with one shop or in Canada or in any of our other markets, it's sort of, it's slightly in my DNA personally and also some of my colleagues and so we quite enjoyed that.

Tim Smallbone

No, it's not just Poland, you're in the States and Canada.

Mark Neale

Yeah, we're in our biggest market now. We're, obviously after the UK, our biggest market is Canada. Our second biggest market after Canada is New Zealand , and then we're also in Ireland, Poland, a little bit in Germany, the US, and most recently in Australia as well, we've got five shops in Australia.

Tim Smallbone

And what do you notice in terms of differences as you go into those different markets? In terms of customers, Are the customers all the same? Or do you notice sort of subtle differences in customer behaviour, customer wants and dislikes?

Mark Neale

The customers in Canada and New Zealand and Poland have behaved pretty similarly to the UK. There are differences around colours that they like and things like that. The US we found more difficult. So we opened our first store in Canada in 2013, and we opened our first store in the US in 2014, and we've now got 45 shops in Canada I think, maybe slightly more, and we've only got 5 Mountain Warehouse shops in the US. If you'd asked me back in 2014 what that ratio would be, I would have been assuming that we'd have 45 shops in the US and five shops in Canada, just based on that.

Tim Smallbone

Why is that?

Mark Neale

Well, that's because the Canadian customer has embraced us and clearly likes Mountain Warehouse, and so far we've been less successful with the American consumer. And we think the reason for that is that the American consumer is more interested in brands, and so our sort of relatively unbranded, good value, functional product, the Canadian customer likes that in the same way as the UK customer likes that, but the American customer is looking for a brand on top of that, and so we found it pretty difficult there. And that's why last year we bought Eastern Mountain Sports out of Chapter 11, and we're going to use that brand as our foundation to build out again in the US. So Eastern Mountain Sports is a 50-odd-year-old brand from New England. At one point they had over 100 shops, but they're quite a well-known, well-respected brand, so we've bought that to use as our building block for the US because we've found it so difficult with our own brand.

Tim Smallbone

And the product will be Eastern Mountain Sports branded, will it?

Mark Neale

Branded, yeah. Shops are going to be branded Eastern Mountain Sports. We're going to have Eastern Mountain Sports branded product alongside some other third-party brands that they sell, and we've got high hopes for that.

Tim Smallbone

We're an ethical brand. It must be quite an issue for us, digging down into the realities of what's going on all the way down our supply chain.

Mark Neale

Well, that's definitely true, but for a long time now we've been members of Sedex. And Sedex is an agency that lots of businesses similar to ours and others use, and they approve the factories on our behalf and we will only work with a factory that has been approved by Sedex. And Sedex have people visiting the factories checking on the compliance with all of the rules and regulations. And so long as a factory is approved by Sedex, then we'll work with them and so will lots of similar brands to us.

Tim Smallbone

I mean, no story about a retailer over this lifetime would be completely without talking about the digital revolution. So when you started, presumably nobody was buying anything over the internet, it wasn't a thing.

Mark Neale

Mountain Warehouse is older than Google.

Tim Smallbone

And now, what is it, 30%, something like?

Mark Neale

That's about your point? 30% is online, £120 million, something like that, online.

Tim Smallbone

And how did you cope with that? Because that's been, talk about disruptor.

Mark Neale

Well, yeah, I mean, but you know, it's not, it's come gradually, hasn't it? The business has been built, you know, shop by shop, colleague by colleague, product by product, and the online business, you know, similarly, you know, it didn't start at £120 million, it started with, you know, a couple of orders a day. It obviously had a massive push during COVID. It was interesting that because, for a while, obviously, all of our stores were closed, and so we were a pure play online retailer. And prior to that, when we've been trying to work out, how to build the online business, how to develop it, we sometimes used to say, what would a pure play online business do at this point, if you were ASOS, how would you behave next? And then suddenly we were an online-only business because all the shops are closed. And so that, provided opportunities as well as challenges.

Tim Smallbone

That part of the business is growing, as is your bricks-and-mortar part of the business. So the future of the high street is rosy, is it, or is it not quite so?

Mark Neale

No, I'm a big believer in bricks and mortar retail, which is slightly different from the high street. Many of our high streets have got lots of life left in them, but not all of them, and our strategy has been to some extent to move, definitely to move to bigger stores. There was this sort of school of thought during COVID that even grannies learned how to shop on Amazon and nobody's ever going to go to a shop ever again, and that has just been proven completely wrong. Shops are a great marketing benefit, you know, signposts that you're there, you're real. But then customers might shop online as well, or do shop online. And I don't think they really think of themselves, I'm an online shopper, I'm a store shopper. I mean, you know, everybody's both.

Tim Smallbone

Along the way, you made the brilliant decision to use private equity. You always had a minority investor in the business. In 2010, we tried to invest, we persisted. In 2018, we did invest. Why did you always want a minority investor in the business, to keep you honest in the way in which you previously described?

Mark Neale

Well, we've always had investors of 1 shape or form. And what we really liked about Inflexion was the partnership capital model. I wanted a fund rather than an individual or something like that. I feel that with a fund, with a professional investor, you know how they're going to behave in different situations, and I like that. And it was relatively difficult to find someone who would do a small minority stake such as Inflexion. And I think that the fact that Inflexion are prepared to do that is a real asset.

Tim Smallbone

When you think about, you reflected during the overnight 10 years that you talked about earlier on, those colleagues that you remember, those peers, you think about them now and where you are, good decision to stick with it.

Mark Neale

Oh, yeah, absolutely, yes. Yeah, without question. It's definitely been the right decision to stick with it, but, you know, at the time you never know, do you.

Tim Smallbone

Turned out to be a rewarding journey.

Mark Neale

But it's definitely been a rewarding journey and it's continuing.

Tim Smallbone

It's just fascinating to hear how the business just evolved over the years.

Mark Neale

Yeah I think, you know, I didn't start from here. It's been a very iterative, you know, gradual process over a very long time. And I think that's one of the benefits of being a founder, manager of a business rather than being a hired-in CEO for three years, it's the long-term approach of, we try and make this season better than last season, next season better than this season. If you do that over a long period, and in my case now over 25 years, and the power of the cumulative returns is very strong.

Tim Smallbone

If you just build season after season, year after year, of what you learned.

Mark Neale

And steady growth accumulates.

Tim Smallbone

The strap line should be it takes 10 years for an overnight success.

Mark Neale

Ten years for an overnight success, but then if you build on that success over the next 10 years, then ultimately you end up with something that's a…

Tim Smallbone

… A national successful chain that everybody knows.

Mark Neale

Yeah, hopefully.

Tim Smallbone

And what's next for the business?

Mark Neale

We're excited about this opportunity in the US with Eastern Mountain Sports that we just talked about, and we're trying to become a global business and you can't really be a global business if you haven't got a presence in the biggest market in the world, the US, so we are working very hard on that. We're quite excited about that, but it's going to take a bit of time to unlock I think. We've opened five stores in Australia and that's a big market and we think there's a lot of growth opportunity there. So we've got this programme of upsizing our stores in the UK and elsewhere, we've got plenty on. In some ways, I was saying to the team the other day, if you stand back a little bit, I think we've got more, even though we're knocking on half a billion pounds worth of sales now, I think we've got more opportunities for growth than at any point that I can remember.

Tim Smallbone

More stores, more product.

Mark Neale

More stores, more product, ultimately more customers.

Tim Smallbone

Did anyone try to copy you?

Mark Neale

Not explicitly, I don't think. There are a couple of smaller competitors around, I think what's interesting about our market is that you've got, you know, you've got all these sort of relatively high-end, relatively glamorous businesses like North Face and Patagonia and Arc’teryx, and they're all sort of chasing after that relatively urban, relatively young customer, maybe in their 20s or 30s, living in London with a very sort of expensive technical product. And we've gone for a different customer, slightly older, less dependent on London, you know, our heartland really is places like the Lake District, market towns, county towns, up and down the country, and that's actually a much bigger market, but actually it's a less competitive market. And so we let these other guys fight over the sort of trendy people in London on their way to Val d'Isère for the weekend, and we go after the parents taking their kids out in Skipton.

Tim Smallbone

And along the way you created the Animal brand.

Mark Neale

Well we didn't create it, we bought it. So Animal was another opportunistic buy. Animal is a summer brand, really if you like, shorts, t-shirts, hoodies, with a south-west heritage. It's a nice brand and it unlocks a slightly different customer for us, a slightly younger customer, and so we're developing that as well.

Tim Smallbone

So you clearly had a vision for where the business was going, but this sort of came along out of nowhere. Were you looking for an opportunity like that?

Mark Neale

That really did just pop up from nowhere and it was a good deal, and we thought it would be a nice little add-on, and so we took advantage of it. And the Eastern Mountain Sports one, which was a similar sort of thing, we'd been monitoring that for longer because we knew that the US business was quite hard for us, and I'd thought for a while that particular brand was something that could be quite useful for us. And then we were, opportunistic when it fell into chapter 11. When I started Mountain Warehouse, at that point my wife was living in New York, I was going back and forth to New York every few weeks to see her. And so I'd always pop into the Eastern Mountain Sports shops in Manhattan to try and learn from them what I should be doing with my sort of relatively new Mountain Warehouse business back in the UK, so it's really full circle now that we've ended up buying them and we're hoping to return them to their former glory.

Tim Smallbone

Listening to you telling the story you were going bit by bit, but there was also an element of sort of taking your chances. Things came along and you thought, I'll go for that.

Mark Neale

We like trying lots of different things. And I don't think you can, I'm a big believer in not doing everything completely perfectly, but to do things about 80% right, but to do lots of things, and then you see what works and see what doesn't work. And if something looks like it's working, then you can double down and improve it and basically push at a door that proves to be half open. But if a door turns out to be closed, then don't bang your head against it. I think if you try and do something, you know, to perfection, then you can't do very much, and I think you need to try lots of different things and not everything's going to work but some things will prove to be successful.

Tim Smallbone

It's a fantastic story of how you've grown the business from a single store into an international business. Thank you so much for sharing it with us.

Mark Neale

Thanks, Tim.

Tim Smallbone

That's it for this episode. My thanks to Mark for joining me. Remember to subscribe to Inflexion Point wherever you get your podcasts so you don't miss an episode. And of course, you can check out our previous instalments too, including the story behind the influencer marketing agency GOAT. Thanks for listening.

About the episode

Inflexion Point tells the story of Mountain Warehouse, the outdoor clothing retailer built to put affordable kit within reach of a wider audience, and how it grew from a single discount shop into an international business. Host Tim Smallbone is joined by founder and Chief Executive Mark Neale, who arrived at Mountain Warehouse on his fourth attempt at retail, after earlier ventures selling rollerblades, educational toys and greetings cards. They reflect on the moments that shaped it: the early years surviving on other brands' surplus stock, the 2003 decision to go own-brand that quietly reshaped the whole model, the crisis-era expansion into landmark sites left empty by Woolworths, and the recent purchase of Eastern Mountain Sports to build a foothold in the US. Along the way, they talk about staying close to the customer and the price on the ticket, growing bricks and mortar and online together, buying opportunistically when the right brand appears, and why a patient, founder-led approach compounds over decades.