'Own that niche': How a former triathlete created $100m business 2XU

Originally from The Sydney Morning Herald

 

Worn by everyone from Foreign Minister Julie Bishop to rapper and singer Kanye West, 2XU’s compression tights are ubiquitous.

But co-founder Jamie Hunt says the secret to the high-performance sport brand’s success is a laser focus on a very specific niche.

“To succeed in a global marketplace, you have to find that niche and own that niche,” Hunt says. “We stand for high-performance sport, we are not after fashion and mass consumers.”

2XU was founded in 2005 by Hunt, a former elite triathlete, underwear entrepreneur Clyde Davenport, and sales and marketing specialist Aidan Clarke.

Serial entrepreneur Davenport made his fortune with his eponymous boxer shorts business and bankrolled the start-up with a loan of almost $1 million, which Hunt says was “a drop in the ocean” compared with 2XU’s value today with a turnover of more than $US75 million ($100 million) globally.

“We decided from the start if you want to be a global player you have to stand for something,” Hunt says. “I said ‘I’m all for it as long as we make world-leading products that aim at the top part of the industry’. Obviously we then trickle that technology through to the other collections.”

This focus on elite sport singled 2XU out in the global activewear market, which Global Industry Analysts projects will reach $US231 billion ($300 billion) by 2024.

Industry analysts Ibisworld say market growth is being supported by rising demand for premium, high-quality sportswear that is fashionable yet functional.

“Products such as compression wear have become increasingly popular,” Ibisworld says in its 2017-18 Fitness and Athletic Clothing Stores in Australia report. “Brands such as 2XU have targeted consumers that want to maximise performance and minimise recovery time.”

 

Starting out with triathlon

As a former champion triathlete with a ranking of third in the ITU world triathlon series rankings, Hunt led 2XU’s initial focus on triathlon.

“We were a very lean team and we tried to target sports we thought were low-hanging fruit,” he says. “Triathlon was a small sport but helped us fund the growth of the business in the early days and our research into compression. We targeted other sports rather than say the runner shoe market, which would be very time and money consuming.”

Straight away, the trio realised they were onto something.

“Right from day one, I don’t know if it was timing or chemistry between the three of us, but within two years the company was profitable,” Hunt says.

All three 2XU founders brought their own skills, which Hunt says complemented each other.

“Aidan is an amazing sales and marketer,” says Hunt. “He is a great relationship builder, he is smart and charismatic. I am the product guy, I love fabrics, I love technology. Clive was our mentor. He was there every day but he was like our big brother making sure we achieved our goals. He taught me you can still be a very profitable business and make great products.”

 

Born global

While 2XU is based in Melbourne, Hunt and his co-founders were global in their ambitions from the outset.

“From year one we went global,” Hunt says. “We brought on the US market mainly because we had people over there who I already knew. When they saw the initial samples they were like ‘Wow, this is next level’. We signed a US distributor in the next year and that definitely helped. It is very hard to grow quickly just in Australia.”

That focus has paid off, with export now making up 75 per cent of 2XU’s business.

Hunt is now based in New Zealand and commutes to Melbourne every week alongside fitting in visits to 2XU’s other key markets.

 

Trickle down

Ibisworld reports that as consumers have become more comfortable wearing sports attire in non-exercise settings, they are generally more willing to purchase high-quality sportswear they can wear around the house and while running errands.

With leggings the new jeans, 2XU has been able to expand its market from the Australian Institute of Sport and Australian Football League to celebrities like Pippa Middleton, Kim Kardashian and Kanye West.

“We are in the middle of doing a collaboration with Kanye West and Yeezy and we are now in our sixth season working with Yeezy,” Hunt says. “That came about off the back of the fact that Yeezy wants to stand out in the world of fashion and we want to stand out in the world of sportswear.”

Foreign Minister Julie Bishop has also attracted attention for her love of 2XU.

While some criticism has been levelled at Bishop for championing the brand, unsurprisingly Hunt is a fan.

“We love it,” he says. “One thing we love about Julie Bishop is she is someone who is genuinely a very keen sportswoman, she exemplifies what we are about as a company. If I’m talking to Julie, she loves our product and she puts it out there. She’s a great ambassador for our brand and for Australia as well.”

 

Growth plans

Hunt says the business has changed a lot with a chief executive, Paul Higgins, in place and the role of the founders quite different from the early days.

“I still oversee the product team because I like doing it and I’m more effective doing that then trying to run the business,” Hunt says.

While 2XU’s growth has been mainly self-funded, it has two equity investors – Lazard Australian Private Equity, which holds 18 per cent, and LVMH-backed private equity firm L Catterton Asia, which paid around $80 million in 2013 for a 40 per cent stake.

The founders still hold a 42 per cent share.

“It helped us founders cash out part of the business ultimately,” Hunt says. “We have always been profitable, we haven’t needed money externally to grow the business.”

An anticipated $600 million-plus public float in 2015 never eventuated but Hunt says 2XU is now back on track.

“We just want to keep creating the world’s best product, our mandate is never stop,” he says. “We have some markets we still haven’t cracked 100 per cent.”

His advice for other entrepreneurs is to focus on one thing and do it well.

“I had someone come to me the other day saying, ‘I want to create a golfing clothing collection’ and I told them, ‘You are competing with massive multinationals’,” Hunt says. “I said ‘Why don’t you try to create the world’s best golfing hat or belt?’ Definitely try to find the niche you can own and be the best at. There are so many people trying to make a fast buck and it is a long, slow graft to become number one.”