Signa Sports United (SSU) is a global specialist sports e-commerce company headquartered in Berlin and listed on the New York Stock Exchange. SSU has 80 online sites serving over 6.7 million customers worldwide. The SSU group includes Tennis-Point, Tennis Pro, Tennis Express, WiggleCRC, Fahrrad.de, Bikester, Probikeshop, Campz and Addnature.

In early October, Signa Sports reported serious liquidity challenges and announced plans to delist its shares from the NYSE. The insolvency filing has led to uncertainty about the future of the company’s bicycle retail websites, including Wiggle and Chain Reaction Cycles.

The situation for WiggleCRC is particularly uncertain. Wiggle and Chain Reaction are the two powerhouse online stores dedicated to cycling with a large presence in Europe. The company has not yet filed for insolvency, but it is unclear whether it will be able to survive without the financial support of its parent company.

HOW DID WE GET HERE?

The financial troubles of Signa Sports United NV have been mounting in recent months. In October 2023, the company announced that it was preparing to file for insolvency due to lack of funding from its parent company. This has led to a domino effect, with multiple subsidiaries of the company being forced to cease operations.

TOO MUCH STOCK = NOT ENOUGH CASH

In short Signa Sports and its companies have too much stock in their warehouses. The massive demand that was created during COVID caused a dramatic increase in warehouse levels to keep up with demand. As lockdowns and COVID fears receded in late 2021, demand screeched to a halt in early 2022 and caused major overstock issues for all parts of the cycling distribution network. Large online stores were particularly exposed since they stock such a wide assortment of brands. This immediately put pressure on the balance sheets of brands and shops, more stock equals less cash to operate and pay employees.

ALL BETS ARE OFF

In the past, discounting was generally reserved to end of season sales and Black Friday. Once brands began to feel pressure, they started discounting. Top brands like Castelli, Specialized, and Assos started discounting directly on their web shops, this was previously unheard of. When this happened, all bets were off. This puts pressure on large retailers like Wiggle and Chain Reaction, which previously had the clout to demand full price from the official brand shops. Now everyone is discounting, and there is nowhere to hide.

DEATH SPIRAL

As discounting becomes more prevalent across the distribution network, the only solution is more discounting. With all this discounting, profits are squeezed. As profits are less, there is less cash to pay employees, and run the business. This could potentially lead to a death spiral, and this is what is likely happening at Signa Sports.

WHAT HAPPENS NEXT?

They need cash. There is no way around it. This company lives and dies by the amount of cashflow it has on hand to run the business. They need bridge financing to sustain the deep discounting that is required to clear out current levels of inventory.

The alternative is bankruptcy and restructuring of the debt. With interest rates so high, I am skeptical that someone will step in anytime soon to save them. It’s more likely that they will be bought in liquidation for pennies on the dollar.

It’s just wait and see for now. Above all I feel for the thousands of workers involved that are feeling the unbearable pressure of all this uncertainty.