This might be the biggest reason why LVMH is so eager to buy Rapha.

LONDON — “Rapha,” reports London’s Courier Paper, “is a commercial phenomenon, turning £60M [$74.6M] in annual sales, and has become a case study on how to build a brand in the modern era.”

It’s also, as Lean Luxe readers well know, being hotly pursued by LVMH, the biggest luxury conglomerate in the world. So beyond its revenues, which are frankly just “ok,” what else makes the cycling company such a mouth-watering prospect for LVMH?

The one big reason: Rapha is a closed loop network. It’s a self-sustaining system organized around a super specific lifestyle niche. With its Rapha Cycling club program in particular, the brand (and the network) is made all the more powerful by allowing its ‘members’ to connect directly with one another under Rapha’s name in key cities around the globe.

Why this should be what LVMH is really interested in: First, set aside the fact that £60M, while decent, is not all that large compared to LVMH’s other properties. And note too, that the margins on that figure today are not probably not as good as you might expect from a 13-year-old luxury firm in today’s era of direct-to-consumer sales (it only made a profit of £1.1M ($1.4M) on £48.8M ($62.1M) revenues in 2015). Still, while the margins may be underwhelming, there’s certainly opportunity to tweak the mechanics in some areas to better optimize returns.

Rapha’s real strength (and future potential) overshadows these financial weaknesses (relatively speaking). Very few modern luxury operations today — old or new — are able to boast membership clubs, compelling products, brick-and-mortar retail funnels, and e-commerce in one breath. (Perhaps individually, but never altogether under one umbrella.) Consider this: Not even the world’s largest legacy houses, the Chanels and Guccis of the world, have these product and functional connections in place — even at their grey old age, they’re essential one trick ponies with the product-retail mix acting as their only draw.

Even so, LVMH might just see Rapha as a wellness play: It’s possible, of course, that LVMH is overlooking all of this. The board could be treating the acquisition as nothing more than a play for the premium wellness market. If that’s true, that would be a shame. Because the market that Rapha operates in, is secondary to the mechanics that are powering the business.

In context: Presumably, Rapha’s buyout by LVMH is happening very soon. But little about the deal has been heard or seen since the news first broke in early December. We view this as a great chance to keep you in the loop.

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