Once a Leading 'Outdoor Legend'...Is Nepa Headed Down the Same Path as Homeplus? [Why&Next]

Outdoor brand Nepa saw a further deterioration in its performance last year. While the "activewear" market-clothing that can be worn both for exercise and daily life-has been expanding, especially among Millennials & Gen Z, Nepa's overall scale has shrunk each year, and its operating losses have grown even larger. Industry observers point out that this is due to Nepa's inability to respond to new trends, as private equity manager MBK Partners has saddled the company with leveraged buyout (LBO) financing for over a decade since its acquisition.

According to the industry on April 24, Nepa's sales last year were 288.8 billion won, down approximately 2.9% from 297.3 billion won the previous year. This marks the fourth consecutive year of decline since 2022. During the same period, the operating loss expanded to 2.1 billion won, up about 174% from 764.86 million won the previous year, highlighting a significant deterioration in profitability.

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This contrasts with the recent trends in the outdoor market. As the popularity of running and hiking has rebounded, the outdoor market as a whole is recovering. According to the Korea Federation of Textile Industries, fashion consumption during last winter season (December last year to February this year) amounted to 21.0143 trillion won. By category, outdoor apparel purchases soared to 2.5258 trillion won, marking a 22.5% year-on-year increase and the largest growth among all categories. Casual wear rose to 6.5617 trillion won, up 18.6%, and sportswear climbed to 2.6206 trillion won, an 8.9% increase. For example, The North Face, operated by Youngone Outdoor, has maintained sales of over 1 trillion won for two consecutive years.

Nepa began as a hiking boot brand in Bergamo, Italy, in 1996, and entered the Korean market in 2005. After being acquired by Pyungan L&C in 2006, it entered a period of rapid growth, achieving 155 billion won in sales by 2010. In 2013, MBK Partners acquired a 94.2% stake for about 997 billion won. At that time, Nepa recorded annual sales of 470 billion won with both operating profit and net profit exceeding 100 billion won, earning a reputation as an "outdoor legend."

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In the early years after the MBK acquisition, Nepa’s performance held up relatively well. MBK acquired Nepa in 2013 through a special purpose company (SPC) called TV Holdings, and in the following year, when the outdoor market was at its peak, sales reached 472.3 billion won. However, sales plummeted to 405.2 billion won in 2015, then further dropped to 366.8 billion won in 2016, and slid to the 200 billion won range last year.

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Profitability began to decline immediately after MBK's acquisition, with operating profit falling to 6.7 billion won by 2020. Although demand for hiking and camping surged after COVID-19, leading to a brief rebound, Nepa has posted negative growth again for the past two years. In particular, net profit deteriorated rapidly after TV Holdings merged with Nepa in 2015. In the first year after the merger, Nepa posted a net loss of over 30 billion won, and in 2020 and 2023, the company recorded net losses exceeding 100 billion won.

Analysts attribute these losses to the acquisition structure imposed by MBK. MBK financed the acquisition with approximately 480 billion won in borrowings, then transferred the debt to Nepa after merging TV Holdings and Nepa. As a result, Nepa has been burdened not only with the principal but also with annual interest payments of around 30 billion won. The total interest payments Nepa made up to 2023 amounted to 270.8 billion won. This has locked Nepa into a structure where cash generated from operations is prioritized for covering financial expenses rather than being invested in the business or strengthening brand competitiveness.

The problem is that even in this situation, MBK continued to recoup its investment. From 2013 to 2021, MBK received about 83.3 billion won in dividends from Nepa. Continued cash outflows amid declining performance have further weakened the company’s fundamentals. In fact, Nepa recognized goodwill impairment losses of 10.5 billion won in its financial statements last year. Goodwill refers to the intangible business value, such as brand power, that is converted into monetary value during an acquisition. When MBK acquired Nepa, the goodwill value was 419.8 billion won, but it shrank to 153.1 billion won last year.

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More than a decade of weak performance has led to a deterioration in financial stability. The debt ratio jumped from 34% in 2013 to 575% last year. Notably, Nepa borrowed 180 billion won at an annual interest rate of 7.5% from rival outdoor brands K2 and Eider, using 1.15 million Nepa shares and trademark rights as collateral. In addition, last year, Nepa received 21.6 billion won in accounts receivable securitization loans from Lotte Card and JB Woori Capital, which was an increase of 8.1 billion won from the previous year.

Since 2020, Nepa has also raised funds by entering into supplier finance agreements (reverse factoring) with Lotte Card, using products as collateral. As of last year, this amounted to 35.1 billion won. This situation closely resembles what happened at Homeplus after MBK's acquisition. Homeplus, too, has been undergoing corporate rehabilitation procedures since last year, after MBK shifted acquisition costs onto the company following its 2015 acquisition, causing both poor performance and liquidity problems.

The fashion industry views Nepa, alongside Homeplus, as a prime example of the limitations of private equity-style management. While strategies to maximize investment returns through asset sales or financial restructuring after an acquisition can yield short-term results, experts warn that such approaches risk undermining a company's long-term competitiveness. An industry insider commented, "With constant interest burdens and financial pressure, it is difficult to pursue aggressive marketing or product innovation," adding, "Ultimately, this structure leaves the company lagging behind, even as the market recovers."

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