In his opening statements to analysts Cabelas Inc.s recent Analyst/Investor Day in Allen, TX, CEO Tommy Millner credited the retailers successes in initiatives around improving the retailers return-on-capital, increasing stores profitability, boosting comps and tightening up the balance sheet, among other initiatives.
Still, Millner admitted the retailer has more work ahead of us to improve merchandise margins and inject some life into a struggling Direct segment.
Millner also noted that the company has been pleasantly surprised by the longevity of strong gun sales as well as the rapid improvement of the companys CLUB Visa segment. Moving forward, company management added that there would be unique challenges in the marketplace as new external pressures mount and the domestic consumer continues to recover from the recession. Chief merchandising officer Brian Linneman said one of the companys key concerns in the immediate future will continue to be the continually growing input costs of raw materials along with mounting labor costs in Asia. While Linneman said the industry has seen some relief recently from cotton pricing, the commodity price of rubber has produced significant volatility.
Linneman said Cabelas has taken steps to internally react to these pressures by raising retail prices on the sales floor, although he admitted it was too early to tell how that would ultimately affect the consumer. He also emphasized the importance of the higher-margin Cabelas brand products to give the retailer added flexibility from a cash flow standpoint.
Furthermore, Linneman said management would have to continue being efficient regarding pre-season planning, in-season management, assortment planning and how the company partners with vendors. Finally, Linnmenan said Cabelas has tested its promotional methodology by reducing the density of product in promotional vehicles to understand if we can drive foot traffic) with not such a wide offering of products
Sales staff, he added, will also be driving add-on sales, particularly by pushing the sales accessories when a consumer purchases a firearm.
Expansion of In-House Brands Planned to Build Margins…
Regarding margin trends, Linnneman said management was flat out disappointed with fiscal first quarter margins that slipped 30 basis points, attributing the contraction to higher transportation costs, higher product costs and an imbalance between sales and margin rate. Linneman added that margin struggles of late have been directly due to a heavy appetite for lower-margin hardgoods including guns and ammunition along with a channel mix that has seen growth in the companys Retail business outpace that of the Direct channel.
Once again, Linneman stressed the importance of efficient pre-season and in-season management along with appropriate promotions to reduce inventory mismanagement and unnecessary markdowns. Linneman also said management will focus on increasing the penetration of high-margin categories – particularly the Cabelas branded products – while increasing space and visual presentation at retail, increasing ad space in catalogs and ensuring the products have a rigorous product lifecycle. Boosting merchandise margins, he added, would come from incorporating a compelling product and a competitive price while producing predictable, repeatable and sustainable results through retailing best practices.
When asked during the meeting about the challenges of maintaining sales and margin growth despite higher material costs, Millner said The real differentiator over time (is) our customer is going to go duck hunting, deer hunting, elk hunting, moose hunting, dove hunting, and theyre going to go ice fishing and bass fishing and walleye fishing no matter what – that’s a very good place for our company to be and for our industry to be. Linneman said the company would meet margin and sales goals by continuing to focus on an assortment of Cabelas brands, national brands, co-branding and exclusivity, private labels and sub-brands and high-end product extensions.
He said branded vendors would remain a big part of the business. We will use the Cabela’s branded products with purpose, by channeling not only our product expertise and knowledge and innovation to offer new products, but we will use the Cabela’s brand to differentiate from the competition or national brands, added Linneman. Doug Mean, the retailers chief supply chain officer, noted a huge demand increase from China and Vietnam as well as improved demand domestically.
Mean said the key challenge is dealing with how to supply product internally in Asia amidst wage developments. He also pointed to new regulations within the trucking industry in the U.S., which continue to drive up transportation costs. Mean said Cabelas would use a variety of means to counteract these challenges, including focusing more on the Cabelas brand, reviewing how the company develops materials, maximizing the utilization of packaging material and managing the production of product by utilizing price-friendly factories, minimizing overhead costs at factories and ensuring that the company is best utilizing its containers and freight network.
Cabelas recently promoted its director of quality assurance to the role of source development, where he will be responsible for developing current strategic partners, establishing new sources and partnering with custom groups to ensure the company is taking advantage of trade and duty programs. As the company focuses on product innovation of the Cabelas brand by developing field testing programs, aligning resources to the merchants on design and maintaining strict quality standards, the retail has also revamped the way the retailer approaches its marketing message.
Cabelas Sees Move to Social Networking to Boost Direct Sales Efforts…
For example, Linneman said they have used larger presentations and lifestyle settings in print ads while utilizing end-cap displays at retail that are more appealing and contain more technical messaging. To effectively market innovative product, management said the retailer has ramped up its focus on employee training. No longer are we opening a new store and hiring somebody off the street, giving them the keys to the Ferrari and saying jump out there on the autobahn and drive this store, said EVP & COO Michael Copeland.
quite frankly, a Cabela’s store is much more complicated than most retailers and the level of expectation for the customer experience and for how you manage your people and take care of your people is completely different.
Copeland said Cabelas spent more than 50,000 hours last year on employee training compared to about 125,000 total hours in 2009. In doing so, Cabelas has broadened its talent depth through leadership development programs like the Manager-in-Training programs for external and internal talent and the SUMMT program, an internal program for senior management training. Regarding retail expansion, management said Cabelas will continue to focus opening NexGen store formats on the best retail locations within the top 50 markets with minimal competitive pressures. Management said 25-35 percent of future stores could be repurposed real estate, assuming the NextGen plan fits within the property.
In Canada, management said the Cabelas brand is very strong since the acquisition of SIR Warehouse Sports. Management said the competition is in disarray in Canada and Cabelas sees the opportunity to open 15 to 25 stores. On the customer side, Cabelas has updated its 2010-launched Voice of the Customer tool, an Internet-based survey that provides feedback on a shoppers in-store retail experience. Copeland noted that the 2011 analytical tool provides in-depth actionable data that can give sales staff an idea of how to increase customer satisfaction. Cabelas has also boosted the retail experience by incorporating in-store mobility efforts along with next-generation kiosks and interactive digital signage.
Millner added that Cabelas would be taking on a significant initiative to capitalize on socionomics through the utilization of social networking and mobile commerce to boost direct sales. The most important thing whether it’s direct, retail or call center business is the acquisition of new multichannel customers, said Millner. That continues to be the real key metric for us. Were not able to control where our customers shop. What’s important is we grow the number of multi channel customers over time and weve been able to do that over time.