Cabela’s Says New Stores Nearly 30 Percent More Profitable

The “World’s Foremost Outfitter” unveiled plans earlier this year for a new generation of 80,000-to-125,000-square-foot stores as well as40,000-square-foot Outposts, which are designed to tap smaller, often rural, markets where it has concentrations of catalog and online customers. In square footage terms, it increased retail space about 2 percent in both 2009, 2010, 5 percent in 2011 and expects to increase it 10 percent in 2012 and between 11 and 13 percent in 2013.

“We have resisted the temptation to say well, its 500 stores, 200 stores, 300 stores, 175 stores, CEO Thomas Millner said of the potential U.S. and Canadian market for Cabela’s stores. “All I can tell you it's a lot.”

The announcement marked a significant milestone for CAB, which slowed store openings to the equivalent of one a year in 2009 and 2010 as it switched its focus to building its online business and honing margins. Between 2009 and 2011, CAB improved its gross margin by 190 basis points and improved its employee and advertising productivity, Millner told investors. Now the company is ready to resume brick-and-mortar expansion. 

CAB plans to open the first Outpost in Union Gap near Yakima, WA this October. The stores will feature core merchandising areas where CAB will rotate seasonal product such hunting gear in the fall and fishing gear and camping in the spring. The will be staffed by fewer, more cross-trained employees. Customers will be encouraged to use in-store kiosks to order not-in-stock items. At the end of each season, the Outposts will ship unsold clearance items to its nearest “big brother” store,” which will be within 300 miles and have the traffic to blow out clearance items. Outposts will stock a higher concentration of Cabela’s branded apparel and generate $15-$20 million a year in sales.

“In a market like Dallas, Fort Worth, the Under Armour brand is really big in our stores, whereas in a smaller market, there's more of a bias to Cabela's merchandise,” said Millner. “So we're going to be really focused on the Cabela's brand in these smaller markets.”

To succeed, Millner said the new stores must produce sales of $325 per square foot, which should allow operating profits or $48 per square foot. In 2011, Cabela’s entire store base achieved sales and operating profits of $328 and $56 respectively. That compares to $301 and $33 in 2008.  The last four stores opened by the company using its next-generation format are nearly 30 percent more profitable than the entire store base. The new 80,000-square-foot stores are expected to generate sales of $450 per square foot or $36 million a year.

CAB is targeting the top 50 markets for the product categories it sells and seeking co-tenancy with major retailers like Target and IKEA. Millner noted that there are many areas of the country where it has online customers but no stores, including California, most of Montana and virtually the entire Southeast. He specifically called out Denver, Anchorage and Calgary as attractive markets.  About 3,500 people turned out earlier this month for the grand opening of an 80,000-square-foot store in Wichita, KS.

Up to five store deliveries per week
As store count increases, CAB will be able to load inventory for two or three stores on one truck and deliver as many as five times a week, said Doug Means, chief supply chain officer. ”We've actually got plenty of room here to make sure that we're supporting those stores on a more regular basis, even if it means smaller shipments,” he said.

Means foresees a very less static, more dynamic distribution network as CAB continues to integrate its store, online and catalog channels that will rely more on 3PL providers even as it starts shipping product direct from stores. 

“We'll actually use providers on the west coast for a product that's coming into the country to just leave product there and only move it when it's absolutely necessary,” he said. “We look at product in a vendor's hands and we look at product in a store or in a customer's hands and everything else in the middle is time and money. Whatever we can do to reduce that we feel is a win. The systems that are available today – the planning systems, the inventory systems, the network analysis systems, that will allow us to be a lot more sophisticated about how we look at this.”

New PLM system could cut months out of product cycle 
The company begins migrating to a new PLM system this month that it will use if for Spring and Fall 2013 product development that Means expects will immediately reduce the back end of product cycles – from factory orders forward – by 30 percent. On the product development side, the objective is to go from idea to product development in a month. 

CAB has driven down shipping costs by an average of 65 cents per packages in the last 12 months by redesigning packaging in a way that enables them to co-mingle more freight and fit more packages in a cube. It is also utilizing UPS’s SurePost service, in which UPS determines whether it’s more efficient for UPS or the U.S. Postal Service to deliver packages the last mile to the customer’s door.

A big screen TV in every break room
On the human capital front, CAB has ramped up raining for store employees and managers in bid to preserve its customer service culture as it expands much more rapidly than in the past. In 2011, the retailer provided every outfitter in its stores and call centers roughly two weeks of training to help them better understand the technologies of the products they sell. That represented an investment of 500,000 hours, Millner said. It also installed big-screen TVs in all its break rooms to communicate brand messaging to its outfitters.

“There isn't a week that goes by that one or all of us aren't cutting videos that are broadcast in every break room in the entire company from the distribution centers, call centers, corporate office, to the retail stores,” said Millner. “It's a messaging technique that we use to constantly keep our store outfitters with us like an orchestra.”

The downside of CAB’s renewed store expansion is cannibalization of online and catalog sales, which has been declining between 3 and 3.5 percent a year over the last three years. Traditionally, new stores have reduced CAB’s direct sales into a market by about 7 percent.  However, as the company transitions its legacy catalog business online, its print costs will decline and it will put the savings toward promoting its online channel, said Scott Williams, chief marketing and e-commerce officer. CAB spent about $135 million on catalog, print and digital advertising in 2011.