Speaking at Stephens 2017 Spring Investment Conference, Marcus Lemonis, chairman and CEO of Camping World, said the company is not only planning to reduce the amount of firearms in the reborn Gander Mountain stores but also vowed to underprice any nearby competition.
“The SG&A is going to be such that it will be very difficult for any competitor in the marketplace to be in that space where we exist to sell at the same price because their overhead will not simply allow it,” said Lemonis, better known to the public as the star of the CNBC show, “The Profit.” “We have the ability to do it, particularly if there’s an RV dealership there.”
Elaborating on the decision to move Camping World into the hunt & fish space, Lemonis said the “only reason” Gander Mountain and its sister company, Overton’s, were acquired was to further increase its “dominance of the outdoor enthusiast” in its database and support its Good Sam services business. The Good Sam side includes club memberships, credit card services, warranty insurance, repair and other aftermarket services.
“I did not get in this business to be a gun dealer, I got in this business to collect names,” said Lemonis.
Overton’s was acquired in part because of its “great historical cash flow” but also because the marine industry is the “next target” for Good Sam. With Camping World, the company has a strong reach into camping and RV customers and marine customers were seen as a natural extension. Said Lemonis, “That doesn’t mean ‘sell boats.’ It means services and communicating with boaters who already own a boat who need aftermarket products.”
In acquiring Gander Mountain, Camping World, which went public in October, is adding 3 million customers who “hunt, fish and camp” to its database. That will open up opportunities to sell RVs or a truck camper, as well as club memberships that provides a discount on fishing or hunting gear, a store credit card, as well as ancillary services such as roadside assistance.
Overall, Lemonis said Camping World doesn’t view itself as an RV retailer but “as a data mining company” and one that “focuses on how to control the consumer inside the RV and outdoor leisure space.”
Through its dealerships, service departments, parts and accessories stores and outreach to its call centers, Camping World is aiming to sell and cross-sell its Good Sam offerings. Said Lemonis, “So every transaction that we make and every transaction that we do is generally with the sole purpose of driving that database.”
He said another unusual trait with the company is its focus on return on capital and preserving its EBITDA margin rather than growing revenue. Lemonis said Camping World’s EBITDA margin “far exceeds most if not all” of the public auto dealerships and that’s driven by its database mining model.
EBITDA on the Good Sam business will reach about $80 million this year, up from $78 million the prior year. And while it generally sees “low and steady growth,” profits also don’t markedly drop during downtimes. Said Lemonis, “That really is our ATM machine.”
As far as Gander Mountain, Lemonis said Camping World is already well on its way on its plans to restore profitability.
“What killed that business was massive corporate overhead, an undisciplined inventory process, an inefficient logistics and transportation process and the stores being built too big with too high rent factors,” said Lemonis.
He said that with the changeover, corporate overhead has already been “wiped out.”
Gander’s past distribution center model has been renegotiated and is now merged into Camping World’s distribution center model. Instead of four distribution centers serving Gander and Overton’s, five will hold product for Camping World, Gander and Overton’s to support all three chains. The change is also expected to help enhance delivery of online orders.
The company is also in the middle of lease re-negotiations to reduce rents. Lemonis said a number of public REITs have been “very helpful” in the process. He stated, “I think they understand the benefit of having a solid credit tenant as opposed to an empty box. Our discounts in some cases have been massive. And in other cases they have been massive on first blush and we still walked away.”
Camping World acquired the designation rights to all 160 leases and has until October 6 to retain or reject them. Some may be sold to other retailers.
As part of the bankruptcy process, all of Gander’s 160 stores were allowed to liquidate. The company is contractually obligated to retain 17 of the 160 Gander leases. Of the 160, 110 of them were four-wall cash flow positive before any rent renegotiations.
Lemonis has so far cited 58 former Gander Mountain stores he expects Camping world will retain. In the first phase, 20 stores are scheduled to reopen by November. Another ten and 15 will reopen by December 1 with additional openings set for the months further ahead. Lemonis said the company will likely keep between 60 and 80. The stores are being renamed Gander Outdoor.
Of the 20 to reopen in November, “a handful” will open with dealerships. Ideally, the company wants locations with enough space for a Gander, Overton’s and RV dealership.
Indeed, Lemonis said that the company has passed on some profitable locations in some shopping centers because they would be unable to accompany a dealership. He said the decision was made in part because of the general struggles retail is facing. Said Lemonis, “I’d rather close the store, lose the revenue, re-open a store outside with the dealership and hope I get a fraction of the revenue back and build it over time than sit in the middle of an empty parking lot that I think will be there three years from now.”
The stores are expected to be smaller. Said Lemonis, “We believe that the right floor plan is between 30 and 40,000 square feet, not 80,000 to 100,000 square feet.”
As far as merchandising, he said the Gander will be “way below market” in guns and ammunition while giving no details on other changes. For the initial 20 Gander stores to open, Camping World has acquired 42.4 million in inventory and those stores are expected to support $22 million in potential EBITDA in its fiscal 2019 forecasts.
He stressed that margins in the new Gander locations will be lower than historical levels to drive traffic. Said Lemonis, “My goal is to undercut the competition on the lower level, be very web savvy in terms of our pricing and ultimately do one thing: drive club memberships and add to our database.”
Good Sam is being rolled out to Overton consumers next month and will be introduced to Gander customers with the first stores.
Lemonis said that one “dilemma” Camping World is facing is holding onto quality employees. He noted for example, that the knowledge level of a gunsmith is unique. Said Lemonis, “This isn’t Walmart or Target where they’re showing you where the toy section is. So we really want to spend money on having really smart technical people.” He implied that some key staff will be hired early on to help Gander reopen stores in different markets before settling into key positions in their hometown locations.
Asked how he manages his personal time with his numerous businesses and TV career, Lemonis said he owns 30 million shares of Camping World to keep him “really, really focused.” He said Gander has occupied “100 percent” of his time over the last four weeks with many of the store closings and re-openings announced on his Twitter account.
But he said he views his “personal life as his business life.” And while he’s “keenly aware” of investor’s concerns over his potential time away from the Camping World business, he thinks the greater brand recognition overall benefits Camping World. He said, “We think we get better deals with landlords and better deals with vendors and attract more consumers based on the relationship that we have with the marketplace.”
Lemonis also said that in the fall he’ll be doing a “few episodes” featuring the Gander Mountain transaction on his CNBC show in a move “intentionally, selfishly to tell people how the transaction happened.”
Investments are also expected to be made in a “few businesses that sort of meld into that Gander business.” He stressed that Camping World would acquire the assets because he has vowed not to personally invest in any business that competes or conflicts with Camping World.
He concluded on the subject, “But I will use resources to promote Camping World, to promote Overton’s and to promote Gander because I’d like my share price to be $68.”
Photo courtesy Gander Mountain