Ellett Brothers, Inc.

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Ellett Brothers, Inc.

267 Columbia Avenue
Chapin, South Carolina 29036
U.S.A.
(803) 345-3751
Fax: (803) 345-1820

Public Company
Incorporated: 1933 as Ellett Brothers
Employees: 354
Sales: $150.4 million (1995)
Stock Exchanges: NASDAQ

SICs: 5091 Sporting & Recreational Goods

A leading national distributor of outdoor sporting goods, Ellett Brothers, Inc. specializes in marketing and supplying hunting and shooting sports equipment. All of Ellett Brothers’ merchandise, which also included marine accessories, camping equipment, and general outdoor sporting accessories, was sold by the company’s telemarketing sales force and through numerous product catalogs. During the mid 1990s, Ellett Brothers marketed and distributed more than 60,000 different items and targeted a clientele consisting primarily of small, independent retailers located in all 50 states and in 16 foreign countries.

Although Ellett Brothers underwent numerous changes during its first six decades of business, two characteristics remained constant throughout its history: the Ellett Brothers name and the location of the business. Founded in 1933, Ellett Brothers was established in Chapin, South Carolina, where the company operated as a regional sporting goods distributor. Initially, the company distributed fishing equipment exclusively, deriving all of its business from fulfilling the requests of independent sporting goods dealers located in its home state, North Carolina, and Georgia. For the first quarter century of its existence, Ellett Brothers operated as such, serving a three-state territory with fishing equipment during the economically depressed 1930s and throughout the 1940s. The company’s second quarter century of business was decidedly more dynamic, encompassing sweeping changes that shaped the Chapin-based company into the Ellett Brothers of the 1990s.

1950s: A Product Line for the Future

The first significant change occurred in 1957, when Ellett Brothers began distributing hunting and shooting sports products and outdoor accessories throughout an expanded geographical area. The foray into hunting and shooting products and outdoor accessories marked the introduction of what quickly would become the company’s core business, a product line that has defined Ellett Brothers since the 1960s. Not long after this signal move, the company abandoned its original business by discontinuing the distribution of fishing equipment. From the 1960s forward, Ellett Brothers’ sales force focused their efforts on selling firearms and outdoor accessories to a largely rural clientele comprised mainly of independent, “mom-and-pop” retailers.

Like other sporting goods wholesalers, Ellett Brothers relied on a sales force that traveled throughout the company’s area of service to solicit business. For distributors like Ellett Brothers, the art of convincing retailers to buy merchandise was done face to face, an all-important task undertaken by a field sales force that travelled a circuit, visiting prospective retailers and signing them on as customers. For 40 years, Ellett Brothers approached this integral aspect of the wholesaling business much like its competition, but in the early 1970s the company adopted a different approach that distinguished it from other sporting goods distributors and spurred sales growth significantly. During the early 1970s, Ellett Brothers’ management directed a group of its salespeople to market the company’s products over the telephone, marking the beginning of telemarketing at the Chapin headquarters.

For a brief period the company was supported by a two-pronged marketing program: some salespeople traveled in the field soliciting business from independent retailers in person, while others solicited business over the telephone. It was not long until the latter approach proved to be dramatically more effective than the former, leading the company to eliminate all field sales personnel and rest its fortunes exclusively on its telemarketing program. Business soared as a result, lifting sales and profits substantially. By the late 1970s, Ellett Brothers ranked as a leading national distributor of outdoor sporting goods products thanks largely to the effectiveness of its less-than-decade-old telemarketing program. Ahead were years of continued robust financial growth, as the company honed its telemarketing talents and matured into a highly-efficient and focused telemarketer and distributor of sporting goods. But the years ahead also brought their own anguish.

1980s Misstep

Ellett Brothers entered the 1980s with its primary focus on the sale and distribution of hunting and shooting sports equipment. But the late 1980s saw a number of changes resulting from a transfer of ownership of the company. In 1985, a subsidiary of a privately-owned, Rocky Mount, North Carolina-based investment firm named Tuscarora acquired Ellett Brothers. Tuscarora soon implemented two major changes, only one of which proved successful. Under Tuscarora, Ellett Brothers introduced a marine accessories product line in late 1988. The company’s marine accessories business proved to be a natural, complementary addition to its core outdoor sporting goods business, contributing $2.6 million in sales for 1989 and giving the Chapin-based company a promising new facet to its business that augured growth for the 1990s.

Meanwhile, however, the company was acting on less prudent decisions and straying far afield. Instead of celebrating the encouraging results registered by the newly-formed marine accessories venture and the arrival of the company’s 60th anniversary year, Ellett Brothers ventured into unexplored territory. In 1989, executive management launched a veterinary pharmaceutical business that represented a dramatic departure from the company’s traditional business. The diversification into the veterinary pharmaceutical business proved to be Ellett Brothers’ undoing, drawing attention away from the company’s traditional business and tainting its enviable historical record of profitability. By the summer of 1990, with profits sagging, Ellett Brothers’ board of directors had begun to take action, quickly realizing that the foray into veterinary pharmaceuticals was causing the company to flounder. Executive management was removed as a result, devolving control over the company to middle-management and Tuscarora representatives from the summer of 1990 to the spring of 1991. During this precarious period in the company’s history, those in charge attempted to restore profitability by concentrating on strengthening Ellett Brothers’ primary outdoor sporting goods business and by limiting the losses from unprofitable operations. Meanwhile, the search was on for a new executive management team.

1990s Recovery

The veterinary pharmaceutical business was sold by the beginning of the summer of 1991 and by the end of the summer a new executive management team was in place. Led by Joseph F. Murray, a veteran of the sporting goods distribution business who joined the company in June 1991, Ellett Brothers’ new management team followed up on the work started by middle-management and Tuscarora representatives and restored profitability by the end of 1991. The following year, Ellett Brothers surged resolutely forward, casting aside any ill effects from the misadventure into veterinary pharmaceuticals by posting record sales and net income levels. Once again pointed in a positive, profitable direction, the company rallied forward during the ensuing two years. During 1993 and 1994, developments that affected Ellett Brothers’ business were outside the company’s control but provided a welcomed boost to business, completing its recovery from the problems of the early 1990s.

As Ellett Brothers entered 1993 and its 60th anniversary year, the company’s marine accessory business was performing admirably. By the end of 1992, revenue generated by the sale marine products eclipsed $7 million, up substantially from the $2.6 million posted in 1989. More significant growth was recorded during 1993, however, when the company’s mainstay business was buoyed, ironically, by recessionary economic conditions. Flagging firearm sales during the early 1990s forced manufacturers to slash their prices by 1993, a response to the anemic economic climate that benefitted distributors like Ellett Brothers. Lower prices meant firearm distributors attracted more customers, pushing sales upward.

Ellett Brothers by this point was deriving the bulk of its business from hunting and shooting sports equipment, with camping and boating equipment rounding out the company’s roster of merchandise. The company went public in June 1993, making its initial public offering at $9 a share, and went on to record a banner year, as Ellett Brothers telemarketers were kept busy taking orders for the company’s 44,600 different items. Half of Ellett Brothers 240 employees were employed as salespeople in 1993, all of whom were stationed at the company’s headquarters in Chapin, the sole location of Ellett Brothers’ operations.

Company Perspectives:

Our strategy is to expand our use of the business unit concept by focusing on newly identified markets, similar to the archery group started in 1994. In addition, we will continue to pursue strategic acquisitions whose product lines are compatible with Ellett’s existing products, are additive to margins, and create new channels of distribution. We will apply a business unit approach to acquisitions, where it is appropriate. We will also continue to identify distribution opportunities, targeting specific markets where we can effectively implement our teleservicing and business unit approaches.

Ellett Brothers’ salespeople were making 4,000 telephone calls a day by this point and serving 17,600 sporting goods retailers across the nation, most of whom were small, independent retailers located in rural areas. By dealing with small, “mom-and-pop” stores, Ellett Brothers was able to realize higher profit margins than it would have by supplying more competitive sporting goods chains with merchandise. The smaller retailers, in turn, were attracted by Ellett Brothers’ quick shipping service—90 percent of the company’s orders were shipped via two-day Federal Express service—and its wide selection of products, enabling small stores to keep tight control over inventory.

By the end of 1993, sales had eclipsed the $100 million mark for the first time, reaching $118.6 million. Further sales growth was achieved in 1994 when Ellett Brothers posted record firearm sales for the year. Again, as in 1993, external developments outside the company’s control were responsible for spurring sales growth. In 1994, a host of regulatory issues such as the Brady Bill and the Crime Bill sparked widespread consumer demand for firearms, lifting buying levels to unprecedented heights. Firearm aficionados were afraid federal legislation would either ban firearm sales in the United States or at least make the purchase of firearms a more difficult process, so they snatched up guns in a rush. Hunting and shooting sports equipment sales at Ellett Brothers soared 40 percent during the year as a result, driving total sales up to $160.1 million.

Though the financial gains achieved in 1993 and 1994 were credited to recessionary economic conditions and the threat of pervasive gun control, much of the company’s success was owed to the marketing efforts of Ellett Brothers’ sales force in Chapin. In addition to the company’s telemarketing program, its never-ending series of product catalogs also played an important role in generating business. For years catalog advertising had been a key component of the company’s marketing strategy, an advertising approach that placed the Ellett Brothers’ name and its wide selection of merchandise at retailers’ fingertips. Designed to be used at retail sales counter as a reference source and sales guide, the company’s annual catalogs were produced for each major product group, with the photographs and names of Ellett Brothers’sales personnel included in each volume. Aside from the annual catalogs, Ellett Brothers’ also frequently published promotional “mini-catalogs” that concentrated on a limited assortment of merchandise and advertised seasonal specials.

Coming off of two banner years, Ellett Brothers entered 1995 as a flourishing enterprise. Its mainstay hunting and shooting sports equipment business had registered a record sales year and its marine accessories business, one of the newer facets of Ellett Brothers’ operations, was growing steadily. Sales derived from boating equipment and supplies had increased 50 percent in 1993, creating a burgeoning force within the company’s operations that required additional space to grow. In late 1994, Ellett Brothers purchased a 106,000-square-foot facility near Chapin and in early 1995 began to move its marine accessories business into this new facility. By the end of 1995, marine accessories sales had reached $18.4 million, posting a 20 percent increase from 1994’s total and substantially outpacing the average industry growth rate of 8.9 percent, as reported by the National Marine Distributors Association. The company’s other product lines, however, did not perform as well, making 1995 a year of disappointment for those anticipating growth at company headquarters.

Camping, archery, and outdoor accessories sales increased a modest two percent in 1995, but hunting and shooting sports products sales declined 20 percent, leading to a six percent slip in total sales for the year. Despite the slip in sales, Ellett Brothers assumed a decidedly aggressive acquisitive stance during the year, purchasing three companies that established a presence outside of Chapin for the first time in the company’s history. In May 1995, the company acquired Houston, Missouri-based Evans Sports, Inc., a manufacturer of outdoor sporting accessories and wooden nostalgia boxes. Next, Ellett Brothers acquired Denver, Colorado-based Safesport Manufacturing Company, an importer and marketer of camping and backpacking accessories, sporting cutlery, outdoor safety products, and other outdoor leisure products. Completed in August 1995, the purchase of Safesport was followed in September with the acquisition of Taylorsville, North Carolina-based Vintage Editions, Inc., a specialty manufacturer of nostalgia products such as wooden boxes, storage chests, serving trays, dart board cases, and compact disc racks.

The acquisitions completed in 1995 were indicative of Ellett Brothers’ new growth strategy to broaden its product lines and increase its channels of distribution. Late in 1995, the company formed a wholly-owned subsidiary, Leisure Sports Marketing Corp., to serve as the owner and operator of Ellett Brothers’ three new subsidiary operations and entered 1996 looking for further potential acquisitions. The essence of this acquisition program was described by the company’s president and chief executive officer Joseph Murray, who explained after the acquisition of Safesport that “[Ellett Brothers’ ] acquisition strategy has been to acquire companies whose products will benefit from Ellett’s marketing expertise, while expanding our product sources and channels of distribution.” With this strategy leading the company forward, Ellett Brothers moved toward the late 1990s intent on building sales growth and increasing its gross margins.