G.I. Joe’s, Inc.

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G.I. Joe’s, Inc.

9805 Boeckman Road
Wilsonville, Oregon 97070
U.S.A
(503) 682-2242
Fax: (503) 682-7200
Web site: http://www.gijoes.com

Private Company
Incorporated: 1952
Employees: 950
Sales: $128.2 million (1998)
NAIC: 45211 Department Stores

A regional retailer with a unique merchandise mix, G.I. Joe’s, Inc. sells outdoor apparel and footwear but focuses on two primary merchandise categories: sporting goods and automotive parts. During the late 1990s, G.I. Joe’s operated 17 stores with 13 units located in Oregon and four units located in Washington. The company began as an army surplus store in Portland, Oregon, before shaping itself into a retail specialist that emphasized sporting goods and automotive parts. G.I. Joe’s attempted to go public in 1999, but dropped such plans when management realized it would have to sell stock at a price considered to be too low. Pending the completion of a stock offering, the company planned to expand into Montana, Idaho, Utah, Nevada, and northern California.

Post-World War II Origins

As a retail enterprise, G.I. Joe’s began business in remarkably modest surroundings. The company was started in a field, housed in a canvas tent. The proprietor and founder was Edward M. Orkney, an Army Air Corps pilot who returned to the United States after World War II and bought 2,000 army surplus mummy bags for $ 1.50 each. In 1951, he pitched a tent in a field in Portland and quickly sold all the sleeping bags, making a sufficient profit to purchase other military surplus merchandise and secure a more permanent site for his business. He relocated to an old building in Portland, stocked his store with army surplus goods, and enjoyed encouraging success. By 1956 the size of his store had doubled and was soon to become the largest retailer of sporting goods and outdoor gear in Portland.

By all measures, Orkney’s entrepreneurial debut was a glowing success, his efforts producing a thriving retail enterprise that had evolved into a metropolitan heavyweight in little more than a decade, but G.I. Joe’s lacked an enduring strength. Driving the store’s growth was the abundant supply of army surplus merchandise that Orkney could profitably offer at sharply discounted prices, a supply that could not last forever. By the 1960s, the stream of military surplus goods had begun to disappear, stripping Orkney of the inventory that had underpinned his success. In response, Orkney transformed G.I. Joe’s to keep pace with the changing times. He retained the store’s discount merchandise format, but began stocking a variety of different merchandise categories, shaping G.I Joe’s into what the retail industry referred to as a “generalist.” The store began selling an eclectic array of goods, offering sporting goods, automotive parts, and hardware, among other merchandise categories. By the end of the 1960s, the transition away from surplus military goods had been successfully completed. In 1969 Orkney began expanding the concept, establishing additional G.I. Joe’s discount stores in the Portland area.

During the 1970s, expansion occurred at a moderate pace until there were a handful of G.I. Joe’s dotting the greater Portland area. As the concept developed into a chain, the breadth of merchandise available in the stores increased, expanding to include housewares, lawn and garden supplies, and apparel. Against the backdrop of this gradual growth, both in terms of physical expansion and in the diversity of G.I. Joe’s inventory, a change in leadership occurred midway through the decade. In 1976 Edward Orkney died, leaving behind him a small but thriving business that his son inherited. David Orkney took the helm from his father and pressed forward with his father’s legacy by broadening the stores’ merchandise categories and presiding over the chain’s methodical expansion. A little more than a decade after taking control, however, David Orkney found himself contending with problems his father never had to face. The composition and character of the retail industry was changing, threatening to undermine the effectiveness of G.I. Joe’s’ merchandising strategy.

Crisis, Change in Format: 1980s

During the 1980s, a new breed of retailer emerged that operated with a concept similar to G.I. Joe’s, but on a much grander scale. Discount superstores took the format of offering a diverse array of merchandise at inexpensive prices to an extreme, establishing mammoth retail establishments that occupied the equivalent of a city block and stocking the stores with more than 100,000 different products. Economies of scale, an integral facet of the superstores’ strategy, enabled the retail operators to offer their merchandise at extremely low prices, pricing smaller discount retailers like G.I. Joe’s out of the market. The dynamics of the discount retail industry had changed, and Orkney responded by distancing his company from its roots as a surplus retailer. During the 1980s, name-brand merchandise began to appear in G.I. Joe’s, replacing the discount, low-end goods that had characterized the company’s inventory for decades. The shift to name-brand products represented a profound change in G.I. Joe’s’ merchandising strategy, but it did not provide all the answers to the pervasive trend within the company’s industry. By the end of the 1980s, torpid financial growth suggested the need for further alterations to the retailer’s formula. The new version of the longtime surplus discounter surfaced in the 1990s, presented as the prototype for the future.

The creation of a “new” G.I. Joe’s for the 1990s was prompted by the realization of the company’s shortcomings in the late 1980s. The retailer’s merchandise selection had become too broad, often to the confusion of faithful customers. Housewares, hardware, automotive parts, apparel, footwear, lawn and garden supplies, sporting goods, home electronics, and CDs represented an overreaching merchandise mix that distracted the chain’s focus and made its identity difficult to pinpoint. Annual sales, which hovered above $130 million in 1990, were generated by the company’s 13 stores, 12 of which were in Oregon, including six in the Portland area. G.I. Joe’s’ lone property outside Oregon was located just across the border in Vancouver, Washington, the state where Orkney planned to erect a prototype store free from clutter. At first, Orkney and his management team had considered expanding into northern California, but they decided on the Puget Sound region surrounding Seattle as the focal point for future expansion. “Our game plan in the 1980s,” Orkney commented, “was to develop the Oregon market, get extensive advertising coverage, economies of scale—and then look at Seattle.”

A Prototype for the Future: 1991

The Seattle store opened in March 1991, its debut marking a turning point in the company’s history. In the new store, which measured 57,000 square feet (only marginally larger than the company’s other stores), approximately 80 percent of the merchandise remained the same as the Oregon stores, but there was an emphasis on two categories—automotive parts and sporting goods. The combination of automotive parts and sporting goods became the signature merchandise mix of the new G.I. Joe’s, giving the retailer its new identity. To furnish this new identity with greater exposure, Orkney announced an ambitious expansion program that promised to double the size of the company during the ensuing decade. Company officials announced G.I. Joe’s would open a new store in the Puget Sound area every 18 months, a pace of expansion that would give the company 25 stores by 2002.

The establishment of the new Seattle prototype breathed new life into G.I. Joe’s, but one store, no matter the extent of its initial success, could not immediately eliminate existing problems. The $135 million in sales generated in 1991 by the company’s 13 other stores was too low according to company officials, at least $10 million below their projections. The disappointment stemming from weak sales led to a change in senior management in 1992, the first since the death of Edward Orkney in 1976. Prior to the management shakeup, David Orkney had presided as chairman, chief executive officer, and president, but in May the company divided the responsibilities of its top executive officer. The new senior executive who assumed day-to-day control over the company’s operations was a longtime employee named Norm Daniels. Daniels had joined G.I. Joe’s in 1965 at age 16, when he was hired by Edward Orkney to stock the shelves and sweep the floors of the company’s original store in Portland. As the company expanded from one store to more than a dozen during the ensuing 25 years, Daniels gradually worked his way up from stock boy. He was serving as vice-president of merchandising and marketing when he earned promotion to the office of president and the new title of COO in May 1992. Chief among his new responsibilities was to spearhead the retailer’s transition from a general merchandiser to a sporting goods and automotive parts specialist, a task Orkney believed Daniels was capable of achieving. “We need a retailer at the top,” Orkney explained to Discount Store News in May 1992, “and Norm Daniels is our best retailer.”

In the wake of Daniels’s promotion, G.I. Joe’s pressed forward with its plans to become a sporting goods and automotive parts specialist. Convinced that the Seattle store was the wave of the future, Daniels aborted plans to establish additional stores and directed the company’s resources toward the renovation of its existing stores. In 1993, Daniels announced a five-year plan to remodel and update the 14 stores in Oregon and Washington, devoting $3.5 million to the project. Following the example set by the Seattle store, lawn and garden supplies were eliminated at all stores, coupled with reduced inventories of hardware, housewares, and home electronics. With the space freed by weeding out merchandise that strayed from the retailer’s focus, Daniels increased the presence of automotive parts in individual G.I. Joe’s, allotting the department nearly an extra 10,000 square feet for a total of 25,000 square feet. Said Daniels: “We want to focus on two major categories: sporting goods and automotive products. We don’t want to try and be everything. We don’t want to be a department store or mass merchandiser.”

Company Perspectives:

Today G.I. Joe’s is a favorite Northwest retailer of sports and auto accessories, supplying customers with the gear they need to “Seize the Weekend.”

The company’s efforts to transform from a generalist to a specialist progressed through the mid-1990s with mixed results. The company was consistently profitable during the five-year renovation program, posting annual profits for five of the six years between 1992 and 1997, but annual sales suffered. Midway through the decade sales dropped, their decline attributable to the loss of revenue generated by lawn and garden supplies, housewares, beverages, and home electronics. Following the $8 million drop in sales, the company’s annual revenue volume stagnated, resting at a level commensurate with the totals registered during the early 1990s. Spirits at company headquarters brightened, however, after the financial results for 1996 were posted. The company’s revamped merchandise mix led to the most profitable year ever recorded by G.I. Joe’s, breeding renewed optimism and sparking interest in expansion. “The last couple years we’ve been focusing on remodeling our older stores,” a company official remarked, “but the mood is starting to shift into the expansion mode again.”

Embracing Expansion: Late 1990s

G.I. Joe’s had not opened a new store since the Seattle store in 1991, which represented a six-year hiatus when the company announced in February 1997 that it was considering opening two new stores in the Puget Sound region. Expansion plans were eventually scaled back, leading to the establishment of one new store south of Seattle before the end of the year, but in terms of significant events in 1997, the addition of a new unit to the chain ran a distant second to an agreement reached later in the year. Daniels, the former stockboy, was about to reach the highest rung of the company’s corporate ladder.

In December 1997, a new era in the history of G.I Joe’s began. Daniels and chairman Orkney announced they had reached an agreement providing for Daniels’s acquisition of Orkney’s majority interest in G.I. Joe’s. Prior to the acquisition, Daniels sold four stores, company headquarters, and a distribution center to Wilshire Real Estate Investment Trust Inc. and then leased the properties back from Wilshire, obtaining $28.5 million from the sale that may have been used to facilitate the acquisition. As the particulars of the deal were attended to, Daniels announced his plans for the company’s future, plans that promised to usher in a period of bold expansion. Daniels discussed establishing three new stores in 1998 and the first half of 1999, making his announcement while displaying a map showing potential sites for more than 40 stores in seven states.

To finance expansion, Daniels announced G.I. Joe’s plan to complete an initial public offering (IPO), filing with the Securities and Exchange Commission in late 1998. According to the filing, eight new stores were to be opened during the ensuing four years and ten stores were slated to be remodeled. In another move toward expansion, the company acquired Timberline Direct in late 1998, a purchase that opened new avenues of growth. Timberline Direct, a catalog and electronic commerce firm based in Hillsboro, Oregon, operated three catalog brands distributed to customers throughout the United States and Canada, each focused on outdoor sporting activities. As the acquisition was reorganized as a division called Joe’s Direct, attention turned to the anticipated IPO, the completion of which was in jeopardy. The early months of 1999 found G.I. Joe’s facing a market indifferent to public offerings launched by relatively small companies such as G.I. Joe’s, forcing Daniels to abort plans for the company’s debut as a public company. “We just couldn’t price it at what we wanted,” Daniels explained.

The cancellation of its IPO left G.I. Joe’s facing an uncertain future, clouding the company’s plans to spread its presence into Montana, Idaho, Utah, Nevada, and northern California. However, Daniels did anticipate filing for another IPO once the market demonstrated its receptivity to small capital firms. Other aspects of the company’s business provided a clearer picture of promising growth, fueling optimism for the future. Looking ahead, the company planned to increase the sales generated by its mail-order and Internet-based business and to push forward with the remodeling of its existing stores, which had proven to increase profitability. Substantial sales growth and a greater geographic presence hinged on the completion of a public offering or securing capital from some other source, an objective that stood high on management’s list as G.I. Joe’s entered the 21st century.