The Sportsman’s Guide, Inc.

views updated

The Sportsman’s Guide, Inc.

411 Farwell Avenue
South St. Paul, Minnesota 55075
U.S.A.
Telephone: (651) 451-3030
Toll Free: (800) 882-2962
Fax: (651) 450-6130
Web site: http://www.sportmansguide.com

Public Company
Incorporated: 1977 as Olen Company, Inc.
Employees: 875
Sales: $162.5 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: SGDE
NAIC: 45411 Electronic Shopping and Mail-Order Houses

The Sportsman’s Guide, Inc. is a leading marketer of value-priced outdoor gear and general merchandise through catalogs and the Internet. Over its history the company has transformed itself from a home-based business selling specialty deer-hunting items to a catalog merchant pitching the outdoors lifestyle and, more recently, an up-and-coming e-tailer seeking to broaden its market appeal.

Hunting for Customers: 1970–85

Gary Olejnik—hunter, angler, and outdoorsman—founded a home-based, mail-order business in 1970 and operated it as a sole proprietorship under the name Olen Company. Targeting other deer hunters, Olejnik first sold decals, and later belt buckles, shirts, deer patches, and wildlife art. Initially, Olejnik sold his wares through magazine ads. He introduced a 16-page catalog in 1975. Olejnik and Leonard Paletz, his boss at Fidelity Products, an office equipment mail-order business, joined forces in 1977 and incorporated as Olen Company, Inc.

Olejnik selected and tested products for the retail mail-order business, and Paletz, former COO at Fidelity, headed up the operation. The men mailed the company’s first catalog, a 52-page offering, to 347,000 prospective customers.

Mail-order sales in general rose 44 percent from 1980 to 1984. The sporting goods niche jumped 73 percent during the period, rising from $860 million to $1.5 billion. By 1985, Sportsman’s Guide sales reached $8.4 million.

Sportsman’s Guide sent out nine million catalogs in 1986, primarily to middle-income, blue collar men interested in hunting and the outdoors. Among the 16,000 items in the 88-page catalog were dart and stun guns, ninja stars and other martial arts weapons, inflatable beds and boats, and clothing. Sales to women generated about 18 percent of business. In 1986, the catalog merchandiser bagged sales of $14 million. Pre-tax earnings were $1 million.

The sales jump during 1986 was generated by increased catalog mailings—up three million from 1985. Equally important, the average order size rose thanks to purchase incentives and a single-rate shipping fee. Amid the soaring sales, Olejnik and Paletz planned for an expansion.

Rising, Falling Fortunes: 1986–90

In May 1986, the company completed its initial public offering (IPO), raising $2.31 million. The capital funded a move into a 55,000-square-foot office and warehouse space. The previous facility had measured only 18,000 square feet. The company also changed its name to The Sportsman’s Guide, Inc. during that pivotal year.

By this time, the industry was cranking out significantly more than ten billion catalogs a year. Holiday season wish books from Sears, Roebuck or Montgomery Ward had been overrun by specialty catalogs enticing Yuppies with everything from gourmet foods and trendy fashions to sophisticated electronic equipment. Sportsman’s Guide continued to serve “Mr. Average Guy, otherwise known as ‘Joe Six-Pack,’ and his family,” according to Al Mosko in the Penny Stock Journal in 1987.

“A few smart catalog merchandisers still remember Joe and cater to his needs. The Sportsman’s Guide, Inc., is one such organization. Ever since its first catalog came out 10 years ago, the company’s customer always has been the middle-income, no-nonsense outdoorsman,” continued Mosko. Many outdoors-oriented catalog companies had shifted from the functional to the fashionable, but not Sportsman’s Guide. Furthermore, the company took pride in its “Buy America” policy.

The Sportsman’s Guide, like any other catalog retailer, needed to provide good service and quality products to keep customers. The company offered speedy delivery and a liberal return policy. Guns, knives, boots, camping equipment, and other hard goods produced the bulk of sales volume; about one-quarter of the fall/winter catalog offerings were private label apparel such as shirts and jackets.

As he had since the early days, Gary Olejnik continued to field test products—the company’s return rate fell below the industry’s three to ten percent range. Olejnik’s endorsements, under the name “Gary Olen,” provided entertaining reading for catalog customers. “Considering the number of ‘Dear Gary’ letters that the company receives, customers closely identify with the Sportsman’s Guide spokesman,” observed Mosko.

In an effort to move the business to a year-round operation, Sportsman’s Guide mailed out 2.6 million copies of its first spring/summer catalog in 1987. The company historically de-pended on the fourth quarter—October through December—for the bulk of revenues. The new publication featured low-priced fishing, camping, and backpacking products plus some year-round items from the fall/winter catalog. Sportsman’s Guide upped its mailings for the original catalog to 14.4 million.

In another move, Sportsman’s Guide acquired the assets of P&S Sales, Inc. of Chapel Hill, North Carolina, during 1987. The 29-year-old catalog retailer carried more clothing than Sportsman’s Guide and served a slightly older and more affluent market. Its customers participated in outdoor action/adventures like mountain climbing or safaris in addition to hunting, shooting, and camping. The two companies had been exchanging their mailing lists for some time: Paletz compiled Sports-man’s Guide’s customer list from names purchased from other outdoor publications.

Sportsman’s Guide reported losses of $2.1 million in 1988 on sales of $18.1 million, an 18.4 percent decline in revenue from 1987. The spring/summer catalog failed to take off, forcing the company to liquidate excess inventories. Start-up costs had contributed to losses in excess of half a million dollars a year earlier.

“What we should have done is test the concept before going into it full bore,” Paletz said in a July 1989 Star Tribune article by Jim Jones. A cutback on spring catalog mailings in 1988 resulted in even fewer sales, and Sportsman’s Guide dropped the offering in 1989.

The misstep turned Sportsman’s Guide’s optimistic outlook into a dire one. Three creditors had filed an involuntary bankruptcy petition in April 1989. Florida investor Vincent W. Shiel bailed out Sportsman’s Guide with an offer to buy controlling interest and extend loans. The court granted Sportsman’s Guide’s request to convert the involuntary bankruptcy into a Chapter 11 reorganization.

“Shiel learned about the Sportsman’s Guide’s liquidity problems when an employee of the firm who formerly worked for Shiel at Gander Mountain called and asked if he’d be interested,” explained Jones. Shiel had turned around the Wisconsin-based cataloger in the early 1980s and held controlling interest in hunting and fishing equipment distributors in Massachusetts, Texas, and Ohio.

Shift in Strategy: Early to Mid-1990s

By 1991 Sportsman’s Guide recovered the ground it had lost. Then in the fall of 1992, the company introduced value-priced marketing, a move that spiked sales but produced thin margins. Sales climbed from $38.2 million in fiscal 1992 to $60.2 million in 1993, but the company fell into the red for the first time since the reorganization. In response, Sportsman’s Guide introduced wider margin products: military surplus in late 1993 and manufacturers’ closeout merchandise the following year.

Sales climbed to $96.1 million in 1994, and the company produced its first significant net earnings in history: $2.7 million. The 60 percent increase in sales was driven primarily by an increase in catalog editions and mailings. In 1994, Sportman’s Guide sent out one catalog each month and introduced its first specialty catalog, military gear. About 39 million catalogs were mailed to existing and prospective customers. New customers, gained mainly from rented mailing lists, made up about 30 percent of 1994 sales. Ammunition and shooting accessory sales, boosted by talk of increased government regulation, also contributed to the record volume.

To help support the growth, Sportsman’s Guide brought in managers with solid direct marketing experience and upgraded facilities as well as telephone and computer systems. Cofounder Gary Olen (Olejnik) served as president and CEO. Investor Vincent Shiel acted as chairman of the board.

Sales rose to $101.8 million in 1995, but the company lost $1.7 million due to soft consumer demand and sharply rising postage and paper costs. Paper prices jumped 60 percent and third class postage 14 percent during the year. Consumer mail-order company profits fell nationwide.

Sportsman’s Guide had added ten new specialty catalogs and increased mailings in 1995, but the customer response rate was slow. To boost sales the company introduced a membership program offering discounts and a payment plan.

Company Perspectives

Our Mission: The Sportsman’s Guide offers high value, top quality gear, clothing and footwear to outdoor folks around the world, at the lowest prices anywhere with fast delivery … and an unconditional guarantee of satisfaction.

Early in 1996, a $6.2 million buyout deal with Atlanta, Georgia-based Vista 2000, Inc. fell apart. The financial and operational condition of the home security and personal safety product manufacturer proved to be unfavorable. As its direct-mail subsidiary, Sportsman’s Guide would have produced Vista’s catalogs and handled orders and, in turn, would have sold its own products wholesale to Vista’s customers.

With the Vista deal dead, business proceeded as usual, or at least as usual for this cataloger. “Sportsman’s Guide has few, if any exact competitors,” wrote Jennifer Waters in a 1996 Minneapolis/St. Paul CityBusiness article. “Think about it. Where else would you find in one catalog everything from hand grenades to traveling urinals, bullets to camouflage bikinis?”

Through the “Fun-to-Read” catalog Olen continued to speak directly to his customers, and the language, as Waters illustrated, was down to earth. “Example: ‘No more pulling up anchor, unscheduled plane landings, crossing your legs or hoping for open gas stations,’ reads the copy accompanying the Little John traveling urinal.”

Although Sportsman’s Guide was unique in product mix, the company had competition. Other catalog retailers serving the hunting and fishing market included Cabela’s Inc., Bass Pro Shops Inc., and The Orvis Company, Inc. Sportsman’s Guide competed for value-oriented consumers with such discounters as Wal-Mart Stores, Inc. and Kmart Corporation.

Plan Paying Off: Late 1990s

Sales climbed more than ten percent in 1996 to $112.3 million but, more importantly, Sportsman’s Guide earned $2.3 million. Military surplus and closeouts produced 40 percent of sales. The company began to aggressively pursue closeouts of name brand shoes, boots, clothing, watches, and other items during the year. Sportsman’s Guide sold the items at 25 to 60 percent of original retail prices.

Despite their upswing, Sportsman’s Guide, along with other catalog retailers, remembered the downturn in 1995 and continued to fine-tune its operations to survive in an ever-changing environment. During 1997, Sportsman’s Guide opened a second retail outlet to help move excess product. The company’s first outlet was located at the main warehouse and distribution facility. The company also introduced a more sophisticated analysis of its 3.5 million-name file in an effort to improve customer response.

Sportsman’s Guide netted $2.5 million in earnings in 1997 from sales of $128.1 million. The company posted record sales despite a UPS strike during the third quarter: many consumers assumed that mail-order businesses were dependent on UPS for receipt and delivery of products and put off purchases.

Back in July 1997, Sportsman’s Guide announced plans for an additional stock offering to repay stockholders who supported the company during the reorganization period, but the offer was delayed due to the UPS strike. Finally, in early 1998, Sportsman’s Guide raised $9.6 million for the company and $1.2 million for selling shareholders. The stock sold at $6.50 per share, bringing in proceeds 27 percent below the projected take. The company planned to use the capital to buy more brand name closeouts, military surplus, and direct imports. To heat up sluggish trading, Sportsman’s Guide moved from the local over-the-counter market to the NASDAQ and changed its symbol from GIDE to SGDE.

Sportsman’s Guide told prospective shareholders that the market it served constituted an underserved and growing segment of the catalog industry. The number of men 45 years of age and older was expected to increase almost three times faster than the overall U.S. population through the first decade of the 21st century. The number of lower- and middle-income families was also rising.

The company sent out more than 61 million catalogs to about 3.7 million customers in all 50 states during 1997. Excerpts from the catalogs, which were created and designed inhouse, had been featured in Jay Leno’s “Headlines” segment on The Tonight Show on more than one occasion. In addition to creative writing, the company enticed buyers with markdowns on brand names such as Timberland, Ray-Ban, Remington, and Rocky.

Positioning for the Future: Late 1990s–2000

Sportsman’s Guide began taking orders from customers via its web site in April 1998, offering 1,000 items and capitalizing on the infrastructure already in place to process and ship the web orders. As its Internet sales increased, the company anticipated significant savings in catalog preparation, paper, printing, and postage costs; the largest cost for catalog companies was advertising, an estimated 20 percent of sales. Furthermore, phone order processing expense ran about four percent of sales compared with one-half of one percent for Internet-based orders.

Recognition of the fledgling effort came quickly. The Center for Internet Commerce took notice of Sportsman’s Guide in December 1998, and the next month Internet Stock Review included Sportsman’s Guide among the top 20 companies to watch in 2000.

Unseasonably warm winter weather slowed demand for cold weather products, reducing fourth quarter sales in 1998. However, increased catalog circulation combined with a larger number of higher margin products helped Sportsman’s Guide maintain its profitability. Sales in 1998 were $142.9 million and net income $1.4 million.

Key Dates

1970:: Gary Olejnik begins selling items aimed at deer hunters.
1977:: Business incorporates as Olen Company, Inc.
1986:: Public stock offering is completed; name changes to The Sportsman’s Guide, Inc.
1987:: First spring/summer catalog leads to near disaster.
1992:: Value-pricing strategy is introduced.
1998:: Online retail store is launched.

Closeouts, military surplus, and private-label direct imports accounted for about 60 percent of Sportsman’s Guide’s sales volume. Olen told the Wall Street Transcript early in 1999, “We make our profit on the buy, not on the sell.” By buying an entire allotment of manufacturer’s closeouts, for example, Sportsman’s Guide was assured of a unique offering at the lowest possible price. Military surplus purchased from around the world served as low-cost alternatives for items ranging from wool coats and snowshoes to underwear and sleeping bags. Direct imports allowed the company to offer key products made to its own specifications.

During the first quarter of 1999, Sportsman’s Guide began posting all of its catalogs on the Internet, thus becoming one of the first catalogers to make the move. The company introduced its first specialty catalogs developed exclusively for the web in September. Overall in 1999, Sportsman’s Guide invested about $1.2 million to establish and advertise www.sportmansguide.com, the e-commerce site launched in April 1998, and www.bargainoutfitters.com., launched in November 1999 as an on-line liquidation outlet. The company also established strategic alliances with other Internet sites and online service providers.

Internet sales for 1999 approached $13 million, a big leap over 1998 sales of $1.1 million. Total sales climbed to $162.5 million, but earnings fell to nearly the break-even point at $12,000.

A strategy for 2000 was to improve profitability by reducing the number of mailings. Unprofitable specialty catalogs and lifeless customer segments were eliminated. The decrease in mailings produced a corresponding reduction in sales during the first quarter of 2000. Sportsman’s Guide also experienced a lower-than-expected customer response rate from its catalog offerings, though Internet sales figures continued to grow.

Sportsman’s Guide’s community/destination web site www.guideoutdoors.com was activated in June 1999. The company said, “The site is one of the most comprehensive electronic destinations for outdoor lifestyle and recreation enthusiasts and is designed to be a preeminent portal for people with a passion for ‘everything outdoors.“The content aspect of the site ranged from forecasts of weather conditions to features by nationally known outdoor experts. A section of the site was dedicated to women, a segment of outdoor enthusiasts the company was trying to cultivate as customers.

Late in June, Gary Olen announced his retirement as CEO; he remained as chairman of the company he cofounded. Gregory R. Binkley, the company’s president and COO, succeeded Olen. Binkley joined Sportsman’s Guide in 1994 as vice-president of operations and was named president and COO in April 1998. He also led the Internet subsidiary Guideoutdoors.com Inc. as president and CEO.

Over its 30-year history, Sportsman’s Guide had mined a unique niche in the general merchandise catalog market. From all appearances, the company seemed poised to do the same in the ever-expanding cyberspace market. Business-to-consumer online transactions were predicted to exceed $60 billion by 2003, and Sportsman’s Guide already was stalking its share.