It took 10 fiscal quarters and savvier inventory management for outdoor recreation retailer Cabela’s to return to positive same-store sales. In the second quarter of 2016, its most recent reporting period, the company said that same-store sales increased by 1.5 percent.
It is a win, even if by a small margin, and was the result of a correction that returned it to positive results. The performance also put Cabela’s pending acquisition by privately-operated competitor Bass Pro Shops in a more positive light. Bass Pro Shops, based in Springfield, Mo., announced a deal on October 3 to purchase Cabela’s, in a stock transaction worth about $5.5 billion.
The two companies are named among the most significant specialty retailers in the fiercely competitive sporting goods category, according to a spring 2016 industry overview from Gordon Brothers | Accuval, a New York City-based real estate advisory, lending and investment firm. A combined retail platform would certainly carry clout in the industry. As the deal awaits regulatory approval, however, the main question is whether the bigger, more influential specialty retailer will have a diversified and effective real estate strategy.
“They basically do very similar things and have a similar customer base,” says Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York City-based retail consulting and investment banking firm. “Their stores are destinations. People have no problem driving a long way to get to these stores. And they are gigantic, many of them.”
Bass Pro Shops’ stores average about 115,000 sq. ft., while Cabela’s’ units average around 70,000 sq. ft., said industry analysts.
Cabela’s is not ailing from overbuilding, an issue that is now troubling the fast-fashion segment.
In fact, the company had been eager to expand its footprint, according to Anjee Solanki, national director, retail services, at real estate services firm Colliers International. It has been doing so modestly, with 13 new locations in 2015 and about 14 new units in 2014, according to Cabela’s annual reports.
Cabela’s and Bass Pro Shops have a lot to offer each other.
“Synergies of the two firms will benefit both retailers’ overall market share,” says Bill Rose, national director of the retail group at brokerage firm Marcus & Millichap. “Cabella’s strong West Coast presence will augment Bass Pro’s significant east coast foot print.”
The demographics of the two companies vary slightly and in complementary ways, Davidowitz says, noting that Cabela’s focuses slightly more on hunting, while Bass Pro Shops is a mainstay among anglers.
Shopping at Cabela’s or Bass Pro Shops often involves daylong excursions for outdoor sports enthusiasts and their families. Customers get hands-on experiences at its shooting ranges—for both guns and archery equipment.
“In this segment, people want to touch it and feel it,” Solanki says. “Consumers are aspirational, so they are either trying different sports or getting back to a sport they were in when they were younger. At other times it is a family event, wherein the parents are initiating young kids into the sport of their choice.”
The feel of a destination and shopping as an event, plus accessibility and highway visibility, have made Cabela’s and Bass Pro Shops stores valuable locations. These properties come onto the market infrequently, according to Solanki, so cap rates on turnovers tend to range between 5.0 percent and 6.0 percent.
A combined company has great potential for a diversified real estate strategy, and for future growth. Gordon Brothers estimates that sporting goods revenue will grow by about 2.9 percent in 2016. As significant companies in the space, Bass Pro Shops and Cabela’s could take a major share of that, but they will not get easy dominance over other retailers in the segment.
Observers say that the large store sizes and challenges relating to cyclical inventory management might have caused the same-store sales slump at Cabela’s, for example. This is especially true if a shooting incident triggers national news coverage and the almost inevitable calls for tighter gun purchase and ownership regulations. Sales fluctuations in firearms and shooting categories ensue as a result, according to Davidowitz.
Ongoing success for the combined retailer will depend on excellence in creating customer engagement and savvy inventory management. Other retailers in the segment, such as Sports Authority and Sports Chalet, which have both liquidated, have learned the perils of ongoing mistakes and unavoidable competitive pressures.