General Information about the Cabela Company - Research Paper Example

 Cabela’s Section 1 : Background Section 2 : Vision and Mission Statements Section 3 : Key Performance Indicators of Cabela's Section 4 : Goals of Cabela's Section 5: Industry environment and Competition Section 6 : SWOT Analysis Cabela’s: An Insight Section 1 : Introductory Background Cabela's is a company operating outdoors merchandise like hunting, fishing and camping equipment and outdoor apparel. They are the world's largest retailer of sporting outfitter, operating through widely spread 28 retail stores in the United States and Canada as well as major direct-to-consumer operations through its catalog and also via the Internet. In 2007, Cabela's acquired S.I.R. Warehouse Sports Store, which was a Canadian sports chain and this acquisition gave a significant thumbs up and boost to their operations. Cabela's has the following products in its long a distinguished product line of 44 products, divided into five product categories: hunting equipment, fishing and marine, camping, clothing and footwear and gifts and furnishing. Their product line includes Hunting Accessories Shooting Gears Fishing equipments / Fly fishing Boating equipments Camping equipments Electronics (two way handsets, cameras etc) Optics related to outdoors (binoculars, goggles etc) Outdoor / casual clothing for men, women and kids In addition to this, Cabela's has the following other activities Gun library TV Shows Credit card services Magazines and dedicated catalogs Cabela's has three business segments Direct Marketing Segment – Operations through direct mails and Internet. This is their flagship division as Cabela's started as a direct-mail operation this is still its largest source of revenue. Cabela's circulated large number of catalogs through mails and its e-commerce site was the most visited sporting goods e-commerce site in 2007 as well as in 2008. Cabela's direct business is growing more slowly than its retail business but is more profitable that the latter. Retail Sales through stores – Operation through own dedicated “destination” stores. Cabela's stores are designed to provide a unique experience with aquariums, dioramas, horse corrals and archery ranges within their stores, thereby making these to be destinations for entertainment. Cabela's claims that on an average, every customer spends close to 4 hrs in the stores. Financial Services – Operations related to Cabela's CLUB Visa credit card which deals with loyalty rewards based on Cabela's customer loyalty program that operates through a completely owned subsidiary of Cabela's, the World's Foremost Bank. This segment is highly profitable as in 2007, over 26% of merchandise sales at Cabela's for with a Cabela's CLUB card. Fig:Table 1( pie chart – Source: Wikinvest. “Cabela's”. 2009) Section 2 : Vision and Mission Statements of Cabela's A vision statement is an idealized and strategic description of the desired outcome of the company that inspires, energizes and helps in creating a mental picture of the target of the company. As Abraham Maslow once said “The basic question is, what vision do you aspire to?”(qtd. in Hickman, 1998, p. 234). In contrast, a Mission statement is more focused and describes in brief what the business of a company is and “why” the organization currently exists. Quite often these are published and displayed by the company in their office premises, company websites et al. In case of Cabela's, this is not published on their website. Nevertheless, a look at their history, company profile and website gives us enough clues to create a possible Vision statement for Cabela's. Cabela's official website shows a simple but powerful statement on the left top corner of the web page - “World's Foremost Outfitter – 100% satisfaction guaranteed” (“Cabela's”. 2009) In the same page the section in “about us”, the following statements have been made - “We passionately serve people who enjoy the outdoor lifestyle by delivering innovation, quality and value in our products and services” (“Cabela's”. About us. 2009). It also identifies certain core values which are: “Superior Customer Service Integrity and Honesty Quality Products and services Respect for Individuals Excellence in Performance”(“Cabela's”, About us, 2009) Keeping the above in mind, it is not difficult to create the Vision and Mission statements of Cabela's. Vision of Cabela's (in my words): To passionately serve people who love outdoor lifestyle through our innovative and quality products and personalized services. Mission Statement of Cabela's (in my words): We, in Cabela's believe in providing value to the customer through superior quality products and excellent service to the customer. We want to create a complete atmosphere of an outdoor sporty world for our customers through retail shops, our TV shows, our Cabela's club cards and our website with separate space for personalized “trophy” room for our customers which supplement our superior product range. We want to serve our customers with integrity and honesty by focusing on our core competencies in outdoor field products and bringing our products close to our customers though direct marketing and dedicated retail shops. We respect the individuality of our customers and believe in providing them with information through catalogs, websites, TV shows and other indirect sources so that they can make an appropriate choice. With this, we want to carve a niche market for us within this community market where customer would choose us above others for being simultaneously the “Industry Captains” as well as their “friend next door”. Section 3 : Key Performance Indicators of Cabela's (figure: table 2) FY08 +/- FY07 +/- FY06 Revenue (in mio US$) 2552.7 8.60% 2349.6 13.80% 2063 Operating expense (in mio US$) 2411.7 9.70% 2198 14.50% 1919.8 Operating Income (in mio US$) 141.1 -6.60% 151.1 5.00% 143.7 Operating Income (%) 5.50% 6.40% 6.90% Net income after interest and tax 76.4 -13.10% 87.9 2.40% 85.8 Net income (%) 3.00% 3.74% 4.15% Inventories 517.6 608.16 484.4 Turnover / Inventory ratio 4.93 3.86 4.3 Cash Flow from operations 155 487.00% 31.8 -42.00% 54.9 6.00% 1.35% 2.66% Total Cash Flow 278.9 688.00% 41.7 -51.50% 85.98 Cash Flow (%) 11.30% 1.77% 4.17% Other significant facts of Cabela: 8 new stores in US in 2007; Cabela's retail square footage increased to 4.0 million 4 more stores opened in 2008/ 2009 Publishing 140 million catalogs in 2007 as against 135 million in 2006. Increased loyalty card / credit card business by 15.5% Reduced non-selling labors in stores by 20% . Analysis of the performance of Cabela's : A close investigation and detailed study of the company' performance shows that 1. Revenue growth is moderate – does not show a high level of growth 2. Operating cost increased higher that the revenue growth – thereby pushing down the operating income as well as net income 3. Inventory is controlled very well; inventory turnover ratio brought back to almost 2005 levels 4. Excellent inventory management and capital expenditure control – which boosted the net cash flow remarkably. Section 4: Goals of Cabela's After announcing the financial earnings for Q4 of 2008 Dennis Highby , the president and CEO of Cabela's declared “This gives us one of the strongest balance sheet in the retail industry, making us much better prepared to weather this economy storm than most of our competitors” (“Seeking alpha”, 2009). Based on the analysis of KPI of Cabela's, the following should be the goals for the next 1 year. a) Control operating expenditure to increase the operating margin to around 7% (FY06 levels). b) Continue inventory control c) Focus on cash flow from operations d) Continue expansion of retail shop network but maintain control on capital expenditures. e) Financial services segment continues to remain in focus. f) Risk based pricing strategy to be continued. Every company has their own set of goals and target which they try to achieve every year. It is imperative that they set targets for themselves so that get the inspiration and the desired motivation to carry out their work. The target should be something which is not seemingly impossible and quite within the range of its workers capabilities. Quite often the targets set are difficult so as to motivate the workers to dream bigger but they should not be such that the figures set are impossible to achieve. Unachievable targets de motivates the workforce and creates a negative working atmosphere. However one also has to keep in mind that a company without any set goals is like a rudderless ship floating adrift and in such a economically volatile situation as we are witnessing in the recent times, not having a company goal is akin to committing hara-kiri. Section 5 : Industry environment and Competition Economic conditions affecting or slowing down the market. The stagnating GDP and rising oil prices have caused the market to become flat topped. Reduction of gasoline prices in the 4th quarter of 2008 improved the retail sales to a certain extent, but not significantly. Cabela's Incorporated works in three different markets Outdoor Specialty Retailers Specialty Sports gear manufacturers Apparel market The apparel market is a highly fragmented market of apparel manufacturers; super markets and is in fact Cabela's market by derivation. This is not being discussed here in the present article. The other two segments combine works on wafer thin margins and is predominantly a volume driven market. It is also a high inventory business and therefore cash flow management becomes extremely crucial in this business. The business figures reveal that the companies who have tried to push their profitability have been hit on inventories and have ended up with negative cash flow. This market also suffers from seasonal fluctuations and is badly hit by the economic downturn as this falls under non-essential commodity. In the Outdoor Specialty Retailers, Cabela's faces competition from Bass Pro Shops and Gander Mountain Company. “The companies are sometimes called "The Big Three," and each builds giant stores with more merchandise than old-fashioned mom-and-pop shops”(Seward, J. “ESPN Hunting”, 2005) All the three giants mainly operate through retail shops. Gander operates a large number of retail shops which are small in size. They do have a few large retail shops but this genre seems to be long more to Bass Pro Shops (BPS) and Cabela's. Both BPS and Cabela's believe in having huge retail stores which are more a destination store than a normal shop. In the specialized sports goods market where they face competition from companies like Dick's Sporting Goods (DKS), Hibbett Sports Inc (HIBB), Big Five Sporting Goods and Sports Authority Inc. Only in the sector of specialized sports goods retailing, Dick's Sporting Goods (DKS) is the market leader since 2007. Dick's has 348 namesake stores spread across 36 states which sell a huge range of sporting gears and other equipments. Dick's also owns and manages the retailing chain of Chick's Sporting Goods and Golf Galaxy. In the year 2007, Dick's produced about $3.8 billion in total market sales, which is, in an average 25% increase from the previous year. It became the largest retailer of sports goods with nearly 6% in the total market share. DKS originally used to operate in the Northeast and Mid-Atlantic regions which were causing them to suffer during the winter season when their outdoor sales were getting affected. After owning the Chick's Sporting Goods which was a 15 store chain of retailing stores, DKS entered the Californian market and is now targeting temperate climate regions such as Atlanta, Florida, and Texas . Dick's suffers from a lack of strong brand image; its own brand accounts for around 14% of the sales while for the rest, they have to rely on established brands like Nike, Adidas etc. This makes them come into competition with broad based supermarket operators and reduces their margins significantly. Financially speaking, DKS suffers from high operating cost and major capital expenditure in FY08. Thus DKS could not leverage is decent inventory turnover ratio to the desired extent and managed to achieve a meager positive cash flow. Big 5 Sporting Goods Corporation (BGFV) merchandises sporting goods operating through its huge network of 363 stores spread in 11 states in the western part of U.S.A. Primarily Big 5 opens small stores in relatively small cities and other suburban areas, especially in the regions of lowly populated western states . Big 5 bears the well known sporting goods brand names like the Nike, Adidas etc, but it earns around 5% higher margins from its own branded sporting goods. Though, primarily a U.S chain from the Western parts, Big 5 has started expanding towards the Eastern parts of USA also. Financially, Big 5 is a far smaller company compared to Cabela's (see table 3) and barely managing to keep themselves afloat. Hibbett Sports (HIBB) is a small company operating in the Middle West parts of US, the Sun Belt region and the Mid-Atlantic part of the continent. They have around 688 small stores spread in and around 23 states and they specialize in markets where they face very little direct competition – often small counties with less than 30,000 people form their target. Their main difference from the competitors lie in the fact, that they sell full priced merchandises rather than keeping some products on discount and some on the premium range. Hibbett's main competition is with the small local independent shops that sell their own products and not with other big retail chains because of its small sized shops and fully priced items without any discounts. Financially, Hibbett suffers from the problem of operating with too high an inventory which straps down its cash flow to a low value. A comparison between Cabela and its competitors in sports goods market for the year FY08 is as follows: (Figure: Table 3) Cabela's DKS Big 5 HIBB Revenue (in mio US$) 2552.7 4130 864.6 564.2 Operating Income (in mio US$) 141.1 30.38 27.6 48 Operating Income (%) 5.50% 0.70% 3.20% 8.50% Net income after interest and tax 76.4 -35 13.9 29.45 Net income (%) 3.00% -0.80% 1.60% 5.20% Inventories 517.6 854.77 232.9 151.77 Inventory Turnover ratio (2) 4.93 4.83 3.71 3.71 Cash Flow from operations 155 159.8 39.5 39 6.00% 3.80% 4.50% 6.90% Total Cash Flow 278.9 24.53 -0.68 9.91 Cash Flow (%) 11.30% 0.60% -0.70% 1.70% Section 6: SWOT Analysis Strength Good product line Focused approach High brand value Established retain chain Good cash flow management in past one year. Weakness No support from broad-base selling channels Retail shops only in US – hence products are designed for US market only Likely to carry high inventory as wide range of products are available Opportunity Expansion of Retail chain Entry into Canada market Threat Intense price pressure Strength: 1. Good product line: This is well established and is indeed the key selling point of Cabela's. They have a robust product line in the field of outdoor sports since 1961. Customer feedbacks and ratings in popular websites like mrrebates.com and mouthshut.com as well as Cabela's own website bear testimony to this. 2. Focused Approach: Cabela's has played on its core strength of outdoor activities. They have expanded horizontally by enhancing their product lines in similar products and vertically by moving into businesses which are associated with this product line. For example, to support their shooting gear products, Cabela's has launched a “Gun Library” which allows their customers to sell their old guns as well as buy second hand guns. To site another example, Cabela's has launched their home enhancement products which also are related to outdoors like wild life prints et al. 3. High Brand Value: Considered “Best in the class”. Several adventure localities have advertised themselves as “recommended by Cabela's”, thereby piggy-backing on Cabela's brand image. Cabela's own branded product represents 35% of the retail sales in 2007 which is significantly higher than their competitors. 4. Retail shops provide the customer a look and feel of the product. Large retail shop chain have been established throughout the United Stated of America. 5. Good Cash Flow management: As against a poor performance in FY07, in FY08, Cabela's has reduced their long term debt from 126'7 mio US$ to less than 1 mio US$. Capital expenditure has been reduced to 91'0 mio US$ in FY08 from 335'0 mio US $, inventory has reduced by 90'0 mio US$. The overall impact has been a cash flow of 278'9 mio US$ in FY08 as against – 41'7 mio US$ in FY07. Weakness 1. No Broad base retail selling : Cabela's products are not available in general stores like Walmart, C&G et al and therefore “force selling” is not an option. People will but Cabela's products only when they really want this product. 2. No feel for global market: Retail shops are only limited to US / Canada and therefore feedback about the customer's preferences is only limited to US customers. This may become an obstacle in designing global products. 3. Business model likely to lead to high inventory: Specialized products are being offered on internet by Cabela's as 'Off-the-shelf”. This necessarily demands a high inventory to be maintained unless Cabela's is able to foresee customer preferences in advance. 4. Cost of revenue high: This has been around 58% for FY06 and FY07 and has increased to 60% in FY08. This is eating into the net income and has pushed the net income to 2.9% in FY08 from 3.7% in FY07 and 4.2% in FY06 Opportunity: 1. Expansion in Retail chain: New retain shops have been planned at Montana, New Jersey, Indiana and Colorado. This should boost up Cabela's's market penetration. 2. Entry into Canada: Cabela's has opened a retail store in Canada. This offers further possible entry into Canadian market. Threat: 1. Intense competition from commodity market: Similar products are also available from shopping malls and general stores which are likely to be cheaper. Cabela's has attempted to carve a niche market within this commodity market which will constantly be challenged by the standard products. Also refer to the SWOT analysis of Data Monitor: Cabela's incorporated company profile (attached as annexure). Thus from the above detailed study of Cabela's we can see that despite the present economic turmoil and volatile situation and also seasonal changes coupled with a slow growing market, Cabela's has shown an impressive cash flow and a shown a grit and a remarkable withstanding force to face all the adversities of the present situation. References Cabela's. (2009). About Us. Retrieved on 15th April 2009 from http://www.cabelas.com/home.jsp;jsessionid=XFXKZQKTCNVSTLAQBBICCOFMCAEFCIWE?_requestid=14235 Hickman, R, Gill. (1998). Leading Organizations: perspectives for a new era. Sage Publishers. 234. Highby, D. (19th February 2009). Seeking Alpha. Cabela's Inc., Q4 2008 Earnings call Transcript. Retrieved on 15th april 2009 from http://seekingalpha.com/article/121633-cabelas-inc-q4-2008-earnings-call-transcript?page=2 Seward, John. (3rd June 2005). ESPN Hunting. “Big outdoor retailers fight for market share”. Retrieved on 15th April 2009 from http://sports.espn.go.com/outdoors/hunting/news/story?id=2075457 Wikinvest. (2009). “Cabela's”. Business segments. Retrieved on 15 April 2009 from http://www.wikinvest.com/stock/Cabela's_(CAB)#_note-9 Other material read and consulted Chandra, P. (2006). Finance Sense – Finance for non Finance Executives. New Delhi. Tata McGraw- Hill Publishing Company Limited. Mouthshut.com. (n.d.) Cabela's.com Reviews. Retrieved on 15th April 2009 from http://www.mouthshut.com/product-reviews/Cabelas.com-925039043.html Mr.rebates. (2008). Store ratings. Cabela's Reviews. Retrieved on 15th April 2009 from http://www.mrrebates.com/store_ratings/view_store_ratings.asp?merchant_id=1095 Yahoo! Finance.(2009). Cabela's Inc(CAB). Balance Sheet. Retrieved on 15th April 2009 from http://finance.yahoo.com/q/bs?s=CAB&annual Read More