West Marine, Inc.

West Marine, Inc.

500 Westridge Drive
Watsonville, California 95076
U.S.A.
(408) 728-2700
Fax: (408) 728-2736

Public Company
Incorporated: 1993
Employees: 3,000
Sales: $224.2 million (1994)
Stock Exchanges: NASDAQ
SICs: 5551 Boat Dealers; 5961 Catalog & Mail-Order Houses; 6719 Holding Companies, Not Elsewhere Classified

West Marine, Inc., is the leading distributor of marine supplies to recreational boaters, and the largest and most profitable boat supply chain in the nation. Marine supplies for sailboats and powerboats—including recreational boating supplies, sporting goods, and sophisticated navigational equipment—are sold through three divisions: Store (retail and wholesale, 74 percent), Catalog (retail, 15 percent) and Port Supply (wholesale, 11 percent). The company was founded as West Marine Products, Inc., in Palo Alto in 1975 by Randolph Repass, a former engineer with a love of boating and a vision for a customer-friendly, product-heavy marine supply store. Through its stores, the company—now based in Watsonville, California—sells boating clothes, navigational equipment, life jackets, and other marine supplies.

Company Origins

West Marine’s success is largely due to the visionary leadership of its founder, Randolph Repass. Repass first tasted the boating supply business through his homespun operation of West Coast Ropes—a garage-based business selling rope used for boating lines—in 1968. Raised by a family that was very involved with recreational and sport boating in Boston’s south suburbs, Repass had studied electrical engineering at Duke University, then moved to California’s Silicon Valley to work as an engineer for Fairchild Cameraq and Instruments in 1966. At Fairchild, Repass was critical of management’s reluctance to give employees the free rein he felt they needed to excel at their jobs. He left Fairchild for a technology company, Nortec, where he didn’t stay long either. By 1973, married with two children, Repass started his own consulting firm, Semiconductor Engineering Associates. When Repass purchased a 13-foot sailboat for $250—the best he could afford at the time—he went shopping for boating supplies and found that most stores were lacking in both product selection and trained personnel. Repass correctly identified a need for a marine accessories retailer carrying a wide selection of products. When he opened the first West Marine store in Palo Alto in 1975, it was indeed the first retailer of its size and selection in the underserved industry.

Repass’s business philosophy encompasses a liberal and caring attitude toward both the customer and the employee. “Employee empowerment” is a key concept at West Marine, and Repass involves all employees in the company’s success by means of a stock option after their first year of employment. Customers appreciate West Marine’s innovative return policy, which provides for replacement, refund, or repair of any item with no time limit. West Marine was one of the first companies in the country to implement such a liberal return policy.

In its first year of existence, West Marine carried approximately 600 marine supply items. Business was not instantly successful. In fact, during the first year it was not uncommon for an entire day to pass with no customers, and the company’s bills were paid with the earnings of Repass’s consulting business. Repass lived on a boat in Santa Cruz and spent numerous evenings in a sleeping bag behind the store counter. However, he worked hard to keep the atmosphere upbeat and staff spirits high, and longtime employees remember both the hard work and the fun of those early days. Repass’s hard work and initial investment of $25,000 paid off, and West Marine began to grow quickly in the late 1970s and early 1980s. By 1983, the company had ten stores, and by 1992, a second distribution center was opened in Charlotte, North Carolina, and 27 stores were in operation. The mail order business was added in 1979. In 1982, needing more space, the company moved its headquarters from Palo Alto to Santa Cruz.

Aggressive Expansion in the 1990s

West Marine reached a turning point in 1989 as a result of recurrent financial difficulties. With 15 stores and a presence in the professional market, it was time to move in a new direction. Repass took three months off to build a house, spend time with his family, and reflect on the company’s future. He returned with renewed vigor and plans to develop the company into a “category killer” (meaning that West Marine stores would carry approximately twice as many items as its closest competitors). The company updated its computer system to produce daily store reports and real-time inventory checks for its telemarketing staff, and also hired a new group of managers, including Crawford Cole—a former auto industry executive—as president. In 1988 the company moved its headquarters from Santa Cruz to its current location in Watsonville, California.

In 1990 West Marine had 15 stores, all in the West. In 1991 the company began a process of rapid expansion in an attempt to increase its penetration across the 8,000 miles of shoreline in the continental United States, opening some 31 additional stores by 1994. Between 1992 and 1995 the number of stores increased by an average of 39 percent annually, with new stores established in Florida, Long Island, New England, the Gulf, and the Great Lakes. With pre-opening expenses of about $625,000, most West Marine stores became profitable after two years. The company also diversified its service units, planning half-size stores for smaller communities. Sales from its Port Supply Wholesale Division increased 35 percent (to $20.3 million) in 1993. Net income for 1993 was $3.5 million on sales of $122.8 million, which constituted a 116 percent increase in net income and a 127 percent increase in sales over the previous year.

In 1993 West Marine, Inc., was formed as a parent company for West Marine Products, Inc., and incorporated in California. By 1994, comparable-store sales had leaped by 15.8 percent over the previous year, and the stores’ initial stock of 600 items had mushroomed to some 18,000 items. 1994 sales were $124.4 million—a 44 percent increase from $88 million the year before. The majority of the increase was accounted for by the 17 store openings that year.

Going Public in 1994

In November 1994 West Marine went public at a price of $14 per share. With 56 stores and approximately seven percent market share, West Marine was recognized as number one of the four industry leaders—joining Boat America Corp., E&B Marine, Inc., and Boater’s World—which together represented 16 percent of the $2.2 billion boating supplies industry. To provide expert management, the company bolstered its executive personnel in marketing, merchandising, and inventory. Harvey Durand, whose background was in drug and grocery stores, was hired as president and chief operating officer, and Dennis Hawkins was hired to oversee merchandising and marketing.

In 1994 the ratio of store to catalog sales remained constant, with catalog sales growing 27 percent to $25.2 million. Mailorder catalogs comprised 900 pages, displaying 19,000 items, and were sent to 3,000,000 people. Net income in 1994 was $6 million, a 71 percent increase over 1993. Earnings increased 52 percent to 91 cents a share, and revenue surged 38 percent to $169.9 million. Between 1991 and 1995 the company’s sales increased at an annual rate of 25 percent, and earnings increased by 47 percent.

In April 1995 Crawford Cole took over as CEO, and Randy Repass became chairman. Cole targeted 90 markets for new stores, and identified 200 potential new markets. Eighteen new stores were opened in 1995, including first stores in North Carolina, Maine, and Michigan. Cole also publicly announced plans to continue expanding the product line. In the year prior to Cole’s assumption of leadership, West Marine had begun to move beyond the sailing industry, aggressively targeting the powerboat market with several hundred products. The power boating market represented a major growth area for the company, since it is substantially larger than the sailing market (accounting for 85 percent of all boat registrants in 1995).

Later that year West Marine moved its West Coast distribution center from Watsonville to a much larger facility in Hollister, California. At this time, a typical West Marine store carried about 10,000 of the 25,000 items offered by the company, and ranged from 5,000 to 15,000 square feet in size. Since the nearest competitor at this time offered about 14,000 items, West Marine retained its status as category leader. The company ranked 85th on Forbes’s “200 Best Small Companies in America” roster for 1995.

Company Perspectives:

West Marine’s mission is to supply and service boating-related products that provide outstanding value to retail, catalog, and wholesale customers. The company is committed to treating all of its customers better than they expect to be treated, and it strives to be regarded as the best in the industry. The company strives to provide a supportive environment for its employees; actively works to reduce its impact on the environment and to improve and protect the marine environment; and earns a reasonable profit proportional to its success and its mission.

Acquisition of E&B Marine in 1996

In July 1996 West Marine finalized its acquisition of competitor E&B Marine, which became a subsidiary. The company issued approximately 600,000 shares ($30 million) in exchange for E&B’s stock, and assumed $6 million in long-term debt. The acquisition approximately doubled West Marine’s store size and market penetration by adding 62 stores (bringing the total number of stores to more than 130), expanded product selection, increased catalog sales to over $300 million, and helped the company achieve economies of scale. Furthermore, the merger allowed West Marine to instantly achieve two goals: penetrating East Coast markets and accessing powerboaters. E&B Marine originated on the East Coast (with its headquarters in New Jersey), and its primary customer was the small power-boater. In fact, the acquisition lent West Marine a sales presence in 40 markets where it was not previously operating, with very little market overlap. Overall, the merger allowed West Marine to eliminate its closest competitor, accomplish two years of growth in a single year, and become almost four times as large as its nearest remaining competitor (Boat U.S., with approximately $90 million in 1996 sales).

At the same time, West Marine faced a challenge in assimilating the new stores, in that E&B stores were typically much less profitable than West Marine’s. To accommodate the merger, West Marine cut back on its continuing expansion plans for 1996 and early 1997. The opening of the company’s 150th store in San Francisco, in July 1996, was celebrated with Grand Opening festivities. Grand Opening profits benefitted the San Francisco Baykeeper organization, a local nonprofit group.

Principal Subsidiaries

E&B Marine, Inc.; West Marine Products, Inc.

Further Reading

Beckett, Gary, “West, E&B Forge a $300 Million Giant,” Soundings: Trade Only, May 1996, pp. 1, 73.

“Community Update, San Francisco,” Montgomery Securities, April 29, 1996.

Cropper, Carol Marie, “Some Stocks that Waft on the Summer Breezes,” New York Times, March 3, 1996, p. 3.

Finnerty, Brian, “West Marine Inc.: Sailing Its Way to a Leading Market Position,” Investor’s Business Daily, July 13, 1994.

Galarza, Pablo, “Boat-Supply Retailer Launching More Stores,” Investor’s Business Daily, April 5, 1995.

“Investment Analysis,” Needham & Company, Inc., February, 1995.

Mencke, Claire, “Retailer Builds Lead in Boat Gear Business,” Investor’s Business Daily, February 2, 1994, p. A3.

Morris, Keiko, “Randy Repass: Rough Waters Cleared, West Marine Hopes for Clear Sailing,” Entrepreneurial Award Finalist, May 20, 1996.

Much, Marilyn, “High Sails: West Marine Powers Ahead by Putting Customer First,” Investor’s Business Daily, August 25, 1995.

“Small Caps: Review & Outlook,” Paine Webber, May 1996.

Turner, Nick, “West Marine’s Randy Repass: A Profitable Odyssey from Silicon Valley to the Sea,” Investor’s Business Daily, May 13, 1996.

—Heidi Feldman