Gander Mountain, Inc.
Gander Mountain, Inc.
P.O. Box 128
Wilmot, Wisconsin 53129
Fax: (414) 862-2330
Sales: $180 million (1996)
Stock Exchanges: NASDAQ
SICs: 5961 Catalog & Mail Order Houses; 5941 Sporting Goods & Bicycle Shops
Gander Mountain, Inc. has been one of America’s leading specialty companies in the hunting, camping, and fishing equipment industry. From 1960 until 1995, the firm was the leading catalog vendor of hunting accessories and supplies, and was one of the premier suppliers of hiking and outerwear clothing. Operating 17 retail stores, mostly located in the Midwestern United States, Gander Mountain reported sales of $246 million in 1994. Unfortunately, the company has fallen on hard times and has been forced to file for reorganization under Chapter 11 of the federal bankruptcy law. Having sold most of its catalog division and its retail stores, Gander Mountain management reached a joint reorganization plan with Holiday Companies, a privately-owned Bloomington, Minnesota-based wholesale and retail supplier of camping and sporting goods, to continue operating its retail stores under the auspices of Holiday until Gander Mountain can re-establish itself as a viable, independently operating company.
Gander Mountain, Inc. was founded in 1960 by Robert Sturgis, an avid outdoorsman and lifelong resident of the state of Wisconsin. Living in the town of Wilmot, a rather isolated community within the state, Sturgis, along with his fellow hunters, was unhappy with his inability to get high-quality hunting accessories and equipment without having to drive a hundred miles to the nearest sportsman retail store. As a result, Sturgis decided to open a small store in the center of Wilmot that would market shooting supplies to gun owners and dealers by mail order. Not surprised by the response to his simple marketing techniques, Sturgis soon began to mail catalogs directly to consumers. By 1965, the budding entrepreneur had built an impressive reputation as a supplier of high-quality shooting equipment to hunters across the Midwest.
Sturgis discovered that his mail catalog business was an overwhelming success. He marketed a wide range of products for the serious sportsman, including shotguns, an impressive array of unusual cartridges for high-powered hunting rifles, sophisticated archery equipment, and much more. As Gander Mountain’s image grew, sportsmen from as far away as Montana and upstate New York began to order from the company’s catalogs. In fact, nothing seemed like it would prevent the continued growth of his business. By 1968, Sturgis had opened a retail store in Wilmot to sell hard-to-get items to local hunters.
Unfortunately, in 1968 legislation passed by the United States Congress prohibited the sale of firearms through a mail order or catalog business. Both senators and representatives were responding to the assassinations of the 1960s, including President John F. Kennedy, Robert Kennedy, and Martin Luther King, Jr., and the public’s perception that obtaining a gun was easily done, and that individuals who were unstable might be able to procure a firearm through a mail-order catalog if a retail store had refused to sell them one. As a result, Gander Mountain’s catalog sale of hunting weapons, including shotguns, high-powered deer hunting rifles, and small arms used for target sport, was discontinued. Sales of firearms from the catalog were one of the fastest-growing sources of revenue for the company. As it happened, the company was forced to expand and re-orient its product line to include more items for fishing and camping.
From the late 1960s onward, primarily due to the federal curtailment of the sale of firearms through mail-order catalogs, Gander Mountain began to experience the volatility of the outdoor recreational equipment market. The company had been slow to adapt to the changes required by the 1968 federal legislation, and had turned initially to the sale of fishing rods, reels, bait, nets, lures, and other sundry items to replace the lost catalog market for firearms. But management soon discovered that the sale of fishing equipment was seasonal, with high revenues during the spring and summer months, and low revenues during the autumn and winter. To augment the cyclical nature of its sales, the company then decided to expand its catalog sales to include a wide variety of camping equipment and outerwear, including tents, lanterns, portable stoves, sleeping bags, and clothing such as shirts, woolen pants, boots, coats, and socks. But the demand for camping equipment was also seasonal, mostly from the latter spring to the early days of autumn, and management began to fear that the company needed an even greater expansion of its product line to garner a steady cash flow for its operations.
The entire decade of the 1970s was dedicated to finding the right mix of products by the Gander Mountain management. Small variations in fishing equipment, camping equipment, and clothing did not, however, raise the volume of catalog sales. The expansion of the store in Wilmot, Wisconsin, to provide a larger selection of items for local customers did not seem to help either, since the company had based its reputation as a supplier of firearms through catalog sales. As the decade drew to a close, Gander Mountain found itself growing deeper in debt.
Transition and Growth During the 1980s
Earnings and sales continued to fall during the early part of the 1980s, and before long Gander Mountain was unable to pay its growing debts. Management had no other recourse but to file for reorganization in the U.S. Bankruptcy Court. In 1984, an entrepreneur named Ralph Freitag, who had lengthy experience in the outdoor retail market, along with some of the individuals within the company’s management, decided to purchase Gander Mountain and revive its fortunes.
The new owners had conceived a concerted strategy to develop Gander Mountain into one of the premier outdoor recreational equipment suppliers. Their first move was to take the company public in order to raise capital for both expansion activities and the pursuit of acquisition candidates. Almost immediately, the initial public offering on the over-the-counter (OTC) market raised $9.2 million. Unexpectedly, however, Gander Mountain executives were approached by several buyers within the year. The reason for the unsolicited approaches was a pair of highly unprofitable acquisitions made earlier by Gander Mountain. Master Animal Care, a pet care products company, and Western Ranchman Outfitters, a western clothing retailer, were not adding any earnings to Gander Mountain’s coffers. But potential buyers saw the potential profit of selling these holdings separately, along with Gander Mountain.
In order to ward off any future hostile takeovers of the company, management decided to divest itself of both Western Ranchman and Master Animal Care, and concentrate more on its core business of hunting, fishing, and camping. The second move made by management, therefore, was to expand beyond its mail-order catalog business. Having operated one lone retail outlet at its headquarters location in Wilmot, Wisconsin, management was convinced that more retail stores based on the same format would not only be successful, but lead to greater opportunities for expansion. In 1987, the company opened its first offsite retail store in Brookfield, Wisconsin, and shortly thereafter new stores were also opened in Appleton, Eau Claire, and Madison. The company’s overall plan included the opening of a string of retail stores within a 300-mile radius that stretched from western Wisconsin to north central Illinois.
Gander Mountain management believed it had discovered a market with hardly any competition. Executives within the company, including Freitag, thought that the only possible competitors within the outdoor recreational equipment market were Bass Pro Shops, located in Springfield, Missouri, and Cabela’s Inc., a catalog company with only one retail shop. Although Cabela was the largest of the three companies, management at Gander Mountain remained confident that they could soon dominate the growing retail market.
The strategy behind Gander Mountain’s expansion into the retail store market was simple to understand. Less than 10 percent of the market had been tapped during the mid- and late 1980s, including 31 million Americans who had fishing licenses, 16 million who described themselves as avid hunters, and nearly 50 million who went camping on a regular basis. The average customer was a male between 40 and 45 years of age, who had an above average income and was considered a hard-core outdoor sportsman. Gander Mountain had no intention of catering to the person who was buying fuchsia jogging suits or Nike running shoes, but wanted to focus on the avid outdoorsman who was knowledgeable about hunting or fishing equipment, and who took his hobby to the extreme. The strategy implemented by Gander Mountain management worked—from 1986 to 1989 sales increased from $41 million to $112 million.
The 1990s and Beyond
The early years of the new decade went well for Gander Mountain; in fact, some analysts would say that these few years were the best the company ever experienced. The solid growth in sales and increase in net income enabled management to arrange an impressive $50 million financing package. The arrangement, which included such high-profile and prestigious banks as Bank One Milwaukee, Firstar Bank Milwaukee, and LaSalle National Bank of Chicago, involved $30 million for working capital and $20 million for capital expenditures. Part of this money was used to expand the company’s warehouse space in Wilmot, and also to expand its nearby office facility.
In 1992, Gander Mountain reported that just over 82 percent of its total sales volume was due to catalog sales. During the same year, the company mailed 35 million catalogs to customers in the United States, Canada, and other countries, primarily in Western Europe. The average customer sale from its catalog amounted to $80. Yet management was determined to increase its catalog sales, and to this end more specialized catalogs were mailed to prospective customers who favored particular sports, such as archery. According to Freitag and his executive team, carving out more specialized markets was considered crucial to the growth of the company.
The $50 million financing package also helped to create more jobs. The peak season for Gander Mountain sales, in both retail stores and the catalog, was the months of November and December. During those two months, the company increased the number of its employees to approximately 1,200, including between 60 and 65 people working in each of its retail stores. With the infusion of new capital, management decided to retain some of the employees hired during the holiday season, in order to augment its 600 person staff during the offseason. One of the largest employers in Kenosha County, Wisconsin, Gander Mountain management thought that an increase in the number of employees at its retail stores would help increase sales during the offseason. Dollar for dollar, in-store sales were more profitable than catalog sales during 1991 and 1992, and a staff that knew the details of outdoor sportsman activities was believed to help create even more sales.
In the fall of 1992, with every indicator pointing toward continuing success, Gander Mountain decided to raise prices in its general catalogs while at the same time offering fewer reduced-price products such as hunting and fishing equipment in its sales catalogs. The reasoning behind the price increase was that profit margins had been stagnant for a number of years. More importantly, however, management did not think that its customers were price-sensitive due to the high quality of Gander Mountain merchandise. The strategy was a complete catastrophe from which the company never recovered. By the time management was able to correct its mistake, a significant amount of damage had been done. Net income for fiscal 1993 was reported at a mere $63,000, in contrast to $2.44 million at the end of fiscal 1992. To compensate for the debacle, management reached an agreement with Goldman Sachs & Company to sell a 27 percent interest in Gander Mountain for $20 million. The investment was used to expand the company’s retail stores, the most recent having been built in Wausau, Wisconsin, and St. Cloud, Minnesota.
Even with the new investment, however, Gander Mountain could not regain its lost catalog-based revenues. Catalog sales continued to drop, with no sign of a resurgence on the horizon. In addition, the company’s catalog operation began to suffer from special cost pressures, including a rise in postal rates. Gander Mountain responded by automating its catalog operation, sharpening its catalog marketing techniques, and focusing more on specialty catalogs for particular outdoor sports, but all to no avail. Catalog sales were not coming back, and the company began to lose money on the operation.
In early 1995, with sales decreasing, and Gander Mountain cash needs exceeding the amount of money both from sales and its credit arrangements with banks, the company decided to sell selected catalog assets to Cabela, Inc., a large catalog marketer of hunting, fishing, and camping equipment located in Sidney, Nebraska. For $35 million, Cabela purchased Gander Mountain’s customer list and selected inventory. Still, the company was losing money and unable to meet its debts. As a result, after lengthy negotiations throughout 1996, Gander Mountain management decided to file a joint plan of reorganization under chapter 11 of the Federal Bankruptcy Court. This plan included the sale of 12 of the company’s 17 stores to Holiday Companies, a retail sports store operator, and the agreement to pay Holiday back for the stores when Gander regained its financial health and resumed operations. Until that time, the stores acquired by Holiday would operate under the Gander Mountain name.
At the beginning of 1997, Gander Mountain management, in close cooperation with the executive team from Holiday Companies, were working to bring Gander Mountain back to operation. Whether or not this could be done depended on Gander Mountain management’s ability to recapture the highly specialized niche market that it so carelessly had squandered away.
GMO, Inc.; GRS, Inc.
Byrne, Harlan S., “Gander Mountain,” Barrons, June 8, 1992, pp. 40-41.
“Catalog Business Is Sold to Cábela’s for $35 Million,” The Wall Street Journal, May 22, 1996, p. A12(E).
“Default Waiver Extended, But Stock Price Falls 24%,” The Wall Street Journal, April 2, 1996, p. C19(E).
“Gander Mountain Inc., with Net Down 45%, Ends Talks to Sell Unit,” The Wall Street Journal, February 12, 1996, p. B10A(E).
“Gander Mountain to Sell Its Catalogue Operation,” The New York Times, p. C3(N).
Kaderabek, Denise, “With $50 Million in Hand, Gander Mountain Heads Up the Growth Trail,” Business Journal of Milwaukee, January 1, 1993, pp. 14-15.
Kass, Mark, “Gander Mountain, Inc.,” Business Journal of Milwaukee, January 9, 1993, p. 11.
_____, “Gander Mountain, Inc.,” Business Journal of Milwaukee, January 8, 1994, p. 11.