Gander Mountain Company

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Gander Mountain Company

180 East 5th Street, Suite 1300
St. Paul, Minnesota 55101
U.S.A.
Telephone: (651) 325-4300
Fax: (651) 325-2003
Web site: http://www.gandermountain.com

Public Company
Incorporated: 1960
Employees: 6,000
Sales: $911.4 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: GMTN
NAIC: 451110 Sporting Goods Stores; 448210 Shoe Stores; 561520 Tour Operators

Gander Mountain Company is one of America's leading specialty retailers of outdoor recreation equipment and accessories. Operating over 100 stores, the company provides products and accessories for hunting, fishing, boating, and camping along with gunsmith, archery, boat, ATV, and marine services. It also offers tours through its Outdoor Expeditions division and produces We Live Outdoors Television on the Outdoor Channel.

EARLY HISTORY

Robert Sturgis, an avid outdoorsman and lifelong resident of the state of Wisconsin, founded Gander Mountain, Inc., in 1960. Gander Mountain was one of his favorite outdoor locations in the state. 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 100 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.

Also during this time, Holiday Stores, one of the first real convenience store chains, established Holiday Sports. Based in Minneapolis, Minnesota, Holiday Sports became known for its low prices and large selection of hunting and fishing equipment. By the end of the decade, Holiday operated four Holiday Sports locations in addition to its other retail stores.

Robert Sturgis's 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, and sophisticated archery equipment. 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 as if 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.

In 1968, however, the U.S. Congress passed legislation that 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. The company was forced to expand and reorient its product line to include more items for fishing and camping.

From the late 1960s onward, Gander Mountain became more susceptible to 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. However, 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 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 1980–89

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 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. However, potential buyers saw the potential profit of selling these holdings separately, along with Gander Mountain.

COMPANY PERSPECTIVES

Gander Mountain provides a unique retail experience founded upon our "We Live Outdoors" culture and theme. Our stores offer broad and deep assortments of competitively prices outdoor equipment, accessories, apparel and footwear, combined with a unique store environment and an emphasis on customer service based on our associates' extensive product knowledge and out-door related experience.

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, 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's 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 outdoors enthusiast 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.

STORE AND CATALOG GROWTH 1990–92

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 La-Salle 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.

KEY DATES

1960:: Bob Sturgis founds Gander Mountain as mail-order supplier of shooting equipment.
1968:: Congress prohibits sale of firearms through mail-order or catalog business.
1970:: Bud and Ted Burger found Burger Brothers in Edina, Minnesota.
1984:: Ralph Freitag purchases Gander Mountain and takes it public.
1987:: Company begins opening retail stores.
1995:: Holiday Companies purchases all five Burger Brothers stores; Gander Mountain sells selected catalog assets to Cabela's, Inc.
1996:: Company files Chapter 11 and sells 12 of 17 stores to Holiday Companies.
1997:: Gander Mountain Company is created from Gander Mountain, Inc., Holiday Sports, and Burger Brothers retail chains.
2004:: Company goes public.
2007:: Gander Mountain wins right to use trademarks in catalogs and online.

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 off-season. 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 off season. 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.

LOSING THE CATALOG AND THE STORES 1993–96

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's, 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 and closed the catalog business.

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, the owner of Holiday Sports and Burger Brothers Outdoors, 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 Minnesota-based Holiday would operate under the Gander Mountain name.

A NEW COMPANY IN 1997

At the beginning of 1997, Gander Mountain management, in close cooperation with the executive team from Holiday Companies, brought Gander Mountain back to life. Steve Watson, from Target Corporation, was brought in to be president and CEO. The new entity, Gander Mountain Company, was a combination of the stores in the former Gander Mountain chain, Holiday Sports, and Burger Brothers Outdoors. Owned by Holiday Companies, it had no catalog business, but operated 26 stores in the Midwest, all under the Gander Mountain name.

Headquartered in Minnesota, the company established distribution centers and systems to support growth and focused on its core business: hunting, fishing, and family camping. It also returned to its original strategy of offering extraordinary products and competitive prices while hiring knowledgeable and friendly staff.

For 1998, Gander Mountain had sales of $60 million from 25 stores. The following year, the company began opening new stores, in Wisconsin and Ohio. It also stopped selling handguns with barrels shorter than four inches, since the company's policy was to sell guns used only for hunting, sport, or target shooting. By 2000, the firm had grown to 38 stores in seven states: Minnesota, Wisconsin, Michigan, Ohio, Indiana, Iowa, and Pennsylvania. The stores tended to be located in midsized markets, such as Janesville, Wisconsin, and Erie, Pennsylvania, and averaged about 31,400 square feet in size.

The company continued to grow in 2002, moving into Illinois and expanding to 55 stores. Sales were between $350 and $400 million. Several of the new stores were a smaller format, of around 21,000 square feet, for cities with smaller populations but high demand for outdoor sporting merchandise. Gander Mountain also hired Mark Baker to be CEO. Baker came from Home Depot, where he was executive vice-president and chief operating officer for that company's U.S. stores. Baker was familiar with Gander Mountain, having advised the retailer on its real estate strategy in 2001.

COMPETITION INCREASES

Under Baker, the company continued to open new stores and to move into new territories, including Virginia and Texas, well outside its stronghold in the Midwest. In 2003, it introduced its first superstore. That store, outside Chicago, was 104,000 square feet, about three times the size of Gander Mountain's other stores. Located in a former Super Kmart, the store included a pool for testing kayaks and canoes, an interactive shooting range, an archery lane and full-service archery pro shop, and a small, rustic conference space.

Within the highly fragmented outdoor sports industry, things were getting crowded. Large national retailers such as Wal-Mart, were stocking hunting, fishing, and camping equipment. Several regional outdoor companies, including Bass Pro and Cabela's that had traditionally depended on catalog and online sales, aggressively began building stores, including huge stores designed to be tourist attractions themselves.

Gander Mountain, however, indicated it wanted to attract serious sports enthusiasts, not tourists. The design of its stores, whether supersized or in the range from 65,000 to 80,000 square feet, put the focus on the vast array of unique and useful products offered. The company also invested in systems that made it possible to tailor those products to the needs of local customers, such as saltwater fishing equipment in its Florida stores or traps in upstate New York. In 2004, Holiday took the company public, with a stock price of $16, and ended the year with 82 stores. Several other sporting companies, including Dick's Sporting Goods and Cabela's gained listings on the market that year.

2005 AND BEYOND

In 2005, Gander Mountain bought a travel company, which it named Outdoor Expeditions, to offer fishing and hunting trips within the United States and internationally, and moved its headquarters to St. Paul, Minnesota. For a promise to remain there at least 10 years, the city offered Gander Mountain an incentive package up to $1.2 million. Interestingly, Gander Mountain would later formally object to such incentive packages being offered to its competitors, maintaining that they were bad for free enterprise. While other companies found this stance hypocritical, Gander Mountain argued that government subsidies ought not apply to companies already in good financial health.

By mid-2007, the company had 108 stores in 22 states, and it had reached an agreement with Tracker Marine Group (a division of Bass Pro Shops) to sell fishing and pontoon boats. Though it opened more stores in warm weather states (to counter the seasonality of winter outfitting) and added regional buyers, Gander Mountain continued to have weak sales.

In July 2007, a federal court gave Gander Mountain the right to use certain of its trademarks in direct marketing through catalogs and online. The decision was a major victory in its three-year-old lawsuit with its competitor, Cabela's, with which the pre–Chapter 11 Gander Mountain had made an agreement in 1995. Cabela's maintained that the agreement precluded any other company from using the Gander Mountain trademarks. The ruling in favor of Gander Mountain, however, gave it the freedom to build a retail presence online and to return to its roots as a catalog retailer. The company was optimistic that this turn of events would lead to significant improvements in the company's financial picture, as its principal competitors used these retail channels and had annual higher sales, even with fewer brick-and-mortar stores.

Thomas Derdak

Updated, Ellen D. Wernick