New Store Concepts Have Turned These Retailers into Successful Leaders

Victor is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Customers have grown bored with the same old shelves and minimalistic stands. That's why it is no surprise that new store concepts have been developed. Some companies have pinned innovation to everyday operations, developing interesting approaches reflected upon continued positive quarter results. Dick’s Sporting Goods (NYSE: DKS), Bed Bath & Beyond (NASDAQ: BBBY), and Cabela’s (NYSE: CAB) have championed new store concepts, turning themselves into successful industry leaders.

Dick’s Sporting Goods: Sport wear for men & women
 
If Cabela’s is the leader on the outdoors market for the wild men and women, Dick’s is the leader for the sporty men and women. Both can be highlighted by their original store approaches. In this case, the sportswear firm has put a great deal of emphasis on the presentation and offering of the latest, most sophisticated, and highest-end sports equipment. The marketing approach is allowing the firm to create a fair economic moat, limiting competition.

Dick’s has been able to establish an important degree of loyalty by offering its customers access to experienced professionals to consult when shopping. Also, an aggressive national marketing campaign will widen its customer base while at the same time improving online sales. This is not a minor remark since the firm controls around 10% of the market, and holds great potential for store expansion. Since the company is recording its best historical financial indicators, and revenues and cash flows continue to increase, plenty of money will be available to realize this potential over the next few years.

The recent store expansion and new client-focused-technologies portray an encouraging outlook for the upcoming years and promise to generate strong returns. Profits have been reflected upon 2012’s last quarter results--Dick’s net sales and earnings have risen by 12% and 17%, respectively. Such growth has reflected upon the company’s cash, greatly surpassing debt levels and increasing free cash flow. This last item becoming very important for the company if expansion plans are to be followed through.

Last, the firm’s stock is selling relatively cheap at an 18 P/E, and estimates have ceased to be conservative. The market and analysts expect the stock to increase its trading price, and the company to continue to take in revenues. Hence, it is recommended to BUY since the risky season has gone by and the steady growth path started in 2008 seems to be continued.

Bed Bath & Beyond: Home alone

Bed Bath & Beyond was no stranger during the economic slowdown and saw revenues drop. As the economy recovers, the company is expected to match and better previous performances. Good prospects derive from its unique business approach, but also because 16% of the competition went under. Hence, as disposable income continues to rise in the US, the firm will have the opportunity to increase market share.

Bed Bath & Beyond’s power to profit lies in its unique sales operation concept. Also, diversifying providers has helped the company to quickly adapt to new trends and reduce its exposure to fashion fluctuations. At the same time, the firm has introduced new brands and posted positive returns during the economic downturn. In part, positive results are a by-product of low distribution costs; lower than any market competitor.

Its financial health is exemplary. Since the company holds no debt since 1996, revenue has made way for a rapid expansion, and helped accomplish successful acquisitions. Profitability and finance indicators are comfortably above industry averages; moreover, the firm counts with enough cash to push forward with expansion. Bed Bath & Beyond also holds a great potential for geographical expansion, and has proved this potential by successfully disembarking in Mexico.

On the flip side, estimates remain conservative since economic recovery has been somewhat slower than expected. Regardless of a sluggish economic recovery, the company has fronted bad weather, expanded within and outside the USA and made successful acquisitions; in addition,sales are recovering together with disposable income. Although some analysts still remain doubtful, I am sure that Bed Bath & Beyond will continue to grow, and recommends BUYING.

Cabela’s: Into the wild

Cabela’s is the leading company in the outdoors products industry. All the necessary equipment needed for a perfect family fishing weekend, or by the lone hunter, can be found at any of the firm’s 40+ stores. Although bad economic weather has dampened the company’s record, it has been showing great signs of recovery and is one stock to keep between eyebrows.

Entering a Cabela’s store is a experience on its own. Any first-timer will be amazed by the store’s size and setting. The firm has taken that experience to a higher level by adopting an omni-channel retailing strategy. TV shows, online catalog, and other new growth strategies are the telling evidence.

While Legacy type stores (150-200K sq. ft.) are recovering from economic bad weather, Next-generation shops (85-100K sq. ft.) have proven to be very successful, and the new model, named Outpost (40K sq. ft.), can continue the trend by catering local and specific needs.

While store strategy has been revamped, Cabella’s has also improved its online performance. For example, the firm’s website is ever more a reflection of the real store. Surely the company is exploiting customer’s loyalty, reminding each customer who the outdoors market leader is. Since its online catalog has sold products in more than 100 countries, the online experience has shown to be a test ground for geographical expansion.

Current estimates for Cabela’s remain conservative; however, on the rise. Also, the company holds the best financial sheet within the industry, with quarterly reports exceeding estimates. However, rising debt has put a dent on growth prospects and so, this analyst recommends HOLDING. The wait should not be long though, so keep your eyes open for the end of the summer and beginning of the hunting season.

Bottom line

The common ground for all three companies is their approach to store arrangement. Also, they have further developed online catalogs and experience exalting customer’s loyalty. Last, all suffer when the economy decides to take a dip. So, overall neither company is worth ignoring because their stand against bad weather has been remarkable. Recovery may be slow, but has proven to be steady and pre-crisis levels have already been reached. Buying any of the two recommended stocks makes for a good long-term investment. And, if you are a Cabela’s fan, please wait until the new hunting season and finances prove to be on the right track.

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Victor Selva has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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