Caso Weat

CASE: GS-34

DATE: 04/07/05

Lyn Denend prepared this case under the supervision of Professor Hau Lee as the basis for class discussion rather than to

illustrate either effective or ineffective handling of an administrative situation.

Copyright © 2005 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or

request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing

Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of

this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any

means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate

School of Business.

WEST MARINE:

DRIVING GROWTH THROUGH SHIPSHAPE

SUPPLY CHAIN MANAGEMENT

Our goal is to be the best billion dollar boating company every day.

—John Edmondson, Chief Executive Officer, West Marine

The whole company has culturally undergone a huge shift in terms of recognizing the value of

supply chain management to the success of the organization and our ability to grow.

—Pat Murphy, Senior Vice President of Logistics, West Marine

It was the evening of January 13, 2003 at West Marine’s Watsonville, California headquarters.

In the morning, CEO John Edmondson would announce to West Marine’s shareholders, the

press, the boating community, and the employees of the two rival companies that West Marine

was acquiring BoatU.S.’s retail stores, Internet/catalog business, and wholesale operations.

Although the negotiations had gone on for months, only a small handful of individuals within

West Marine had been involved. BoatU.S.’s founder and CEO had insisted on secrecy, and had

changed his mind about the sale more than once during the negotiation process. The two

companies had been fierce competitors for years. Edmondson, and his counterpart at BoatU.S.,

knew the announcement would come as a shock to the loyal employees and customers of both

organizations.

In the spring of 1996, West Marine had acquired another one of its major competitors: E&B

Marine. While the mechanics of the acquisition had gone relatively smoothly, the company

quickly discovered that its infrastructure was not strong enough to support an organization that

had almost doubled in size overnight. West Marine’s supply chain was especially hard hit, with

its systems and processes proving inadequate to keep all 72 West Marine and 63 E&B Marine

stores amply stocked. The results had been disastrous. Peak season out-of-stock levels climbed

to more than 12 percent and, correspondingly, sales dropped by almost 8 percent within the first

year following the transaction.

West Marine GS-34

p. 2

Edmondson was brought in after the E&B Marine acquisition to execute a company turnaround.

For more than four and a half years, he had been focused on rebuilding West Marine. The

company installed a new senior management team, invested in new systems and processes

throughout the organization, and initiated a major cultural change. Edmondson and his team

were proud of West Marine’s recent achievementsparticularly in the supply chain arena. Yet,

on the eve of the company’s latest acquisition, he wondered whether they had done enough to

effectively support another 62 BoatU.S. stores without experiencing the negative repercussions

of the E&B Marine acquisition.

Edmondson took a deep breathsavoring the “calm before the storm.” West Marine’s course

had been set. Now he only needed to launch the journey and hope for smooth sailing.

SETTING SAIL: COMPANY BACKGROUND

Anchors Aweigh

Randy Repass founded West Marine in 1968. Repass worked briefly as a computer engineer in

Silicon Valley, but found the high technology industry to be rather cold and impersonal. An avid

boater, he sought refuge in his hobby and began selling nylon rope by mail order out of his

garage. Driven by a desire to improve the way people shopped for boating supplies (and his

personal dissatisfaction with service at his local boating store), Repass next opened a small

boating outlet in Palo Alto, California in 1975. The store sold rope, as well as other

miscellaneous boating supplies and accessories. Most importantly, it was dedicated to providing

knowledgeable, friendly customer service to the boating communitya company of boaters

helping fellow boaters.

As the organization’s customer base grew, so did its business model. Repass began acquiring

and opening boating supply stores along the West Coast. He also gradually expanded the

company’s product line to include anchor and dock equipment, boat hardware, maintenance and

safety products, electronics, boating apparel, water sports equipment, fishing supplies, and more

(see Exhibit 1 for illustrative store and product photos). In 1978, West Marine founded its port

supply business and began selling products to boat yards, boat dealers, and other wholesale

customers. By 1987, the company had 15 stores. That same year, West Marine began producing

its first catalog. In 1991, the company opened its first stores on the East Coast. In 1993, West

Marine went public under the Nasdaq symbol WMAR (see Exhibit 2 for a more complete

timeline of company milestones).

Making Headway in 2002

By late 2002, West Marine had become the largest boating supply retail chain in the nation, with

operations in the U.S., Canada, and Puerto Rico, approximately 5,000 peak season employees,

and annual sales of approximately $530 million. In total, West Marine offered more than 50,000

products through its stores, Web site, and catalog, including an extensive collection of privatelabel

goods.

West Marine GS-34

p. 3

Channels

The company had more than 250 stores, with retail operation accounting for approximately 82

percent of its business. West Marine had three primary types of stores. Most standard stores

averaged 8,000 square feet, carried 8,000 to 10,000 stock keeping units (SKUs), and generated

roughly $1.5 million in sales per year. The company also had a growing number of express

stores that averaged 2,800 square feet, carried 2,500 SKUs, and generated $600,000 to $800,000

in annual sales. In its continued pursuit of growth, West Marine had recently begun

experimenting with a third store formatthe megastore. These outlets were located in large

markets (like Fort Lauderdale), ranged from 24,000 to 30,000 square feet, carried 30,000 SKUs,

and were expected to generate $10 to $15 million per year. Megastores were intended to be

“destination stores,” featuring interactive displays, boater education, and an unparalleled inhouse

selection.

The remaining 18 percent of West Marine’s business was generated via Internet and catalog

orders, as well as sales to commercial customers. West Marine’s catalog was more than 1,000

pages, making it the most extensive in the industry. It offered retail and wholesale customers

access to 35,000 of the company’s SKUs, featured full color photographs of the most popular

products, and reached more than 1 million boaters a year. The company’s online store included

all 50,000 SKUs, but mirrored the catalog to provide customers with a consistent experience

across channels. Similarly, West Marine operated a call center that provided real-time customer

support for catalog, Web, and in-store interactions. Like West Marine’s associates in the stores,

call center representatives were known for having a depth of specialized boating experience and

a strong commitment to customer satisfaction.

Because they received a high level of service and a similar buying experience regardless of the

channel, West Marine’s customers tended to shop freely between the stores, the Internet, and the

catalog. For example, some customers relied on the stores for last minute purchases and to

acquire products they wanted to “touch and feel.” However, they would use the Web or catalog

to research, compare, and buy products when they had more lead-time, or to take advantage of

special offers. “Our most profitable customers shop in all three channels,” explained Tony

Gasparich, VP of direct sales. “We broke down the barriers between catalog, Internet, and our

stores so that our customers can shop wherever, and whenever it’s most convenient for them.” 1

Customers

West Marine had a strong base of both wholesale and retail customers. The port supply (or

wholesale) division accounted for approximately 9 percent of the company’s sales. Typical

wholesale customers included boat yards, boat dealers, and even some small-scale competitors

(e.g., “mom and pop” marine supply stores). In total, West Marine had 33,000 wholesale

customers who shopped at its stores (using a wholesale signer’s card) or ordered via catalog and

Web. A team of 40 direct sales people and 10

...