A Leader In The Recreational Marine Market
West Marine is the largest specialty retailer and distributor of aftermarket products and accessories for the recreational marine market. The Company operates a national footprint of 237 stores, two distribution centers and two eCommerce platforms for its B2C and B2B customers. West Marine carries all of the products a boater demands to enjoy time on the water, including engine parts and fluids, maintenance products, electrical, chemicals, electronics and docking. Professional customers comprised of local independent service providers, boat yards, charter companies and accessory dealers account for 30% of the Company’s sales and purchase through the West Marine Pro segment. Boaters and professional customers alike shop both in-store and online.
West Marine was a small cap public company underperforming comparable businesses across nearly every metric. We estimated West Marine to be more than 10x larger than the next closest direct competitor
The Investment Thesis
We estimated West Marine to be more than 10x larger than the next closest direct competitor. West Marine is the only national recreational marine platform directly servicing the end user, and its competition was local and fragmented. The Company’s customer base is comprised of enthusiasts with discretionary income. West Marine only experienced a moderate decline in sales during the Great Recession due to the aftermarket nature of its low ticket critical products that are required for proper maintenance. The West Marine Pro segment is the #2 player in the professional channel.
West Marine is also one of the most recognized brands in recreational boating, supporting the Company’s ability to sell private label products for premium profit margins. Suppliers and manufacturers of marine products are reliant on West Marine as the most efficient path to reach the greatest number of marine enthusiasts. Our diligence confirmed West Marine’s irreplaceable store network was the critical link in the marine aftermarket supply chain, connecting thousands of boating part suppliers with millions of enthusiast end users.
MONOMOY’S FOUR KEY QUESTIONS
Monomoy Operating Team at Work
Immediately upon the closing of the transaction, the Monomoy team communicated, refined and initiated a value creation program at West Marine that prioritized near-term cash generation and positioned the company for structural EBITDA improvement. Our first priorities were extending vendor payment terms from 30-45 days to 90 days and substantially reducing low payback capital projects for store remodels to support the former diversification strategy. Cumulative free cash flow during 2018 and 2019, our first two full years of ownership, was nearly two times greater than the Company’s cumulative free cash flow generated from 2012 to 2016.
Next, we targeted West Marine’s bloated selling, general and administrative expenses to improve profitability. We also initiated a scaled program to manage our vendor base and conduct regular line reviews to ensure West Marine was receiving the most favorable pricing. Additionally, we also established a pricing model incorporating millions of transactions, inelasticity and other data to confirm the Company’s pricing decisions were geared to maximize profit dollars.
We upgraded the majority of the Company’s senior management team, including a new CEO, CFO, Chief Merchandising Officer, Chief Digital Officer and Chief People Officer. This leadership group was well-suited to further accelerate our underwritten value creation plan from diligence. We also partnered with this team to develop a long-term strategic growth plan through the Monomoy Strategic Planning Process. The plan created detailed playbooks to achieve above market growth through strategies identified in diligence as well as new ideas.