Whither Independently Owned Fly Shops?

There have been a number of announcements through 2013 related to consolidation in fly shop ownership. At first glance, the announcements may be interesting to customers of the different businesses. But I think they say something about the future of retail fly-fishing shops.

Grizzly Hackle, a very successful brick and mortar and online fly shop from Missoula Montana announced its purchase of Kiene’s Fly Shop of Sacramento California on January 1st, 2013.  This was followed by its purchase of Bob Marriott’s fly shop in Fullerton California in early May.

The latter announcement was followed that same month by the announcement of the May 17th merger of Grizzly Hackle Holdings (which owns the three fly shops) and the very prominent Fishwest Incorporated, an e-commerce fly-fishing retailer, which also owns one shop in Utah.

The businesses above are all quality companies. At one time or another, I’ve bought from all of them. They are all reputable and are staffed by people who care about customers and the sport of fly fishing.

Each of them will carry, more or less, the same brands from the top suppliers in the business (e.g., Scientific Anglers, Simms, Sage, Winston, and Patagonia – to name only a very few).

And so far, five to eight months on, each of the fly shops still market under their own name, maintaining both a brick and mortar storefront along with a web presence. It will be interesting to watch whether their business models change over the next year or two,.

Perhaps more thought provoking is an attempt to understand the whys of the mergers and speculate what it says about the future for many of the fly shops that remain.

I think there are three reasons. The first is related to aging of owners. The other two are related to economic factors and economies of scale.

The sales of both Kiene’s and Bob Marriott’s, both of which have been in business for well over 30 years, were driven at least in part by the owners’ stated desires to move into semi-retirement and give up the day-to-day hassles and pressures of running a business.

Whether there was store staff with the desire, or more importantly – ability to raise capital, to buy the stores is unknown. It’s certainly true that capital availability has been a challenge for the last five years since the economic meltdown in 2008.

The industry is very small. As I related in a previous post (see here), the total annual sales in fly fishing gear is $750 million, less than some brands of candy. A related post (see here) shared the results of an AnglersSurvey study that showed the majority of sales were flies, followed by tippet and fly line.

Now think about how easy it would be to raise capital to buy a fly shop when your primary revenue stream will be based on a two to three dollar fly ­- and in a market that is not demonstrating rapid growth. Selling an $800 fly rod is certainly more lucrative, but the question is how long that rod has to sit in a store’s inventory before the sale is made; otherwise there is the cost of maintaining inventory.

Unless interested parties can self capitalize or the shop in question is demonstrably a moneymaking success in its local market that overcomes banks’ fears of business loans, I fear we will see many fly shops going out of business as the original owners retire.

A related challenge is dealing with the manufacturers.  A small fly shop is at the mercy of the companies and the sales reps that represent them. There are requirements for required volumes to be carried; promotional placements; and terms of sale that a small shop has to exist under.

And from the perspective of the manufacturers they have legitimate concerns about tying their brands to small fly shops that are struggling or only able to carry the minimum required inventory. It’s becoming much easier for them to put at least some of their inventory in a big box store (witness Winston and Sage rods in Cabelas).

Now consider the merger discussed above. It puts all three fly shops, together with Fishwest’s e-commerce site on firmer financial footing with a stronger multi-channel sale network – particularly with Bob Marriott’s, Grizzly Hackle, and Kiene’s all having both brick and mortar and e-commerce sites.

I suspect (but can’t verify) it puts the new company in a position to better negotiate terms of sales, volumes, and promotional support. And it gives a manufacturer the multiple-channels to get the hot new product out to its customers. They understand the critical importance of brand loyalty. It’s a win-win for both the retailer and supplier.

If you’ve gone into a fly shop to get a new just announced Sage rod (as an example) and you’re told they have no idea when they can get one in – how many times does that have to happen before you stop going in looking for the new products?

Fundamentally I think it is these economies of scale that will drive the transition away over time from the small locally owned fly shop to the horizontally integrated companies described above. Only they may have the  ability to compete with the big box stores in the manufacturer’s competition for market share.

The passing of many of the fine fly shops that operated over the years has been and will be a sad thing to observe.  But there can be hope in the new model discussed here.

It may be a transition away from local ownership but done right local color and knowledge will be retained.  It’s the smart business move and it will be good for fly fishers.

 

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Tom

Author: Tom