No Fear shows no fear with retail strategy

I keep hearing about No Fear opening new stores, so I thought it would be good to check in with Michael Pratt, executive vice president of corporate development, to find out how No Fear is managing through the recession.

Michael answered several questions for me about the company's wholesale and retail strategy. No Fear is best known as a motocross brand, but also is involved in surf and mixed martial arts.

No Fear has opened several stores lately. How many No Fear stores are there?

We have 53 company-owned stores including seven of which we have opened in the last six months.

Any concerns about opening news stores in this environment?

Absolutely. This environment is not for the faint of heart, but you have to have confidence in your products, your brand and your business model. We are seeing attractive deals in centers that had limited vacancies over the last several years. We have also reduced our build cost at new locations while maintaining the look and feel of a No Fear store, allowing us to open stores with a much smaller investment.

What percentage of No Fear's annual revenue is from retail?

While we continue to sell wholesale, retail is the largest piece of our business and will drive our business going forward. We have actually found our wholesale business is benefiting as we expand our retail footprint and customers are introduced to what our brands represent.

Are more stores planned for '09 and '10?

Yes. We currently have one store under construction and one lease signed. We would expect to be between 55 and 60 stores by the end of the year. Right now, we have a modest number of stores planned for 2010 and believe we could add to that number if the environment becomes more favorable.

Many retailers are struggling. How are same-store sales for No Fear this year?

Same-store sales have not been pretty in '09. We have been hit like our peers. That being said, we have seen the negative trends stabilize over the last several months.

The first quarter is our slowest season and we typically build from January into the summer months at our retail stores. While comps are still down, that seasonal trend has continued in '09. The ability to budget accordingly as we head into our peak periods, even at reduced sales levels, has allowed us to manage our inventory, labor and expenses accordingly.

Any new/interesting strategies with No Fear's wholesale business?

We continue to stick to our focus on core accounts, having pulled the No Fear brand out of the mass channels back in the early part of this decade. Our biggest challenge has been learning how to manage product availability given the growth in our retail channel. We are more of an at-once business in wholesale and as our retail channel has grown, product has flowed to that channel. Our sales team has essentially been playing against a stacked deck, and is still doing a great job.

What kind of adjustments have the company had to make because of the recession?

We have implemented a number of cost cutting initiatives as a result of the environment. At the beginning of the year, we instituted a four-day workweek for all employees rather than across the board pay cuts or layoffs. Management felt it gave employees a day back to pursue other activities with the goal of returning to a full workweek as business improves. We have also been focused on controlling costs at both our retail locations and at headquarters.

On the retail side, managing labor hours and all variable costs at the store level. On the corporate side, everything from freight to the amount spent on pens.

How do you see the rest of the year playing out?

While we would certainly like to see the market improve, we believe it will continue to be a tough retail environment. The market could get worse before it gets better and we need to be positioned should that happen.

Do you see any silver linings in the recession?

The ability to manage effectively a lean operation should benefit all businesses that are able to survive the current challenges.