One of the key themes in retail that has become more apparent in recent weeks is that apparel retail visitation trends have lagged many other retail categories (below). There are a number of reasons that might explain this trend, including inflationary headwinds eating at household discretionary spending budgets, inventory miscues (too much emphasis on cozy/comfortable), and supply chain constraints leading to product availability issues in some cases.
That said, there have been some bright spots in this category, and one example that has caught our eye is Boot Barn, the 300-unit western wear retailer. The chain remains heavily concentrated in Western and Southern markets but has seen impressive visitation trends as it has doubled its footprint the past five years and added locations across the Midwest and Northeast.
With strong unit growth trends, it’s not surprising that Y/Y visits have outperformed the broader apparel retail category by a wide margin during 2022(below).
Nevertheless, unit growth only tells part of Boot Barn’s story, as the chain has posted some of the most impressive visits per location trends we’ve seen across retail in recent years. In the three years prior to the pandemic, the chain was averaging just over 15K quarterly visits per location. However, over the past five quarters, the chain has seen more than a 50% increase in visits per location and is now averaging more than 23K quarterly visits per location(below). There are a number of consumer demographic shifts that help to explain this outperformance–including an increased demand for western wear–but this success can also be attributed to brand modernization efforts, an improved merchandise assortment focused on authenticity, and an aggressive store remodel program.
The increase in visits per location indicates that the chain is having success attracting more casual customers beyond its more traditional customer base. As a result, the company recently raised its Total Addressable Market (TAM) estimate to $40B, up from the $20B that was disclosed at the time of the retailer’s IPO in 2015. According to management, its original western and work market expanded by 25% in these 10 years, but the chain has now added $15billion of new market opportunity as a result of incorporating this more casual outdoor segment that they have defined as a country lifestyle customer. Management noted that its new casual customers are shopping roughly twice a year on average–consistent with Placer data–and their average transaction is roughly in line with legacy customers around $110 per transaction.
Backed by this increase in TAM, the company plans to triple its store base to 900stores over time, with roughly half of the unit growth coming from backfilling existing markets and the other half coming from expansion into new markets. The chain is currently in 38 states, and plans to expand into New York, New Jersey, West Virginia and Maryland. According to the company, new stores opened after March 2020 has significantly outperformed legacy stores, with Year 1 average unit volumes of $4.0M on 10K square feet, net capital investment of $500K, and net inventory investment of $500K. This equates to a Year 1 cash-on-cash return of 100%. As it expands, the company will be looking at slightly larger locations (12K square feet) but is still modeling healthy 70%+ cash-on-cash returns during the first year of opening.
