Cabela's 2004 Annual Report Download - page 36

in new destination retail stores, in initiatives to improve our website and enhance our customer database
and in analysis tools to improve our catalog marketing, which is the primary form of marketing for our
merchandising business.
Increased gas prices. Increases in gas prices could aÅect us more negatively than our other retail
competition. We rely on destination retail store formats where some of our customers must drive hundreds
of miles to visit our stores. If gas prices continue to increase, customers may opt to shop at competitors
located closer to large populations.
Catalog production and circulation costs. Over the last several years, catalog production and
circulation costs have increased more rapidly than Direct revenues. This has been caused by a variety of
factors, including our strategy to use our catalog as an advertising and marketing tool for our entire
business, including mailing additional catalogs into markets where we have destination retail stores, the
established nature of our Direct business, and an increase in competition from new brick and mortar retail
stores as well the presence of our own destination retail stores in new markets. Due to the beneÑt the
catalogs provide to our Retail business, and additional revenues in our Direct business related to increased
circulation, we plan to continue to increase our catalog circulation despite this increase in cost. In order to
compensate for increased costs, we plan to maximize the operating eÇciencies of our Direct business by
decreasing operating costs in other areas of the business, such as reducing order processing and distribution
costs.
EÅect of retail expansion on direct business. When we open a destination retail store in a new
market, our Direct revenues in that market generally experience a decline during the Ñrst twelve months of
the new store opening despite a substantial increase in our Retail revenues in that market due to the
presence of our destination retail store. The new retail store serves as a marketing tool in that geographic
area. As a result, in the year following the opening of the destination retail store, Direct revenues in that
market have historically resumed their historical growth rates.
Investment in infrastructure. We anticipate that we will continue investing in our infrastructure to
support our new destination retail stores and management information systems department to support
growth in our website customer base. We expect that we will make investments in our data systems, and
we expect to hire additional employees in our shared services and corporate overhead areas, in a manner
appropriate to support our revenue growth.
Our new destination retail store expansion plans will require signiÑcant capital expenditures and eÅort.
We have developed and reÑned our destination retail store model and we anticipate that based upon
historical data and construction analyses for anticipated new destination retail stores the average initial
investment to construct a large-format destination retail store will range from approximately $40 million to
$80 million depending on the size of the store and the amount of public improvements necessary. This
investment includes the cost of real estate, site work, public improvements such as utilities and roads,
buildings, equipment, Ñxtures (including taxidermy) and inventory. See ""Ì Liquidity and Capital
Resources Ì Retail Store Expansion.'' Where appropriate, we intend to continue to utilize economic
development arrangements with state and local governments to oÅset some of these costs and improve the
return on investment on new destination retail stores. We also will seek to improve our Retail segment
operating performance through investments in new systems, including product analysis software, which we
believe will help us analyze and expand our product margins, and store associate scheduling analysis tools,
which we believe will help increase our labor eÇciencies as we expand into new markets.
We currently operate ten destination retail stores, including our new 176,000 square foot destination
retail store in Wheeling, West Virginia, which we opened in August 2004. In addition, we currently intend
to open four new large-format destination retail stores in 2005. Our failure to obtain or negotiate economic
development packages with local and state governments could cause us to signiÑcantly alter our destination
retail store strategy or format and/or delay the construction of one or more of our destination retail stores
and could adversely aÅect our revenues, cash Öows and proÑtability. Our Wheeling, West Virginia
destination retail store added 15.4% to our retail square footage in 2004. We anticipate that the four large-
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