Business & Real Estate

Sacramento retailer hit the brakes, came out ahead

Greg Bauer built a business for skiers, snowboarders and other outdoor adventure types. Suddenly, it seemed like it was all heading downhill and careening out of control.

So Bauer screeched to a halt, and saved the company.

A little more than a decade ago, he was running one of the fastest-growing businesses in Sacramento. Rack N Road, a retail chain selling car racks and hitches for hauling bikes, skis and other outdoor gear, was opening stores throughout the West and making inroads in e-commerce.

He was going broke in the process. The dot-com crash in 2001 revealed deep flaws in Bauer’s business plan, mainly the result of overexpansion.

So Bauer hit the brakes and started scaling back. Beginning in 2002, Rack N Road closed half of its 16 stores. Later, it all but gave up on e-commerce, devoting its energy to getting customers to come into its stores, not buy online. It also discontinued the sale of Bauer “brand” products.

The result: a company that’s considerably smaller but, according to Bauer, solidly profitable. Rack N Road is growing again, albeit at a modest pace, and is wary of getting back on the fast track. Bauer’s unofficial motto, which he employed more than once during a recent interview at his office near McKinley Park: “Sometimes the most profitable thing you can do is not make the sale.”

Bauer’s reversal is something of a rarity. Business experts said it’s unusual for entrepreneurs to slow down, rethink their methods and make a strategic retreat, even with financial losses piling up.

“You’ve made this public commitment to doing this thing and there’s strong public pressure to follow this up,” said Kim Elsbach, a professor at UC Davis’ Graduate School of Management. “It definitely shows the wisdom of being able to stop and reassess, which is important, but clearly not the mind-set of most entrepreneurs.”

Bauer, 50, said he had little choice.

“We were almost bankrupt,” he said. “It was really that bad.”

Rack N Road had its origins in a family vacation nearly a quarter century ago.

At the time, his family was operating an auto-accessories business from a warehouse in Redwood City. Bauer accompanied family members on a winter trip to Lake Tahoe in late 1990. Because there wasn’t much snow, the Bauers decided to take their bicycles, too. One problem: They had trouble finding the roof racks or hitches they needed to haul all their gear.

Bauer sensed an opportunity. Although REI and other retailers sold this type of equipment, he believed a dedicated specialty store could work. He called it Sports Rack.

At first, he sold product out of the Redwood City warehouse. Then he moved to Sacramento, partly for family reasons, and opened his first store on Fulton Avenue.

A decade later, Sports Rack seemed unstoppable. It had 16 stores, including a presence in markets teeming with the cycling, skiing and snowboarding crowd: Seattle, Denver, Salt Lake City. A Roseville store complemented the Sacramento location.

The first hint that something was wrong was the collapse of the dot-com market. Sales dried up at the Sunnyvale store.

Bauer realized his company’s problems went beyond Silicon Valley. He had simply opened too many stores. Startup costs of $250,000 per store were eroding profits. And with multiple locations in the Seattle and Denver markets, the company was cannibalizing its sales, said Bauer’s co-founder, co-owner and chief financial officer, Tom Mollerus.

In addition, the company’s management couldn’t properly supervise everything.

“We were spreading ourselves a little thin,” Mollerus said.

Stores were closed or sold. Seattle was pared from three stores down to one. Bauer left Denver altogether. Roseville was consolidated into Sacramento, which now operates on Arden Way near Cal Expo and is run by Bauer’s brother John, the third co-owner of the company.

Other cutbacks occurred. The company sold off its line of Bauer-brand equipment in order to focus exclusively on selling national brands like Thule and Yakima. At one point, the Bauer brand, manufactured by contractors overseas, accounted for a quarter of the company’s sales, but the program wasn’t penciling out. Bauer said unloading the house brand was part of the acknowledgment that he had grown too quickly.

The final retrenchment occurred around 2007. The company, now known as Rack N Road, was doing about $300,000 a year on the Internet but e-commerce wasn’t paying for itself. Marketing and shipping costs caused the company to lose money every time someone clicked “Checkout.” The competitive environment online was brutal.

Rack N Road never abandoned e-commerce but altered its strategy significantly, encouraging Web surfers to drop by the brick-and-mortar locations. “Get Local!” is the slogan on the retailer’s home page.

“What we’ve really tried to do is get the customers to shop local and come into the stores,” Mollerus said. Today only about 1 percent of Rack N Road’s sales come from e-commerce.

Bauer said his stores can “do something Amazon can’t,” such as installation, equipment rental and help prospective customers figure out which roof rack will fit properly on their SUV.

Rack N Road operates eight stores, including two locations owned by former Bauer employees operating under licensing agreements. Rack N Road generates about $8 million in annual revenue, or about $1 million more than in the late 1990s. Bauer said the business is heading in the right direction again: “We’re hitting that 7 to 8 percent growth year after year.”

Despite his conservatism, Bauer isn’t averse to branching out. Rack N Road has a sister company called Park a Bike that makes permanent bike racks for parks, college campuses and other venues. The business will do at least $1 million in sales this year, Bauer said.

And, somewhat ironically, he has created an Internet consulting firm called B360 to help clients find their way on the Web.

Bauer said B360 is an outgrowth of Rack N Road’s struggles with e-commerce; its focus is analyzing clients’ Web traffic.

Even as his businesses expand, Bauer remains ever vigilant about growth. He recently counseled his Park a Bike employees about the folly of going too far, too fast.

At his company headquarters near McKinley Park, a homemade sign on an underling’s office window sums up the Bauer world view: “Sales for sales sake is bad business.”