L.L. Bean Financial Analysis: Growth Strategy 1980–1985

Introduction

Founded by Leon Leonwood Bean in 1912, L.L. Bean, Inc., a Maine-based manufacturer and mail-order retailer of sporting goods and apparel, increased its sales from $3 million in 1967 to over $120 million in 1980. Current projections predicted an annual compounded growth rate of 25 percent through 1985. Management therefore faced important decisions regarding how to achieve this growth: through mail order, by increasing retail store space, by expanding manufacturing operations, or by taking the company to a global level. In managing this growth, the company president hoped to maintain the highly personal service, excellent product quality, and friendly, informal working environment that he considered most important to the company's popularity with both customers and employees.

This paper analyzes L.L. Bean's performance in previous years and uses that financial information to forecast how successful the organization might be in 1981. The year 1981 is crucial because, if those forecasts prove reliable, success is likely to continue through 1985, with L.L. Bean's sales nearly doubling each year.

When Leon Gordon, Bean's grandson, joined L.L. Bean in 1961, Abercrombie and Fitch was the industry leader in sporting goods. Within a few years, Abercrombie went out of business, and L.L. Bean became the largest mail-order company in the specialty outdoor business.

Company Analysis: Competition and Marketing

L.L. Bean had several immediate competitors, including Eddie Bauer, Talbots, Orvis, and Lands' End. In 1980, Eddie Bauer and Talbots each operated 16 stores. According to press accounts, Bauer planned to dramatically increase its retail outlets by 1985, opening 30 stores in major cities and several catalog showrooms in smaller markets. Talbots planned to open 56 to 65 stores by 1984. Both Orvis and Lands' End operated only one retail store each.

L.L. Bean recognized Eddie Bauer as its number-one competitor. Company research showed that when L.L. Bean customers were asked which other mail-order companies they had bought from, approximately 27% mentioned Bauer. The next most frequently mentioned competitor was cited by only 8%, confirming that Eddie Bauer was the company's primary source of competition. However, a 1979 survey revealed that L.L. Bean had higher brand awareness than Eddie Bauer in all regions except the Pacific.

The company's marketing director noted that while L.L. Bean's products were well known, customers did not immediately perceive just how competitive its pricing was. L.L. Bean charged approximately 10–15% less than its major competitors and offered free delivery.

In 1975, L.L. Bean's leaders identified a major goal: to double the business within five years. After evaluating three potential areas for expansion — mail-order sales, retail store sales, and manufacturing — they decided to focus on mail-order sales for several reasons:

Once goals and direction were established, L.L. Bean made major changes to accommodate projected growth. The company began accepting credit cards for the first time, and credit card orders quickly accounted for approximately 50% of catalog sales. Telephone lines and customer service staff were added to reduce the number of lost incoming calls; by 1980, phone orders accounted for more than $22 million in catalog sales. Several improvements were also made to the company's catalogs, including all-color printing and the hiring of a professional art director.

The company conducted studies with a direct-mail consultant to identify exactly who the L.L. Bean customer was and how that customer perceived the company's products and services. The studies revealed that L.L. Bean's target customer was predominantly over 35 years old, highly educated, and financially comfortable. Most customers resided in one of three regions — New England, the Mid-Atlantic, or the South Atlantic. In general, L.L. Bean's customers were very satisfied with the company's high-quality products, reasonable prices, and delivery times.

These findings indicated that no major repositioning was necessary. The most effective way to increase sales would be to expand catalog circulation among two target audiences: new prospects and existing customers. The company accordingly increased its advertising budget and its rental mailing lists.

The strategy succeeded. In 1976, the number of new L.L. Bean customers exceeded 360,000; by 1980, that number had surpassed 650,000. In both years, new customers accounted for approximately half the company's existing customer base. The company also expanded its marketing mix to include women and younger customers.

L.L. Bean implemented a computerized file to record each customer's individual purchase history, enabling the company to identify its best customers and better understand their needs. As a result of these marketing efforts, business quadrupled between 1975 and 1980.

Despite this confidence in mail-order sales, several marketing concerns remained:

Operations and Personnel

These concerns raised the question of how well equipped L.L. Bean was to sustain future success. The company therefore needed to forecast its future performance and conduct a comprehensive review of its internal systems to mitigate risks associated with adding retail or manufacturing square footage.

Research showed that while many small mail-order companies lacked the operational resources needed to grow, L.L. Bean's customer service was considered one of the best in the industry. In 1980, the company had the resources to open and sort over 31,000 mail orders per day, process and ship over 35,000 parcels per day, and ship most orders within three business days.

Customer service at L.L. Bean extended beyond packing and shipping. The company kept product buttons in stock, answered all customer inquiries, offered refunds on all merchandise, and responded to every written inquiry. New shipments were inspected according to a double-sampling plan and subjected to complete inspection. Fit tests were also performed at the company's manufacturing locations, and all equipment was subject to regular inspection.

In 1980, L.L. Bean employed 900 full-time and 500 part-time staff. Of the full-time employees, 800 were hourly workers and 100 were salaried. All employees were nonunion. To attract and retain high-quality staff, L.L. Bean paid substantially above-average wages and offered cash performance bonuses, along with a full benefits package that included health coverage, pension, profit sharing, a savings plan, and insurance.

The company emphasized job security and individual development through job-posting programs and supervisory assessments. Additional benefits included a significant discount on all L.L. Bean products, an employee store selling defective and returned items at near cost, and an equipment pool allowing employees to borrow gear free of charge. The company also kept employees informed through newsletters and encouraged regular feedback.

As a result of these human resources practices, L.L. Bean's working atmosphere was relaxed and congenial. Although the workforce had grown from 200 employees in 1967 to 1,400 by 1980, a family atmosphere remained prevalent, with few barriers between ranks and strong attendance at company events.

Conclusion and Strategic Recommendations

L.L. Bean also managed inventory risk effectively, ending 1980 with $31,630,000 in inventory — only approximately $3 million above the 1979 year-end level, despite below-plan sales and the addition of more retail space. Selling, general, and administrative expenses were $2,680.60 and $2,145.30 (in thousands) for 1980 and 1979, respectively.

In conclusion, the company stands to benefit across all of the growth avenues analyzed above. By improving its mail-order capabilities, L.L. Bean can continue increasing sales through its strongest channel. The company's solid reputation positions it well to benefit from new forms of customer contact and expanded advertising. By increasing both retail store space and manufacturing capacity, it can grow market share in those segments as well.

In addition to its large catalog customer base, L.L. Bean's criteria for selecting new retail sites should include proximity to major shopping centers and a focus on neighborhoods with a high concentration of college-educated consumers earning over $75,000 per year. Regardless of how profitable the retail segment becomes, the company should avoid eliminating its catalog entirely — even if an item is out of stock in a physical store, customers should always have the option of ordering from the catalog.

Ultimately, L.L. Bean's greatest competitive advantage lies in the combination of product quality, customer service, and brand loyalty it has cultivated since 1912. Preserving those qualities while pursuing disciplined, data-driven growth across mail order, retail, and manufacturing represents the most sustainable path to achieving the company's projected performance through 1985. For further context on retail industry dynamics and the strategic decisions facing specialty retailers, a broad body of academic and industry literature supports the directions outlined in this analysis.