Retail: ‘Our vision is to inspire the world to always be ready,’ 5.11 Tactical CEO says

5.11 Tactical CEO Francisco Morales joins Yahoo Finance Live to discuss consumer resilience amid inflation, tactical product lines, and the outlook for specialty retailers.

Video Transcript

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RACHELLE AKUFFO: Today is, of course, Black Friday, marking the official start of the holiday shopping season. Now, of course, as retailers face more cost-conscious consumers, specialty brands, like 5.11 Tactical, are leaning into niche audiences and supplier contracts.

For insight into the retail landscape, let's bring in Francisco Morales, 5.11 Tactical CEO. Francisco, good to have you on the show. So first, I want to get your expectations, then, for this holiday shopping season for your company and who the real drivers of this growth are going to be.

FRANCISCO MORALES: Thank you, Rachelle. We're very excited about this holiday season, and our consumer has been very resilient, you know, across this year. Our products are highly differentiated. And we are at that tip point where, you know, people use our products for all types of use occasions from travel to workwear, as well as these amazing professionals, consumers that we support, and with apparel, footwear, gear in the military, EMT, and police professions.

AKIKO FUJITA: In many ways, we've seen so many retailers having to find that right balance between higher material costs coming in, having to charge a little more to customers to pass the costs down. How are you navigating that dynamic right now? And to what extent have you had to raise prices?

FRANCISCO MORALES: You know, we have not been exempt to the higher cost and-- whether it's labor and especially freight costs, which were really high during the past few months and year. And now we've seen them on a decline. We have had to pass, you know, some of these prices to our consumers, and they have reacted well.

For the most part, you know, our consumers realize the great value that our products offer. Our products are highly, highly differentiated, most of them covered with patents. And our consumer base tend to be like a fan base, you know? Once they come into our brand, into one of our products, they tend to go into other sections of our retail store.

RACHELLE AKUFFO: And, Francisco, you have this direct-to-consumer model. But what about, perhaps, some of the competition that you're seeing in this space as well? Any sort of plans to go into other retailers?

FRANCISCO MORALES: You know, we go to market through a multichannel strategy. We started the business in offering products that were performance-based, purpose-built to professionals. That's mainly a wholesale channel.

In 2011, we opened our first retail store. And in 2016, we partnered with Compass Diversified, which is a public listed company, to really accelerate the growth of retail. We went from that one store in 2011. We have more than 100 stores today. And we see retail not only as the physical retail, which we offer a great shopping experience, but really a multi, omnichannel combination of digital and brick and mortar.

AKIKO FUJITA: On physical retail specifically, have you seen a return from customers? I mean, we've been sort of trying to figure out on this Black Friday how much of this is gonna happen online, how much of it is gonna happen in physical stores. What are you seeing specifically with 5.11?

FRANCISCO MORALES: You know, what we have seen is people have come and want to experience the product again. Like many other retailers, we saw a huge growth during the pandemic in our digital channels. But now people are coming in because they want to touch. They want to feel the product.

We also have a lot of community engagements. You know, our vision is to inspire the world to always be ready. So we have this ABR Academies, which stands for Always Be Ready, where we do classes and teach people how to use our gear and be prepared.

So people are coming in. They love to interact with each other. They like to interact with our people, our store, which are highly trained and are very passionate about the products, which tend to be very feature-rich. So it really presents a great opportunity for people to have dialogues on how to use these products.

RACHELLE AKUFFO: And, Francisco, Rachelle here. I want to ask you about your international business. We see it's been expanding in Latin America. How are you marketing it to some of these other countries, and what sort of feedback have you gotten so far?

FRANCISCO MORALES: You know, Rachelle, the US is really the leader when it comes, in my opinion, to the type of functional innovation that we do. We outfit some of the most prestige units, whether at the federal level, state level, and local level. So our business international, which is one-third of the business, tends to continue to be mostly professional-driven, where we're selling purpose-built apparel, footwear, and gear to firefighters, military units, police units, who look to the US for our leadership when it comes to this field.

So, you know, we're building the business on the ground. We have a presence in 120 countries-- in some cases, a direct presence. In some cases, we go to market through our distributor. And that is a major growth platform for our company. We are very fortunate that our brand is very well-known around the world. And that represents, like I said, one-third of the business for us.

AKIKO FUJITA: Francisco Morales, 5.11 Tactical CEO, appreciate you stopping by the show today. Thanks so much for your time.

FRANCISCO MORALES: Thank you, Akiko. Pleasure to be here.