Costa Mesa-based retailer 5.11 counted just five locations when Connecticut-based holding company Compass Diversified (NYSE: CODI) acquired the company in 2016, paying about $400 million.
The firm has opened over 100 more in the six years since.
The tactical apparel company launched in 2003 with direct sales to public safety professionals, such as police officers and firefighters, and then with wholesale partners like Bass Pro Shops. It later diversified its offerings by taking specific requests from customers and wanted to open a store to bring all of its products under one roof.
5.11 opened its first brick-and-mortar in 2012 in Fresno.
“This was the first time that we intentionally put all the innovations we had created together,” Chief Executive Francisco Morales told the Business Journal.
Costa Mesa, Fullerton
It’s been a rapid period of expansion since then.
Compass has helped 5.11 accelerate “its retail strategy by growing store units at a 24% [annual growth rate],” according to Compass CEO Elias Sabo, who runs the $1.4 billion-valued parent company—also the majority investor in Newport Beach’s Lugano Diamonds—from an office in Costa Mesa.
5.11 opened its 100th store in August in Oxnard, and has opened nine more since then, including its first two local outposts in Costa Mesa and Fullerton.
Morales said 5.11 has a goal of opening 400 retail stores total in the U.S.
“We’ve got a lot of runway.”
Top Subsidiary
5.11, whose products range from cargo pants to EMS bags and hiking boots, distributes to 120 countries with wholesale partners and a burgeoning e-commerce business in addition to physical stores.
The company delayed its plans to go public this year, citing rough market conditions, and currently operates under Compass as the group’s largest branded consumer subsidiary.
The retailer’s third-quarter sales were $126.5 million, up 14% from a year ago.
Velocity Outdoor’s $75 million in net sales for the three-month period ended September made it the second best-selling brand in Compass’ portfolio last quarter; Lugano’s $51.1 million made it No. 3 among the eight companies in Compass’ portfolio.
5.11 represented about 33% of Compass’ total consumer sales last quarter, according to regulatory filings.
Future Plans
5.11 still has a goal of going public, but “there’s no rush,” according to Morales.
“We have a permanent source of capital through Compass,” he said. “The opportunity in the future to go public will be even better than it is right now.”
Compass expects 2022 capital expenditures to be between $50 million and $60 million; 5.11’s physical expansion is playing a large role in those investments. Lugano Diamond’s expanded new headquarters in Newport Center and flagship store at Fashion Island in Newport Beach is also a player in that expense. “Our subsidiaries on a combined basis continue to deliver excellent results despite inflationary pressures impacting consumer discretionary spending,” Compass’ Sabo said in a statement earlier this month.
The majority investor credits 5.11’s revenue growth to its increasing sales in direct-to-consumer, domestic wholesale and international channels.
One-third of 5.11’s business comes from overseas, according to Morales, and half of the U.S. business comes from direct-to-consumer channels made up of e-commerce and physical stores.
“We continue to be excited by the brand’s potential and believe the business remains well positioned for continued growth,” Compass Chief Operating Officer Pat Maciariello told analysts.
‘Prosumers’
It was public safety professionals like first responders and military personnel that kick-started the growth 5.11 is seeing today.
The company credits these “prosumers” with its growing collection of products and its expansion to mainstream customers.
“We saw that they were using our products for everyday use, and not only when they were at work,” Morales said. “Organically, there started being a pull.”
5.11 develops products meant for an intensive environment with its origins in tactical gear and durable uniforms. When it comes to everyday use, Morales said that these standards of durability, comfort and utility help create a longer-lasting product for a more casual consumer.
“Our products are a manifestation of a utilitarian problem that can go from urban to rural,” Morales said.
Costa Mesa Move
5.11 will end the year in a new headquarters at the Canvas office campus on Bristol Street in Costa Mesa, less than a mile from South Coast Plaza on the other side of the San Diego (405) Freeway.
The office was dubbed 5.11’s Global Innovation Center.
The 39,650-square-foot space currently houses around 135 employees and has the capacity to hold between 160 to 180 total.
The company started its move in October, and the space will ultimately bring all 5.11 departments on the same floor, unlike its previous location in Irvine, Morales said.
The firm invested in post-pandemic upgrades including collaboration rooms and updated technology to offer a hybrid environment for the team, and potential talent.
“We make real things and sometimes we need to put that on a screen while still being able to touch and feel,” Morales said. “We have created the spaces and technologies to be able to do that.”
That includes a new 3D design software, and an increased focus on research and development spaces.
On the design front, various material, and patterns from 5.11 apparel and gear were incorporated into décor such as wall details and seat cushions.
The office aims to mirror the versatility of 5.11 products, with a variety of rooms for meetings and casual spaces and tables with wheels.
“We all agree that it’s easier to see the next five years from this space,” Morales said.
