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Foot Locker To Buy Two Smaller Retailers To Accelerate Growth

Athletic footwear and apparel retailer Foot Locker is planning to acquire two smaller footwear retailers for a combined $1.1 billion as the company looks to grow beyond malls and accelerate its digital strategy.

The New York-based company plans to purchase Japanese sneaker and streetwear retailer Atmos for $360 million, which will expand Foot Locker’s global reach, as well as California-based athletic retailer WSS for $750 million.

“Both transactions reflect our commitment to our growth strategy and engaging with new and incremental consumers,” said Richard Johnson, CEO of Foot Locker, in a statement.

Atmos, which had $175 million in revenue in its 2020 fiscal year, makes 60 percent of its sales through digital channels, an area where Foot Locker previously has shown only a passing interest. And WSS, which had approximately $425 million in revenue last fiscal year, has 93 off-mall stores across California, Texas, Arizona and Nevada, which will diversify Foot Locker’s real estate.

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Additionally, both acquisitions give Foot Locker access to consumers it previously did not have as strong of a hold on. With Atmos, Foot Locker gains a foothold in the rapidly growing Asia-Pacific market. WSS, for its part, mainly caters to large, rapidly growing Hispanic communities, with whom the retailer has deep customer relationships; about 80 percent of WSS sales are from customers who are loyalty program members.

Both acquisitions are expected to close in the third quarter.

Overseas Expansion

As brands increasingly sell products directly to consumers, retailers such as Foot Locker are looking for ways to stand out and stay relevant with shoppers. During its most recent earnings call in May, Foot Locker provided little detail about its digital strategy, physical retail strategy or financial outlook for the rest of the year, but reported that digital direct-to-consumer (D2C) sales rose 47 percent year over year between February and May.

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With Atmos, Foot Locker is inheriting a robust omnichannel platform as well as a brand that is resonant with young consumers and has a history of collaborating with other brands, including Nike and ASICS. Atmos also has 49 stores around the world, including 39 in Japan, which it utilizes for experiential shopping experiences.

Foot Locker said the Asia-Pacific region is its largest growth opportunity as the company had less than 1 percent market share in 2020.

“With Atmos, we are executing against our expansion initiative in the rapidly growing Asia-Pacific market, establishing a critical entry point in Japan and benefiting from immediate scale,” Johnson said.

To be sure, other footwear retailers and brands already have established presences in the Asia-Pacific region, potentially complicating Foot Locker’s international growth. Nike, for example, has a 40-year history in China and is currently planning to open a new digital technology center in Shenzhen to better serve Chinese customers.

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By investing in Japan rather than China, though, Foot Locker may be looking in the right direction. Japan is the third-largest global economy by gross domestic product with a $6 billion addressable market, and Johnson noted that the country is a “high-profile influencer of youth culture” in Asia.

Heading West

In North America, Johnson said that Foot Locker’s strategy is diversification, which is exactly what it’s getting from WSS. Unlike Foot Locker, which has most of its locations at shopping malls, WSS’ footprint is entirely outside of malls, focusing instead on neighborhood-based stores and community engagement.

Johnson said Foot Locker has previously been underinvested in California and other parts of the West Coast U.S., so the WSS acquisition also expands the company’s reach “and provides a path to growth in new, underserved markets.”

“The geographic strength of WSS and its potential for growth is one of the key reasons we’re so excited about this transaction,” Johnson told investors and analysts on a conference call.

He added that the goal is to grow WSS into a billion-dollar brand in the long term.

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