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Why Foot Locker’s Paying $1.1 Billion for Two Acquisitions

Monday brought big deals in the world of footwear, kicking off August with a bang.

Foot Locker is looking to expand its brand out of its sports-oriented, sneaker culture in a big way.

The specialty athletic retailer is making not one, but two acquisitions designed to further expand the company into the Asia-Pacific region and provide new assortments across segments including high-end streetwear and footwear for the full family.

For nearly $1.1 billion in two all-cash purchases Foot Locker now has two new retailers in its ecosystem. The company acquired Atmos, a Japanese footwear retailer with 49 global stores, for $360 million, and scooped up WSS, a footwear and apparel retailer with 93 stores in the Southwestern U.S., for $750 million.

WSS and Atmos serve customer bases that could significantly complement Foot Locker’s current offering. Dovetailing with Foot Locker’s plan to pivot away from large shopping centers and malls into more community-driven areas, WSS’ store base operates exclusively in “off-mall” locations in four states: California, Texas, Arizona and Nevada. In a presentation, Foot Locker referred to the U.S. West Coast as a “currently underpenetrated” geography for its banners.

WSS and Atmos serve customer bases that could significantly complement Foot Locker’s current offering. As Foot Locker wants to continue its pivot away from large shopping centers and malls into more community-driven areas, WSS’ store base operates exclusively in “off-mall” locations in four states: California, Texas, Arizona and Nevada. In a presentation, Foot Locker referred to the U.S. West Coast as a “currently underpenetrated” geography for its banners.

Additionally, WSS has a large, rapidly growing Hispanic consumer base that Foot Locker is looking to attract. And overall, the WSS customer base demonstrates strong brand affinity, with 80 percent of sales coming from loyalty members.

“WSS has built a successful, high-growth business by pioneering the neighborhood-based store model, built on community engagement and a full-family offering,” Richard A. Johnson, chairman and CEO of Foot Locker, Inc., said in a statement. “This acquisition enhances our product mix and provides access to a customer base and store footprint that are both differentiated from and complementary to our current portfolio.”

Mid-priced classic footwear styles represent 50 percent of sales at WSS, giving Foot Locker a more diversified product mix that offers a broader range of consumer needs across price points.

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While WSS saw compound annual growth rates (CAGR) of 15 percent from 2017 to 2020, with the retailer taking in $425 million in 2020, Foot Locker sees WSS as a $1 billion brand in the long term.

Rick Mina, CEO of WSS, highlighted that the “talents, resources and rich history” of Foot Locker will make WSS a “better and stronger business.”

Atmos, which operates under Atmos and women’s brand Atmos Pink, will accelerate Foot Locker’s global reach with a strategic foothold in Japan. Atmos generated approximately $175 million of revenue in its fiscal year 2020, more than 60 percent of which was generated through digital channels. The digital-savvy company has 1.2 million Instagram followers and 189,000 Twitter followers worldwide.

Atmos generated approximately $175 million of revenue in its fiscal year 2020, more than 60 percent of which was generated through digital channels. The digital-savvy company has 1.2 million Instagram followers and 189,000 Twitter followers worldwide.

“Atmos is uniquely positioned through its innovative retail stores, high digital penetration, and distinctive products that have made it a key influencer of youth and sneaker culture. With Atmos, we are executing against our expansion initiative in the rapidly growing Asia-Pacific market, establishing a critical entry point in Japan and benefitting from immediate scale,” Johnson said in a statement.

Johnson referred to Atmos founder Hidefumi Hommyo “as one of the most influential people in streetwear and sneaker culture.” Hidefumi founded Atmos 2000 as a small storefront selling vintage sneakers in Tokyo’s Ura-Harajuku fashion district.

The Japanese retailer is known for its premium sneaker and apparel offerings, boutique streetwear, an exclusive in-house label and a history of collaboration with brands including Nike, Asics and Ugg.

Foot Locker presently considers the APAC region to be its largest growth opportunity, since the retailer has less than a 1 percent share in the region. Japan in particular is a $6 billion total addressable market for Foot Locker, the company said.

In the 2021 first quarter, Foot Locker Asia delivered a triple-digit comp gain, while Foot Locker Pacific increased in the mid-90 percent range.

Both acquisitions are expected to be accretive to Foot Locker’s earnings per share in fiscal year 2021. The transactions are expected to close in the third quarter of 2021, and Atmos and WSS management will continue to lead respective businesses.

After the acquisitions close, Atmos and WSS will continue to operate under their own banners. The two companies join the larger Foot Locker portfolio of brands, which includes Foot Locker, Kids Foot Locker, Champs Sports, Eastbay, Footaction and Sidestep.

The Foot Locker deals come as consolidation continues within the footwear industry. Windsong Global LLC, a private investment firm focused primarily on the consumer sector, and Hilco Brands, LLC announced that they have made a majority investment in comfort footwear company Earth Shoes.

With the deal, the new majority owners operate brands including Earth, Earth Spirit, Earth Elements, Earth Origins and Kalso, along with the recently licensed brand Tamaris. Terms of the transaction were not disclosed.

Earth Shoes brands are sold online and in stores across the country, ranging from Walmart to QVC to Nordstrom, with the company committed to sustainablly minded design and manufacturing as well as social fairness in its partnerships. Earth Shoes has sold over 150 million pairs of footwear since its inception.

In a statement, William Sweedler, chairman and CEO of Windsong, said he believes significant expansion opportunities exist within the sector, including “opportunities to leverage its intellectual property and brand equity into new categories.”

“We spoke with many investors and the Windsong team’s understanding of our business was what set them apart from all the rest.  At Earth, we are focused on bringing comfort, sustainability, style and ultimately happiness every day to our customers through their feet!” Mark Parsley, the recently named CEO of Earth, said in a statement.

Windsong has recently made significant controlling investments in Daytona Apparel, a manufacturer, designer and distributor of legwear, hosiery and accessories; the Swims footwear and swimwear brand; and baby footwear and apparel brand Robeez.