Foot Locker Inc. revealed a pair of blockbuster acquisitions this morning — spending $1.1 billion in cash to snap up retailers WSS and Atmos. Insiders are largely bullish on the deals, which will bolster Foot Locker’s footprint in geographic markets where it needs a stronger presence.
However, that is not the only benefit of the transactions.
“They’re both really unusual companies that will complement the Foot Locker stable of brands,” said Matt Powell, senior sports industry adviser at The NPD Group Inc.
Cowen Equity Research analysts agreed, and explained in a note today that the product benefits are just as important as the geographic ones.
“[WSS] customers have different product preferences when juxtaposed to FL’s current base, thus allowing Foot Locker to diversify its product mix across a broader range of price points and styles. Further, the addition of these West Coast locations enables FL to immediately ramp its presence in a geography that it is currently underpenetrated in, and the freestanding store model of WSS allows it to incrementally deleverage its exposure to malls,” the Cowen team wrote in today’s note.
Powell said WSS’s core consumer is also a big selling point.
“WSS gives them an authentic voice in the Hispanic community. And there are major opportunities to continue to expand this chain,” Powell said. “It gives them a voice where they didn’t have a great footprint, for instance, in California. On a per capita basis, it’s one of the lighter ones for them. This gives them an authentic voice there.”
The benefits from the Atmos deal, Powell explained, are similar to that of WSS.
“They don’t have any business in Japan and now they do. And Atmos gives them a point of view on the upper-end sneaker business that has not been a part of the mix,” Powell said.
To acquire WSS, Foot Locker spent $750 million in cash, while paying $360 million on Atmos. Both deals are expected to close late in late Q3 2021.
Although Foot Locker’s deals made waves, rival JD Sports has dominated headlines on the M&A front as of late. The acquisition streak for JD started in March 2018 when it snapped up Finish Line Inc. in a $558 million deal. In the three years since, JD has acquired San Jose, Calif.-based Shoe Palace Corp. for $325 million in December 2020 and Baltimore-based DTLR Villa LLC for $495 million in February.
Although JD has made several acquisitions, William Trading analyst Sam Poser cautioned that Foot Locker should proceed cautiously.
“Keeping up with the Joneses is not something anybody should do. You better be doing something to enhance your vision,” Poser told FN.
Powell agreed, noting that Foot Locker has been smart about the way it has approached acquisitions to date.
“They need to continue to be — as they have been — very thoughtful about the companies they’ve invested in and the companies they’ve bought,” he said. “If they find acquisitions that complement the mix, yes, absolutely [they should acquire more]. At the same time, they shouldn’t be out buying everybody that’s out there.”
With the new buys, Powell believes Foot Locker, a retailer that continuously assess its doors, stands to benefit from expanding its physical footprint — even amid the e-commerce boom.
“We have far too many stores in the U.S., there’s no question about that, but if a retailer is filling a specific need — and in the case of this, they absolutely are — it’s very wise for them to acquire physical stores,” Powell said.
Foot Locker shares were down about 2% on Monday as investors digested the news.