FL Buys Into Skate with CCS

NEW YORK — With its impending purchase of direct-to-consumer business CCS, Foot Locker Inc. is showing how serious it is about the skate category.

The company, which last Monday said it will buy the online and catalog skate retailer from Delia’s Inc. for $102 million in cash, has been looking for an entry into the skate business for several months, and it’s largely believed Foot Locker will delve further into the category. The firm, which was flush with $431 million in cash and short-term investments at the end of the most recent quarter, has said it is actively looking at acquisitions. And market watchers said it could solidify another skate deal by the end of the year.

“Something major is going on,” said Sam Poser, an analyst at Sterne Agee & Leach, who thinks Foot Locker could be after a larger retailer in the skate business. Alternatively, he said, the firm also could look outside the box and buy a well-known skate brand.

For his part, Foot Locker Chairman and CEO Matthew Serra was mum on potential new deals, except to reaffirm that his company evaluates many acquisitions. The firm has been very bullish on the skate category specifically, and it recently launched dedicated skate-shoe presentations at 600 Foot Locker units and at all its Champs locations.

Regarding CCS, Serra said the purchase, expected to be completed by the end of November, complements Foot Locker’s existing Web presence in its Footlocker.com/Eastbay division. He expects CCS to generate $80 million in revenues in 2009 and said the brand is already “very profitable.” It is likely to add to Foot Locker’s earnings within the first year of ownership, the CEO said.

CCS will continue to operate its own Website separate from Eastbay.com, though CCS will become a division of Eastbay, and its merchandising team will move from the firm’s 23rd Street offices in New York to Foot Locker’s home on 34th Street. Susan Van Arsdale will stay on with CCS as managing director, reporting to Dowe Tillema, president and CEO of Footlocker.com.

“We’re a large company and we have the financial wherewithal [to support CCS],” Serra said. “We have a very strong Internet business so we have a lot of expertise there. Susan and her team have really grown the [CCS] business dramatically, and with the support of Foot Locker and the financial backing, we’ll be able to grow the business nicely.”

Gilbert Harrison of Financo Inc., which advised Delia’s on the transaction, called the deal “absolutely logical” for Foot Locker because the firm has been targeting the teen — predominantly male — customer. For Delia’s, the sale is a way for the firm “to strengthen its balance sheet in this uncertain environment and also be able to have the capability to focus on its growth, on the core Delia’s and Alloy brands,” Harrison said.

Harrison, who said he was pleased with the result, noted that a handful of other players were interested in buying CCS, which he said is a testament to CCS’ market-leading position. Indeed, it is CCS’ positioning in the skate market that makes it a good learning opportunity for Foot Locker, said Serra.

Analysts also were bullish on the move, particularly because it will give Foot Locker “extensive data about the core skate consumer,” Poser said. John Shanley of Susquehanna Financial Group said in a report that the buy could give Foot Locker’s retail operations “greater access to hot-selling skate products that currently have limited availability at some of the firm’s brick-and-mortar formats.”

Executives from skate vendor Osiris told Footwear News they were surprised by the acquisition, but are waiting to see how it will affect the skate business. “It’s a shock to the whole market. We’re going to sit back and see how it plays out,” said Doug Weston, national accounts director. “Everyone realizes that if we’re going to really bring this market forward, you have to be open to growth.”

At Etnies, Mike Regan, brand director, was positive on the news, saying he does not anticipate the deal will change his brand’s current business with CCS. “This acquisition demonstrates that Foot Locker saw the value in the core and action-sports-lifestyle categories,” he said in an e-mail message. “Our contacts at CCS recently told Etnies’ sales management they were really excited about the acquisition and have a lot of confidence that it will allow for more autonomy in making CCS even better.”

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