Industry Praises Brown’s Acquisition of ASG

Retailers and analysts on Friday gave a thumbs up to the news that Brown Shoe Co. had acquired American Sporting Goods.

Isack Fadlon, co-owner of Los Angeles-based Sportie LA said with Brown’s backing, he would be more likely to take a second look at ASG’s brands and possibly build a business with them. “We carry Avia, and we did carry And 1 back in the day,” he said. “I think that when a company of [Brown’s] magnitude buys [another] company, it’s dedicated to those brands. [That] definitely interests me.”

“The acquisition makes sense considering Brown Shoe’s current wholesale brand portfolio,” BB&T Capital Markets analyst Scott Krasik wrote in a research note. “Furthermore, assuming toning does not disappear and that there is not any negative fallout from the leftover inventory, the purchase price appears reasonable.”

Brown purchased the company for $145 million in cash and assumed the firm’s net debt of $6 million.

For her part, Brown president and COO Diane Sullivan said the acquisition meshed perfectly with the company’s strategic goals. “It was such a great strategic fit,” she said. “We’ve been evolving our strategy over the last 12 months or so to really be focused on three macro trends that we think are important — family, contemporary fashion and the one that ASG really fit into, [which] is this whole concept and trend of healthy living.”

Sullivan said ASG’s financial performance would also help boost Browns operating margin into the double-digits over the next couple of years. Also, the company’s talent pool, distribution channels and customer base could open new opportunities for Brown.

One involves the three factories in China that ASG leases and operates. While those factories make up about 35 percent of ASG’s production base, it helps its value proposition and gives it a special insight into sourcing, Sullivan said. And those factories could be used to assist some of Brown’s other brands.

“We think it’s going to be an advantage to us down the line,” said Sullivan. “Who knows? Maybe we’d want to even think about having some of our Dr. Scholl’s shoes manufactured there as well. We’ll see.”

Sam Poser, analyst at Sterne Agee, agreed that manufacturing capabilities will be a boon for Brown Shoe, saying the firm would be able to increase margins by paying a lower cost for product in the future.

Mark Lardie, Brown Shoe divisional president of wholesale, who has been tapped to oversee the ASG portfolio, said his immediate plans are to find a general manager to lead the brands and build a three-year operating plan for each of the brands.

“First and foremost, we’re going to be looking for a really strong general manager to come out here and head up the group,” Lardie said. “Jerry Turner will be working with us over the next year as we make that transition, but we want to get a good strong person in place to help guide these brands and help us understand how we can get them to their full market value and place they deserve.”

Turner was unavailable for comment at press time.

Longer term, Sullivan said one of the many opportunities for the ASG brands, in addition to wider international distribution, is an e-commerce business.

“The ASG brands have had limited opportunity [in e-commerce],” Sullivan said. “We think e-commerce-enabled websites will be a great opportunity as well.”

As for the future of the ASG brands in Brown’s Famous Footwear stores, Sullivan said it would depend on consumer reaction. “We always let the consumer vote first with whatever we do with Famous,” she said. “As Mark continues to evolve each of those brands and the team out there, if we feel it’s right for the Famous customer, we would grow it, but only if we think it’s right for the Famous customer.”

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