For the past two years, JD Sports Fashion PLC has worked to expand its presence in the United States. With its latest acquisition, the British sportswear retail giant continues to broaden its reach in the American market.
JD Sports announced yesterday the acquisition of Shoe Palace Corp. for $325 million. In a statement, it said the San Jose, Calif.-based company would not only allow it to bolster its presence on the West Coast, but also help it connect with Hispanic and Latino consumers.
According to The NPD Group senior sports industry adviser Matt Powell, the deal will help JD Sports fill a void that Finish Line simply couldn’t.
“Finish Line does not have a great presence on the West Coast, and they don’t have a deep penetration with Black and Hispanic consumers. [Shoe] Palace delivered both of those things to them,” Powell said. “Palace has been very successful on the West Coast, and they have a loyal following among Black and Hispanic consumers. This begins to fill a need for JD; this is [a move] that’s as much about geography as anything.”
For his part, Susquehanna Financial Group analyst Sam Poser believes the acquisition could also help JD Sports tap into a more fashion-conscious consumer.
“It gives [JD Sports] a fashion brand that they can roll out to other parts of the United States. It’s a very different business,” Poser said. “Yes, [Shoe Palace does] carries some product that Finish Line carries, but I think it’s a different consumer. It’s a much more fashion-oriented consumer than a mall-based, pseudo sneakerhead. There’s much more sneakerhead activity at Shoe Palace than there is at Finish Line.”
Since opening its doors in 1993, Shoe Palace has amassed 167 stores — most of which are located in California. However, the business, run by the Mersho family, has extended its brick-and-mortar footprint to Texas, Nevada, Arizona, Florida, Colorado, New Mexico and Hawaii.
Because of its reputation and name recognition stateside, Powell said that he believes it would be wise for JD Sports to consider opening up Shoe Palace to the rest of the U.S. “This gives an opportunity for Palace to have a national reach now,” he said. “I certainly don’t think Palace would be as large as a Finish Line in terms of the number of doors, but would this give them an opportunity to grow beyond the current footprint? Yes.”
“There would be value [for JD] to keep it as Shoe Palace,” Poser said. “Not only does it give them a different customer, it also gives them different real estate because most of those stores are not in your normal malls. A lot of them are freestanding. And they don’t sell a ton of real basics [sneakers], it’s mostly more of the cool stuff.”
He continued, “What you want to do is you want to fund them, make them more efficient.”
JD Sports’ efforts to become a major player in the U.S. took shape in March 2018 when the retail powerhouse acquired Finish Line Inc. for $558 million. But there have been some bumps in the road since striking the deal.
For instance, social media users and a source speaking with FN voiced concerns in October over what was described as weeks of order delays and unreliable customer service from the retailer dating back to September. Some of the comments included complaints that the company’s digital platforms were not functioning properly and that orders were either not being shipped or were cancelled without warning. Also, some stated they waited more than 30 days to receive refunds.
Despite some missteps, Powell said JD Sports is in a good place with Finish Line.
“Finish Line is still a work in progress. It’s still a learning process for JD about how to operate here,” Powell said. “The United States is very diverse in terms of the number of retailers who are selling athletic shoes — probably more than any country in the world. And there’s much more competition around team apparel here than there is in Europe with all the verticals that are in place, so it’s a different market.”
Poser believes the issues JD and Finish Line faced aren’t substantial.
“Everybody had a huge increase in demand to their digital platforms. And their U.S. platform wasn’t up to snuff, so there were delays. But those are the kind of things that are repairable,” Poser said. “And when they made the acquisition, nobody knew that COVID was coming.”
In fact, Powell added there are more hits to speak about with the Finish Line deal than misses.
“The successes have been around assortment planning. [JD] reduced the number of SKUs that Finish Line carries; it’s a much more focused assortment today. And I think that’s been a boon to them,” Powell explained. “And they likely have gotten greater allocations from brands because of the global size of JD. Those are things you could call out as real wins.”
To gain steady footing in the U.S., Powell believes JD Sports should pay close attention to what Shoe Palace has accomplished in its near three decades of business.
“Go in and learn the business, understand what made [Shoe Palace] successful and do more of that, and experiment with the changes that from the vast knowledge that JD has about retail,” Powell said. “They’ve been very deliberate with the Finish Line acquisition, and I think they’ll be deliberate here as well.”