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NEW YORK — Wal-Mart, meet Nike.
Nike Inc. on Wednesday purchased the parent company of the Starter athletic brand for about $43 million, and said it has created a subsidiary called Exeter Brands Group LLC devoted to building brands in discount retailers such as Wal-Mart and Kmart.
Nike has hired industry veteran Mary Gleason as president of Exeter Brands Group, which will be based here.
Tom Clarke, Nike’s president of new business ventures, wasn’t available for comment, but said in a statement: “The acquisition of Starter is the next step in the evolution of Nike Inc.’s multibrand portfolio growth strategy and will allow us to capitalize on an important value channel opportunity. Over the last three years, value retailers have grown rapidly in the U.S. athletic footwear and athletic apparel markets. This acquisition gives us a profitable existing business and a platform for future growth in a channel not currently served by our current brand portfolio.”
Under the terms of the deal, Nike bought 100 percent of the equity shares of Official Starter Properties LLC and Official Starter LLC, which owns the Starter, Team Starter and Asphalt brand names, and is the master licensee of the Shaq and Dunkman brands of athletic apparel, footwear and accessories, all of which are sold to discount retailers.
Sources estimated on Wednesday that Starter products generate wholesale volume of about $350 million, including licensing. Wal-Mart is one of Starter’s largest customers as is Kmart, said a Nike spokeswoman on Wednesday. She stressed that while Nike Inc. is looking to build its business in the discount arena, the Nike brand would not be sold in that channel. She also noted that Nike was attracted to Starter in large part because of its expertise in apparel, since the bulk of Starter’s business is clothing, primarily in men’s wear. The spokeswoman declined to say how big this business could be, but said Nike expects significant growth from Starter.
The Starter acquisition allows Nike to move into discounters without alienating its core sporting goods retailers and specialty and department stores, according to one Wall Street analyst, who asked not to be identified. The analyst said Nike already has very large market share with its core brand and is looking for new revenue streams to complement its core business, since it will be difficult for the company to further grow its market share in a significant way. Nonetheless, Nike’s business has flourished recently. In 2003, revenues were $12.3 billion, up 14.5 percent from a year ago, and the company said it recorded its highest gross margins ever.
Shares of Nike slipped 54 cents to $70.32 Wednesday on the New York Stock Exchange.
The Nike spokeswoman said Exeter also will explore acquiring other brands to put under Gleason’s helm. Gleason, 50, who has a 25-year track record in the apparel business, was most recently president and chief executive officer of Group 3 Design, the brand management company that has managed the Starter brand since 1999, and also manages Delia’s and other companies.
Gleason will report directly to Scott Olivet, vice president of Nike Inc. Subsidiaries, a fast-growing division that also houses Converse, Hurley, Cole Haan and Bauer Nike Hockey. Andis Akerfelds, co-founder of Group 3 with Gleason, will assume the new responsibility as chairman of Exeter Brands Group, Nike said.
“Mary Gleason brings strong licensee and retail relationships that can be expanded to capitalize on a largely untapped business opportunity,” said Olivet in a statement.
Founded in 1971, Starter is best known for its athletic T-shirts and sweatshirts, although it makes a wide range of athletic-related apparel, gear and footwear. It was at one time a leading sports licensing line in the professional and college sports arenas, but the company fell on hard times in the late Nineties. In April 1999, Starter Corp. filed for bankruptcy, listing such creditors as NBA Properties, Major League Baseball Properties, NFL Properties, NHL Enterprises, Fox Broadcasting and Madison Square Garden. Official Starter Properties LLC and Official Starter LLC, based in New York, acquired the assets of the bankrupt Starter Corp. in 1999.