By HELEN JUNG, The Oregonian, Portland, Ore. Knight Ridder/Tribune Business News
Aug. 12--Nike said Wednesday that it spent $43 million to acquire the company that makes sportswear and footwear for discount chains under the Starter and Shaq brand names.
Beaverton-based Nike said it will create a new subsidiary, called Exeter Brands Group, to take over operations of Official Starter Properties and Official Starter.
From its base of operations in New York, Exeter Brands will oversee the design, manufacture and distribution of lower-priced clothing and shoes to retailers including Wal-Mart Stores Inc., Kmart Corp., Target Corp. and Payless ShoeSource Inc. Mary Gleason, who has headed Starter's business since 1999, will join Nike as president of the newly created subsidiary.
The move gives Nike a way to sell to customers of discount chains without having to put its own swoosh product on their shelves -- and risk harming the premium image of Nike brand products.
'I think it is a good move forward,' said John Shanley, senior analyst with Susquehanna Financial. The acquisition gives Nike 'the capability to go after a channel of distribution in the athletic market that they really have never touched.'
Also, he said, it lets Nike tap into what may be as much as an $11.5 billion retail market for mass-market athletic clothing and footwear without annoying key retail partners such as Foot Locker Inc., Finish Line Inc., and The Sports Authority Inc., which rely on the company's more expensive products.
Shares of Nike lost 54 cents, or 0.8 percent, Wednesday to $70.32 on the New York Stock Exchange.
Privately held Starter sells products under the Starter, Team Starter and Asphalt names. It also sells licensed products under the Shaq and Dunkman brands, featuring basketball star Shaquille O'Neill. Starter also has licensing agreements with Major League Baseball and National Collegiate Athletic Association teams.
Nike did not disclose Starter's annual revenues, but the company brings in about $350 million in sales annually, according to an estimate by Sporting Goods Intelligence, an industry newsletter.
'The Nike brand itself is always going to be the centerpiece of this company's growth strategy,' said Tom Clarke, Nike's president of new business ventures. But Nike has also been looking at other ways to diversify its business and get into the booming market for lower-priced athletic wear.
'We're not currently servicing the value channel with any of our existing brands.'
In the past several years, Nike has expanded its business to include subsidiaries Cole Haan, Bauer Nike Hockey, Hurley International and Converse Inc. The subsidiaries, including Nike Golf, contributed $1.4 billion in sales for the 2004 fiscal year. Nike total sales were about $12.3 billion.
Gleason will report to Scott Olivet, vice president of Nike subsidiaries, which includes Converse, Hurley, Cole Haan and Bauer Nike Hockey.
Starter's 18 employees also are expected to join Nike's Exeter subsidiary, Gleason said. Like Nike, the company contracts with factories to manufacture its products.
Despite the acquisition and the new relationships with such powerful retailers, Nike doesn't intend to start shipping Converse or Nike products to discounters' stores, Olivet said.
Rather, Nike likes the way its subsidiaries complement its mix of products, he said. The Starter clothing and shoes fit into the lowest price-point category; those from Converse, which Nike acquired in 2003, fit into the next higher price category; and premium Nike brand products take the highest price-point level. In addition, Nike does not plan to move any of its own licensing business into the Exeter subsidiary, Olivet said.
Nike, which spent two years researching the Starter acquisition, is looking at other potential purchases, Clarke said, although he declined to specify them.
The Starter brand was founded in 1971. When Starter Corp. went bankrupt in 1999, Official Starter Properties and Official Starter acquired its assets, including the Starter name.
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