Payless ShoeSource CEO Matt Rubel last week referred to the question about his intentions for the Stride Rite family of brands as “getting the elephant out on the table,” moving quickly to dispel any speculation about Saucony, Stride Rite, Keds, Sperry Top-Sider or Tommy Hilfiger ending up in the Payless distribution.
Instead, Mr. Rubel laid out his vision for a newly named holding company, Collective Brands, Inc., that will serve as the parent to Payless ShoeSource, Stride Rite Corp. and Collective Licensing International, the licensing firm run by former Airwalk and Brooks execs Bruce Pettet, Scott Cain and Eric Dreyer that was acquired by Payless last month.
Rubel said that each division will serves specific customer segments and price-points through different channels and was adamant that theStride Rite brands would not end up in Payless stores.
Vendors and retailers were both a bit apprehensive on the news last week that Payless ShoeSource, Inc. would acquire The Stride Rite Corporation, for approximately $800 million plus the assumption of Stride Rite debt. The all-cash offer of $20.50 per share represents a 32% premium over Stride Rite's average stock price over the past 90 days and was approved unanimously by the boards of directors of both companies. Stride Rite Chairman and CEO David Chamberlain said the price per share was higher than the price SRR shares had traded at in nearly 15 years and represented a multiple of 18.6x analyst EPS estimates for 2007.
The deal, which will be funded partly by cash on hand as well as financing from Citigroup, JP Morgan, and Wells Fargo, is expected to close in the third quarter.
Mr. Rubel will remain CEO of the new holding company and a new CEO will be appointed to run the Payless ShoeSource division. Mr. Chamberlain will continue with Stride Rite through the close of the deal. Rubel will assume the role as interim CEO at Stride Rite until a successor is found.
The companies described the deal as more about growth than about synergies. Rubel and Chamberlain both pointed to the financial resources at Payless as an opportunity to more aggressively fund growth strategies for the Stride Rite brands, both in the U.S. and internationally.
Still, the consolidated company is expected to see some synergies in sourcing, with PSS sourcing 180 million pairs of shoes each year and Stride Rite sourcing another 37 million pairs. Thats a combination that is bound to add margin to the Stride Rite business.
Mr. Rubel focused a great deal on the opportunity for the Saucony brand. In an exclusive interview with Sports Executive Weekly, Rubel said that Saucony was as “pure a brand” as existed in the market today and he saw that continuing. He described Saucony as the “biggest opportunity” at Stride Rite on the athletic front and one of the top two overall opportunities.
One revelation that came out of the conversation with Rubel and other conversations with Stride Rite executives is the plan to focus more intently on the core brands and divest those that do not support the footwear. To that end, Saucony last week announced that they would be launching a line of Saucony apparel. This raised many questions about how this apparel line would be positioned against Hind, which is also a premium running brand.
Saucony President Richie Woodworth told SEW that they would simply be “exploring strategic alternatives,” for the Hind brand. Rubel also alluded to strategic alternatives, but was hesitant to commit until PSS assumes ownership of SRR.
“What we are going to do is look at some strategic alternatives for Hind,” said Woodworth. “We might look at a number of different options for Hind, but it was important for us to get the resources and the talent behind our biggest asset, and that is the Saucony brand. I think [selling Hind] is one of many options we will explore over the next few months as we decide what we are going to do.”
This move would leave Stride Rite with a single brand in the running specialty market and is intended to offer a more focused, cohesive product line a brand strategy.
“First of all, it simplifies things for us quite a bit. Were talking about one brand story now head to toe,” said Woodworth. “Its no secret that there are a lot of footwear companies that are out there with apparel collections already, and that share of mind, that share of voice, that share of floor space that id taken up by apparel is important to us, and were going to fight for that.”
That vision can be seen in the overall message Rubel delivered to analysts and in his conversation with SEW. A comprehensive strategy for all brands that will be owned by the new consolidated company, brands that represent a very diverse group of products from Stride Rite Kids and Saucony to Airwalk, Vision Streetwear, and Ultra Wheels, will most likely include elements of wholesaling, retailing and licensing. Payless may bring its knowledge of the market to bear on helping Stride Rite with new locations and possibly help Saucony establish its own retail beyond the outlet business. Collective Licensing will surely become the licensing arm for all brands, assisting each in realizing their full potential in the international markets as well as in apparel, accessories, and other categories in the U.S. The wholesaling structure at Stride Rite may help Collective move some of its brands back into the wholesale market where many once played a solid role.
The ink isnt even dry on this deal and the market is already asking whats next for Rubel and the team he is putting in place at the new holding company. He suggested they may have an appetite for a premier or premium fashion brand, preferably out of New York, as their next focus.
