By Eric Smith
Canadian Tire Corp.’s recent $771 million acquisition of Helly Hansen resonated across the outdoor world for its sheer novelty—a retailer has never bought such an established, iconic brand at such an eye-popping price. But does it signal a trend of similar deals happening across the industry?
Possibly, according to Nate Pund of Houlihan Lokey, who said this type of move could help retailers adapt to the changing consumer landscape. At the very least it is indicative of more M&A to come in this space as retailers and brands look to better position themselves.
“Retail can’t survive as a third-party seller anymore and needs to own their own brands,” he said. “And it’s cheaper and faster to acquire than to create from scratch.”
Many retailers have private label brands or establish offshoot brands organically to improve margins and grow customer loyalty. REI comes immediately to mind with the company’s Co-Op, Evrgrn and Novara lines. But a retail chain buying a well-known and historic brand like Helly Hansen is unusual.
Elsewhere, U.K.-based retailer Sports Direct bought the boxing brand Everest. Dick’s acquired Field & Stream, as well as golf brands Top Flite and Walter Hagen, which have become exclusive to Dick’s. Retailers like Walmart, Target and Kohl’s license some athletic brands but haven’t acquired any of them.
This makes the Helly deal indeed unique and also brings upside for both parties. Helly Hansen, for example, was able to get the backing of a major retailer that can expose the brand to more customers. And Canadian Tire landed an asset with global brand recognition and a stable leadership team, meaning it won’t need to tinker too much with Helly’s success.
“Acquirers are looking for authentic brands, ones with an identity and a story that products can be built upon,” Pund said. “It’s a very good deal for Helly Hansen and very good for Canadian Tire, as they need more unique product in their stores by which to attach customers.”
Ploutos Investing listed the following two benefits of the acquisition in an article posted May 27 on Seeking Alpha:
- Helly Hansen brand will be added to Canadian Tire’s portfolio of brands. This will strengthen its product offerings (in sportswear and workwear) and replace similar brands that it sells in its stores. This will improve its margin as selling its owned brands are more profitable than selling other brands.
- Canadian Tire can use Helly Hansen’s distribution network to sell its private brands to global markets. Given the popularity of its store-owned brands in Canada, the company may be able to replicate the success story of building its owned brands to other global markets. However, building a brand in a new market often requires extensive marketing.
Canadian Tire and Helly Hansen have said they want to expand the Helly brand in markets like Canada while continuing down the current and successful path that Helly Hansen is traveling. The company’s revenue increased 18 percent to NOK 2.9 billion (US$359.8 million) in 2017, while operational EBITDA rose 25 percent to a record NOK 255 million (US$31.6 million).
Now the two companies share the common goal of building on that momentum, according to Helly Hansen CEO Paul Stoneham.
“We’ve been really focused on the brand and the people and making sure we’re consistent on our strategy—the combination of focus and financial discipline, but really investing in the brand design and development,” Stoneham told SGB for an Executive Q&A on the day the deal was announced. “We are on a five- to 10-year journey to transform this business. It’s gone well so far and I think we have the ability to go further.”
But what happens to competitors of Canadian Tire’s retail outlets Mark’s and SportChek? Will they still want to sell Helly Hansen gear knowing it benefits a foe? Most retailers contacted for this story declined comment, including some of the larger outdoor retail chains, but Mark Khami, a buyer with JANS Mountain Outfitters in Park City, UT, said he doesn’t think the deal will change a retailer’s outlook on stocking Helly products.
“I don’t think that will really change the landscape,” Khami told SGB. “No, it doesn’t make us more hesitant to carry them, unless they keep opening brand stores.”
According to Brian DeFouw, head buyer at Confluence Kayaks, Denver, CO, transparency from Helly and its new owner is paramount for a speciality shop to continue carrying the gear.
“In order for a shop to be specialty it must know the goals of the companies they are working with and develop transparent, trusting relationships with them,” DeFouw told SGB. “Usually by the time in a company’s lifecycle that they look good to major corporations they are well past the stage of being valuable to specialty retailers.”
Stoneham said the acquisition could affect some of Helly Hansen’s relationships with retail or e-tail competitors of Canadian Tire, but that the company is focused on honing a channel strategy under the new ownership. He also said reaction from retail partners was “across the range,” and he expects things to work out as the integration kicks in and the brand gets a financial and marketing boost from Canadian Tire.
“Some people said, ‘Hey, you’ve done a great job.’ Others have said, ‘I’m concerned about this,’” Stoneham said. “When the dust settles, people will make business-based decisions: ‘If Helly contributes to our traffic … we will keep it, and if they don’t, we won’t.’ I think we have a broad enough range with a differentiated product offering, even today with our customers, that we should be able to maintain our business, but if we don’t, we can handle that too.”
And how will brands feel about remaining in Mark’s and SportChek, knowing those stores could push Helly sales above their own? They don’t have much of a choice if they want to maintain their retail channel presence, Pund said.
“Brands in the store now will balk, but they don’t have any choice, as they can’t walk away because it’s too important a retail channel,” he said. “This is the key point, as the world of retail and brands is consolidating quickly and it will be filled with conflicts that both will have to deal with as they chase customers and sales.”
And while a retailer buying a brand might be unique, most brands do have large parent companies, so how Helly Hansen positions itself moving forward will be critical to whether or not retailers continue to carry its products.
“There are several outdoor brands owned by giant corporations,” DeFouw said. “Many are able to maintain their identity, and the financial backing of big corporations has helped them support retailers in ways they were not able to before.”
The customer is the ultimate judge and jury of how this relationship—and others like it—will pan out, according to Khami. He said while some consumers are becoming more interested in brands’ parent companies, other consumers just want quality gear at a good price.
“If all consumers knew exactly who the ‘parent’ company of all the products they buy—whether it’s Odwalla juice or Giro helmets—they would be disappointed by the lack of competition and possibly put off by the other brand associated,” he said. “The key, is that most of these companies intentionally keep these brands unaffiliated and the connection is never made. This is the case with Helly. The people that will be trying on a Helly ski jacket this winter have never heard of Canadian Tire and don’t care.
“A few consumers are really savvy, but the majority just want something that looks cool, fits well and works as it claims to.”
Photo courtesy Helly Hansen