If the shoe fits: Macy's (M) likes its licensing deal for Finish Line athletic apparel

CFO says Macy's might pursue other licensing deals

CINCINNATI - Macy’s Inc. is just getting started but it likes what it sees from the Finish Line.

The athletic-shoe retailer signed an exclusive licensing agreement with Macy’s last October to build shoe stores inside 450 Macy’s department stores and manage Macy’s inventory of athletic shoes, apparel and accessories in 225 other stores and online.

Six months in, both companies seem satisfied with the deal.

“If you think about it, they have access to shoes that we couldn’t get as Macy’s,” said Macy’s Chief Financial Officer Karen Hoguet told Wall Street analysts in a conference call Tuesday. “It’s obviously greatly enhancing our assortments, which as you know is the key in our mind to being successful in retail. Also, they have a great selling model, which I think will also benefit us.”

Finish Line CEO Glenn Lyon told analysts in a March 28 conference call that his company will spend $18 million this year on capital investments for the licensing deal, which will generate up to $150 million in annual revenue in the 12 months that began April 1. All stores are to be built out by Fall, 2014. By that time, the companies expect the arrangement to generate up to $350 million in annual sales.

“We’re optimistic about the long-term potential of this unique opportunity,” Lyon said. “IT considerably expands our Finish Line brand and broadens our reach, particularly with a female customer who represents a large percentage of Macy’s customer base.”

One potential downside for Macy’s is that it will be tougher to achieve comparable sales growth this year. Hoguet said athletic shoe sales were counted in Macy’s revenue in the first quarter of last year, but not this year. Macy’s reported comparable sales growth of 3.8 percent for the quarter. It would have been 4.4 percent if the Finish Line deal were not a factor.

Macy’s and other retailers have been doing licensing deals for decades. Spokesman Jim Sluzewski said it is “a way for us to provide our customers with a specific product that we may not currently have, or that we are not positioned to develop ourselves.”

In addition to Finish Line, Macy’s offers Starbucks coffee, Sunglass Hut glasses and  Motherhood Maternity clothing. It ran a pilot program with Toys R Us last Christmas and has struck regional deals with Barbara’s Books in downtown Chicago and LUSH Cosmetics in various stores, including Kenwood.

In the conference call yesterday, Hoguet said there may be other licensing deals in the works but she didn’t “see it becoming a huge part of the business.”

Retail consultant Stan Eichelbaum said licensing deals are most successful when retailers use them to secure proprietary merchandise for their stores, using the lease arrangement to differentiate themselves from competitors. One risk of the strategy is that it puts department stores in direct competition with shopping malls.

“The success of the shopping center is directly related to the number of retailers that could fill that space,” said Eichelbaum, president of Marketing Developments/Planning Developments Inc. in Fort Lauderdale, Fla. “Joe Fresh was the hot retailer on everybody’s radar. Then, (former J.C. Penney CEO) Ron Johnson brought them into Penney’s and that stopped their expansion. It’s the department store competing with the shopping mall.”

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