Blog: Pole position in footwear
Leonie Barrie | 27 July 2009
In a move that immediately propels it to pole position in the key online apparel and footwear market, internet retail giant Amazon has moved to acquire rival apparel and footwear site Zappos.com in a shares and cash deal worth nearly US$850m.
The deal is due to close this autumn, with Zappos continuing to run as a separate entity based at its headquarters in Las Vegas. Amazon will no doubt be hoping that economies of scale will help to lift profit margins too, by using its extensive distribution network to reduce Zappos’ shipping costs.
However, what will happen to Endless.com, Amazon’s existing website specifically selling handbags and shoes, is unclear. The decision to buy Zappos would seem to suggest its earlier attempts to expand its footprint into apparel and shoes have so far fallen short of expectations.
Jeans maker Levi Strauss has also made moves to strengthen its brand by bringing its footwear and accessories business in-house. The San Francisco based firm is to buy licensing partner DC Company, its main footwear and accessories licensee in Europe, the Middle East, Africa and parts of Asia. As well as offering consumers “compelling head-to-toe choices,” the deal will help drive consistency across the Levi's brand.
Likewise, global sportswear leader Nike has taken a bold step to shore up its brand by deciding to stop buying leather from the Amazon region of Brazil. The move follows concerns that its shoes and trainers could be contributing to the destruction of the world's largest rainforest and a major driver of climate change.
Nike has also drawn up new leather sourcing guidelines which it says reinforce its “commitment to the environment,” and wants all its suppliers of Brazilian leather to establish a full traceability system by July 2010 to track the origins of the leather used in its products.
Meanwhile a war of words has broken out between rival UK sportswear chains JJB Sports and Sports Direct after Mike Ashley, the owner of Sports Direct, controversially loaned JJB’s boss GBP1.5m. The spat worsened at JJB's annual general meeting last week, after Ashley sent a representative to fire difficult questions at Sir David, and was eventually thrown out.
Troubled JJB also revealed a 40% drop in first-half sales as it cleared out old, slow moving lines in readiness for the delivery of new national brands, but said it expects performance to improve by the end of the year.
And finally, there was some good news for lender CIT Group and apparel maker Kellwood Company after they both agreed eleventh-hour deals that mean they can avoid having to file for bankruptcy.
The main bondholders in CIT – the largest factoring firm to the apparel sector – came to the rescue with a $3bn loan, although its future is still far from certain. And Kellwood’s lenders agreed to defer payment on $140m in bonds, swapping them instead for new senior secured notes which mature in 2014.
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