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Finish Line expects sales to leap in Macy’s deal

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The Finish Line Inc. is about to embark on an arrangement this weekend with a nationwide retailer that executives say could be a real game-changer for the Indianapolis-based athletic shoe and apparel company.

Finish Line’s deal with Macy’s, which begins Sunday, calls for it to become the exclusive athletic footwear partner of the national department store chain—a move that executives think could increase annual revenue by as much as 30 percent.

That translates to an additional $350 million on top of the company’s yearly sales of $1.4 billion.

“This is probably the most exciting thing Finish Line has done in 30 years,” CEO Glenn Lyon said in a conference call in March. “We are going to have an unbelievable run with this business.”

Finish Line Macy's 15colFinish Line will begin replacing Macy's athletic shoe inventory at the chain's department stores this weekend. (Photo courtesy of The Finish Line)

Finish Line will start by replacing Macy’s athletic shoe inventory at some stores over the weekend and will follow on Wednesday by converting the shoe departments into Finish Line-branded shops complete with the company’s signature blue logo.

On May 5, Finish Line will assume oversight of athletic shoe sales on Macy’s website.

Finish Line plans to be branded in 188 Macy’s stores this year and in 472 within the next 18 months. The company has rolled out the platform in eight Macy’s stores so far, including the one in Indianapolis at Castleton Square Mall.

Lyon likens the arrangement to leasing space within Macy’s stores, Lyon said in an interview. Finish Line employees in the branded stores will don Finish Line uniforms and will be trained on company sales tactics as well as on the standards of presentation for Finish Line stores.

“Where could you find 470 locations that we can go in with our name in 18 months,” Lyon said. “It’s an incredible opportunity.”

Lyon declined to discuss financial specifics of the arrangement, only saying that it should be profitable for both companies.

The deal comes at a critical time for Finish Line. For its lastest fiscal year ended March 2, the company earned a profit of $71.5 million, a 16-percent decline, due in part to falling gross margins. Earnings per share dropped from $1.59 to $1.40.

Surprising weakness in the running products segment, where the company has invested heavily, dragged down fiscal fourth-quarter profit. Finish Line earned $34.3 million, or 69 cents per share, in the quarter. That was down 18 percent from $41.9 million, or 80 cents per share, a year earlier.

Finish Line earlier this year said consumer sentiment had swung toward basketball products, hurting its investment in the running segment.

The partnership with Macy’s solves a challenging problem for Finish Line—how to grow sales without opening new stores, said Richard Feinberg, a professor of retail management at Purdue University. Organic growth requires increasing same-store sales, which has become more difficult for retailers during the past 10 years, he said.

In its last quarter, Finish Line’s same-store revenue, which exclude sales at stores open less than a year, increased less than 1 percent.

And opening new stores can be expensive and difficult because most of the top retail spaces are already taken, Feinberg said.

“The Macy’s lease agreement is a brilliant way to grow revenue and its retail footprint without the risk of failure and cost of the Genesco experience,” he said.

In 2006, Finish Line swung for the fences with a highly leveraged $1.5 billion bid to acquire Tennessee-based Genesco Inc., the parent of Journeys and Hat World. Finish Line later had to pay handsomely—about $40 million in cash and 6.5 million of its shares—to call off the deal after credit markets seized up and sales for both companies declined.

Finish Line’s presence within Macy’s should help it tap into the lucrative women’s market that’s sorely been missing from company sales for years. Women’s shoes comprise only about 20 percent of company revenue, but about 50 percent at Macy’s, said Lyon. Finish Line’s core customer is male and between 18 and 29 years old.

“We know at department stores the concentration of female customers is much, much higher than ours,” he said.

Coincidentally, Lyon, 61, began his career in 1973 at Macy’s and spent 10 years there, ascending to vice president of merchandising for women’s apparel. He has been CEO of The Finish Line since December 2008.

Finish Line shares opened trading Friday at $19.49 each, up more than $2 since the start of the year. Shares fell 4 percent in early trading.

The company operates 655 stores in malls across the United States.
 

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