nike tennis polo Ralph Lauren Buying Casual Clothing Retailer
The Polo Ralph Lauren Corporation, the fashion design and retail company, said yesterday that it would acquire Club Monaco Inc., a Canadian based specialty retailer that sells designer lookalike casual apparel, for $52.5 million in cash.
Ralph Lauren, the chairman and chief executive of Polo Ralph Lauren, which has annual sales of $1.6 billion, said he was attracted to the relatively small Club Monaco as a growth strategy. Club Monaco has annual sales of about $90 million.
Mr. Lauren said he believed the chain, which offers fashion basics with a European flair at prices well below name designer wear, would experience explosive expansion in the next decade. ”It has a real sense of style at a good price,” he said. ”I see it as a very large company, like Banana Republic or even Gap.”
Polo Ralph Lauren will pay $13 (Canadian) a share, or $8.62 (United States), for approximately 6.5 million shares in Club Monaco common stock outstanding on a fully diluted basis. That price represents an 18 percent premium of Club Monaco’s closing price of $11 (Canadian) on Friday. Club Monaco shares closed yesterday at $12.65. Polo Ralph Lauren will also assume $25 million to $28 million (United States) in debt.
Many retail analysts see the acquisition as a way to capture customers not normally attracted to the clean all American look of the Ralph Lauren line, without alienating his loyal base of supporters. Jennifer Black, executive vice president of Black Company, said, ”He is trying to create a venue for that hip customer age 15 to 25, so that it doesn’t send mixed messages” to his customers with more classical tastes.
Still, it is highly unusual for a design house to purchase a retail chain devoted to selling clothes that are not its own, and the news seemed to make Wall Street queasy. Shares of Polo Ralph Lauren declined 43.75 cents, to $19.50 yesterday. ”The stock is down because people view this as an admission that they have to look for other growth vehicles” beyond their brand, said Faye Landes, a retail analyst with Thomas Weisel Partners.
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Club Monaco will be managed as a stand alone subsidiary, the companies said. That means Polo Ralph Lauren will not design Club Monaco merchandise or try to improve the bottom line by combining back room operations like distribution or purchasing, although Mr. Lauren did say executives at his company felt Club Monaco would benefit from their experience in sourcing overseas and in brand building.
Michael J. Newman, vice chairman and chief operating officer, said, ”This is not about cost savings or synergies; this is primarily about growth.”
Joseph Mimram, the founder and chief executive of Club Monaco, has signed a five year contract to remain with the company. The deal was approved by the boards of both companies, but is still subject to Canadian regulatory review.
The merger also nearly doubles the number of stores in the Polo Ralph Lauren stable. The company currently manages some 30 stores. It also operates 100 outlet stores. Club Monaco has 59 stand alone stores in Canada and 13 in the United States.
Polo Ralph Lauren’s aggressive expansion of retail operations comes at a time when the company has been struggling to repair operations in its own stores. The firm posted a 14 percent decline in profit in its third quarter because of markdowns forced by late deliveries of inventories.