The management of Hanesbrands sees a potential for the Champion brand to approach an annual turnover of $2 billion at wholesale in the next five to six years, following its agreement earlier this month to take over Champion Europe, which owns the rights to the brand for Europe, the Middle East and Africa. Combined with its takeover of the Japanese Champion license from Goldwin last autumn, the deal is expanding Hanesbrands' annual wholesale turnover under the brand to about $1.2 billion.
The deal was very well received by Champion Europe's staff and by the stock market, where Hanesbrands' shares gained 4 percentage points. The American group, which already owns the Champion brand in the U.S. and other markets, is one of the biggest apparel companies in the U.S., working with brands such as Dim, Playtex, Wonderbra and Maidenform, which it purchased in 2013. The group's total sales amounted to $5.7 billion in 2015, of which $1.4 billion were classed as activewear.
Based in Italy, Champion Europe is expected to generate revenues of about €190 million this year. Its sales have remained more or less steady in the past years, but Hanesbrands believes that it can raise them to an annual level of €250 million in three years' time.
A little more than half of Champion Europe's sales come from retail and most of its wholesale revenues come from Italy, Greece, Spain and Scandinavia, where the brand's image is mainly lifestyle-oriented. Unlike those of Hanesbrands, most of its products are based on cotton. In line with this positioning, a year ago Champion Europe introduced a premium line of heritage items, including the brand's original reverse-weave sweatshirt, which has come to represent about 5 percent of its sales.
Executives of Champion Europe and Hanesbrands believe that the more technical and performance-oriented elements of Hanesbrands' Champion collection should help the brand to penetrate other European markets, notably in Northern and Eastern Europe, where it is currently under-represented. The American company has achieved much higher levels of turnover through a wider and more segmented collection, with different price points and aimed at the mass market as well as the sporting goods stores.
One of the more immediate benefits of the reintegration of the brand will be Champion Europe's ability to capitalize on Hanesbrands's considerable supply chain resources. Hanesbrands' management indicated to investors that this and the higher turnover both could contribute to raise operating margins at Champion Europe from 7.9 percent today to a target of 10 percent in three years' time. Hanesbrands had an adjusted operating margin of 15.0 percent last year.
For the moment there are no plans to introduce the growing footwear collection that has been developed by Champion Europe over the last couple of years, which currently consists mainly of fashion-oriented sneakers, to the U.S. or other parts of the world. Anyhow, the reintegration of Champion Europe could help the global organization to introduce new product categories and drive business through varied distribution channels. The retail model adopted by Champion Europe and by the brand's former Japanese licensee could be rolled out in the U.S. and the rest of the Americas, the management indicated.
Rich Nolan, the chairman and chief executive of Hanesbrands, and Sauro Mambrini, president and chief executive of Champion Europe, have been talking about uniting the Champion brand globally on-and-off for many years. The negotiations for the takeover of Champion Europe started in earnest at the beginning of 2016.
Hanesbrands has agreed to pay around €200 million in cash in the transaction. The purchase price will be ten times the operating earnings of Champion Europe before amortization (Ebitda), which are expected to amount to about €20 million this year.
The takeover package includes the 130 stores operated by Champion Europe. Its store network comprises about 50 multi-brand stores trading in Italy under the Game 7 Athletic banner and about 80 single-brand stores, located for the most part in Italy and Greece. Game 7 Athletic is the successor of Giacomelli Sport, an Italian chain of relatively large sporting goods stores that Champion Europe bought in 2006 following its bankruptcy.
Hanesbrands sees opportunities for stronger online sales of Champion products through its own champion.com website and the company's largest pure e-commerce client, believed to be Amazon. Major opportunities in this area lie in Germany and France, the management told investors.
Hanesbrands has many other operations in Europe, notably in the area of intimate apparel, but Champion Europe will continue to be run independently under the management of Sauro Mambrini, who took over the European rights in 2001, when Sara Lee Corp put up the brand for sale globally. He is now 62 years old and reportedly eager to continue for many years.
Hanesbrands has given itself nine months to put together a growth plan for Champion. The company plans to create a global Champion Activewear operation, run by John Marsh, to coordinate the development of the brand around the world. A global design organization will combine the strengths of the U.S. and Italian design teams. Supported by the global branding group, marketing will be handled through regional teams. No major new marketing investments are planned upfront, an executive of Hanesbrands said.
