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Collective Brands Inc. is entering its franchised expansion with a foray into the Middle East as it looks for global growth opportunities.

The Topeka-based company, which owns and operates the Payless ShoeSource and Stride Rite chains, on Wednesday announced a multi-year agreement with M.H. Alshaya, a franchisee in the Middle East, to open up to 200 Payless stores in the region. M.H. Alshaya also operates retail locations for Starbucks, H&M, MAC and TheBody Shop.

The footwear retailer also on Wednesday reported a drop in net income to $8.1 million, or 13 cents a share, from $25 million, or 38 cents a share, a year ago, after the company set aside $36.2 million for litigation costs related to trademark and copyright issues raised by Adidas and K-Swiss. Without the 41 cent-a-share charge, net earnings would have been 54 cents a share.

Revenues for the quarter ended Aug. 2 were $911.7 million compared with $699.3 million for the same period a year ago. That included sales from Stride Rite, which was acquired in mid-August of 2007. The results beat most Wall Street forecasts.

Matt Rubel, company chairman and CEO, said Wednesday that the expansion into the Middle East met the criteria Collective is looking for as it grows internationally — primarily in emerging middle-class markets with growing disposable incomes.

Rubel said the franchising model is attractive because it requires minimal investment and provides a high rate of return on invested capital.

“This is a first and a new business model that gives us another tool … in reaching consumers in the marketplace,” Rubel said.

Rubel said the most obvious advantages of teaming with a firm such as Alshaya is that it has done business in the Middle East for many years and has worked with well-known, established retailers.

“They have their own real estate department, their own logistics and construction so they can get the right locations and use our products and marketing and brand to full advantage,” Rubel said. “We don’t have to build the infrastructure, so this is a manner (of growth) which is faster.”

Collective has about Payless 4,500 stores, with more than 600 in 13 countries and territories outside the U.S.

Last year, Collective announced a joint venture in Colombia, South America. About 40 Payless stores are scheduled to be operating in the next 18 months.

Collective’s stock closed Wednesday at $15.63, up 57 cents a share.

Legal settlement
Athletic footwear firm Adidas said Wednesday it had reached a trademark infringement settlement with Wal-Mart. Terms of the settlement, which comes a month before an Oct. 6 trial date, were not disclosed.

Collective Brands had a $305 million jury verdict against it in May for trademark and copyright infringement pertaining to Adidas’ three-stripe mark. While Collective is appealing the verdict, other companies have been settling with Adidas, including Kmart, which settled with the footwear company two days after the verdict against Collective.

Adidas has filed about three dozen such cases.

Source: Jennifer Mann - KansasCity.com