Johnson Outdoors Sells Jack Wolfskin to Bain Capital, Then Pulls Plug on NA Market

Johnson Outdoors last week announced the sale of its Jack Wolfskin subsidiary to Bain Capital, a global private investment firm, for 64 million Euros ($62.7 million USD). As part of the deal, Johnson retained the license to continue to distribute the brand in North America. Within hours of the sale announcement, however, SNEWS® learned that Johnson began to quietly inform retailers it would shut down North American operations as quickly as possible.
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Johnson Outdoors last week announced the sale of its Jack Wolfskin subsidiary to Bain Capital, a global private investment firm, for 64 million Euros ($62.7 million USD). As part of the deal, Johnson retained the license to continue to distribute the brand in North America. Within hours of the sale announcement, however, SNEWS® learned that Johnson began to quietly inform retailers it would shut down North American operations as quickly as possible.

Manfred Hell, Jack Wolfskin CEO and now also a part-owner of the company, told SNEWS® the day after the Aug. 28 announcement, "I have always (for 15 years) looked at Jack Wolfskin as 'my' company, and now it is. The new structure will allow us to even strengthen our market positions, and it will allow me to continue what I've been doing with passion and enthusiasm for most of my business career."

But that comment was apparently only minutes before Manfred Hell knew the company he considered nearly his own was going to be shut down in North America after working for three years to give it a foothold there. Within hours of his email to SNEWS®, SNEWS® began receiving emails and calls from U.S. retailers upset with a faxed statement from Johnson Outdoors that began arriving the night of Aug. 29. In effect, the letter told them Jack Wolfskin would no longer be available for distribution in North America.

We contacted Wade Woodfill, national sales and marketing manager for Jack Wolfskin in the United States, who initially declined comment. After being pressed, he did tell SNEWS®, "I have been instructed by Johnson Outdoors to tell retailers that there will be no spring 2003 Jack Wolfskin line, and that we are currently selling off all remaining inventory in the warehouse."

Woodfill steadfastly declined to make further comment, stating that we would have to talk directly with officials at Johnson Outdoors.

In short order, SNEWS® was on the phone with Paul Lehmann, vice president and CFO for Johnson Outdoors (NASDAQ: JOUT).

While he said he could not confirm the details of the retailer letter since it was written by Johnson President and COO Patrick O’Brien and Lehmann said he had not seen it, Lehmann did state the potential buyers for Jack Wolfskin, including Bain, came to the conclusion that the focus for Wolfskin in the near future had to be in Europe and not the United States or Canada.

"It became very clear to Bain that geographically, North America represented a very small part of the overall business," Lehmann said, "and that while they did purchase the global rights to the name, they did not want to take on managing a North American business from Europe at this time.

"As part of the deal, we needed some opportunity to be able to wind down business with our customers so we did negotiate to retain the licensing rights for a period of time," added Lehmann, who did not specify the length of time.

When we indicated sources had told us the period was two years, Lehmann said that time frame was not far off, although he did not confirm or deny a specific length of time.

SNEWS® also pointed out that sales projections for this year were $3 million USD in North America, spread between 250 retail stores in Canada and 200 in the United States -- both stores and sales were up over last year.

Lehmann said $3 million divided by 450 retailers was small, and he indicated the costs associated with the distribution of the product to this market were quite high and therefore the market had not been profitable.

No specialty U.S. retailers we spoke with said they agreed with Lehmann's assessment.

Tom Suchenski, head buyer for Marin Outdoors in Northern California, told us his store had sold $110,000 in Wolfskin year-to-date, which he called "significant" for him.

"Wolfskin was our No. 1 pack line," Suchenski said, because it was innovative, offered exceptional value, and had great features for the price.

"Obviously, I'm just disgusted," he said. He added that he can't figure out the rationale or why Johnson would want to walk away from the line. The retailer is getting the short end of the stick, he said, since they've put a lot of money into helping grow the brand, "and then this."

Darrell Potts, co-owner of Lewis & Clark in Arkansas, told SNEWS® his store planned to double its Wolfskin business next year on the heels of selling nearly $60,000 wholesale to date this year.

"It's a loss for our customers," Potts said. "We're going to have a hard time. We have people who come in looking for the new Wolfskin stuff regularly."

At Northern Mountain Supply in Northern California, Mark Carlstrom was "flabbergasted" by the announcement. "It's really ironic," he said. "I was just going to step up to the plate big time and now there's nothing to step up to. It's a let-down, really."

When we emailed Manfred to ask for his reaction, he seemed disturbed by the news and declined to comment until he had looked into the matter more. Follow-up emails and telephone calls were not returned. Bain Capital in the United States also did not respond to numerous calls.

Closing of the sale of the Idstein, Germany-based, Jack Wolfskin is subject to German regulatory approval, which was expected within 30 days of the Aug. 28 announcement by Johnson Outdoor.

Jed Clark, a rep for the Wolfskin line for the last two years who immediately crafted letters he shot out to all Bain Capital offices in the United States and Europe, said, "Excluding the U.S. for 2 years of Jack Wolfskin is bad for the outdoor industry and a bad decision by Johnson Outdoor and Bain Capital.

"Retailers are realizing just how special Jack Wolfskin is to their business and they were beginning to commit to the product line for 2003 in a way they have never done before. This action is sending the wrong message to outdoor specialty dealers who stuck their necks out on a new brand, pioneering the brand at considerable expense," Clark wrote.

SNEWS® View: Helen Johnson-Leipold, chairman and CEO of Johnson Outdoors, perhaps tipped her hand more than intended in her press release statement: "For the long term, however, we see significant growth opportunities in our core strategic outdoor equipment businesses and want to sharpen that focus, rather than invest more of our resources in Jack Wolfskin, which is primarily apparel." Last time we checked, Wolfskin sold highly regarded backpacks and tents, not just apparel. Calling Wolfskin an apparel company would be like calling The North Face an apparel company -- the argument doesn't hold water. Looking back at past coverage and interview notes, we see that even as recently as last year, Wolfskin stated that 30 percent of its sales worldwide were in equipment -- hardly just an apparel company. In the United States, the number jumps to nearly 90 percent equipment sales, where it is known as an equipment company. In fact, most of the apparel is sold in Canada.

In a timing-is-everything move, shortly after issuing the official statement, Johnson told its U.S. Wolfskin representative Wade Woodfill to notify retailers that spring 2003 would no longer be available. Curiously, the company had said nothing about this itsy bitsy fact in its press conference or in its public statement.

During the conference call announcing the sale, Johnson-Leipold and other Johnson Outdoor executives kept alluding to the fact that this sale would provide cash the company might use to acquire a company that would replace the lost Jack Wolfskin volume -- in the range of $25 million to $80 million. We would consider it likely that Johnson already has serious prospects in mind.

Whether or not the company intended it to look this way, the appearance to many observers including SNEWS® is that Johnson Outdoors is seeking to bolster its outdoor equipment business in North America (including Eureka! and Camp Trails), while at the same time eliminating competition that was beginning to gain real steam. Johnson Outdoors categorically denies this is the case, stating simply the U.S. market is not in Bain's strategic plans because the Jack Wolfskin business in the United States is not profitable and too expensive to operate.

But then why would Johnson retain a license to distribute Wolfskin if the company had no intentions of continuing with the distribution itself?

Feeling puzzled by Johnson's initial response to effectively terminate distribution of Wolfskin while still retaining the North American licensing rights to same for the next several years, we contacted a legal firm with expertise in corporate and business law and licensing agreements. While the firm we spoke with said it is impossible to comment specifically to the terms of the deal between Johnson and Wolfskin, we were told a license to distribute typically carries with it an implied promise to continue with the distribution of that product in good faith by the company that sought the license. Failure to do so may result in the revocation of that license, the legal firm said. Our legal expert further indicated that seeking a license to distribute, and then immediately terminating the distribution, makes it look like the company that sought the license was really looking for a covenant not to compete, and not a license to distribute at all.

The lawyer we spoke with pointed out that it is certainly possible that Johnson Outdoors is within its rights to terminate distribution IF that language exists in the contract. The lawyer said he would be amazed if such language was included, especially by an investment firm as experienced as Bain. And if the language were not in the contract allowing termination of distribution? We were told that it would be quite likely lawyers representing both sides would begin earnest discussions -- and since approval still hinges on a final nod by the German government, then who knows what could happen in the next month?

It takes three to five years to build a brand presence in this market; Johnson is pulling the rug on Wolfskin after three -- just as the brand appeared to be on the edge of real success. Magazine editors, including those from Backpacker, told us they were shocked by the news and that they had Wolfskin packs and other equipment already slated for reviews next year. Retailers were ready to up orders. And customers were itching for the next line, ready to open their wallets.

What is unfortunate here is that it is really the retailers and, ultimately, the North American consumers who are losing out. Backpacker Executive Editor Jon Dorn, numerous retailers we spoke with, and our own editorial staff, unanimously agreed that this Wolfskin pack line was a significant build on last year's showing, demonstrating innovation that was both a flexing of design muscle and a statement that Wolfskin was becoming a serious player in the North American market. From talking with those same specialty retailers, the indication is that if Johnson Outdoors is planning to pick up Wolfskin business with Eureka! and Camp Trails product, the company is going to be greatly disappointed. The retailers are already looking elsewhere.

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