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Mall retailer Hot Topic acquires e-retailer Geeknet for $122 million

May 26, 2015 04:15 PM
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On the face of it, it may seem odd that a Top 500 retailer of apparel for teenagers would acquire another Top 500 web merchant of consumer electronics gadgets and related specialty items.

But Hot Topic Inc., a specialty retailer that sells online and in malls, is acquiring Geeknet Inc., parent company of web-only electronics and gadgets retailer ThinkGeek.com, in a stock deal valued at $122 million. Hot Topic sells as apparel and accessories with pop culture themes, including T-shirts and jewelry bearing logos and images from rock bands and movies. The retailer sells online and through a network of 650 stores located primarily in malls.

Hot Topic, No. 286 in the Internet Retailer 2015 Top 500 Guide is acquiring Geeknet (No. 202) because of Geeknet’s increasingly diversified product line and development of more private-label merchandise. "We are pleased to have entered into this agreement and look forward to adding Geeknet's innovative products and services to our portfolio," Hot Topic CEO Lisa Harper says. "Geeknet's unique concept and approach to the online retail community is a strong fit with our business strategy, which is focused on delivering great products for avid fans of various licensed properties, and we are excited about the opportunity to help drive profitable growth and further enhance value for Geeknet's customers."

Under terms of the agreement Hot Topic will purchase all outstanding shares of Geeknet stock for $17.50 per share. The companies did not say when they expect the deal to close. The deal will help Geeknet continue to develop its business model with resources from a bigger company, says Geeknet CEO Kathryn McCarthy.

Geeknet launched its new private-label strategy in August when the company began diversifying with the acquisition of video game manufacturer Treehouse Brand Stores LLC for $1.5 million in cash. Geeknet also had an aggressive timeline in the first quarter of 2015 ended March 31 for rolling out new products of its own design or exclusively licensed, McCarthy said. “We launched 189 new items, including 70 exclusive items,” McCarthy told analysts on a recent earnings call. The new products include handbags and exclusively licensed hoodies from “Star Trek: The Next Generation,” a TV show. “We want to continue to enhance profitability by focusing on proprietary products, getting bigger on (super) hero products and categories, reducing commoditized SKUs, and expanding our number of licenses for exclusive products.”

With Hot Topic as its parent company, Geeknet, which generated web sales of $140.7 million, says it will be able to expand more rapidly. “We remain focused on increasing our visibility, providing a platform to stimulate ideas and creativity and expanding our product offerings to keep up with industry and customer demands,” McCarthy says. “As a subsidiary of Hot Topic, Geeknet will be well-positioned to achieve these goals."

Hot Topic, which was acquired by investment banking firm Sycamore Partners  in March, and Geeknet appeal to the same audience of youthful shoppers. 60% of Geeknet web shoppers are age 44 or younger, including 43% under 34 and 23% age 24 or under, according to Top 500 Guide data partner Millward Brown Digital. For Hot Topic, 73% of web shoppers are age 44 or younger, including 21% age 25 to 34 and 34% age 24 or under.

As a privately held company Hot Topic doesn’t disclose total revenue, but the company’s online channel was flat in 2014 with Internet Retailer-estimated web sales of $79 million.

 

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