April 21, 2014, 4:36 PM

DSW Inc. buys a big stake in Canadian retail chain Town Shoes

The retailers have agreed that DSW will acquire a 44% interest in the chain. This is DSW’s first store play in Canada.

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Chain retailer DSW Inc. is buying 44% of Canadian shoe retail chain operator Town Shoes Ltd., for approximately C$68 million, or about $62 million. Terms of the deal say DSW can buy the rest of the company in four years for an undisclosed pre-determined amount.

Town Shoes has 182 stores in Canada. Stores operate under the Town Shoes, The Shoe Company and Shoe Warehouse banners. Town Shoes enables e-commerce only on TheShoeCompany.com, and directs consumers visiting TownShoes.com or Swhshoes.com to TheShoeCompany.com to shop online.

As of Dec. 4, DSW had 394 stores across the United States and Puerto Rico. It is No. 121 in Internet Retailer’s 2014 Top 500 Guide with Internet Retailer-estimated 2013 web sales of $240 million, up 20% from $200 million in 2012.

This will be DSW’s first direct foray into Canada, although DSW.com does enable shipping to Canadian consumers. DSW president Mike MacDonald says the investment in Town Shoes will give DSW an opportunity to launch the brand into Canada. “We have looked at Canadian entry options for some time and decided to acquire an existing operation with a long track record of success and to use this operation as a base from which we can establish the DSW brand in Canada,” he says.

The primary owners of Town Shoes are Alberta Investment Management Corp., a pension fund manager for the Alberta province, and Callisto Capital, a private equity firm. DSW is buying the 44% stake from Alberta Investment Management.

DSW is the latest U.S. retail chain to enter Canadian retailing. Last year, Target Corp. opened more than 125 stores in Canada. It does not enable e-commerce on Target.ca. Target is No. 18 in the Top 500 Guide.

E-commerce sales in Canada will grow at least 10% annually through 2018, topping C$33.8 billion ($32.8 billion) that year, up from the C$20.6 billion ($20 billion) in 2013, according to a forecast from Forrester Research Inc. Online sales as a proportion of total Canadian retail sales will grow to 10% in 2018 from 7% last year, Forrester says.

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