February 28, 2022
Foot Locker shares tumbled 30% on Friday after the sneaker chain said sharply reduced allocations from Nike would lead to a decrease at comparable stores between 8 and 10% in 2022.
The change reflects Nike’s move in recent years toward direct-to-consumer (DTC) sales while shrinking its wholesale account base. The chain also attributes part of the drop in sales to the absence of another government stimulus package.
Foot Locker expects Nike to deliver around 55% of its sales by Q4 2022 and continue at that level through 2023, up from 65% in Q4 2021 and up to 75% overall in 2020 .
In his fourth trimester analyst callDick Johnson, CEO of Foot Locker, said Nike “will remain an important partner for our business, especially in basketball, kids and sneaker culture, where we have an unparalleled connection with our consumers.”
The big hit, Mr. Johnson said, will come from reduced allocations of “high-temperature” products, such as retro Air Jordans and LeBron James’ signature shoe. “We’ll still have access, we’ll just see fewer units in those SKUs.”
To compensate for the reduction in Nike, the chain is increasing allocations in Adidas, Puma, New Balance, Timberland, Ugg, Reebok, Crocs and other brands. The action is an acceleration of a plan launched in 2019 to add more brands and categories to better diversify Foot Locker’s mix.
Mr Johnson believes Foot Locker will be better positioned as “a true house of brands”.
He added: “I think COVID has made it possible for all of us to see that the consumer is changing. … Our consumer is making it clear that they want choice and that multi-brand destinations matter. And when 75% of your purchases are from one supplier, that doesn’t leave much space in your store for choice. »
Foot Locker will also increase investment in apparel and private label offerings while accelerating its off-mall department store expansion and completing two recent acquisitions, WSS and Atmos.
Mr Johnson admitted that Foot Locker will be challenged to replace the Nike-like launch product. He said: “There’s nothing quite like a retro Jordan launch that arrives on a Friday and sells out on a Saturday. It’s a difficult dynamic to overcome.
DISCUSSION QUESTIONS: How should Foot Locker realign itself in the context of reduced access to Nike products? Does looking at other brands, house brands, non-footwear categories, or newer concepts offer any solutions?
“Foot Locker can weather the storm. They have a large consumer base and if they’re smart about constantly introducing new, innovative brands, they’ll be successful.”