Business World

Thursday 21 June 2018

Foot Locker still lags despite its promising steps

The sports retailer has upped its game - but reliance on Nike is a cause for concern, writes Sarah Halzack

Foot Locker closed 147 stores in its latest fiscal year and 37 more in the first quarter.
Foot Locker closed 147 stores in its latest fiscal year and 37 more in the first quarter.

Sarah Halzack

Foot Locker has made some progress in stomping out its problems.

The athletic shoe and apparel retailer reported Friday that its comparable sales fell 2.8pc in the first quarter from a year earlier. That's a far-from-stellar performance, but the decline was not as steep as the ones in the previous three quarters.

In a press release, CEO Richard Johnson said he expected that measure to return to growth later in the year.

And, importantly, Foot Locker's inventory decreased 7.1pc on a constant-currency basis from a year ago, a sign that the company is doing a better job of clearing slow-moving merchandise.

A third bit of good news comes with an asterisk. Johnson indicated that part of the reason for the better-than-expected performance was that Foot Locker was able to secure a better line-up of premium runners styles from some key suppliers.

This is an important change from August, when the company delivered grisly second-quarter results and attributed them in part to "limited availability of innovative new products" and "absence of sufficient depth and breadth of exciting new styles".

In other words, last year it was essentially blaming its problems on Nike and other brands' failure to deliver cool, covetable shoes. Today, it is chalking up much of its improvement to them stepping up their game. And that serves as an indirect hint of the challenge Foot Locker has on its hands as it tries to adapt for the future.

The chain is heavily dependent on Nike - in the latest fiscal year, it provided some 67pc of Foot Locker's athletic merchandise.

But an important pillar of Nike's long-term strategy is to get more of its sales from its own Nike stores and website. That's why it is loading up its NikePlus membership programme with more perks and access to exclusive merchandise. It wants to give consumers more reason to shop and engage with Nike directly.

Nike clearly still thinks of Foot Locker as an important retail partner and is committed to nurturing that relationship even as it pulls back from some other wholesale partners. But Foot Locker has not yet demonstrated it is ready for a world where Nike loyalists have such compelling alternatives for obtaining the brand's best goods.

Foot Locker needs prove that its in-store experience is distinctive and engaging enough to keep luring shoppers as brands - especially Nike, but also Under Armour - venture deeper into selling directly to consumers.

And even though Foot Locker closed 147 stores in its latest fiscal year and 37 more in the first quarter, it still hasn't done enough to prune its huge network.

Foot Locker made strides this quarter. But it must do more to insulate itself from changing dynamics in the athletic apparel business.

Foot Locker shares plunged nearly 28pc on the day last Friday it reported these results.

Bloomberg

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