Foot Locker Falters
“Our second quarter was broadly in line with our expectations, despite the still-tough consumer backdrop” This is the opening statement from Foot Locker President and Chief Executive Officer, Mary Dillion, addressing the company’s Q2 2023 earnings report. The earnings report outlines significantly discouraging numbers. Total sales decreased by 9.9% and physical stores saw sales slide by 9.4%. In the wake of this report, Foot Locker’s stock dropped 30%. Read the full report here. The company blames these disappointing numbers on the consumer in an investor-targeted PR gymnastics of a press release. While consumers are partly responsible for the money a company brings in because they are the ones spending, blaming the consumer for poor performance as Foot Locker has done shows a concerning lack of understanding of the marketplace’s climate. Foot Locker is one of the world’s largest footwear retailers. With 2600 retail stores around the world and billions of dollars in sales, it is not surprising that Foot Locker struggles with the same disconnect with which large companies are so often plagued. What then are the glaring issues facing Foot Locker? The obvious one would be an economy with rampant inflation. People have less leisure money to spend on non-essential goods from a company like Foot Locker, which primarily deals in athleisure. Ending the discussion here would satisfy the question at hand, however, doing so is lazy and irresponsible as it ignores perhaps even more potent threats to Foot Locker and companies like it. Changes in shopping habits, brand strategy, and even launch strategy are all ways in which the sneaker marketplace is evolving and adversely affecting Foot Locker.
It is no secret that consumers prefer online shopping to going in person. Data provided by Forbes shows that 59% of Americans would rather shop digitally than physically. For a company such as Foot Locker, whose primary method of servicing their customers is their brick-and-mortar stores, this is problematic. Even more problematic is that the largest group of online shoppers are young people, with GenZ consumers reporting they shop online at least once daily. This per The Current. Given that Foot Locker’s target market is people aged 12-20, these statistics only contradict Foot Locker’s complete sales strategy. Along with where consumers are purchasing their products, what they are purchasing has also shifted. Sneaker culture was (and still is) dominated by Nike and Jordan brands but they no longer have as tight a grip on their kingdom as they once did. The increased popularity of New Balance, Salomon, and Asics has led to sneakerheads purchasing more diverse products than ever before. The emergence of the Y2K-runner-style silhouette has also caused sneakerheads to reconsider their spending habits. Yet, in the midst of these trend shifts, the Foot Locker “New Arrivals” page is still predominantly filled with Nike and Jordan products. Foot Locker can blame the consumer all it wants, but who is to blame if the consumer cannot purchase the product it seeks at your store?
The state of the Foot Locker “New Arrivals” page not only reflects the company’s asymmetrical market strategy but also shows a frightening reliance on a single brand of product. Numbers taken from Yahoo Finance show that Nike accounted for 70% of Foot Locker’s sales. Such a heavy concentration in one area leaves Foot Locker shelves with little to no room for additional products, and more importantly, products that are experiencing tremendous growth. CNBC reported that in 2022 New Balance brought in a record $5.3 billion in revenue and outpaced both Nike and Adidas in growth. Outside growth coupled with Nike’s shifting strategy and increased focus on direct-to-consumer sales puts Foot Locker in a dangerous position. Nike’s move to a more direct-to-consumer approach also showed they are considering something Foot Locker is not: care for whom the product is sold. Nike has been the subject of criticism over the past several years as it has become increasingly difficult to purchase its most sought-after products. With sneakerheads complaining that bots and resellers were the only ones winning on release day, Nike has pulled a large percentage of external retailers’ product allotment in favor of selling it themselves. By doing so Nike is more effectively able to construct release parameters that it is able to enforce. This has led to the regaining of previously lost consumer trust and has shined a light on retailers like Foot Locker’s abuse of that trust.
Foot Locker made a brief reference to the company’s “Lace Up” plan, which focuses on closing unprofitable store locations and focusing on sneaker culture. If Foot Locker is in tune with the issues of changing consumer habits, brand strategy, and restoring lost trust, then they did a poor job of speaking to these matters in their report last week. Instead, Foot Locker seems content to blame the consumer and use corporate buzzwords about positioning for upcoming plans and future success. Inflexibility and resistance to change are quick to end in ruin in an ever-evolving marketplace. Foot Locker would do well to listen to its consumers instead of blaming them. The company would also benefit from learning from boutique-style retailers that are ever-increasing in popularity. Unlike Foot Locker, stores like Kith, Union, and A Ma Maniere have found ways to adapt to consumer interests as well as provide smooth and fair experiences on release days. Like these stores, Foot Locker would find there is success to be had on the other side of diversifying product offerings and investing in digital sales initiatives. As major corporations frequently do, Foot Locker has fallen victim to tradition. An over-reliance on what propelled them to success in the past now curtails their ability to remain prosperous in the sneaker marketplace today. Perhaps they also ought to learn that facing shortcomings head-on today can significantly improve their systems in the future. Earnings reports may help calm agitated investors but they don’t influence any legitimate change, nor do they soften consumers’ stance towards the company. In fact, Foot Locker has succeeded in doing just the opposite.
