Photo: Foot Locker
How Much Should Foot Locker Lean on Nike?
Foot Locker Inc. said its relationship with Nike has been “revitalized” with the world’s largest sports brand expected to account for 55 percent to 60 percent of the sneaker chain’s mix over the next few years.
“I have spent a great deal of time with Nike, revitalizing our partnership, developing a shared vision of the future marketplace, aligning on growth plans in key strategic areas like basketball, kids and sneaker culture,” said Mary Dillon, Foot Locker’s CEO, last week at the company’s Investor Day. “We’ve reestablished joint planning as well as data and insight sharing so that we can better serve customers.”
In February 2022, Foot Locker announced that Nike’s portion of Foot Locker’s sales would decline to about 55 percent by the fourth quarter of 2022, down from 68 percent in 2021. The reallocation was driven by Nike’s efforts to emphasize direct-to-consumer sales and consolidate wholesale accounts.
For holiday 2023, Foot Locker and Nike will participate in a global celebration of Nike’s Tuned Air franchise to mark the franchise’s 25th anniversary and will regain elevated access in LeBron and KD Retro models, LeBron Signature and global Air Force 1 models. Under the realignment announced last year, Foot Locker began receiving less “high heat” product, such as retro Jordans. In 2024, Foot Locker and Nike will collaborate on an exclusive product to commemorate Foot Locker’s 50th anniversary.
At the same time, non-Nike footwear vendors are expected to increase to over 40 percent of Foot Locker’s mix by 2026 with accelerated growth set for Adidas, New Balance, Puma, Hoka, On and Crocs. Other merchandise priorities include increasing casual and performance offerings as well as exclusives.
Foot Locker said 40 percent of its transactions consist of multiple brand-purchases and the majority of its highest frequency shoppers buy multiple brands.
Chris Santaella, chief merchandising officer, said, “Our highest value customers purchase three footwear brands per year. They crave a multi-branded environment for their sneaker shopping occasion, providing choice, both from a brand and category perspective.”
Ms. Dillon, who formerly led Ulta Beauty, said the customer will ultimately decide on the ideal mix but stressed that Nike is “clearly a leader and our #1 brand partner and will continue to be so for some period of time.”
Discussion Questions
DISCUSSION QUESTIONS: Is having Nike make up between 55-to-60 percent of sales too high or too low for Foot Locker? What other brands or categories would ideally complement Nike’s offerings?
Poll
Loading …BrainTrust
Jeff Sward
Founding Partner, Merchandising Metrics
Shep Hyken
Chief Amazement Officer, Shepard Presentations, LLC
Success for Nike in Foot Locker stores should start with a broad assortment, followed by the ability of Foot Locker to reorder the higher-velocity items very quickly, and for Nike to be able to respond equally as quickly. The assortment then can be adjusted to respond to demand. I would not fix a percentage of total assortment as a measure of success.
When Nike originally pulled back on distribution, Foot Locker did a great job of diversifying its brands and getting in exclusives from Puma, Adidas, and Reebok. However Nike remains a vital player and driver of demand — so it is good news that Foot Locker has revitalized the partnership. I also suspect that, with its current glut of inventory, Nike has realized that direct distribution needs to be complemented by strong relations with a select number of important retail partners, including Foot Locker.
From Foot Locker’s perspective, this is one of those partnerships that’s good–until it isn’t. If this is the right mix, and Nike and Foot Locker are happy with the demand and the fulfillment execution, awesome. But as Foot Locker knows–should the market change, or should any partner change their models–they need to always be looking for the next big trend. That’s what their customers want, and that’s what’s best for their business. Instead of prescribing and assortment mix, let the market demand lead their strategy.
I would not start this thought process with a specific percentage in mind. The dynamics of the market are very different than they were two or three years ago. The profile of competitive products is very different. The real question is about the overall mix, the portfolio of products and the brands that Foot Locker wants to offer. Nike will certainly be a big chunk of the total, but Foot Locker has a lot of new learnings to now consider. And it’s a good thing that Nike has learned they they will have to earn every square inch of shelf space they populate. Their pullback was a huge gift to Foot Locker. It forced Foot Locker the think much more expansively about the portfolio of products and brands they offer.
This is a hard one. No retailer or vendor should have so many eggs in one basket. It is a risky business model. But what choice does Foot Locker have? It may hurt, but Nike can live without Foot Locker. Foot Locker is out of business without Nike.
Indeed, Ms. Dillon realized the day after she took the Foot Locker reins that Foot Locker could not exist without Nike and focused her first six months on the job to find a win-win. The plan sounds good, but I wonder how much is underneath in the way of Foot Locker concessions.
As Nike reduced their wholesale distribution model in 2021-22, Footlocker wisely diversified its assortments and increased the penetration of Puma, Adidas, and other competitors within its stores. In addition, beyond the sneaker culture categories, Footlocker now has more lifestyle-driven assortments that meet the needs of its diversified customer segments.
Nike’s strategy of driving a more exclusive customer experience by taking greater ownership of the brand, distribution channels, marketing, and social media digital strategies, while emphasizing the importance of their DTC stores has worked to an extent. However, with the diminished customer demands due to the lingering impacts of the pandemic, supply chain disruptions and continued inflationary pressure have impacted both Footlocker and Nike’s performance and profitability.
This has led to an overabundance of Nike products in the market, and subsequently, Nike has had to reevaluate their distribution strategies. Increasing the number of Nike products in the Footlocker stores is a win-win strategy for both companies. Footlocker will benefit significantly by having more of the hottest sneaker brand in the market products in their stores, while Nike extends their scale beyond their own stores.
Foot Locker should take advantage of every opportunity that Nike and other highly desirable brands can give them. At the same time, they learned what happens when a major supplier changes their strategy. Good things will happen when you don’t limit yourself or get comfortable with just one major supplier. That said, Nike should be given the respect they deserve. They play at the top of the shoe and apparel game. Foot Locker should nurture that relationship, as they would their best customers.
It is an interesting premise for a retailer to rely so heavily on one brand partnership that they are essentially identified with that brand. That model defines Foot Locker and I was surprised to see that Foot Locker said 40 percent of its transactions consist of multiple brand-purchases. If Foot Locker wants to engage a wider audience, it would be wise to keep the percentage of sales mix from Nike well under the 55 percent to 60 percent quoted in the article. Product diversity is a good thing and moderates revenue risk for Foot Locker over the longer term.
Nike needs some retail locations as many runners and walkers like to try on shoes before buying them, and the consumer tends to buy other merchandise at the same time. Nike will do well working with Foot Locker as they will be focused on selling more Nike products and they are focused on the right products for the stores.And it seems like 55-60% has been the right level in the past so they will work to get back to that level. Other complementary brands would be retailers willing to work with Nike as opposed to being worried about online sales.