Is Foot Locker throwing in the towel on key consumers by closing Footaction?
Foot Locker last week announced plans to close its Footaction chain, citing an overlap with its flagship property and other stores.
The company will convert approximately one-third of Footaction’s 231 stores this year into other banners, which include Foot Locker and Champ Sports. It will close the remainder as leases expire over the next two years.
Overlap concerns have been heard since Footaction was acquired out of bankruptcy proceedings in 2004. The acquisition gave Foot Locker more buying leverage and another chain to expand as the flagship Foot Locker chain was reaching saturation across America’s malls. At the time, there were 353 Footaction locations and over 1,400 Foot Locker U.S. stores.
Footaction targeted 15-to-30 year old males influenced by “street” and “hip-hop” culture, while Foot Locker was positioned as the athletic footwear hub for teens. Footaction’s larger stores, at 2,900 selling square feet on average versus 2,100 for Foot Locker, allowed for more ample apparel offerings.
Last week on Foot Locker’s quarterly call, however, chairman and CEO Dick Johnson said Footaction still shared “a fair amount of overlap” from both a store and consumer base, despite efforts to differentiate the banners over the years. The Foot Locker flagship had amplified its “sneaker culture” positioning over the last decade.
A test of conversions in key markets in 2020 showed spaces became more productive under the Foot Locker nameplate. The move also takes advantage of coming lease expirations.
Foot Locker leadership says the move will help free it up to focus resources on more productive banners as well as a digital push accelerated by the pandemic. Management is also prioritizing its larger, community-centric Power Center stores that are off-mall and designed to build stronger connections with consumers.
In a research note, Sam Poser, an analyst at Williams Trading, called the move “a wise one.” He believes it also reflects plans by Nike, Foot Locker’s largest vendor, to slowly pull back allocations to mall-based retailers as part of broader moves to consolidate its wholesale account base. Mr. Poser wrote, “Our checks indicate that the decision to close Footaction was driven by Nike’s unwillingness to increase product allocations, leaving [Foot Locker] with a decision to make.”
- Foot Locker, Inc. Reports 2021 First Quarter Results – Foot Locker
- Foot Locker Inc (FL) Q1 2021 Earnings Call Transcript – Foot Locker/The Motley Fool
- Foot Locker 2020 annual report – Foot Locker
- Bankruptcy Court Approves Foot Locker, Inc.’s Purchase Of Approximately 350 Footaction Stores From Footstar, Inc. For $225 Million – Foot Locker
- Foot Locker 2005 annual report – Foot Locker
DISCUSSION QUESTIONS: Will the decision to close Footaction ultimately prove to be the right or wrong one for Foot Locker? Where do you think Foot Locker should re-allocate its Footaction resources for the biggest short, medium and long-term benefits?