Source: Facebook | Foot Locker
Why Are Sneaker Sales Skidding at Foot Locker?
Foot Locker’s shares on Friday lost 27 percent of their value after the chain slashed its guidance as sneaker buying turned more discretionary than expected.
The retailer’s updated 2023 guidance calls for:
- Same-store sales to be down between 7.5 percent to nine percent, versus down 3.5 percent to 5.5 percent previously;
- Adjusted earnings per share (EPS) to range between $2.00 to $2.25 versus $3.35 and $3.65.
On its first-quarter analyst call, Mary Dillon, CEO, said that Foot Locker saw a consumer retrench following better-than-expected holiday sales and inflation pressuring discretionary spending. She said spending was also shifting more towards services “as consumers are forced to be more choiceful on how to spend their money.”
A third factor impacting sales in the near term has been a 10 percent decline in average tax refunds that “has an outsized impact on Foot Locker’s business given that it over-indexes to a lower-income consumer,” Ms. Dillon said.
April was expected to see a pickup as the refund drag lessened and a more favorable sneaker launch calendar arrived, but trends didn’t improve as much as expected and weakness has continued into May.
“As a result, we increased our promotional activity late in the first quarter and more so in the second quarter and we expect that level of promotional activity to continue through the balance of the year,” Ms. Dillon said.
She noted that 2023 has already been considered a “reset year” as the chain repairs its relationship with Nike and repositions its Champs banner toward the “active athlete” consumer.
Encouragingly, Nike’s sales are expected to start growing again towards the end of the year; strength is being seen by New Balance, Adidas, On and other non-Nike brands; and customers are “showing up at key moments, key launches, key holidays,” including sell-outs seen the prior weekend for a Jordan Retro 4 Thunder launch.
Inflation is expected to weigh on Foot Locker’s middle- and lower-income customers. “Whether it’s gas, food, or rents that are elevated in terms of cost, that puts pressure on their ability to spend discretionary dollars, which affects our category,” Ms. Dillon said.
Discussion Questions
DISCUSSION QUESTIONS: Do you attribute the slowdown at Foot Locker more to external factors such as inflation or unique challenges facing the retailer and the sneaker category? Is increased promotional activity the correct response to current conditions?
Poll
Loading …BrainTrust
Carol Spieckerman
President, Spieckerman Retail
Rick Watson
CEO, RMW Commerce Consulting
Inflation is resetting the want vs need equation. Rising debt levels and rising levels of late payments are sending some pretty chilling signals. At some point, of course discretionary spending is going to get hammered. All we need now is something crazy like the government defaulting on…oh…wait…
Foot Locker is in a little bit of a perfect storm of talent exodus in recent years, lack of the right inventory, and the economic situation where the baseline of apparel & general merchandise is a 7-10% year over year decline.
Of all these factors, I would give the economy the edge in the short-term, and the talent issues being the biggest long-term problem the company needs to address.
The key piece of data missing for the first quarter is what online sneaker sales did in the first quarter. Did they also retreat? Not likely. Nike and Brooks are up nicely in Q1.
The data for online sneaker sales is mind-blowing. About 80% of all sneaker sales are done online. Amazon leads the way. I imagine that includes Zappos. One-hundred-dollar plus sneakers are even more likely to be sold online. N.B. My 14-year-old sneaker-freak grandson has never been in a foot locker.
It seems sneakers are not an in-store preferred category. The risk of promotion is that it will only draw those already ready to go to Foot Locker and the online shoppers will never be motivated. Therefore the result will be a loss of margin. The trends do not bode well for Foot Locker. The demographics for sneaker buyers are such that the younger generations will sneakers not even think of sneaker stores when buying their “kicks”.
It’s too easy to go straight to the source online. Clean, branded experience. Confidence in authenticity & quality of packaging (important for resale). Points for loyalty. And if they do go in-person to a store, true sneakerheads prefer smaller stores with staff & other shoppers that are as involved in the scene as they are.
Focusing on promotions, generic/mass-appeal shoes, and to some degree athletic wear (though even this might be hard) is unfortunately where Foot Locker finds itself.
The key piece of data missing for the first quarter is what online sneaker sales did in the first quarter. Did they also retreat? Not likely. Nike and Brooks are up nicely in Q1.
The data for online sneaker sales is mind-blowing. About 80% of all sneaker sales are done online. Amazon leads the way. I imagine that includes Zappos. One-hundred-dollar plus sneakers are even more likely to be sold online. N.B. My 14-year-old sneaker-freak grandson has never been in a foot locker.
It seems sneakers are not an in-store preferred category. The risk of promotion is that it will only draw those already ready to go to Foot Locker and the online shoppers will never be motivated. Therefore the result will be a loss of margin. The trends do not bode well for Foot Locker. The demographics for sneaker buyers are such that the younger generations will sneakers not even think of sneaker stores when buying their “kicks”.
Foot Locker’s challenges are an all-of-the-above situation. Nike’s pullout pulled the rug out from under Foot Locker at a time when inflation was dampening discretionary spending. The sneaker category is also insanely competitive and arguably oversaturated. And I’ll say it again, category killing is a perilous model these days.
Exactly. Look at Bed Bath and Beyond.
Time is their enemy at the moment. Foot Locker needs time to figure out how to scale their community Power Store concepts and relocate more stores away from enclosed malls. Time to repair their love/hate relationship with Nike, and time to get their white label strategies worked out. At the same time, consumers are still resetting their budgets to accommodate higher prices and uncertainty around future economic stability. And we’re heading into what promises to be a pretty strange U.S. election year, which is never good for the stability that retailers need to achieve revenue growth. But these things will eventually pass, the only question is whether Foot Locker can keep going long enough.
The question that arises for me is, “how is foot locker incentivizing consumers to visit dated malls?”
The above data tells us that consumers are connecting with individual footwear brands, not retailers. I haven’t seen Foot Locker so much to establish itself as it’s own brand in recent years.
Yes, it’s Instagram has 12.2 million followers. But there are mainly photos of sneakers without a company spearhead or influencers to drive personal connections. I don’t see incentive for consumers to buy from Foot Locker, rather than the footwear brands themselves.
In what is a highly competitive and disruptive sneaker industry, Foot Locker, under Mary Dillon’s leadership, has laid out their long-term Lace Up transformation plans. Dillon and the Foot Locker leadership team have always viewed 2023 as a correction year to lay the foundation for sustainable growth and success. However, the continued disruptive impacts of inflation, supply chain inconsistencies, competitive pressures, and evolving consumer preferences have made 2023 even more challenging than first expected.
Foot Locker’s Lace Up plans, have the legs for the long game. However, considering the accelerating forces, time is clearly not on their side. Accelerating the digital, social selling, live streaming, storytelling, and experiential elements must be prioritized while working on foundational capabilities, as not all the action happens in the mall any longer. The most impressive aspects of this plan involve connecting the Foot locker Value Chain with digital and data capabilities to drive a truly omni-customer experience:
▪️Supply Chain Autonomy – More dynamic models get the right goods, to the right place, at the right time
▪️Retail Experience – The way people buy is changing. Anytime, anywhere, with a movement towards automatic fulfillment, changes the rules
▪️ Awe-Inspiring Moments – Engaged consumers are more loyal and spend more. Products and services must remain relevant and inspirational to endure
▪️ Customer Obsessed – Data makes us human. Personalized experiences, content, and communications are crucial to relevancy
▪️ Contextual data – Aggregating multiple data streams, including real-time product data, will inform the entire value chain.
It appears to be a different sneaker/shoe market than just two years ago as everyone was anxious to get out on the trails, gyms, etc. I have some observations but I welcome any feedback using data to confirm these points. My first observation is that more people are wearing alternative athletic slides/slippers which may reduce the average shoe purchase price vs. higher-end performance running shoes, and basketball shoes. There is also an increased supply of used shoes on the market with REI, Play it Again Sports, Poshmark, Big 5, and others running these sustainability/value programs. Lastly, consumers do not have the spending power as they had several years ago due to covid benefits, and lower costs.
Inflation is part of the problem. Could the bigger problem be more competition? Online retail is getting more play, and maybe the retailer’s typical customers’ needs are changing. Look at what’s important to different generations (GenZ vs. Millenials vs. GenX vs. Boomer). Needs and wants change. So what will work? For any retailer (not just Foot Locker), make sure the merch matches the needs and expectations of your customers choosing to shop with you.
There are for sure unique challenges facing footwear and the sneaker category, but this should be a bellweather to most retail brands that it’s imperative to move from simply transacting with your customer through a catalog, to entering into a brand-relationship with them — That brand relationship, build on trust and delivering the right sneaker, quickly, is Foot Locker’s path to sustaining themselves as the sneaker authority. Let’s not continue to play up the Nike relationship as a cause, as that has been clearly stated in the reset plans publicly, and is part of the reset strategy itself.
Give it a few years on Foot Locker, I think it’s a smart idea to bet with/on Mary Dillon, not against her. I for one can tell you (as much as I can) that the turnaround is real and imminent.
Always appreciate your fact-based assessments, my friend! Time will tell if the transformation plans were the correct ones. I do agree that considering Mary Dillon and the leadership team’s track record, Foot Locker is well positioned to remain the sneaker authority as their business model evolves.
1. No Yeezy
2. Tired Nike assortments (65% of sales are Nike)
3. Biggest brands are still promoting aggressively
4. Hot brands are still hot but not large enough to offset the above
This is an intelligent response to soft sales, inflation, consumer retenching, reduced tax refunds and less discretionary spending. All solid factors that are no doubt creating headwinds for Foot Locker.
However, if all of these factors were absent, this retailer would still be facing head winds. Brand relevance, unique value proposition and instore experience come to mind. GenZ shoppers pay close attention to alignment with brand values. While the brands they sell may resonate, the Foot Locker brand itself has lost some cache.
A long term promotional strategy will do nothing more than but dig a deeper hole while keeping up appearances. They need a plan for the long game. Increased and sustained promotions is the opposite of that.