Will Foot Locker be better off long-term with fewer Nike shoes on its shelves?

Discussion
Photo: Foot Locker
Feb 28, 2022

Shares of Foot Locker crashed 30 percent on Friday after the sneaker chain said sharply-reduced allocations from Nike would lead to a same-store decline of between eight and 10 percent in 2022.

The change reflects Nike’s shift in recent years toward direct-to-consumer (DTC) sales while narrowing its wholesale account base. The chain also attributes part of its sales decline to the absence of another government stimulus.

Foot Locker expects Nike to supply about 55 percent of its sales by the fourth quarter of 2022 and continue at that level into 2023 — down from 65 percent in the 2021 fourth quarter and as high as 75 percent overall in 2020.

On its fourth-quarter analyst call, Dick Johnson, Foot Locker’s CEO, said Nike will “remain an important partner for our business, especially in basketball, kids and sneaker culture, where we have an unrivaled connection with our consumers.”

The big blow, Mr. Johnson said, will come from reduced allocations of “high heat” product, such as retro Air Jordans and LeBron James’ signature shoe. “We’ll still have access, we’ll just see fewer units in those SKUs.”

To make up for the Nike reduction, the chain is increasing allocations in Adidas, Puma, New Balance, Timberland, Ugg, Reebok, Crocs and other brands. The action is an acceleration of a plan launched in 2019 to add more brands and categories to better diversify Foot Locker’s mix.

Mr. Johnson believes Foot Locker will be better positioned as “a true house of brands.”

He added, “I think that COVID has allowed us all to see the consumer is changing. … Our consumer is clearly saying that they want choice and that multi-brand destinations matter. And when 75 percent of your purchases are with one vendor, it doesn’t leave a lot of space in your store for choice.”

Foot Locker will also increase Investments in apparel and private label offerings while accelerating its expansion of larger off-mall stores and making two recent acquisitions, WSS and Atmos. 

Mr. Johnson admitted that Foot Locker will be challenged replacing Nike-like launch product. He said, “There is nothing like a retro Jordan launch that comes in on a Friday and sells on a Saturday. That’s a tough dynamic to overcome.”

DISCUSSION QUESTIONS: How should Foot Locker realign itself amid reduced access to Nike products? Does leaning into other brands, private labels, non-footwear categories or newer concepts offer solutions?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Foot Locker can weather the storm. They have a broad consumer base and if they are smart about continuously showcasing innovative new brands, they will succeed."

Join the Discussion!

25 Comments on "Will Foot Locker be better off long-term with fewer Nike shoes on its shelves?"


Sort by:   newest | oldest | most voted
Mark Ryski
BrainTrust

When Nike announced that it was drastically reducing the places it would sell it’s products, no doubt the executives at Foot Locker got worried given their high concentration of Nike product. So the writing was on the wall. The fact is there are plenty of brands that would be delighted to be sold through Foot Locker, so while you can’t replace a retro Jordan launch, you can bring exciting new products, brands and lines to customers. The Nike departure will cause short term pain, but this is a storm Foot Locker can weather.

Suresh Chaganti
BrainTrust

It is a failure of strategy when 75 percent of sales are coming from a single supplier — especially from a brand like Nike which has a lot more power, reach, and brand equity of their own. Looking back, Foot Locker should have diversified to include in other brands and develop own brands/private labels. It may not be too late, but Foot Locker sure is running out of time.

Zach Zalowitz
BrainTrust

Three+ years ago, per this article, they started that strategy to diversify. Not sure I’m following the strategy comment, but wanting to understand more. Foot Locker knew Nike was that large part of their sales, and Nike knows it too. They are one of the largest distributors of Nike. It’s only as true as if you were to say Northrup or Boeing have a disproportionate amount of their sales to the U.S. government — bad strategy there?

Suresh Chaganti
BrainTrust

Having a large concentration of customers is OK for monopolistic industries and industries that need extraordinarily large capital investments. Aircraft manufacturer, oil and gas fall into that category. Basically if the barriers to enter into the industry are very high, it is legitimate to have high concentrations because of mutual dependence – as in the case of the U.S. government and Northorop, Lockheed, etc.

Barriers to entry are probably lowest in retail and distribution. This has been the case since Amazon arrived 20+ years ago. For Foot Locker executives not to see this writing on the wall 5+ years ago at least is disappointing.

Zach Zalowitz
BrainTrust

Big things are happening at FL. Hope you’re not disappointed in another 5 years

David Naumann
BrainTrust

Good points Suresh. This is a big blow to Foot Locker, but it shouldn’t be a big surprise. It is time to take a serious look at their portfolio of brands and focus more on smaller brands and adjacent product expansion.

Zach Zalowitz
BrainTrust

There’s no shortage of other shoe brands out there and even more up-and-coming brands. I imagine Foot Locker clearly has a plan, and if there’s one thing they excel at it’s knowing their customer base. Foot Locker is an American staple brand, they will find a way to reinvent and stay true to the client base. Also, just so everyone is clear, this is happening likely to JD/Finish Line too, the only difference is they do not have to report public earnings.

Neil Saunders
BrainTrust

This isn’t good news for Foot Locker in the short term. Nike remains a very popular brand that drives growth and interest in the sneaker space. Being less exposed to that success will negatively impact Foot Locker. However the company should take the longer term view and use this as an opportunity to diversify and become less reliant on Nike – which could eventually put it in a stronger place. Arguably they should have done this some time ago. This pivot will require a lot more effort around buying, partnerships, product development and marketing and that means rethinking the Foot Locker operation.

Carol Spieckerman
BrainTrust

Foot Locker should have seen this coming given Nike’s ongoing wholesale pull-backs. Even so, it’s a pretty ruthless move if Nike slammed on the brakes without warning. Perhaps Foot Locker can negotiate some compelling exclusives with non-Nike brands.

Gene Detroyer
BrainTrust

The Nike brand pull back is not the biggest problem Foot Locker faces. More than half of all athletic footwear purchases are made online. And the share is only increasing. That trend doesn’t matter if the product is Nike, Adidas, Puma or others.

Foot Locker should stick with Nike as much as they are permitted and fill the SKUs with other branded product to try to pull in customers. The reality is with “other brands” they face the same online challenges without the Nike draw.

Brian Delp
BrainTrust
2 months 27 days ago

This retailer is ripe for a shake up in strategy. The retail space in general continues to evolve, but traditional retailers have taken some time to wake up and Foot Locker can be lumped into that. Nike has zigged, so how can Foot Locker zag? Perhaps pulling in some of the unique DTC brands which the younger customers are reacting to. A partnership with AllBirds or securing an exclusive line with a trending brand like Crocs could help to keep them relevant. They need something new to be known for as a destination.

Zach Zalowitz
BrainTrust

Crocs one is a good idea. Already in market. Similarly other investments made in past and previous acquisitions as well in APAC.

Brian Delp
BrainTrust
27 days 19 hours ago

Thanks Zach! Especially if a collab version like Crocs x Balenciaga (but obvi more mainstream) but buzz worthy.

Jeff Sward
BrainTrust

This can hardly be surprising to anybody, especially the execs at Foot Locker. Sitting there at 65 percent to 75 percent Nike penetration was a ticking time bomb. And if they will still have access to high heat product, but less units, that’s not all bad. It just might create a little FOMO.

David Spear
BrainTrust

Foot Locker can weather the storm. They have a broad consumer base and if they are smart about continuously showcasing innovative new brands, they will succeed. No doubt, consumers get excited about retro launches, but given how prices are rising in every facet of our lives, consumers may tamp down their enthusiasm for said products and look for new, alternative products that Foot Locker is offering at a reasonable price.

Liza Amlani
BrainTrust

Foot Locker should have seen this coming. There are other challenges in play here – vendors need to up their game in terms of their inventory management and merchandising technology.

Leaning into other brands and increasing Foot Locker’s private label product mix will not fix the underlying challenge of archaic operating processes – updating and modernizing the ways of working is essential.

With wholesale brands like Nike making strides in digital transformation, retailers that want to carry forward-thinking brands need to update their tech stack. Optimizing assortments and rethinking their merchandising strategy + product mix so as to be able to serve and delight the customer while reducing their reliance on Nike is critical.

Foot Locker is a multi-banner and multichannel retailer that still operates in silos. Getting faster to market and keeping up with wholesale partners is essential in retailing today.

Cathy Hotka
BrainTrust

Foot Locker should consider developing a house brand in partnership with a big manufacturer. That could help it weather changes from its major partners.

Zach Zalowitz
BrainTrust

LCKR is that brand.

Shelley E. Kohan
BrainTrust

Foot Locker should have been more aggressive with making sure it did not rely on one brand for the majority of its sales. The diversified business model and move to become a house of brands should have escalated years ago. With that said, Dick Johnson has the leadership team to pivot and win in the long term. Foot Locker should grow its recommence strategy and broaden its innovator program.

Rachelle King
BrainTrust

With or without Nike’s decision to reign in retail distribution channels, it has never been a good idea for a retailer to have 75 percent of their inventory or revenue sourced from one manufacturer. Foot Locker needing to diversify its portfolio was inevitable, one way or another.

In the short-term, they will not replace the high heat, here Friday, sold out on Saturday revenue. However they should look to other leading brands to offset Nike. They can also consider this an opportunity to help new brands to the market and explore what that exclusivity could mean. They are rather limited by the name Foot Locker but, to the extent consumers will buy more than just footwear and accessories, they should also consider apparel and sports bags as well.

There is a way out of an over reliance on Nike but don’t blame Nike if it hurts in the meantime. A more balanced retail portfolio is something Foot Locker should have addressed a long time ago.

Ricardo Belmar
BrainTrust
This shouldn’t be news to the Foot Locker team given recent years of Nike pulling their distribution out of retail partners. Nike has stayed with Foot Locker this long, and at these sales levels because Foot Locker had one important advantage — community, i.e. loyal customer base. Sure, Foot Locker may lose out on those all-important Nike launch days, but nothing is stopping them from creating similar launch activities with other sneaker brands. This is Foot Locker’s opportunity to diversify their product mix in a way that continues to build community with their customers. They should take bold steps to innovate in their loyalty program by inviting customers to new brand launches in creative ways. Foot Locker also needs to invest in their digital strategy to drive demand for non-Nike brands. And what about resale? Another opportunity for them! While Nike limiting allocations to Foot Locker may hurt them in the short term, I expect Foot Locker to pull through in the long term if they invest in the right strategies with other brands, their… Read more »
Rick Wilson
Guest
2 months 27 days ago

This is actually a win for consumers and a strong play by Nike. It’s the continuation of the Nike “Triple Double” strategy. Consolidating wholesale distribs in favor of a more focused, data-driven DTC will simply give consumers a more dialed-in shopping experience than they could ever get at a physical chain location, with far broader/easier/more effective access to the latest products. Conversely, Foot Locker’s over-dependence on a single brand also needed adjustment, though this will be a painful one. Unfortunately for them, the Nike customer is loyal to the swoosh, not the retail outlet.

To become a true “house of brands,” Foot Locker will have to add value to their own shopping experience which gives shoppers a reason not to just pop over to the manufacturer’s site and have 10x the selection. Slashed margins on many of those brands incoming.

Craig Sundstrom
Guest

What they will do, of course, is what the title suggests: claim other products are actually superior — or at least as good — and Nike won’t, or shouldn’t, be missed. It’s utter nonsense of course — how in the He$$ can it ever be advantageous to be cut off from a supplier? — and everyone will know it, but I think they’ll survive. After all, the forecast is for an 8-10% decline, not ten times that.

David Slavick
BrainTrust

Challenged is right. This is disastrous for Foot Locker. When you stand in line to get the newest shoe fashion or ping the site or place orders online in advance for Nike shoes and now have reduced access which over time will make the store brand and its channels less top of mind, not good. FLX Rewards by the way is brilliant, so having a program to help with retention and engagement — need to double down to improve the overall transactional part of the value proposition.

Anil Patel
BrainTrust

I believe driving meaningful partnerships will be the key here. Foot Locker can collaborate with niche brands that align with Foot Locker’s experiences and help them launch new products. The brand understands its clientele and can help smaller brands to position themselves in the market. While Foot Locker can increase diversity in their offerings and ensure unique assortments, smaller brands, on the other hand, get wider market access and drive customer interaction.

Private labels work better for commodity goods as opposed to high-end footwear brands like Foot Locker. Customers prefer them because of their superior shopping experience. Foot locker should enhance the quality of customer interaction by collaborating with relevant niche brands and offset the challenges associated with separation from Nike.

Nordstrom is a good example of using a similar model. Nearly 10-12% of Nordstrom’s assortment at a certain time is new luxury brand launches. And this is one of the major reasons why customers choose them over other players.

wpDiscuz
Braintrust
"Foot Locker can weather the storm. They have a broad consumer base and if they are smart about continuously showcasing innovative new brands, they will succeed."

Take Our Instant Poll

Will Foot Locker in the long run have a brighter or dimmer future with reduced access to Nike products?

View Results

Loading ... Loading ...