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Will Foot Locker’s New Omnichannel Strategy Work?
In the realm of athletic gear, Foot Locker has set its sights on a transformation toward omnichannel retail.
“Our digital conversion continues to push towards new highs, and we continue to see room for improvement looking out. In 2024, our focus is on additional improvements in the customer experience, including enhanced search and discovery capabilities, product listing and detail pages, improved storytelling and continued cart optimization improvements.”
Mary Dillon, president and CEO of Foot Locker, via PYMNTS
This new strategy was announced on the same day as Foot Locker’s fourth-quarter earnings call on March 6. After sharing its lower-than-expected profit projections for 2024, Foot Locker’s shares plunged 27%. The drop in projected profits was primarily driven by plans to increase investments to boost demand, delaying the company from reaching its long-term profit margin targets until 2028.
Despite progress with its “Lace Up” strategy, Foot Locker won’t resume dividend payments, anticipating further investment in 2024. Full-year adjusted earnings are expected between $1.50 and $1.70 per share, falling short of analysts’ estimates. CFRA Research downgraded Foot Locker to “strong sell” due to inconsistent revenue and profit growth. However, Foot Locker predicts steady demand for popular sneakers, projecting 1% to 3% same-store sales growth. Investors await updates on Foot Locker’s strategies to navigate market challenges and regain profitability.
Aiming to revolutionize the customer journey, Foot Locker unveiled plans to ramp up digital sales, pushing them from 19.5% in the fourth quarter of 2023 to a targeted 25% by 2026. Mary Dillon, Foot Locker’s president and CEO, outlined the company’s digital strides during the earnings call, highlighting a surge in customer acquisition and improved net promoter scores across all channels.
The company’s digital evolution doesn’t stop there. With a focus on enriching the customer experience, Foot Locker plans to enhance search and discovery capabilities, revamp product listing pages, and refine storytelling elements throughout 2024. It also intends to release a new mobile app this year in order to provide “a smoother shopping experience and greater connectivity with stores,” according to Dillon.
“These immersive retail experiences bring to life a unique, differentiated store environment with powerful brand storytelling and [are] informed by our customer insights. Elements from these stores will be applied to our 2025 openings and beyond.”
Mary Dillon, president and CEO of Foot Locker, via PYMNTS
But it’s not just about pixels and screens. Foot Locker is also reshaping its physical footprint. By expanding off-mall locations and introducing new store concepts, the company is diversifying its presence. The goal is to have 50% of its square footage in off-mall locations and 20% in new concept stores by 2026.
In the latest fiscal quarter, Foot Locker showed its commitment to this strategy by opening 29 new stores, revamping 66 existing ones, and shuttering 113 locations. The overhauled stores boast upgraded merchandising and branding, resulting in improved productivity and margins. This development follows the company’s plan to close 400 underperforming stores in North America by 2026 as part of a strategy to reset and simplify its operations.
Foot Locker is poised to unveil its inaugural “store of the future” in New Jersey this April, with plans for three more in the pipeline for 2024, according to Dillon. These innovative retail spaces promise immersive experiences and compelling brand narratives, drawing on valuable customer insights to shape their design.
Despite a modest increase in total sales and a slight dip in comparable sales, Foot Locker remains optimistic about the future. Looking ahead to 2024, the company anticipates navigating sales fluctuations while staying true to its strategic vision. “Our strategies are continuing to point us in the right direction,” Dillon said. “As we continue our investment focus areas in 2024, we’re on the path towards driving sustainable and profitable long-term growth and shareholder value.”
Discussion Questions
How can Foot Locker effectively balance short-term profit sacrifices with long-term strategic gains, especially amidst market pressure and investor scrutiny?
What metrics should retail experts and business leaders prioritize to measure the success and ROI of Foot Locker’s initiatives, beyond traditional revenue and profit margins?
How might this approach influence broader trends in brick-and-mortar retail, and what implications does it hold for competitors and industry incumbents in the ever-evolving retail landscape?
Poll
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Ryan Grogman
Managing Partner, Retail Consulting Partners (RCP)
Zach Zalowitz
Founder, Salient Commerce Consulting
The fiscal that has just closed was always billed as a year of resetting the business. As such, the poor results – which included a 6.8% decline in total sales – is partly excusable. However, it is important for Foot Locker to show its plans are delivering in the year ahead. The forecast suggests that there will be some progress in 2024, with comparable sales slated to rise by 1% to 3%. While this is a bit more modest of an advance than many would like, it is reasonable considering the challenging state of the market and the increasing competitiveness in the sneaker space. However, to attain – and hopefully beat – these numbers, Foot Locker will need to pull out all the stops and ensure it is on the right side of sneaker trends to build on its status as a destination for sneaker enthusiasts.
improved storytelling and continued cart optimization improvements: with a low-substance word salad like that, Footlocker is wise to skip the in-store cafe. Before all the gibberish, tho, there was a hint that someone knew what was what: “search and discovery capabilities, product listing and detail pages”; in short, if we can carry stuff people want, and make it easy to find, we’ll do well. I agree…but it’s a very big “if”, and they’re up against competitors who’ve moved on to filling in the details of “when” “where” and “how”.
Foot Locker is putting lipstick on a pig at this point. Too many stores in too many malls (Malls are so 1980’s) and there are too many other opportunities/venue to purchase athletic gear and shoes. Sure, they are moving away from malls, however the die is cast. Further, consumers have gotten MUCH more comfortable purchasing shoes online, so online sales are much more than an existential threat these days.
They should continue to fight the good fight and maybe they will come out on top again. From my perspective you can put a fork in it. Done.
Hey Mark! Generally would agree, but specifically I believe they have a unique position in the market, and they’re doing mostly all the right things to reset the brand.
For any struggling retailer who is undergoing the rest that Foot Locker has been for the past year, it ultimately comes down to differentiation if they want to stay relevant in brick-and-mortar. While phrases such as “store of the future” sound nice, along with pushing the narrative of right-sizing their store count in optimized locations, I’m not yet seeing any sort of true differentiation against their physical and digital competitors. More seamless omni-channel will certainly help, but I don’t envision it moving the needle substantially to drive the growth their investors are seeking.
How can Foot Locker effectively balance short-term profit sacrifices? It doesn’t sound as if they have a choice. They will fade into the future if they can’t find a successful pivot. Ms. Dillon has a huge challenge ahead. Even the 2024 projections are weak. One to three percent same-store growth isn’t really growth at all.
Before sneakers were fashionable and before online shopping, Foot Locker was the top-of-mind place to get sneakers. Today, the challenge is to attract the performance buyer, the fashion buyer, or those making a statement with their kicks. I don’t know how Foot Locker can meet this dynamic and ever-changing market. Their banner and logo do not serve the market well.
I don’t think they have or want to focus for now on performance buyer. Too competitive. More the fashion/sneaker buyer, and specifically the right product allocation (from Nike) for those is part of a growth strategy.
Somehow, “Foot Locker” and “fashion buyer” do not compute.
Foot Locker unveiled plans to ramp up digital sales, pushing them from 19.5% in the fourth quarter of 2023 to a targeted 25% by 2026 – Will this change in penetration be due to true digital growth or decreasing 4 wall sales at Foot Locker? Think we all know the math.
Well, the answer is true growth. The stores we closed were C and D stores, so there’s some revenue loss there, but it’s important to keep in mind the that amount of square-footage across Foot’s network isn’t going down, they’re swapping smaller underperforming stores for larger (more like Dicks Sporting Goods) stores, that each have more product selection. From mall to standalone banners…..
Time will tell.
Nowhere in the article does Foot Locker address the two key customer requirement of ecommerce success.
1) Getting the right product to the right shopper.
2) Getting that product to the shopper on time.
Order accuracy requires fulfilling ecomm orders from a dedicated ecomm inventory where they know every SKU in that inventory and can deliver as promised.
Timeliness of delivery requires inventory being in spoke warehouses that shorten the distance to final customer.
Without those two elements, the other ecomm window dressing mentioned will be wasted effort. Grocery hasn’t figured out how to deliver what’s ordered when ordered in ecomm. Maybe Foot Locker hasn’t either.
Generally good point, agnostic of footwear. Specific to Supply Chain, while not in this article, advancements in network and automation are part of the plan….
I’d love to see this question asked and answered again in May or even a little later. What’s happening with the comps? And the digital sales in surrounding zip codes? And the return rates? If the “store of the future” is opening in April, then any number of experts will hopefully have the opportunity to visit and report back with something between “huh?” or “wow!”. I have no idea what to make of the 25% number for digital sales. Growth in ecomm at the expense of brick & mortar? Growth in both? What’s optimal? What’s profitable? I’m a little skeptical about “stores of the future”. We’ll know soon enough.
Growth in both.
Omnichannel? That’s a new thing? I recently bought two pairs of shoes, backpacking and running (yes, shoes for backpacking, not boots). I didn’t even think of Foot Locker. REI didn’t have my size so I purchased both from Amazon which, admittedly, I hesitate doing because I’m still not fully comfortable buying “try-on-gear” online. I was in my shoes in a couple of days and surprisingly happy having not tried them on first (though I read numerous reviews and did plenty of research).
I didn’t read anything in this article that will challenge the top sellers of shoes in either the physical or digital retail world or that would cement/differentiate Foot Locker as “something” (Big 5, Dick’s, REI, MooseJaw, Walmart, Amazon, Kohls). Sadly, there’s very little patience for the knife’s edge that is required to forego short term earnings for the possibility of long term gains and profitability. Where is Foot Locker hoping to position itself?
I hope Foot Locker’s store of the future combined with its commitment to digital creates a “phygital” juggernaut and helps Foot Locker establish itself firmly as whatever it is aiming to become for whatever audience it’s trying to target. There’s great opportunity in the “phygitcal world.” Unfortunately, we don’t have enough information to know if Foot Locker’s strategy will be a juggernaut or a jogger-NOT!
Foot Locker is plotting a new future, and they are experiencing some bumps along the journey. Stock price dips and negative Wall Street sentiment are not surprising. The market has little patience for transformation, but I respect Foot Locker management’s commitment to pursuing their strategy. Creating and testing new store concepts and in-store experiences is the only way to discover what will resonate with their shoppers, so this is all commendable. However, this is not just about creating an immersive store experience or getting higher net promoter scores – it’s about converting more of their online and store traffic into sales. With more than 80% of their current sales conducted in stores, a faster path to sales growth is to focus on improving in-store conversion performance in their physical stores.
Footlocker is reinventing the in-store and digital commerce experience as the “omni always” sneaker authority in a highly competitive and dynamic footwear industry. While the path to sustainable growth will be a challenging one for Footlocker, it will take the necessary investments to modernize the in store and digital experience, rationalize their expansive store footprint, including closing 400 underperforming stores by 2026, and a laser focus on the retail fundamentals across the value chain.
It will take this relentless focus on these fundamentals under Mary Dillon’s leadership to continue the momentum from the fourth quarter, where Footlocker had a .7% drop in comp sales compared to the 7.9% that analysts forecasted. Additionally, considering consumers’ options in the sneaker market, beyond executing against their strategies, it will take plenty of creativity to keep the customers coming back for more. A renewed relationship with Nike, which includes “The Clinic,” a Jordan Brand-led initiative that features interactive activations, personalization, real-life basketball clinics, and social selling, will help the cause.
It will be interesting to see how 2024 plays out with Footlocker’s continued “Lace Up” strategies.
The first thing that Foot Locker must openly acknowledge is that post COVID the consumer is now “always shopping” – but no one is always interested in driving to a mall. So it needs a Digital Shelf style of mantra where direct to consumer is omni-present, anywhere and everywhere. It also has to understand that the shoe buying experience has been disintermediated the same way media has (almost concurrently). It’s needs to dimensionalize the physical experience from pop-ups to tiny stores to larger stores because that’s how the consumer views the modern day “merch drop.” They are still carrying a legacy philosophy (behaving as if it’s still the real estate business) while trying to chase the speed of the consumer where the real estate is an iPhone.
The Shoe game, as we call it, is so heavily entrenched in culture, and culture is not being built at shopping malls and strip malls anymore. Shoe culture is being curated at SneakerCon or ComplexCon. Then it happens on shoe apps. Brands need to understand, money is always moving because consumer attention is always moving. The unfortunate thing is the consumer “Attention Stack” only favors physical retailers during holidays. But it favors Tik Tok every minute of the day.
I’ll chime in since I used to work there and helped form the Lace Up Strategy. Cross channel sales is one metric. Physical sales influenced by digital assets (mobile app, which is being redesigned) is a key metric. Cart abandonment is going to continue to be a key one. The checkout process was updated while I was there that made significant conversion changes due to increased speed of checkout along with more BNPL options. Mobile App sales will be a good general one, and a more immersive buying / engagement experience is key there. Specifically how long customers ‘dwell’ in the app and explore/engage.
For right now, Foot Locker is still an iconic brand with a substantial amount of potential for growth, but time will tell if site experience optimizations coupled with a streamlined set of stores will do enough to increase digital penetration while keeping NPS growing as well.
“Foot Locker plans to enhance search and discovery capabilities, revamp product listing pages” I hope so. Their product categories and attributes online have a lot of room for improvement. They need to be more granular. More accurate. This will not only provide them with better data for demand forecasting so they can improve inventory turns, but also support better search and discovery. And they need to show availability on the PLP. If you want to compete in digital commerce, you need to show customers what they can get, by when, earlier in the shopping journey.
To balance short-term profit sacrifices with long-term strategic gains, Foot Locker should focus on optimizing operational efficiency while investing in digital transformation and customer experience enhancements. By prioritizing investments in technology and innovation, Foot Locker can bolster its competitive position and drive sustainable growth.
Foot Locker’s approach to blending digital and physical retail experiences sets a precedent for industry trends, emphasizing the importance of omnichannel strategies and immersive brand storytelling. Competitors must adapt by prioritizing customer-centric initiatives and embracing digital innovation to remain relevant in today’s era.