Foot Locker sees non-Nike brands increasing sneaker opportunities

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Speaking at the Evercore ISI Consumer and Retail Conference, Dick Johnson, chairman and chief executive of Foot Locker, said he believed the sneaker cycle had received a significant boost during the pandemic. He also believes the retailer’s continued efforts to amplify non-Nike brand assortments will better position Foot Locker to capitalize on the trend.

“The precariousness of the United States began long before the pandemic, and the crisis increased the existing tailwinds behind the sneakers,” he said. “If you go more than two years without wearing brown or black leather shoes, your feet won’t want to go back into those shoes. I think that’s something that will definitely continue,” Johnson continued. “But it started long before the pandemic, and I think when people start to come out of the pandemic, it just becomes a lot more natural and a lot more comfortable for them to have sneakers on their feet.”

He also said that wearing sneakers has become more acceptable across occasions and noted, “I can wear my triple black sneakers with my suit to a wedding or a funeral, and nobody knows the difference.”

Many consumers also use sneakers as a form of “self-expression”, especially the younger generations. He added: “I think even people in slightly older generations are very comfortable with sneakers on their feet, and we see that continuing.”

However, the main discussion at the event for investors was Foot Locker’s ongoing significant changes to its product line.

In late February, the retailer announced that Nike’s share of Foot Locker sales would fall to around 55% in Q4 2022, from around 65% in Q4 2021 and 75% in total for 2020. Foot Locker will also receive less” high temperature” or branded products, such as retro Jordans.

The reduction is part of Nike’s consolidation of its wholesale distribution that has included the outright exit of select retail partners as the brand ramps up its direct-to-consumer (DTC) push.

Foot Locker’s decision to focus on other footwear brands showed encouraging signs in the first quarter. While overall comps for the quarter were down 1.9% in the period due to tough comparisons a year ago with stimulus spending, non-Nike product comps were up among teens.

Foot Locker expects 2022 earnings and sales to be at the upper end of the range set at the start of the year due to strong first quarter results, strong inventory position and strengthening relationships with suppliers.
At the start of the year, Foot Locker had guided comps down 8% to 10% due to Nike cuts and tough first-half comparisons.

At the Evercore conference, Johnson said the introduction of its FLX membership program has given Foot Locker deeper consumer insights to help guide the allocation overhaul. One message the retailer heard loudly from customers was a call for more variety. He said: “Although we still sell a lot of Nike products and will continue to sell a lot of Nike products, we have learned that our customers want choice.”

Data shows that 40% of mobile purchases contain more than one brand, whether it’s a headwear brand, clothing brand or another sneaker brand. The data also indicates that the retailer’s most frequent consumers purchase three shoe brands over two years.

Johnson said Foot Locker called for more brand diversification during its Investor Day in March 2018, with reports showing consumers were looking for more choice. However, having so many Nike products made presentations of other brands difficult. He explained, “When you have as many purchase opportunities tied to a single vendor as we had, it’s hard to show that brands 2, 3, 4, 5 are meaningful and have great storytelling inside. of the shop.”

Johnson said the higher level of customer data also helps Foot Locker “expand this openness to what sneaker culture includes and entails.”

For example, he noted that the classic six-inch Timberland boot has “always been on the fringes” of sneaker culture. He said, “Certainly it’s not a sneaker, right? When you think about the definition of a sneaker, it’s not a sneaker. But our primary consumer uses this boot as a form of self-expression.

Such broader thinking helped Foot Locker open Crocs 18 months ago, and the brand is enjoying great success. Says Johnson, “Now we’re doing collaborations with General Mills and Crocs and selling as a retro launch.”

Andrew Page, executive vice president and chief financial officer, said consumers’ growing focus on “self-expression” extends across product lines. He said, “They use their sneakers, headwear and fleece pieces as forms of self-expression, and you know we want to be that house of brands supporting them.” Asked how Nike now fits into the retailer’s mix, Johnson said Foot Locker would continue to have access to high-temperature launches, but “a little less” in depth and breadth than in the past. . However, the retailer continues to work closely with Nike in other areas.

Johnson said, “We are aligned with Nike on our opportunities to accelerate, grow and further grow the basketball category and the culture of basketball around not just player edition shoes, not just Jordan retros, but of basketball culture. We are also aligned with continuing to evolve sneaker culture and that can range from performance running to lifestyle running to casual vulcanized footwear. We will be able to continue to grow and explore what sneaker culture means.

Foot Locker and Nike are also aligned in expanding Foot Locker’s children’s business. Johnson said, “Our Kids Foot Locker business, and the kids across all of our banners, is one of the best customer acquisition tools we have. When mom and dad grew up wearing sneakers with retro launches and Air Force Ones, they both want Junior and Janie to play and look the part and use sneakers as self-expression when they’re young. It has become an excellent customer acquisition tool for us. And we’re very aligned with Nike on what that means for the future.

Page said all other vendors wanted to do more business with Foot Locker, and Nike’s move helped Foot Locker “amplify those conversations.”
Page said, “If you go back to where Foot Locker came from, our origin has always been to delight consumers and amplify other brands. So we’re going to lean; you’ll start to see us exert more of that strength to amplify other brands, delight consumers and meet them where they want to be.

At the same time, the strong partnership with Nike continues. Page said: “That relationship with Nike still exists. And, again, I think both can be true because they direct their offense, we direct our offense, and they can be positive for both organizations.

Johnson also believes Foot Locker has enough quality brands to offset Nike’s reduced allocation. Foot Locker cited the potential for expansion with Adidas, New Balance, Puma, Reebok, Timberland, Crocs, On and Hoka One One, among others.

“We’ve done business with most of these brands over time,” Johnson said. “We didn’t necessarily treat them well in store, because a lot of our store was driven by being open to buying one brand. So now that we have more space and more opportunities to tell stories around their great product, we have even more opportunities to get our fair share with each of these brands. We are under-penetrated with all but one of the brands in our industry. »

Asked about the health of malls, Johnson said mall traffic has not returned to pre-pandemic levels in most cases. On the positive side, “consumer intentionality is higher when entering the mall” and conversion is up.

“Certainly the apocalypse around malls that was talked about in 2019 and 2020, I think we’ve all realized that the apocalypse just isn’t going to happen,” Johnson said. “Certainly not now. But they will continue to be good malls, and bad malls will probably continue to deteriorate if they don’t get investment. But we operate within this whole framework of mall options .

He also highlighted the success of Foot Locker’s larger non-mall locations in providing more opportunities to showcase products and driving customer engagement with a local focus. Johnson said, “Certainly, it’s more square footage so we can do it all – serve women, serve kids, add clothing, expand vendor assortment, expand sneaker assortment. But more importantly, we can connect deeply with the community where this store is located. »

Asked about supply chain pressures, Johnson said Foot Locker sees congestion at West Coast ports dissipating “a bit”. Foot Locker ended the first quarter with inventory up 37%, benefiting from improved receipt flow.

Johnson estimated that over the holiday season, around 100 container ships anchored off the west coast ports of Los Angeles and Long Beach, and now the number is between 30 and 40.

“It’s always unpredictable,” Johnson added. There is always an imbalance of containers, and there is always an imbalance of container ships. So there’s no flow, and it’s not as predictable as we would like going through the ports and then arriving at our stores. There will be a steady stream, but there may be some bumps.

Johnson noted that last year’s factory closings in Vietnam weren’t felt right away because the shoes were sitting on boats, and the repercussions of the closings in China could also be delayed. Says Johnson, “We’ve seen a slowdown in some ports, but some Chinese ports are still shipping great guns. So I think it’s mixed. But I certainly feel good about where our receipt flow is and where our inventory ended in Q1.

Photo courtesy of Foot Locker

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