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Foot Locker’s Bright Future

One of the things I love about being quoted by Thomas Lee at TheStreet is his openness to contrary perspectives.

Introduction – Foot Locker

Foot Locker Retail Inc. (Foot Locker) is a global leading athletic footwear and apparel retailer headquartered in New York City, United States. It operates more than 2,900 stores primarily in mall locations spread out over 29 countries across North America, Europe, Asia, and Oceania. It has a portfolio of brands including Kids Foot Locker, Champs Sports, WSS, and atmos.

Different brands in Foot Locker’s portfolio

What was Foot Locker originally called?
The chain is the successor corporation of F. W. Woolworth Company which changed its name to Foot Locker in 2001. Nearly 70% of its 2022 sales of US$8.7 billion are from the Nike brand. Its sales per gross square feet are US$548.

Sneakers play a significant role in the brand’s product mix. Over the years as sneaker drops become an industry go-to marketing tool, the sportswear/shoewear chain introduced a new sneaker release process in 2021 to improve shoppers’ chances of getting their hands on the latest products.

To improve its purchasing process, Foot Locker introduced Launch Reservation based on customer feedback. The brand also has a dedicated page with the latest release dates.

Is Foot Locker In Trouble?

In the piece written by Thomas Lee, I was quoted,

“In Foot Locker’s case, the company has long been “entrenched in the brick and mortar market,” said DeAnn Campbell, head of strategy and insights for AAG Consulting. “They have been the king of the mall. Foot Locker has been very good at physical retail. They hadn’t needed to invest in retail until now.”

Campbell, however, is actually bullish on Foot Locker. Despite its first-quarter problems, the retailer has the right long-term approach, she said.

“The company is in great shape,” Campbell said. “Mary Dillon is brilliant. They are doing a lot of the right things.”

I’m not aligned with a general market opinion on the importance of e-commerce. They currently earn 17% of total revenue from online sales, which is fantastic given the highly tactile nature of their business.

17% of the brand’s revenue is from e-commerce (2022)

Shoppers buying highly coveted sneaker drops want to be seen doing it and be part of the hype at the store. Online announcements and shopping experiences cannot create the same energy spectrum of getting your hands on sneakers while waiting in line for hours.

Success Factors

I’m very bullish on its future for 3 big reasons:

Connecting with Communities
Their revenue is down because they have too many old mall locations, not low e-commerce sales. But they have a solid plan to reposition their brick & mortar around more relevant locations with 3 different store formats that emphasize community and local talent. 

Foot Locker’s core values

Fiscal Health 
They have low debt. The current debt-to-equity ratio is 0.98% (above 2 is poor). This means they have been living within their means and thus have wiggle room to finance future growth. Their low debt has a lot to do with past focus on in-store sales, which typically generate higher profit margins than online sales. They are smart to target some e-commerce growth, but even smarter to balance that with brick & mortar.

Diversification
While Foot Locker and Nike were “on a break”, it gave the brand a chance to rebalance their product mix and launch their private label business (Lckr, Cozi) which has quickly grown to almost 11% of total sales. Going forward their goal for Nike is a much healthier 50-60% of total sales instead of the previous 70% that forced too much reliance on Nike’s needs and customers.

LCKR by Foot Locker featuring Eutel Wallace

And of course, they have the guiding hand of Mary Dillon from Ulta Beauty and Mcdonald’s to work her usual magic.

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