The Investor Relations website contains information about Foot Locker, Inc.’s business for stockholders, potential investors, and financial analysts.
Source: Foot Locker, Inc. Q1 2021 Earnings Webcast | Foot Locker, Inc.
In a recent drive I encountered shuttered City Gear stores, and FootLocker brand stores fighting to fill the holes in their walls. This isn’t relegated to these two chains, every chain with a heavy reliance on Nike is utilizing creative merchandising to give the appearance of full shelves. It’s unlike any other time in the last ten years. Sneakers simply aren’t making it to retailers, forcing the chains to rely heavily on apparel and pushing buyers towards digital even in areas where buyers aren’t traditionally digital consumers.
Champs Memphis is led by one of the best young managers I’ve ever met. His demeanor is always friendly and he caters to his consumer. His staff is a reflection of him. Customers are the problem. Empty shelves to them means that shoes are being hidden, or given to bulk buyers. Even as sales leads explain that retros or hyped sneakers are raffled from the FLX app, some customers simply don’t want to hear it.
One look at the Nike wall below and it becomes apparent that there is a shortage. “Foot Locker Inc reported revenue of 7.5B for FY 2021, a decrease of 3.01% compared to FY 2018.” In a Covid environment the decline is expected, but even as countries begin to open and supply chains are back in motion, it could take up to a year for stores to regain the type of inventory that stores held in the past… if that ever happens again. Remember last quarter FootLocker announced a drop-shop program with Nike:
Marc Bain Shares That Nike Will Dropship to FootLocker Customers
It looks as if Nike has already started. Take a look at the picture below. In it you can see clearly the redundancy in merchandising. The short display wall in the foreground features Nike visual display cubes sitting atop the display sections. Notice there isn’t one shoe in the feature display cubes? Also notice that the shoes displayed are the same few pair. Remove the redundancy and you have 13 different styles total. This display takes up half of the store.
In the background is the GS section. The same problem exists. This Champs store is emblematic of an issue FootLocker has to solve as they become more of a display warehouse for Nike. The adidas, Reebok and Puma section is opposite the Nike section. There are an abundance of options there. I should have taken a picture, but the display included promotional products. Which creates an interesting discussion, the limited amount of Nike product in store is contributing to full price sell through. Hardly any Nike product in Champs is promotional. 50% of adidas product is. It’s the same with Fila (pictured below), that brand is on promo, but what is more important in the following picture is that Champion footwear and Fila actually have a considerable amount of shelf space inside of this Champs store. I’m almost certain this isn’t by choice:
What does this mean in a prediction for FootLocker’s earnings report? I don’t expect it to be good. FootLocker is a victim of what I discussed in my first book on Nike’s Consumer Direct Offense. In that book I coined the phrase “The Nike wall” and I explained how retailers who aren’t in a position to create private label would pay the cost for going all in on Nike. While it can’t be confirmed, Champs and Footaction, two subbrands of FootLocker appear to be bearing the brunt of Nike’s supply chain issues. The irony is that Nike’s e-commerce grew considerably in the last year. Which leads me to believe something similar is happening to when I first recognized Nike’s DTC plans in 2014. In 2014 I wrote that Nike was forcing smaller chains and mom and pops out of business by flooding the market with product and allowing stores who could never RTV to RTV. What did I mean then? While the industry saw Nike as putting too much product out, I saw it as delivering goods paid for by Futures, getting that revenue, having the stores take on more product and then Nike taking all of that product and filling its own inventory online and in brick and mortar. Creating a perfect storm for smaller retailers who felt relief, but still had to take on more inventory. For Nike it was like a drug dealer saying buy all of this dope. If you can’t sell it, you can send it back and replace it with more product and some additional product. The buyer pays up front, the product sits, they get relief in being able to switch it out, but in order to switch it out, they have to also buy the next round of dope including the product that doesn’t sell. It’s not relief, it’s a bait and switch because the same inventory is now in a Nike outlet at the wholesale price bringing customers to those doors (online and physical) for the deals. The small store now has another round of product to be RTV’d meaning the good product received is nullified. By 2015, those stores were in over their heads and were more than willing to RTV, but couldn’t afford to buy more although they had already promised to pay the drug dealer for the new dope and the crappy dope… Is that clear?
If it’s not, this is why the supply chain issue is similar. If Nike’s e-commerce is still growing and they aren’t delivering to Champs and Footaction, why would they sell the stores any shoes? Look at that picture at the lead of the story with all of the FootLocker locations across the country. Nike cuts its profits in half by giving all of those stores product when the entire country is now used to buying online. My last thoughts on this, Jordan Retro releases have been making it to the stores. If Jordan Brand is getting their hottest shoes to the stores, why aren’t all white Forces, 97s, 90s, and the regular stuff making it? Why all of these empty shelves, but not a single release day Jordan was missed?
The earnings report for FootLocker is on the 21st. I don’t expect it to be a good one.