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Can Foot Locker ‘Evolve and Adapt’ for the Digital Consumer?

Last year, the headlines were much different for Foot Locker.

Coming off 12 months of incredible comps and record-high revenue, it seemed like the sneaker world was Foot Locker’s oyster—and its arrow was pointing up in a big way. However, as most of the footwear industry reels from tariffs and changing consumer habits, Foot Locker has not been immune.

In revealing second-quarter financial results, the sneaker retailer said it had suffered under an unfavorable release schedule during the period that impacted sales and painted an unfavorable picture as to the state of the brand. However, there is no question that its performance was a disappointment and, at best, on the “low end of our expectations,” as Foot Locker president, CEO and chairman Dick Johnson put it.

During the chain’s most recent Wall Street conference call, Foot Locker’s chief executive blamed everything from a poorly timed release season, negative comps associated with NBA star Lebron James’ move to Los Angeles and bad weather for the decline. But Foot Locker claimed it has a plan in place to combat headwinds that have surged in recent quarters. That multi-pronged strategy includes initiatives designed to elevate the customer experience via new “power stores” that reflect local street culture and investments in inventory technology like RFID.

However, some analysts see a decline at the retailer as inevitable, considering that some of Foot Locker’s most crucial partners are sportswear brands that have, without exception, toiled diligently to improve their own digital and direct-to-consumer offerings. New channels like Nike’s SNKRS app, for example, may already have begun to chip away at its revenue.

“Digital sales penetration is a risk that every traditional retailer faces. If Foot Locker doesn’t evolve and adapt to the changing retail landscape, they face the possibility of losing significant market share,” Kristin Breakell, a content strategist with market research firm Trendalytics told Sourcing Journal. “The answer, however, is within a retailer’s control; every brand can change their public perception, as long as their evolution is authentic to its brand identity. People are still buying product, they just have more choices than they’ve ever had, so brands cannot rest on their laurels with captive audiences.”

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By this measure, Foot Locker has made progress that other retailers have been slow to replicate. For instance, the Foot Locker CEO described its $100 million investment in GOAT as a critical piece of the puzzle in its struggle to understand not just the lucrative sneaker resale market but also streetwear consumers whose purchasing habits can be unpredictable.

“We’ve got a holistic view of the sneaker market…without a primary market there’s really not a secondary market,” Johnson said of the retailer’s relationship with resale.

“It is really to help us understand that secondary market better, to figure out how we work together with them, keeping a clear line of distinction between the primary and secondary markets,” he added. “We have a responsibility to our core consumers in our portfolio of brands to make sure that we service them and then that the product does find its way to the secondary market.”

One of Foot Locker’s most important brand partners is Nike, of course. In fact, the sportswear powerhouse is often the driver behind a “good” or a “bad” Foot Locker quarter. As a result, Foot Locker has taken great strides to enhance the synergies between the two companies, like the recent integration of its inventory systems and Nike’s RFID database.

“The market sometimes looks at this issue as a very binary one. They either have to be perfect partners or they’re going to be enemies. I don’t think that’s the case,” Jay Sole, Nike analyst and executive director for UBS, told Sourcing Journal. “I think the reality is Foot Locker remains very important to Nike. Foot Locker is going to continue to do the things that Nike likes its best partners to do, which is invest in their store experience and make the Nike brand, the Jordan brand look as good as possible when the consumer walks to that store. Because consumers are still using stores to research products.”

Though Foot Locker blamed Q2’s less-than-favorable sneaker release schedule for much of its disappointing quarterly results, Sole said second-half releases should reverse course, thanks in large part to new drops and activations powered by Nike and Adidas.

In August, Foot Locker launched an initiative designed to celebrate its relationship with Nike: the “Evolution of the Swoosh,” an exclusive collection that the retailer is using to connect itself directly to the brand’s hype. Johnson also hinted that another partnership with Adidas was on the way as well, designed to celebrate and reflect on the legacy of the brand’s iconic three-striped logo.

“We are certainly seeing newness from the brands that we have in store but we’re also testing some new brands. I think that’s one of the strengths of our merchant team, they’re very willing and very diligent about getting out and testing things, looking for the opportunity to accelerate product opportunities,” Johnson said of his view regarding the second half of FY19.

“I think the fleece programs that we’ve got coming, the work that our team has done to make sure that there is apparel side to our concept work, the work that our vendor partners are doing to make sure that there are apparel options around launches—all of that gives me optimism going into the back half,” he added.

For those same reasons, many are unwilling to see the same unfortunate fate for Foot Locker that has befallen some of its fellow retailers in recent years. According to Breakell, the Trendalytics analyst, the retailer is taking the right steps that will allow it to grow into the business it needs to be to survive the ongoing digitization of the athletic-inspired footwear industry.

“The retailer’s new Power Store model and Greenhouse incubator will connect with today’s young consumer,” she explained. “The Greenhouse incubator could create a sense of urgency with exclusive artist collaborations and limited availability, as well. By associating itself with influential artists and musicians, Foot Locker can appeal to streetwear customers who value exclusivity and cultural currency.

“Power Stores offer more localized products and experiences that DTC brands aren’t able to offer,” Breakell continued. “This focus on community should appeal to what many are calling the experience generation. The retailer’s further investment in its digital platforms, data capabilities and supply chain technology should also help it survive these changes.”

From a Wall Street perspective, Sole said the retailer and its investors might simply have to accept that its place in the sneaker universe is supplemental to the sportswear brands that sit on its shelves. But that doesn’t have to be bad news—after all, staying in the game could be the hardest part of footwear retail for the time being.

“There’s a lot of consumers that want to finish their journey at Nike.com,” Sole said. “As Nike likes to say, ‘The consumer decides.’ Foot Locker is going to be an important partner to Nike but what kind of growth can they have together? That’s what the market is wondering.

“There’s a big difference between Foot Locker growing five-to-seven percent per year versus two-to-four percent per year,” Sole concluded. “As the business changes, how can they grow together?”