Foot Locker Caught in Downdraft as Athletic Sector Sags

Shifting consumer habits forcing changes

Author: Andria Cheng

August 18, 2017

The athletic gear segment is being pummeled as retailers struggle to keep up with the rapidly changing preferences of mobile-phone toting consumers.

Foot Locker, the market leader when it comes to selling $100-plus marquee sneakers such as Nike’s Jordan line, was the latest to take a hit. On Friday, Foot Locker delivered shockingly disappointing Q2 results, including an unexpected comparable sales decline of 6% that ended a years-long streak of quarterly same-store gains. The New York-based company, whose nearly 3,400-store footprint also includes Champs Sports and Footaction, projected continued sales declines the rest of the year.

Foot Locker also posted a much worse-than-expected Q2 profit after steeper promotions dented gross margins while expenses as a percentage of sales rose. The company plans to shut more stores this year than previously projected.

Foot Locker isn’t the only athletic-gear retailer that disappointed. Hibbett Sports on Friday also reported a bigger-than-expected 11.7% drop in Q2 same-store sales. Dick’s Sporting Goods earlier this week cut its outlook for the year and vowed to be aggressively promoting its business to win market share after it also reported disappointing results. On the brand side, Under Armour this month lowered its sales outlook for the year and announced a restructuring plan that involves job cuts. 

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While there are various factors at play--Foot Locker, for instance, has a heavier store exposure to the lagging mall sector and its urban markets have felt the impact of the decline in Hispanic consumer spending—there are some common threads weaving through the recent earnings reports and even the bankruptcies of retailers from The Sports Authority to Gander Mountain. 

Mobile is a big part of it.  Foot Locker's CEO, Richard Johnson, conceded on Friday that Foot Locker and other retailers haven't been able to keep up with changes in consumer behavior that have been driven by mobile phones  “With constant access to influencers, trends and ideas, consumers’ attention spans are getting short," he said. "They are moving from one style to next faster than before.”

Demand for Foot Locker’s traditional top-selling styles, including certain Jordan models in North America and its overall basketball sneaker business, has eased. And there’s limited availability of “innovative new products” in the market, Johnson said.

He said Foot Locker is moving to improve its supply chain and shorten product cycle time, and better tell a story that entices shoppers into stores and gives them a better experience.

"The old, multi-season seed, ignite and rollout of key footwear platform just doesn’t work as effectively anymore,” Johnson said. And he conceded that the company and the athletic sector  haven't mastered all the details involved with a faster, more responsive product cycle.

Nike CEO Mark Parker in June expressed similar concerns as he vowed to bring products to market where consumers want fast. Nike is working to restock products faster based on real-time retail sales data, and it is cutting the time it takes to bring a product from design to the store shelves.

“The consumer appetite for newness and choice has never been higher,” Parker said at the time. “Their connected world means unlimited access to new products.”

Those factors also played a part in Nike’s recent decision to sell on Amazon and in its plan to double down on its own direct-to-consumer ecommerce business. 

Foot Locker's Johnson dismissed concerns about Nike's Amazon plans. “Our vendors selling on Amazon aren’t an imminent threat,” Johnson said. “There’s no indication any vendors plan to sell $100-plus premium athletic shoes on Amazon.”

He said consumers buying higher-priced sneakers still want connection and engagement, such as special events hosted in stores. For “lower priced and undifferentiated” products, yes, Johnson said, Amazon will claim a growing share of wallet.

Johnson also expressed confidence in the long-term health of the athletic sector that's sparked the "athleisure" category. Athleisure sales have been so strong that non-traditional athletic retailers and brands across the board have unveiled their own athletic lines in recent years, raising concerns about competition and consumer exhaustion.

The premium athletic category "is still a great place to be in in the long run,” Johnson said. “Young consumers are still passionate about sports, music, styles and other elements of youth culture.”

John Zolidis, president of independent research and consulting firm Quo Vadis Capital, was less sanguine. “The real question is what look is next," he said in an email to eMarketer Retail. "It's going to hit all players but the traditional guys are more exposed because it's their primary business.”