Dive Brief:
- Foot Locker expects its amount of Nike product to "decline meaningfully" as Nike accelerates its DTC strategy. Nike is Foot Locker's largest supplier.
- Foot Locker CEO Dick Johnson said on a call with analysts that the companywill maintain a "strong relationship" with Nike and the brand will remain an important partner, especially in categories like basketball.
- For the upcoming fiscal year, Nike is expected to make up 60% of Foot Locker's total purchases, which is down from 75% in 2020 and 70% in 2021. Foot Locker attributed the shift to Nike's "accelerated strategic shift to DTC" and Foot Locker's own diversification efforts.
Dive Insight:
Foot Locker has been one of a few key wholesale partners that Nike names in its own earnings results, and so far has been protected from Nike's shift out of undifferentiated wholesale. Now, however, the relationship between the two companies is changing.
For 2022, Nike will make up 60% of Foot Locker's supplier spend, but come Q4,Foot Locker expects Nike to make up no more than 55% going forward.While some of that is undoubtedly because of Nike's shift to a more DTC model, Johnson also said the decision is for Foot Locker's health as a business. Foot Locker had a heavy concentration of certain popular Nike products in 2020 and 2021, which drove great results but goes against Foot Locker's aim of being a "house of brands."
In 2020, some of the high Nike concentration was based on "the thought of survival," Johnson said. As the impact of the pandemic has waned, however, the retailer can return to its strategy of diversifying its offerings. Non-Nike comps at Foot Locker grew by over 30%, according to Johnson, though its non-Nike brand partners are "a little bit less productive" than Nike.
"There's nothing like a retro Jordan launch that comes in on a Friday and sells on a Saturday," Johnson said.
Foot Locker's 2021 performance
| Metric | 2021 | Year-over-year growth |
|---|
| Net sales | $8.96 billion | 18.7% |
| Net income | $892 million | 176% |
| Operating income | $860 million | 184% |
Source: Foot Locker press release
Foot Locker will still have access to Nike's top products, but the amount it receives will change. Johnson also emphasized that part of Nike's success comes from its ability to control the scarcity of its products. By limiting the amount of products Foot Locker receives, Nike might drive more sales of hot products through its own channels, but executives still expect Foot Locker to benefit as well.
In response to the decrease in Nike products, Foot Locker is ramping up the contribution from other suppliers, including a recent deal with Reebok to gain exclusive access to some of its products, and continuing to build out its private label assortment.
Despite the loss of Nike, "Foot Locker's strategic shift to add more brands and be less dependent on one vendor, transition its store base to off-mall locations, and participate in new revenue streams like resale with GOAT make sense and should strengthen the company's position in the marketplace [and] add shareholder value over time," Telsey analysts, led by Cristina Fernández,wrote in emailed comments.
The move is already impacting Foot Locker to a serious degree, though, and some analysts are not as convinced about what Foot Locker's future looks like without Nike. Wedbush analysts Tom Nikic and Ezra Weener wrote in emailed comments that they "don't really see a silver lining here."
"Being a 'strategic partner' doesn't mean as much as it used to. For years, the bear thesis on [Foot Locker] was predicated on [Nike] de-emphasizing them due to their own DTC ambitions, but [Foot Locker] had continued to grow with Nike due to its position as a 'strategic partner,'" they said. "But that all seems to be changing now. … As a result, [Foot Locker] gave extremely disappointing guidance for FY22: Comps down 8-10%, gross margin down more than 400bps and EPS down 40-45% to $4.25-$4.60."
Foot Locker's guidance for 2022
| Metric | Expectation for 2022 |
|---|
| Net sales | -4% to -6% |
| Comp sales | -8% to -10% |
| Gross margin | 30.1% to 30.3% |
| Earnings per share | $4.25 to $4.60 |
Source: Foot Locker press release
While Foot Locker's executives were clear that the move would negatively impact its business, they were also certain that shifting away from so much reliance on one partner was necessary given the consumer's desire for uniqueness and choice.
"When 75% of your purchases are from one vendor, it doesn't leave a lot of room for choice," Johnson said.
FAQs
Get news and analysis covering the modernization of retail and e-commerce, delivered to your inbox daily. Nike initially zeroed in on DTC because it was confident that customers would buy directly from the brand if given the choice to do so — thereby allowing Nike to hold onto more profits.
Why is Nike leaving Foot Locker? ›
For the upcoming fiscal year, Nike is expected to make up 60% of Foot Locker's total purchases, which is down from 75% in 2020 and 70% in 2021. Foot Locker attributed the shift to Nike's “accelerated strategic shift to DTC” and Foot Locker's own diversification efforts.
How does Nike's DTC strategy satisfy customers? ›
The 'direct' in DTC means exactly what it says on the tin – it gives brands direct access to their consumers. This means no middlemen like Foot Locker or other retailers for Nike to go through, they control the purchase journey.
What are the margins for Nike DTC? ›
Driven by the mix shift towards Nike's DTC sales channels, gross margins will reach a 'high-40%' number by FY2025 (from a low-to-mid 40% range historically). Greater efficiency on operating costs will see the operating margin reach a high-teens percentage by FY2025 (from a 12% to 13% range over the last decade).
How much of Nike's business is DTC? ›
DTC revenue at Nike has hovered around the 42% of total sales level in recent quarters, with wholesale generating nearly all of the rest. Meanwhile, the wholesale business, particularly in the U.S., has remained under pressure as sportswear retailers place fewer orders due to patchy demand.
What does DTC mean in brand? ›
Direct to consumer is a sales strategy where manufacturers and CPG (consumer packaged goods) brands sell their products directly to their customers instead of selling them through retailers and wholesalers (See also, Why DTC is the Next Step for CPG Brands).
What is the Foot Locker scandal? ›
A class action complaint filed recently against Foot Locker, Inc. in New York alleges that the footwear retailer is misleading consumers into believing that products are scarce or about to sell out, when that is not in fact the case.
What is the Nike announcement on Foot Locker? ›
Foot Locker is making a big announcement ahead of the 2024 NBA All-Star Game with Nike and Jordan Brand. The global retailer is introducing The Clinic, a year-long program with Nike and Jordan Brand that will bring "the best of the court and culture to basketball fans, sneaker enthusiasts and local communities."
Is Foot Locker owned by Nike? ›
Principal Subsidiary Companies: Foot Locker is a wholly owned subsidiary of the Venator Group, formerly Woolworth Corporation. Chief Competitors: As the number-one athletic footwear retailer in the United States, Foot Locker faces intense competition.
How did DTC brands become successful? ›
Advantages: DTC allows for direct customer relationships, personalized marketing, quality control, and streamlined brand experiences. Success stories: Brands like HiSmile, Dollar Shave Club, and Warby Parker exemplify DTC success through innovative marketing and customer engagement.
Direct to consumer (DTC) marketing is designed for brands that skip traditional distribution channels and sell directly to their customers.
How do you grow DTC sales? ›
Social media marketing
Social media platforms are going to be one of the best ways to reach new audiences for your DTC brand. From social media advertising to organic reach, this channel can work for your entire marketing funnel, from brand awareness all the way down to conversion.
What is the consumer direct offense strategy of Nike? ›
The Consumer Direct Offense strategy from Nike is a well-rounded approach that involves more than the transition to DTC. It also includes accelerating innovation and the creation of products. It features expanding operations in 12 strategic cities in ten countries as a way to move physically closer to consumers.
What is the triple double strategy of Nike? ›
That year Nike launched its Consumer Direct Offence, an initiative “fueled by Nike's Triple Double strategy: 2X Innovation, 2X Speed and 2X Direct connections with consumers.” This strategy coincided with Nike's establishment of a new direct organization which amalgamated Nike.com, Direct-to-Consumer retail, and Nike+ ...
Why doesn t DSW have Nike anymore? ›
Nike pulled back on its DSW partnership a couple of years ago as part of a larger direct-to-consumer sales push that also saw it exiting Macy's and Urban Outfitters. Nike did not immediately respond to questions about why it is returning to DSW and how this impacts its DTC strategy.
Why did Nike rebrand? ›
Originally founded as Blue Ribbon Sports in 1964, the company rebranded in 1971. The decision to change the name coincided with the introduction of their own footwear line, marking a significant shift from being a distributor for Japanese shoemaker Onitsuka Tiger to an independent brand. Phil Knight's influence.
Why did Nike pull out of department stores? ›
There are a few reasons why Nike made this decision. First, DTC sales typically have higher margins than wholesale sales. This is because Nike does not have to share its profits with department stores. Second, DTC sales give Nike more control over the customer experience.
Why is Nike digitally transforming? ›
NIKE is leveraging several emerging technologies, including AI, blockchain, NFTs, robotics, and metaverse among others to drive customer engagement and sales, improve customer service, optimize business operations, meet ESG goals, deepen customer relations, and lower customer churn.
