Foot Locker sells sneakers and clothes from many of the top brands in the sportswear industry, and Nike, including its Jordan brand, is by far the label that dominates its stores. Last year, about 68% (pdf, p. 26) of the products Foot Locker purchased came from Nike, according to the company’s annual report.
Often that arrangement has served Foot Locker well. At the moment, it’s dragging the chain down. The company reported earnings that sorely disappointed investors today (Aug. 18), including a 6% fall in sales at stores that have been open at least a year. The results prompted a drop of nearly 25% in its share price.
In a statement (pdf), CEO Richard Johnson pointed the finger at sneaker brands, citing “the limited availability of innovative new products” as part of the reason. He could have added to that his company’s reliance on Nike, which hasn’t been delivering on the main sneaker style consumers want.
Right now, shoppers in the US are in the market for fashion-focused casual sneakers, and not so much performance shoes. That’s been great for Adidas, which has been gobbling up US market share with huge sales of its retro sneakers and new styles such as the NMD, which has gathered momentum in fashion since its launch at the end of 2015. Nike, meanwhile, still has a heavy focus on performance basketball and running. According to market research firm NPD, Nike’s sales in athletic specialty and sporting goods stores were down 25% for the quarter.
Nike is still a huge brand with a lot of customers, of course, but to add to Foot Locker’s problems, shoppers buying Nike are increasingly doing it directly through Nike’s website or its stores, which Nike is investing in to make them experiences as much as places to shop. Other brands, such as Adidas, are also ramping up direct-to-consumer sales.
Meanwhile, it remains to be seen how big a threat Amazon is. Adidas already sells through the site, and Nike has recently inked its own deal to sell through Amazon, though it may not have big consequences for Foot Locker. Nike products were already all over the site, and Nike will probably sell more moderately priced products there, whereas Foot Locker is focused on premium sneakers. Johnson said on a call with investors that he doesn’t see Amazon as an imminent threat.
Overall, sales at athletic-specialty and sporting-goods stores were down in the quarter, according to NPD, not just at Foot Locker. The tough news for Foot Locker is that these trends aren’t changing course. Johnson said Foot Locker expects sales at stores open at least a year to be down 3% to 4% over the rest of 2017.