Nike takes a step back from Foot Locker as the global sportswear brand has plans to pull some of its inventory from the retailer. According to Yahoo Finance, Foot Locker has already taken a massive hit as Nike gears up to make an accelerated shift in their business strategy.
Foot Locker confirmed on Friday, February 25th, that they would be condensing their Nike catalog throughout 2022. This announcement instantly caused Foot Locker’s stock to crash, falling nearly 35%, which is about $950 million in market value.
Foot Locker CFO, Andrew Page, addressed the market report on an earnings call saying, “This change reflects Nike’s accelerated strategic shift to direct-to-consumer, and Foot Locker’s ongoing brand and category diversification efforts.”
Furthermore, CEO Richard Johnson adds to Page’s statement saying, “There was a concentration into some very specific styles that Nike certainly drives through their direct-to-consumer [business] and that’s where the allocation pressure will be. We still have access to all of those products, we’ll just see different quantities flowing our way.”
The initial news break stirred up a big miscommunication as multiple media outlets reported that Nike would be removing all of its inventory from Foot Locker – this is not true. Nike and Foot Locker will simply be refining their offerings, in a business strategy that works best for both companies.
“We continue to be a strong strategic partner of Nike’s and we are working on building complementary strategies to their direct-to-consumer growth,” said Johnson. “They are supportive of us in specifically basketball, kids, and sneaker culture continues to be elevated. So again, I feel great about the relationship. We have ongoing dialogues with [Nike] as we plan our business. And this has been something in process for a while.”
Foot Locker says that no single vendor will make up more than 55% of its supplier purchases beginning in Q4 of 2022, which is down from 65% a year ago. Additionally, Foot Locker’s Nike purchases won’t exceed 60% of its annual business, which is down from 70% last year and 75% in 2020. These numbers show that Foot Locker is planning to diversify the supplier brands that they offer, which was confirmed as they coordinate more inventory from adidas, Puma, New Balance, and Crocs.
This business strategy also falls in-line will the new partnership between Reebok and Foot Locker, which was announced at the beginning of February, just before the Nike news broke. In 2021, Reebok was acquired by Authentic Brand Group for $2.5 billion. Since then, Reebok has made changes to their business strategy and has made Foot Locker their official retail partner for exclusive Reebok drops.
It seems that Foot Locker has as steady plan laid out in front of them as they move forward, but Foot Locker sales are still expected to decline a bit in 2022, between 8% and 10%. Previously, analysts had predicted for Foot Locker to see a slight sales increase, with estimated earnings at $6.56 a share. Instead, this business shift has stock prices ranging from $4.25 to $4.60 a share. Yet all is not lost for Foot Locker as they plan to focus on their own direct-to-consumer model and even launch several private label clothing brands.
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