Summary
Foot Locker has had more than it's share of problems over the past couple of years. For those of us who have been around for a long time, their performance has been a wake-up call to the leader of the industry. The author makes some very critical points in the article which lead to support the future direction of the retailer Foot Locker. The key points need to be reviewed to decipher if the author is on solid ground with their assessment. Does Foot Locker have the ability to break the chains that have shackled their performances over the past couple of years? Is the combination to the lock the right one to free the retailer to be successful once again? Let's take a look.
Analysis
Foot Locker has been struggling at retail for many reasons. The author covers the key top line details in discussing the turn around of this retailer. There are also other reasons not mentioned by the author which will impact their future performance.
The basis for the "buy" recommendation are due to the following points:
Projected increases and charging higher prices:
FL is going up against low numbers for the top line versus the weak athletic footwear market in 2007. More recent trends show marquis footwear coming back strong, and ASP's have been increasing at retail. This shift favors the mall athletic specialty retailer, and FL specifically will get top priority with marquis athletic footwear allocations. The other point to remember is that as marquis products become more of a fashion trend, the fashion influence will cause the category to be less impacted by issues with the overall economy.
Wider margins and less promotional activity:
These two aspects are intertwined to a large degree. The decrease in store promotions (which had become such a fixture at FL in previous years to entice consumers) will bring about a higher maintained margin. Also worthy of note is the impact that the combination of a reduced inventory focus along with a higher sell-thru rate for allocated marquis product. Less product to move after the season is another factor in achieving higher maintained margins.
Capitalize on a healthier consumer market and strong athletic trend:
I have mentioned the trend of marquis products above. This benefits FL the most of any retailer. They have had some rough years for many reasons, one of which is the decline of consumer excitement towards the higher priced athletic footwear styles. The trickle down affect will also have a positive impact as some consumers will purchase lower priced athletic footwear to have a similar look if they are unable or don't want to spend the money on the marquis styles. While there is still fragmentation in the consumer buying habits, a trend towards athletic footwear will help FL immensely. Include the fact that this retailer has been forced to become more efficient operationally in how they do business just to limit the damage in the past couple of years, and you suddenly have a retailer that is in much better condition to compete.
In addition to the author's comments, there have been other actions and activities which also will impact Foot Locker in the future.
Better leadership at the top:
I worked with Keith Daly, the President of FL, earlier in our careers. He is a pragmatic thinker and a merchant at heart. His fingerprints on the Foot Locker model are beginning to show, and they should become even more clear in the future.
Nike and Foot Locker relationship:
Keith Daly has a very strong relationship with Charlie Denson, the President of Brand Nike. This is very important as they continue to navigate through the difficult waters between the largest brand and largest retailer. Neither company wants to experience the tumultuous times again when both sides tried to do business without the other.
Foot Locker Diversification:
With the recent announcement of the acquisition of CCS, Foot Locker takes a huge step into a new area of business for them: action sports. This leading catalog and internet resource for action sports will not only diversify Foot Locker's approach to retail, but will also give them easier access to brands which they have not had before now. They will have much more bargaining power.
The signs are pointing to positive times ahead for Foot Locker. They now have the combination to unlock their potential and position them for growth in the future once again.
