News of Foot Locker’s plan to close roughly 110 stores in 2018 caused some panic in the athletic footwear marketplace late last week. But industry experts believe there’s little need to be concerned.
“Foot Locker has averaged about 100 store closings a year for the last decade. This is not out of the ordinary,” said Matt Powell, senior industry adviser for sports at the NPD Group Inc.
And Sam Poser, a Susquehanna Financial Group LLLP analyst, agreed. “It’s a crappy headline, but it’s just that — a headline. I think it’s a lot of nothing,” he said.
According to Poser, Foot Locker had 3,921 stores worldwide to end 2005, a number that dropped to 3,310 stores by the end of 2017. However, in that time, its revenue has increased to $7.8 billion, from $5.65 billion.
“Their sales per square foot, their gross margin per square foot and everything else has improved as they’ve closed stores,” Poser explained. “Their productivity has gone way up.”
Poser doesn’t believe the closings necessarily have much to do with the consumer shift to e-commerce and away from brick-and-mortar.
“I understand that people want to shop online and it’s easier, [but] go to Roosevelt Field Mall [in Garden City, N.Y.] on a regular Saturday afternoon at 2 p.m. and it’s hard to find a parking space near a building. So it’s not like people aren’t shopping,” Poser said.
Foot Locker, according to chairman and CEO Dick Johnson, is being more strategic in where its doors are located.
“Our store development and real estate team does a great job of working with landlords. The question is on where does the sale take place, where does the transaction take place? Because it’s going to take place wherever our consumer wants it to take place,” Johnson explained during Foot Locker’s Q4 2017 earnings conference call on March 2.
Poser explained the rationale behind the retailer’s closing strategy.
“Given that the consumer is changing the way he or she shops a lot, stores that may have been very viable a couple years ago aren’t as viable anymore, and there’s just a different way to reach that consumer,” Poser said. “Or it’s a mall that had Champs [Sports], Foot Locker, Lady Foot Locker, Kids Foot Locker and Footaction, and they reviewed it, they had a lease come up, and they realized they could do the same, if not more, business with two less banners in that mall.”
And even though about 110 stores will shutter, during the March 2 call, Foot Locker EVP and CFO Lauren Peters stated there’s a plan to open another 40.
“A $230 million capital program for 2018 includes about 40 new stores, down from recent years in which we’ve approached 100 new stores a year, and approximately 110 stores, which are expected to close,” Peters explained.
But the closing announcement came on the same day Foot Locker announced an underwhelming quarter to end the year.
During its earnings conference call last week, Foot Locker said it posted a Q4 2017 net loss of $49 million, or 40 cents per share. And as of 12:15 p.m. ET on March 2, shortly after the call, the stock had dropped more than 15 percent to $38.96.
Still, insiders are optimistic.
“I do think this is a very good company and they’re going to figure it out, but I don’t think everybody is going to realize that until the second quarter,” Poser said.
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