Exclusive: Foot Locker CEO Dick Johnson Gets Candid on Diversity, the Impact of Tariffs and What Market Watchers Get Wrong
Sneakers are big business, and there’s no retailer in the market more powerful than Foot Locker Inc. But analysts have been critical of the behemoth’s 2019 performance.
The New York-based firm’s most recent quarter fell short of Wall Street expectations, with profits dropping 31.8% to $60 million.
Foot Locker president and CEO Dick Johnson, however, isn’t buying into the doom and gloom market watchers are selling.
“We don’t do things for quarterly results. We invest for the long term. We are making fundamental changes to the way we do business, how we think about it and our consumers that will allow us to have a long future,” Johnson told FN. “If we get into a ‘Let’s make sure this quarter is perfect’ [mind-set], we will never make the right investments for the long term.”
Foot Locker wasted no time in 2019 providing a glimpse into what its future would look like.
At the top of the year, the retailer introduced its Power Store concept to North America, a community-focused model created to serve as a center for local culture. (Before North America, Foot Locker unveiled the format in London, Liverpool and Hong Kong.) The innovative retail experience debuted stateside in January on 8 Mile Road in Eastpointe, Mich., and the latest to open was in New York City’s Washington Heights neighborhood in August.
Johnson confirmed with FN that more will open before year’s end, including five in the U.S. and two overseas: one in Melbourne, Australia, and the other in Frankfurt, Germany.
Foot Locker’s buzziest move this year is Greenhouse, its incubator created to yield limited products with the hottest and most respected brands and designers. The first Greenhouse launch, which has not yet been announced, is slated to arrive in September.
“Immediately out of the gate, I don’t know that [Greenhouse] moves the needle that tremendously,” said Wedbush Securities analyst Christopher Svezia, “but it provides Foot Locker with the ability to look at what’s next, what can be really needle-moving, what that core consumer is looking for, how they’ll respond and react to things.”
The effort that could pay the most dividends, however, is its FLX membership program, which is driven by access and benefits rather than discounts. The program is currently being tested in Lady Foot Locker and Foot Locker Netherlands and is expected to hit the United States after the holidays.
“Retailers are figuring out that your most loyal customers are clearly your best [shoppers] by a lot — they spend more money, they buy more frequently — and nurturing that consumer pays off,” said The NPD Group Inc. senior sports industry adviser Matt Powell.
Svezia is also confident in Foot Locker’s efforts with FLX.
“Potentially, millions of consumers [will be] engaging more with them, [because they’re] offering more incentives to purchase, to come into the store, to transact online,” Svezia said. “I think that offers promise and opportunity.”
While Foot Locker is working to ensure its future, the moves come at an uncertain time in retail. President Donald Trump’s tariffs on $300 billion worth of Chinese goods that went into effect at the start of the month have disrupted the industry, and another round will hit on Dec. 15.
Here, Johnson talks about the potential short- and long-term impact of Foot Locker’s key initiatives and weighs in on the hottest topics in the footwear industry today: sustainability and diversity.
Footwear News: Some athletic insiders worry that the market is slowing down. What is your take?
Dick Johnson: “I don’t see it. It continues to be pretty robust — as long as there is exciting product, consumers will continue to buy. We operate at the premium end of the sneaker trade, and if somebody is going to drop that amount of money, there’s got to be a great price-value relationship in their mind. When you combine great [kicks] with great apparel stories, the kid is willing to shop with us.”
As you refine your strategy, how much do you bet on e-commerce versus brick-and-mortar?
DJ: “It’s an omnichannel world, and I don’t think in terms of traffic in stores and traffic online. Virtually 100% of our customers interact with us digitally at some time during their buying cycle. But we’re committed to having a physical presence as well. If they click the ‘buy now’ button [on the app or online], we can deliver it to them or they could pick it up in the store. They may say, ‘I’m walking down Sixth Avenue and want to stop by Foot Locker; I’ll just pick it up.’ I think the traffic numbers get a little bit jaded because the declining malls are declining quickly. But the [Class] A malls where we also do business continue to thrive — there [is steady foot traffic and] no vacancies, and rents continue to go up.”
How are you working with your vendors on the tariffs that just went into effect? Do you expect price increases?
DJ: “Ultimately, tariffs are a tax on the American people. We’re all going to pay a little bit more for everything. In our industry, specifically, certain shoes are made in China, others aren’t, and as we write purchase orders, we don’t necessarily know the origin. There will likely be price increases, but I don’t believe it will happen this fiscal year. The word we’re getting from our vendor partners is that they’re assessing what this means to the flow of product, so we’ll identify how much of the increase comes to us, which we may or may not have to pass on to the consumer. There are so many goods beyond our industry being made in China — so the tariffs mean every item you buy is going to take more out of your discretionary [spendable] income.”
Within the sourcing conversation, sustainability is a pressing topic. Do Foot Locker consumers want to buy eco-friendly products?
DJ: “As good corporate citizens, we have to support sustainable ideas. But whether people are willing to pay more for that changes day to day. Any consumer purchase has to see a price-value relationship, and they expect sustainability to be a part of that.”
Diversity is another crucial issue. How is Foot Locker focused on inclusion?
DJ: “You have to create a place where everybody is included. We have an incredibly diverse workforce in our stores. But as you go up the food chain, we’re a little bit less diverse. We’re working hard to advance opportunities for candidates and create an environment where people feel like they belong and bring benefit to the company, where they’re heard and understood.”
Foot Locker has made several attempts to cater to the female consumer that haven’t worked out, including the closure of Six:02. How do you win with women?
DJ: “She’s difficult to stay in constant contact with. She’s got a lot of variations. We drive our business based on footwear, largely sneakers, but she doesn’t wear many in the summertime — she flips to more outdoorsy types of shoes. So we have to win her back season after season. With Six:02, we learned what motivates her to shop and that there was much more connectivity to Foot Locker than Six:02. Maybe we didn’t do a great job of growing the brand. She was more comfortable shopping at a Foot Locker store. But [with] all of these things we’ve learned, we’ll be able to take into our stores and women’s-enhanced areas that will speak directly to her better and broader than we could have with our 30 Six:02 doors.”
How do women want to be marketed to?
DJ: “We’ve got a women’s-enhanced space in 30 stores that speaks directly to the consumer. It’s still sneaker and apparel led, but she understands what’s going on in that space and we [connect] to her on a consistent basis. Socially, we can [reach] her on Foot Locker or Champs Sports or Footaction social handles. Half of the website homepage is devoted to her, our apps speak to her more directly — and the effort that Champs put in around a segment called ‘Her Take’ is phenomenal. These things speak to her in a way that she wants to be spoken to, making this industry exciting to her.”
Lululemon has certainly captured women’s attention. Will the brand be a formidable competitor when it launches shoes?
DJ: “Lulu does a great job on the apparel front. I fully expect they will get footwear right because they’ve created this tremendous business around his and hers workout apparel — and they make great products. But I’m not sure our consumer is a Lululemon consumer. We have women who shop there for apparel and come into our store for footwear. Our core consumer, the core demographic we’re after on the female side understands what Foot Locker brings to the mix and is comfortable shopping in our environment.”
What are the expectations for the new FLX membership program? How will what you’ve learned from past programs inform its direction?
DJ: “Our prior membership program was discount-driven — you got discounts for your birthday and with the points you earned. It drove a lot of business, but we learned some things aren’t important to our consumer. They’re more about access and benefits, whether that be the ability to get a head start on a launch or to attend a pre-concert party at [event space] NYC33. Maybe it’s a case where you’ve got enough points to bring 10 friends to play ball at Madison Square Garden or participate in a photo shoot with NBA players. FLX is about what we can provide our consumer that they feel especially good about and could share. We want to create shareable moments for our consumer.”
Greenhouse, your new talent incubator, got a lot of attention when it was announced. How do you move beyond the hype and actually get this moving?
DJ: “I’m less worried about moving beyond the hype because we want Greenhouse to be a hype generator for the industry, not just for Foot Locker. Greenhouse is great for us in terms of driving ideas and connectivity with people we maybe haven’t been able to do business with in the past. It expands our horizons far beyond sneakers and apparel and allows us to do a lot more things. We have an upcoming launch — we started talking about it in March, so it’s been a fairly long gestation period — and we’re all getting anxious to have it roll out, but we want to roll it out right. It’s going to be one product at a time because we want some high level of interest that continues to stay.”
Some sneaker diehards were skeptical and confused when you invested in the GOAT resale platform. What do you want to tell them?
DJ: “We will never sully the line between the first market and the secondary market. Without the ability to sell sneakers in our stores or across our digital sites, etc., there is no secondary market. Because it is important to youth culture and our consumers, we believe our investment helps to make a better customer experience in both the primary and secondary market. We’re not going to hold product back from our assortment to sell it on GOAT. GOAT is simply a platform that matches buyers and sellers of product.”
How does GOAT Group fit into Foot Locker’s strategy? When will the investment pay off?
DJ: “They are part of this incredible sneaker ecosystem that we all love, and we’ve seen benefits already. The team has a great understanding of the marketplace, and I see us getting benefits already. How we manifest the relationship is going to evolve over time. As we think about the distribution points we’ve got in this country and around the globe, there are ways that we’ll be able to help them and they’ll be able to help us.”