Foot Locker Feels the Sting of Nike’s DTC Push

Even Foot Locker isn’t immune to the sting of the direct-to-consumer push.

The footwear retailer on Friday posted a bleak outlook for 2022, largely due to the impact of one of the company’s vendors making an “accelerated strategic shift to DTC.” Foot Locker said as a result, no single vendor will represent more than 55% of total supplier spend, down from 65% last year.

As part of this vendor shift, Foot Locker posted a bleak outlook for 2022, which anticipates sales falling between 4% and 6% and same-store sales falling by 8% to 10%.

Foot Locker’s shares sunk Friday morning in pre-market trading after the news was announced.

Analysts have noted in recent quarters that Foot Locker appears to be losing market share to other vendors like Dick’s Sporting Goods and Hibbett Sports, especially compared to 2021. Last quarter, Williams Trading analyst Sam Poser noted that these sporting goods chains appear to be “getting more love” than Foot Locker from the major vendors, many of which are leaning into their own DTC strategies.

For Nike, an aggressive DTC strategy has led the brand to terminated wholesale accounts with retailers like Zappos, Dillard’s, DSW, Urban Outfitters, Shoe Show and more, leaving many retailers without the ability to sell one of the most popular brands in stores. Nike has also cut back on the amount of product it is offering in existing vendors, like Foot Locker, in order consolidate distribution.

“Today’s update is likely to fuel longer-held investor concerns about Foot Locker’s extremely concentrated exposure to Nike which has been emphasizing its own DTC channels and has announced strategic relationships with others,” said Baird analyst Jonathan Komp in a Friday note.

The news appeared to take some analysts by surprise. John Zolidis, president of investment advisor firm Quovadis Capital, said before Foot Locker reported earnings that investors had largely overestimated the negative impact of these vendor shifts by “failing to appreciate the benefit of less competition for the retail partners that remain in the distribution network.”

However, Zolidis amended his outlook in light of Foot Locker’s announcement about Nike.

“FL needs to demonstrate that it can still comp and grow earnings even in the face of lower Nike allocations,” Zolidis wrote, adding that he believes the retailer can see success in the long term, given its “valuation, sentiment, cash flow, and the potential for news flow to improve incrementally from here.”

In light of the changes, Foot Locker is focusing on diversifying its vendor mix and product assortment. Most recently, the company inked a deal with Authentic Brands Group (ABG) to exclusively carry certain Reebok shoes in U.S. Foot Locker stores and websites. The partnership will make Foot Locker the exclusive distribution channel for certain high-heat Reebok products, such as basketball shoes and silhouettes from Allen Iverson and Shaquille O’Neal. The program, Foot Locker said, will complement the company’s existing exclusive partnership with basketball star LaMelo Ball and Puma.

“Our journey to diversify our mix of business and expand our reach as a house of brands and banners is ongoing,” said Foot Locker chairman and CEO Richard Johnson. “We look forward to continuing to build on the important areas of success from the past year that strengthen our position at the heart of the youth, sports, and sneaker communities.”

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