With key vendor partners — most notably Nike — focused on direct-to-consumer more than ever before, Foot Locker Inc. offered a less than favorable forecast today for the year.
When the retail giant announced its Q4 earnings this morning, it stated that, beginning in Q4 2022, no single vendor will represent more than 55% of total supplier spend. This mark is down from 65% for the same period in 2021. (During this morning’s earnings call, Foot Locker chairman, president and CEO Dick Johnson said Nike would approximately have 60% concentration for full year 2022, which is down from 70% for 2021 and 75% for 2020.)
What’s more, Johnson explained that there will be pressure on the results for 2022 with the lapping of the stimulus checks from last year, and the retailer anticipates sales to fall between 4% and 6%, and same-store sales to fall by 8% to 10%.
While insiders have been tough on Foot Locker today, Johnson believes the company is on the right path. During the call, the exec made note of great vendor diversity — highlighting the successes of New Balance, Puma, Crocs, Timberland and others — with the majority of its top 20 vendors posting gains. Also, Foot Locker stated it experienced non-Nike comp growth of greater than 30% in Q4.
“As we create complementary strategies, we continue to work with Nike as our best strategic partner. We’re expanding the offering that we can present for our customers and responding to what they tell us that they want,” Johnson told FN. “This is the path that we were on. COVID, the way we see consumer behavior and the way Nike sees consumer behavior, has accelerated some things. We’re just getting to that point sooner. We’ve got a more robust dynamic store environment, digital environment and product assortment that our consumers are looking to us to provide.”
Aside from the product mix, the company revealed its retail strategy for the year, which includes the opening of 100 new stores in 2022. This includes 40 community and power stores, 27 WSS locations and nine Atmos doors. As it opens new storefronts, it stated it will close 190 stores, and that the store count will be down roughly 3% in 2022, with square footage down less than 2%.
Below, Johnson reveals to FN the story of Foot Locker for 2022 and what that means for consumers.
Are market watchers overreacting to today’s results?
“I believe what we shared today was good news. We knew that Nike was accelerating their DTC, we’ve been shifting open-to-buy dollars in that vein for the last couple of years. The acceleration on the back quarter of ’22 is probably what they’re reacting to, but this is very much a journey that we’ve been on. The truth is that we get tilted too far from the open-to-buy perspective and our consumers, frankly, want choice in their stores, they want choice through digital opportunities in both social buying and digital buying. We clearly have done some really great stuff. The real challenge is that we had a record year, and as much as our team does such great work, there’s just not a chance to celebrate that because people look at the stock price and they thought we failed. Well, we didn’t fail, we did exactly what we needed to do. We survived ’20 through the pandemic, we accelerated growth in ’21. If the math on the back of the envelope is right, ’22 will be around where we were in ’19 from an EPS perspective, etc. The down shift that we took in ’20 from the pandemic was offset by the uplift in ’21, but ’21 was fueled by things like stimulus, things like supply in the marketplace, so if you sort of average those two together and draw a line, we’re going to be pretty much in line from ’18 or ’19.”
What do you want investors to know about your strategy today?
“That it’s working. We’ve lessened our penetration with Nike, we pivoted offline, we’ve got 53 points as it relates to Community Stores and Power Stores where we see the consumer coming in shopping strongly in those markets and being very connected with them. Over the last few years, we’ve reduced that legacy real estate lease burden, we’ve taken that down to around three years, and we know that there are opportunities to be flexible in the leases. As we build our omnichannel journey, the truth is what we talked about doing back in March 2019 is the journey that we’ve been on. Now, we’ve had to scramble, certainly, through the pandemic. If you go back almost two years ago, we were just starting to learn the phrase COVID, and now all of a sudden, we’re two years later with this. You look at those two years and there was massive disruption on many fronts, so we’re now in 2022 going back to the very journey that we started, and some of the things that happened in ’20 and ’21 have helped accelerate the work that we’re doing.”
What do you anticipate the Nike product mix in stores and online to look like going forward?
“If you think about their support of us and basketball, some of those high-heat launch products, we’re going to continue to fuel the basketball category with them. We’ve got great growth opportunities in kids, so a broader kids’ assortment. Apparel continues to be a strong opportunity. They’re very supportive of our positioning around sneaker culture. If you go back, as it relates to the number of units that we sold and these key franchises, we became very distorted with those franchises in 2021. There was availability in the marketplace, we were the preferred place to scale. The truth is that we’re still going to be very much a key partner with Nike, we will be validating their brand all the time, we continue to develop marketing stories and talk about a couple of the basketball stories that we’ve got coming in 2022, so we continue to see the broadening in there. And WSS operates at a different price point in different distribution levels than Foot Locker and Champs do, so we’ll continue to broaden that. The under-$100 category was significant for WSS. I just see us able to continue to expand with basketball, kids, our connectivity to sneaker culture around our consumer demands.”
During the earnings call this morning, you mentioned New Balance and Puma as brands you’ve had recent success with. What brands do you expect will consume more shelf space? And how do you expect consumers to respond?
“I think that Q4 is a pretty good proof point. Most of our top 20 vendors had significant double-digit growth: New Balance, Crocs, Timberland. We see some opportunities with Under Armour. We probably have not done as good a job storytelling around every product because we’ve had this high penetration of Nike. You can’t really say that you’re out there with a multiple brand offering when you bring in New Balance and you get one kind of shoe in a store. It doesn’t tell the story. Our followership on all of the social feeds continues to rise and accelerate, so our ability to tell a great New Balance story, or our ability to tell a Crocs x Carrots story that our consumer has great affinity for just continues to increase, and now we’ll be able to take those stories to more stores. We continue to grow our business with On as they amp up their supply chain, we’re able to extend that to more stores. It’s clearly gone beyond being in running shoes. I see it everywhere. All those brands present us great opportunities to continue to be great storytellers and demand creators.”
Foot Locker’s plan is to double the WSS door count over the next three years. What opportunity does WSS offer Foot Locker?
“Well, it’s tremendous. That’s why we made the investment. When we acquired, they had 93 stores and it was largely in the Southern California area. They stepped out a little bit farther east, they were just dipping their toe in the water in Texas. But their connectivity with Hispanic families is incredible. I was just down in Dallas and had a chance to visit one of the new stores in Texas, and the consumers are slightly different, but the patterns are the same. They come in as a family, they buy shoes for everybody. The kids get their shoes, dad gets his work boots and if there’s money left over, mom gets a pair of shoes as well. They’ve got a much different product assortment, they’ve got some private-label brands of footwear that are very specific to the WSS consumer. If you think about the Hispanic population in the U.S. being the fastest-growing population, they have really, in my opinion, cracked the code with that Hispanic family consumer. They’ve got bigger stores, 10,000-12,000 square feet, they’re all off-mall and very much part of the community, so it fits so nicely with our move into the communities in our Foot Locker and Champs stores that it’s really a very nice complement. In many places in Los Angeles, where there’s a WSS store, a mile and a half away there’s a Foot Locker store, and another mile and a half away there’s another WSS store. When we open a Foot Locker store in between them, they saw no degradation of sales. It’s very much a different consumer, very much a different shopping experience.”
What details can you offer on your four Home Field pilot stores launching in 2022?
“The first Home Field is going to open up near Miami. It’s a big off-mall space for us — I think the first one is in the 30,000 square foot region. It takes the best of the sport lifestyle from the Champs banner, the best of sports performance from the Eastbay banner and brings them together under one roof and extends it into health and wellness, coaching, training. The consumer has spoken really loudly that health and wellness is something that they got very interested in during COVID. How can we create a great experience for them? Home Field will be that test. And then we’ve got three more that we’ll test through the year to make sure that we’ve got it right from the geography point of view.”
Is the worst of the supply chain backlog behind us? Or is more still ahead?
“My gut tells me that we probably have seen the worst behind us, but I don’t know that definitively. Going into the holidays, there were over 100 ships off the ports of Long Beach and L.A. It’s down to somewhere in the mid 60s, maybe 70 today. There are a lot of moving parts. I think there will continue to be some disruption, my hope is that it gets progressively better, but I certainly don’t expect it to be mitigated in 2022. We have such an imbalance with containers. The system broke, if you will, in 2020 and 2021. The catch-up has been very difficult.”
What concern, if any at all, do you have with oversaturation once product starts coming in without disruption?
“I don’t think that it’s a significant challenge. I think people have been addressing and adjusting order books. Our industry thrives on a pull market environment and a scarcity model. Certainly, our top vendors all adhere to that and they’re going to control the flow of the marketplace. We expect ’22 to be somewhat more promotional than ’21 just because of a little bit of excess product in the marketplace, but I think the consumer and our suppliers and our team has done a great job of managing all the books, so I don’t worry about an oversaturation situation.”
What is working with the FLX membership program? And where does it need to improve?
“The sign up and bringing people on board is working incredibly well. The thing that we haven’t been able to get as much benefit out of is our redemption center. The redemption center was really supposed to be built around experiences. In ’20 and ’21, we haven’t been able to create great experiences. We’ve been able to improve our launch process, we have a lot of FLX users that use FLX points on head start launches, etc., but we want it to be much more meaningful to the consumer in terms of creating experiences. As things start to open back up, I can envision the redemption center being much more robust as it relates to experiences. You want to do things that money can’t buy, at the end of the day. Maybe it is a pre-party at our NYC33 space followed by concert or a game at Madison Square Garden. Certainly, money can buy that, but maybe it’s an opportunity to be backstage or meet somebody outside the locker room. That’s the piece that will continue to improve. I think will make the interactions with consumers much more simplified, and as we continue to gather more data about people, we’ll be able to personalize some of our communications more directly.“
What will the story of Foot Locker be in 2022?
“Diversification. Diversify out of the malls, diversifying our vendors and our assortments, diversifying our families of business. We don’t get a lot of credit for selling $1.4 billion of apparel — that’s significant in our stores. As we get more bigger stores, we’ll offer broader apparel, create our own private labels and create great connections with collaborators. The real story for us in 2022 will be diversification.”