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Foot Locker (FL)Stock (Sports Goods Manufacturers Industry, Retail Industry, Apparel Stores Industry, Fashion Industry Industry, Sporting Goods Industry)
 Foot Locker's approach to merchandising is to offer trendy brand name products (although it does have some private label products). Consequently, its five biggest vendors accounted for 80% of its products in 2006, with athletic equipment behemoth Nike comprising 50% of all offerings. [6] [7] These ties to Nike allow Foot Locker to offer exclusive products and experiences but also expose the company to significant risk from a pricing perspective. During 2007, Foot Locker focused on improving operating margins by axing under-performing stores, as it performed quite an overhaul on its store base. The company closed 157 stores on net (opening 117 new stores while shutting down 274 underperforming locations).[8] High costs associated with closing all these stores, such as lease termination fees, etc., significantly impaired Foot Locker's profits for 2007, as the company posted an operating loss of $50 million. Despite closing 274 stores during 2007, Foot Locker expects to close an additional 140 stores during 2008, signaling the company's focus on improving company-wide profitability by looking at each store. In the first quarter of 2008, Foot Locker closed 60 more stores, while simultaneously opening 33 new locations for a net decrease of 27 stores.[9] Foot Locker's store-by-store evaluations and closings may be reflective of an overall slowdown in athletic footwear and apparel, which grew worldwide only 6% from 2004 to 2005 compared to 12% from 2003 to 2004. In addition, Foot Locker depends heavily on consumption from the U.S., where 80% of its stores are based. As one of the largest specialty retailers in the country, Foot Locker is particularly prone to downturns in the American economy that can constrain consumer spending on non-essential goods like fashionable athletic footwear.
[edit] Business Overview[edit] Financial PerformanceFoot Locker sells shoes and apparel in its physical retail stores as well as through direct-to-customer sales via Footlocker.com (the company's e-commerce website) and the Eastbay website and catalogs. In 2007, Foot Locker's total sales dipped to $5.4 billion from $5.75 billion in 2006, drawing revenue from over 3,780 stores across North America, Europe and Australia.[10] Foot Locker's profit margins fell considerably in 2007, largely due to store closings and related costs; the company posted a 26.1% gross margin, down from 30.2% in 2006, while recording a $50 milion operating loss for the year.[11] Ignoring charges related to store closings, operating income would be $67 million, which translates to a 0.1% operating margin, still a drastic decline from years past.[12] In 2007, the company closed 157 stores on net (opening 117 new stores while shutting down 274 underperforming locations).[13] The store closings have continued in 2008 as in the first quarter of FY08, Foot Locker closed 60 more stores, while simultaneously opening 33 new locations for a net decrease of 27 stores.[14] [edit] Store FormatsFoot Locker uses multiple store platforms in order to most effectively segment and target various types of customers in the athletic footwear and apparel market. For example, FootAction stores target urban consumers who are more brand- and trend-conscious while Champs Sports target sports enthusiasts with an broad array of footwear and sporting goods equipment.
[edit] Increasing Efficiency by Closing StoresAfter Foot Locker's company-wide operating margin fell to 6.6% in 2006 (from 7.2% in 2005), [19], the company began an initiative to improve efficiency and profitability by changing their store base. This strategy comprised opening new stores, relocating existing stores to optimal locations and closing down unproductive stores. During 2007, Foot Locker closed 157 stores on net (opening 117 new stores while shutting down 274 underperforming locations).[20] The store closings have continued in 2008 as in the first quarter of FY08, Foot Locker closed 60 more stores, while simultaneously opening 33 new locations for a net decrease of 27 stores.[21]The initiative is still incomplete, as management plans on closing about 140 stores during 2008, while opening about 60 stores and remodeling/re-locating around 200 stores. Below is a breakdown of the net store closures by store format in 2007:[22]
[edit] 80% of Products Sourced from 5 ManufacturersThe overwhelming majority of Foot Locker's offerings are the top brands in athletic footwear and apparel, including Nike, Timberland and Adidas. However, this means that Foot Locker receives most of its products, and subsequently sales, from a small number of brand manufacturers. About 78% of Foot Locker's products came from only five companies in FY 2006.[23] Nike—the world largest athletic footwear and apparel maker—accounted for approximately 50% of its products from Nike in 2006.[24] This is an incredible amount of Foot Locker's sales that depend upon Foot Locker being able to procure products from Nike. Rewards:
Risks:
[edit] Trends and Forces[edit] Global Slowdown for Athletic Footwear and ApparelThe global market for athletic footwear has grown in the last several years, but the market is cooling down with a reduced growth rate.
From 2003 to 2004, the market for athletic apparel and footwear grew by almost $7.5 billion, 12%. Between 2004 and 2005, however, it grew by less than $4 billion; in percentage terms, the 6% growth was only half as high as growth a year earlier. [edit] SeasonalitySeasonality affects Foot Locker's sales in two ways:
[edit] Macroeconomic Downturns: Squeezing Consumer's WalletsAs a retailer of non-necessary goods Foot Locker is one of the first companies to lose sales when poor economic conditions dampen consumer spending. Since Foot Locker's product lines are not diversified with non-athletic offerings (e.g. groceries) and the store is focused on mid-luxury brands like Nike, it is more exposed to economic downturns than other retailers such as Wal-Mart Stores (WMT) and Target (TGT). In the second half of fiscal 2007 Foot Locker felt some of the effects of the credit crunch caused by the subprime mortgage fallout of the summer 2007. The credit crunch has been significantly hurting the retail industry by cutting down on consumer spending. During that quarter, Foot Locker experienced decreasing sales and profits (partially due to store closings) but same store sales, a key indicator of a retailer's health, in the third and fourth quarter of 2007 fell 5% and 7.8%, respectively.[25][26] Furthermore, its Q3 2008 sales dropped by 3.5%, following a 1.7% decrease in same store sales as consumers felt the pinch of the economic downturn.[27] [edit] Targeting a New Demographic: SkateboardersIn November 2008, Foot Locker acquired Delia's CCS business for $103.2 million.[28] CCS is a direct-to-consumer (internet and catalog) retailer of skateboarding apparel, footwear and accessories, mailing approximately 18 million catalogs annually.[29] The move represents an attempt on Foot Locker's part to appeal to a younger target market, particularly in the rapidly growing action and extreme sports categories.[28] [edit] CompetitionFoot Locker is the leading athletic footwear retailer in the U.S. in terms of sales as well as most measures of profitability. Foot Locker's main competitor in the athletic footwear and apparel specialty retail market is Finish Line, whose $1.27 billion in 2007 sales significantly trailed Foot Locker's $5.4 billion.[30][31] In addition, Finish Line only operates stores within the U.S. whereas Foot Locker has significant international operations.
Note: All figures for year 2006. Besides Finish Line, Foot Locker also competes with other retailers that sell athletic footwear as part of their overall product mixes, including:
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