Under pressure Foot Locker making all the right moves

Foot Locker posted better than expected quarterly results on Friday, but remains firmly on the back foot, according to Neil Saunders, Managing Director at GlobalData Retail.

A major issue is the ongoing decline in traffic at some malls. Although most of Foot Locker's stores remain broadly profitable, many are suffering from reduced footfall and, as a consequence, volumes are down. This isn't just the case in the US, European stores are also under pressure, although the dynamic here is caused more by heightened competition and a relative lack of brand awareness than mall weaknesses.

Another factor is the increasing tendency of consumers to go directly to brands. “Our data show that over the past year consumers are more likely to go to labels like Nike or Adidas, both online and stores, to satisfy their footwear needs,” says Saunders. “Given that these players are the wellspring for new innovations and fashions, it is far easier for them to pull in consumers. This trend has been exacerbated by more brands, like Lululemon, launching their own footwear lines. While this has not had a material impact on Foot Locker's sales, it is nonetheless unhelpful as it means there is more competition.”

Against this challenging backdrop, the company has not been standing still. Initiatives like new store formats, the opening of new off-mall locations, and the pushing of other lines such as apparel, have all helped to mitigate declines. However, there is a lot more work to do if it is to regain momentum. It has to firmly put itself on the radar as a destination, Saunders argues.

“We are also encouraged by some of the developments, such as the push into Asian markets via e-commerce,” he adds. “These should help provide the company with new streams of growth. We also applaud Foot Locker for keeping its eye on smaller opportunities during its time of change. The modest investment in Carbon38, a luxury active apparel company, is a good example of building a foundation for future ventures. Overall, we think Foot Locker will regain some ground as it moves into its fiscal, if only because prior year comparatives become incredibly soft. However, given the unfortunate dynamics in the market, it will need to run much faster just to stand still."

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