Cool sneaker maker Nike's (NKE) tagline "Just Do It" perhaps holds profound significance when it comes to its largest vendor Foot Locker (FL). Nike just did it, it has somewhat left Foot Locker cold turkey.
The breakup officially started in late January driven by Nike's success with its direct-to-consumer business. Direct sales now account for roughly 40% of its $44.5 billion in annual revenue.
"Our largest vendor is accelerating its DTC strategy. We expect their concentration to decline meaningfully in the fourth quarter this year to a level that will continue into 2023. We continue to have a strong relationship with Nike, and they remain an important partner for our business, especially in basketball, kids and sneaker culture," said Richard A. Johnson, chairman, president and chief executive, in the company's latest earnings call.
The Beaverton, Ore.-based athletic footwear maker has cut its wholesale account with companies like Foot Locker while focusing on sales of its shoes through its own apps, websites and stores. This is Nike's way to give priority to its direct-to-consumer business.
The shift has lead to weaker sales guidance and profits for the New York City-based footwear and apparel retailer, the company said last week.
"The heat from certain styles that Nike certainly drives through their DTC [direct to consumer], and that’s where the allocation pressure will be," added Johnson in an earnings call after Foot Locker reported fourth-quarter results.
"We’ll just see different quantities flowing our way. And part of the effort that we’ve had ongoing with Nike is to diversify our mix with them as well because we got very concentrated in those silhouettes," Johnson said.
"We’ll just see fewer units in those SKUs [stock keeping units]. But we will, in fact, continue to diversify our business with Nike, and we’ll continue to grow our other brand partners," added Johnson.
Moving On With Puma, Adidas, Others
If there's one thing New York City teaches you, its moving on. And Nike is no exception in the case of Foot Locker.
Beginning in the fourth quarter of 2022 and going forward, we do not expect any one vendor to comprise more than 55% of our product spend. By comparison, this is down from approximately 65% in the fourth quarter of 2021, the company said last Friday.
This would translate to 60% Nike merchandise in 2022, down from 70% for 2021 and 75% for 2020.
Foot Locker said it saw comparable sales growth of greater than 30% from brand partners other than Nike in 2021. The company expects to grow its non-Nike brands at a much faster rate.
But this would mean a sales decline of 4% to 6% with comparable sales down 8% to 10% in 2022, the company noted.
"The momentum of brands like Adidas, PUMA, New Balance, Timberland, UGG and Crocs during 2021 showcased the expanding breadth of our consumer sneaker closet covering athletic, outdoor and seasonal," said Johnson.
The company added that change is the only constant.
"COVID has allowed us all to see that the consumer is changing, that consumer behaviors are changing. Our consumer is clearly saying that they want choice and that multi-brand destinations matter," said Johnson.
