Sportswear retailer Foot Locker has reported concerning financial results for its third quarter of 2024, revealing a significant shift in consumer behavior that has impacted its bottom line. The company experienced a 1.4% decline in total sales compared to the previous year, resulting in a net loss of $33 million – a stark contrast to the $28 million net income recorded during the same period in 2023.
The company’s CEO Mary Dillon acknowledged that both top and bottom-line performance failed to meet expectations, citing weakened consumer spending following the Back-to-School peak in August and an unexpectedly competitive promotional environment.
A key factor in Foot Locker’s struggles appears to be related to its relationship with Nike, which accounts for approximately 60% of the retailer’s sales. Executive Vice President Frank Bracken noted during an earnings call that the company is experiencing “softness” in consumer demand for Nike products. This challenge is compounded by Nike’s current efforts to rebalance their product mix and inventory levels across Basketball Classics franchises, creating short-term negative impacts on Foot Locker’s business performance.
The landscape has shifted significantly since the early 2000s when Foot Locker dominated Nike sneaker sales, with increased online competition drawing customers away from traditional brick-and-mortar locations. Nike itself is facing challenges, reporting a 10% year-over-year revenue decline due to reduced store traffic and falling digital sales.
In response to these challenges, Foot Locker has revised its full-year outlook despite the typically strong holiday season. The company now projects comparable sales growth between 1% and 1.5%, down from its previous forecast of 1% to 3%.
Beyond Nike-specific issues, Foot Locker is grappling with weak apparel sales, which Bracken attributes to insufficient innovation in designs, colors, and materials. The lack of newness in the apparel category has resulted in a more promotional environment as consumers seek fresh and innovative products.
The retailer’s difficulties reflect broader economic trends, with consumers nationwide reducing discretionary spending due to inflation and increased living costs. Recent data from GlobalData indicates that 42% of U.S. shoppers are now choosing cheaper brand alternatives due to rising inflation. Furthermore, 24.5% of consumers plan to reduce clothing and accessories spending, while 21% intend to cut back on footwear purchases.
The shift in consumer behavior extends to a growing preference for secondhand clothing as a cost-saving measure. According to ThredUp’s recent report, consumers are planning to purchase 7% less full-price apparel in 2024 compared to 2023. The report also reveals that 55% of consumers would allocate more of their apparel budget to secondhand clothing if economic conditions don’t improve.
Foot Locker is actively working to address these challenges, particularly in its relationship with Nike. Bracken emphasized their close collaboration with Nike’s team on receipt intake and merchandise assortment, focusing on newer products that resonate better with consumers. However, the company faces an uphill battle as it navigates changing consumer preferences, economic pressures, and evolving retail dynamics in both the footwear and apparel sectors.