Nike Pulling Some of Its Products Costs Foot Locker $900 Million in Value
Written by SOURCE on February 26, 2022
Foot Locker’s business reportedly took a massive hit today, in part because of an accelerated shift in business strategy by its largest sports and footwear partner, Nike.
First reported by Yahoo Finance’s Brian Sozzi, Foot Locker’s stock tumbled nearly 35%, about $950 million in market value, on Friday after the retail giant confirmed that it will not be selling as many Nike products this year. The company says no single vendor will make up more than 55% of its supplier purchases beginning in Q4 of 2022—that’s down from 65% a year ago. Annually, Foot Locker’s Nike purchases won’t exceed 60% of its business, down from 70% last year and 75% in 2020.
In a statement, Foot Locker CEO Richard Johnson acknowledged that are are “specific styles” that Nike drives through their direct-to-consumer business, and while Foot Locker will still have access to those styles, they’ll just have less on hand.
Foot Locker is now moving forward with a more modest outlook for the year. Analyst forecasts projected Foot Locker to have earnings of $6.56 a share this year, but the company is expecting something more in the $4.25 to $4.60 range. Additionally, sales are seen down 8% to 10%, even though analysts initially projected a slight sales increase. To help offset some of the foreseeable losses, Foot Locker will fuel its own direct-to-consumer business, including launching several private label clothing brands.
Nike’s efforts to increase direct-to-consumer business isn’t a new revelation. In 2019, several independent retailers were reportedly notified that they’d no longer have access to Nike’s products, the brand stating that its way of stocking its goods was “no longer aligned” with its approach to distributing its products. The revamped approach was first hinted at during Investors Day in 2017, when former Brand President Trevor Edwards said that “Undifferentiated mediocre retail won’t survive.” Since then, Nike has placed more of an emphasis on moving products through its own stores, online, and through its SNKRS mobile app.
