Foot Locker (FL) had a rough few months. The sportswear retailer, which sells top sneaker brands such as Nike, Adidas, and New Balance, has revealed that it recently faced an unexpected drop in sales, and it is calling out the source of the problem.
In the company’s third-quarter earnings report for 2024, it revealed that its total sales declined by 1.4% year-over-year.
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Foot Locker also faced a net loss of $33 million during the quarter, compared to the net income of $28 million it earned during the same period in 2023.
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“Our third quarter top- and bottom-line performance fell short of our expectations,” said Foot Locker CEO Mary Dillon in the earnings report. “Consumer spending trends softened following the peak Back-to-School period in August, and the promotional environment was more elevated than anticipated.”
The change in consumer behavior has prompted the company to lower its outlook on comparable sales for the full year, despite a booming holiday season. Foot Locker now expects its comparable sales for the full year to grow between 1% and 1.5%, compared to the previous guidance of 1% to 3%.
Foot Locker flags what’s causing shrinking sales
During a recent earnings call, Foot Locker Executive Vice President Frank Bracken stated that the company is battling some “softness” in consumer demand surrounding Nike (NKE) , which has contributed to the recent dip in sales.
“As Nike rebalances their product mix and inventory levels in the near term across the Basketball Classics franchises, we are seeing some short-term negative impacts on our business,” said Bracken during the call.
In the early 2000s, Foot Locker was the most popular place to purchase Nike sneakers, but increased online competition has pulled customers away from its stores. Currently, Nike accounts for about 60% of Foot Locker’s sales, and the sneaker brand is currently facing its own struggles to maintain consumer interest in its products.
In Nike’s latest earnings report, it revealed that its revenues shrunk by 10% year-over-year as it faced lower-than-expected store traffic and declining digital sales.
“We’re working very closely with the Nike team on our receipt intake, on remerchandising our assortment to really distort the things that are newer and working better with the consumer,” said Bracken during the call.
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Foot Locker also highlighted that in addition to facing softer demand for Nike products, it is also struggling with low apparel sales due to a lack of innovation in silhouettes, colors, and materials.
“As innovation within apparel is lagging compared to our footwear business, we see this manifest in a more promotional environment as consumers clearly are seeking more newness and innovation in the category,” said Bracken.
Consumers are cutting new shoes and clothes out of the budget
Foot Locker’s weak third-quarter performance comes during a time when consumers across the country have increasingly been pulling back their spending on discretionary items due to inflation and higher costs of living.
According to a recent report from GlobalData, about 42% of U.S. shoppers are opting to shop for cheaper brand alternatives in retail due to rising inflation.
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Also, 24.5% of shoppers stated in the report that they plan to reduce spending on clothing and accessories, and 21% said they will cut spending on footwear.
In addition, consumers are increasingly becoming more interested in buying secondhand clothing in order to save money. According to a recent report from online thrift store ThredUp, it found that consumers, on average, plan to purchase 7% less apparel at full price in 2024 than they did in 2023.
Also, 55% of consumers stated that if they don’t see an improvement in the economy, they’ll spend more of their apparel budget on secondhand clothing.
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