Foot Locker’s Positive Steps Don’t Put It Back in the Race

(Bloomberg Opinion) -- Foot Locker Inc. has made some progress in stomping out its problems.

The athletic shoe and apparel retailer reported Friday that its comparable sales fell 2.8 percent in the first quarter from a year earlier. That's a far-from-stellar performance, but the decline was not as steep as the ones in the previous three quarters. In a press release, CEO Richard Johnson said he expected that measure to return to growth later in the year.

And, importantly, Foot Locker's inventory decreased 7.1 percent on a constant-currency basis from a year ago, a sign that the company is doing a better job of clearing slow-moving merchandise.

A third bit of good news, though, comes with an asterisk. Johnson indicated that part of the reason for the better-than-expected performance was that Foot Locker was able to secure a better line-up of premium sneaker styles from some key suppliers.

This is an important change from August, when the company delivered grisly second-quarter results and attributed them in part to "limited availability of innovative new products" and "absence of sufficient depth and breadth of exciting new styles."

In other words, last year it was essentially blaming its problems on Nike Inc. and other brands’ failure to deliver cool, covetable shoes. Today, it is chalking up much of its improvement to them stepping up their game.

And that serves as an indirect hint of the challenge Foot Locker has on its hands as it tries to adapt for the future. The chain is heavily dependent on Nike -- in the latest fiscal year, it provided some 67 percent of Foot Locker’s athletic merchandise.

But an important pillar of Nike's long-term strategy is to draw more of its sales from its own Nike stores and website. That's why it is doing things like loading up its NikePlus membership program with more perks and access to exclusive merchandise. It wants to give consumers more reason to shop and engage with Nike directly.

To be sure, Nike clearly still thinks of Foot Locker as an important retail partner and is committed to nurturing that relationship even as it pulls back from some other wholesale partners. But Foot Locker has not yet demonstrated it is ready for a world where Nike loyalists have such compelling alternatives for obtaining the brand's best goods.

Foot Locker needs prove that its in-store experience is distinctive and engaging enough to keep luring shoppers as brands — especially Nike, but also Under Armour Inc. — venture deeper into selling directly to consumers. And even though Foot Locker closed 147 stores in its latest fiscal year and 37 more in the first quarter, it still hasn’t done enough to prune its huge network.

Foot Locker made strides this quarter. But it must do more to insulate itself from changing dynamics in the athletic apparel business.  

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

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