FINL: Insights From a Strengthening #2

We recently posted our Footlocker wishlist and believe the latest results from Finish Line offer some insights into what’s working and what’s not in the world of mall-based athletic footwear retailing.  While the ultimate success of Footlocker’s efforts will be determined by its own merchandising and turnaround strategy, there are interesting takeaways from FINL that should give Footlocker some things to think about it.  Finish Line has always been successful when it is selling product that consumers want (yes I know that is an obvious statement, but it’s true) and as a result, are more likely  to pay full price.  This is in contrast to Footlocker, which has historically been very promotional (BOGO’s were at one point the norm).  The key conclusion here is that product, not price, will be the most important factor in driving healthy margin expansion and sales growth in the space.  Finish Line is onto these trends and early results appear to be promising.

Some of the takeaways on product, pricing, and e-commerce from the Finish Line quarterly call:

  • Sales patterns within the quarter remained volatile, with underlying demand still not improving at a steady and predictable pace.  Customers showed up for Black Friday and other promotional events, but sustained momentum is still elusive.
  • Focus on innovative product has been successful in driving full priced sales, especially in performance dominated categories.  Running, a category where FINL has worked with vendors on developing exclusive product, invested in in-store presentation, and increased training for its associates had strong results in the quarter.  Same store sales in the running category increased in the mid-teens, with strength in both men’s and women’s.  Nike and Puma were leading running brands in the quarter.  Both are focused on lightweight shoes as part of their innovation message.  Overall, ASP’s increased 4.8%, reflecting the strength in full priced sell-throughs of performance product.
  • The toning category was again mentioned as a key highlight from a product standpoint.  As inventories in the product category began to improve towards the end of 3Q, management noted that toning became a “contributor” to 3Q results.  Both Shape-Ups and Easy Tones are driving strength in this young category.  Management expects toning to be a “meaningful” contributor to the fourth quarter.
  • The powerful combination of e-commerce and physical retailing continues to show benefits.  FINL noted that sales under the company’s “We’ve Got It” program are up 50% year to date.  This effort substantially increases conversion because it gives the customer the option of having an out-of-stock item shipped directly to their home rather than walking away completely without a sale.  We continue to hear more and more from retailers that are effectively leverage a fully integrated multi-channel strategy.
  • Weaker categories in the quarter included basketball (comped down and expected to remain under pressure) and casual athletic (i.e non-performance).
  • Kids performed above average, driven by strength in Brand Jordan, Puma, and Under Armour.
  • Apparel posted its first positive comp in 15 quarters, increasing by 5%!  The repositioning of the product offering towards a more premium product is beginning to show results.  Brand Jordan, The North Face, and Under Armour were key drivers in the quarter.