• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

When we originally wrote our “wishlist” (see note from 12/17) for Foot Locker, one of our key points highlighted the company’s opportunity to both right-size and optimize its 3,700 store portfolio.  We’ve already gotten confirmation of some store closures, and now we’re “seeing”  some efforts to optimize.  It appears that Foot Locker is converting its Union Square store in Manhattan into a new concept called, RUN by Foot Locker.   While no formal announcement has been made regarding this prototype, it’s currently under construction and in plain view.  Clearly if management wanted to keep this a secret they wouldn’t have picked this location…

FL: Thinking and Doing - FL RunSign 2 10

With our retail detective hats on, we observed several individuals working inside the store yesterday, mostly testing different wall displays.  The inside of the store is still very much in a raw state, so it’s probably at least a few weeks before we actually see any signs of opening.  Nonetheless, we view the idea of a running concept as a step in the right direction and potentially integral to the segmentation efforts needed to differentiate the chain (both amongst competition and itself).  As a reminder, running is the largest sub-segment of the athletic footwear market with nearly $5 billion in sales at retail, and one that has been showing substantial growth for about a year.  Additionally, while none are publicly traded, there has been an increase in the growth of specialty running stores over the past few years with the likes of Fleet Feet, Road Runner Sports, and others.  

FL: Thinking and Doing - FL RunningYYChg 2 10

 

Unique to any credible running effort is a wide selection of technical brands and most importantly customer service.  In running specialty stores there is very little price promotion or discounting.  Maybe a loyalty program to foster repeat business, but barely any POS promotions.  Wouldn’t that be a change for the historical champion of the BOGO strategy? While it’s too early to tell exactly what Foot Locker is planning for its price/value message here, there is no question that running shops make up for discounting with exceptional customer service.  Which from a runner’s perspective, typically includes personalized fitting, gait analysis, and other technological innovations aimed at matching the customer with the ideal shoe.  

Another key aspect of specialty running shops is community involvement, which often makes the stores a hub for marketing local events, classes, and outreach.  Yes, they’re very Lululemon-like when it comes to mixing commerce with true passion for the sport.  Clearly there is work to do here as the concept evolves, but building a service oriented culture could have substantial ramifications not just for a running concept, but for the entire chain.  After the store opens, we look forward to a field trip to test out this theory.

Another thought… is this a way to diversify away from Nike without changing Nike’s space allocation at existing Foot Locker stores? That would be a margin boost for FL – to the extent it can still drive traffic. In a category like running, that would probably not be a problem.  But on the flip side, our sense is that FL tests some Nike mono-brand stores, where FL will carry the real estate and fixtures, while Nike will sell in as a wholesale model.

Will these work? We don’t know, and for now we don’t care. Test or no test, the bottom-line here is Foot Locker’s new leadership is thinking and doing.   We’re on the cusp of hearing more details about the broader strategic plan, but again this is a step in the right direction.  It certainly seems like a better idea than long lost Footquarters.  We also suspect this isn’t the only idea to come from management.  Now if only all of these “labs” were in a 1 mile radius of company headquarters it will make the detective work much easier…

- Eric Levine

 

FL: Thinking and Doing - Footwear Running Market Image 2 10

 

 

FL: Thinking and Doing - FL RunSign2 2 10