You gotta love when the sell-side makes a call for the sake of making a call. Today’s edition of “The Foot Locker Apocolypse” centers around yesterday’s news that The Sports Authority is readying itself to open a new, smaller box prototype (see our post “TSA: File the Dang IPO Already”). The concept is called S.A Elite, is expected to sit in a 12-15K square foot box, and feature higher-end product from the major athletic brands. Without having seen it (neither has anyone else since it’s in “concept” mode now and won’t open until August), I’m guessing this is TSA’s attempt to come up with a mass-market version of an Alife, Bodega, or Sportie LA. Maybe even throw in a little NSW Mercer (Nike Sportswear) and you have a higher-end shop selling premium apparel and footwear to those outside of NYC or LA. Admittedly, this is speculation- just like today’s call that this could “compete directly with FL”.
So we have to ask, is it fair and rational to worry about Foot Locker’s future before a hypothetical concept becomes a physical reality? Many concepts could compete with Foot Locker, and oh by the way, many already do. The opportunity as we’ve stated consistently for the largest seller of athletic footwear is to 1) fix its execution issues, led by new management, 2) stop competing with itself and differentiate the company’s sub-brands, and 3) build an apparel business from virtually zero.
At no point when we first unveiled our positive stance or now, does our thesis become derailed by speculation that a prototype from TSA may spoil the party. What is even more confusing is that some are giving TSA a great benefit of the doubt that it can build a 200-300 store chain before the first one is even open. Let’s not forget that TSA, when public, was never an industry leader and in fact, always struggled to reach productivity and profitability levels achieved by its better merchandised competition, Dick’s.
What about last week’s “Foot Locker Apocolypse” that was built on speculation that Nike was going to announce a domestic, mall-based retail strategy and put FL on deathwatch? Ultimately, Nike announced it’s going to open 280 stores, globally, over the next 5 years- across a range of formats. Hardly the end of a turnaround that is only 6 months old.
The bottom line here is to use any baseless weakness as an opportunity in FL shares. The story is very much intact and the turnaround is still in the early stages. An analyst should never be dismissive of a competitive threat, for sure. But speculation about a store that doesn’t even exist is almost irresponsible. This is not Google phone vs. iPhone. We’re talking sneakers and hoodies here.
- Eric Levine