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The NFL license is officially heading to Beaverton for the start of the 2012 season and we believe this has larger implications than the obvious impact it will have on Nike.   Recall that back in March we laid out a thesis on Foot Locker that included both financial and strategic opportunities. One of our key beliefs was that CEO Hicks and his team would begin to forge exclusive partnerships and distribution arrangements aimed at driving more full priced selling, less discounting, and higher gross margins.  Much like the company’s efforts to partner Champs with the NBA and Adidas, we now believe that an NFL/Nike/FL partnership is in the works. 

In fact, we would not be surprised to see FL leverage its existing real estate to strategically develop a House of Hoops type effort centered on the NFL.  Given the broad scope of the NFL license, which includes on-field, sideline, baselayer, and sportswear it is probable that a FL/NKE collaboration could effectively merchandise a full NFL retail experience as both a shop-in-shop and a freestanding effort.  Clearly FL’s 2,700+ store base in the U.S offers a substantial competitive advantage in targeting specific regional team preferences.  With 32 NFL franchises, there is ample opportunity to segment the store portfolio to very precise demographics.  In fact, we note that Nike’s analyst meeting in May focused on the company’s capabilities in using sophisticated analytics to map, target, and identify local product and merchandising opportunities in the U.S down to the Street or shopping venue level.  We suspect this will be a key part of identifying which locations are optimal for a NFL focused store or shop-in-shop.

While timing is still over a year away, we believe we will be hearing more about this strategy as both companies continue to develop a plan to maximize the sizable NFL opportunity.  Realistically,  details will be scant for some time as the existing license remains in Reebok’s hand for one last season.  As a league, the NFL remains the holy grail of all domestic professional sports.  TV viewership and league profits are coming off of a record season last year and are expected to surpass peak levels yet again.  So far through four games this year, 150 million people have tuned in to watch at least part of a game up from 146.1 million last year.  We believe this could be a meaningful opportunity for FL and one that is just part of the differentiation and store segmentation strategy that is key to ultimately driving EBIT margins past prior peak levels of 7.6%. 

Eric Levine

Director