Foot Locker’s Strategy to Stay Relevant in the Competitive Sneaker Market

A rendering of the mural outside the Foot Locker Power Store in Compton, California (Source: Foot Locker)

A rendering of the mural outside the Foot Locker Power Store in Compton, California (Source: Foot Locker)

 

By Tricia McKinnon

For many years sneakerheads have flocked to Foot Locker to get the latest styles. But in recent years the sneaker market has become increasingly competitive. Never has it been easier to find a rare pair of Jordans simply by going online to see what’s available on GOAT or StockX. Add to that Nike is trying to make more money from the products it creates by selling more directly to consumers. Then throw in the COVID-19 pandemic and you can see that Foot Locker has had its hands full trying to compete.

Despite a tough 2020 Foot Locker’s sales were only down 5.7% to reach $7.5 billion. That is not bad considering the clothing and accessories category was down by 28.5% in the first 11 months of 2020. If you are curious about how Foot Locker plans to come back from a disappointing 2020 and compete against a set of formidable competitors take a look at these elements of its strategy.

1. Engage the community. A key element of Foot Locker’s strategy is to have a deeper connection within the local communities it serves. One way it does this is through its Power Store format which launched in 2019. Power Stores are not just stores but community hubs which bring people together and showcase local talent. 

For the launch of a Power Store in Compton Los Angeles last year Foot Locker committed to hiring employees who lived within a five-mile radius of its Power Store by partnering with the City of Compton to aid in its recruiting efforts. 

Foot Locker also commissioned an art installation for both the interior and exterior of its Compton Power Store from local artists. Even the merchandise in the store has a local bent with exclusive limited release product from local brands including Viva La Bonita, Ugly Primo, Mel Depaz and K-Swiss x Mike Reesé featured in the store. Compton Mayor Aja Brown says the store is "a beautiful addition to the community," one that will "provide our residents with the access and respect for our hard-earned money that we deserve."

Using a similar approach for its Power Store in Vancouver, a city with a diverse population, Foot Locker committed to hiring members of the community surrounding its store who speak a variety of languages including Mandarin, Korean, Spanish, Punjabi, Vietnamese and Cantonese.

With the COVID-19 pandemic having a disproportionate impact on small businesses there is already a movement to support local communities and this strategy sets Foot Locker up for success. Foot Locker is not just paying lip service to an important cause it is making a real investment to give back to the community. 

Having merchandise from local creators also gives consumers another reason to go to Foot Locker instead of a Nike store. If Foot Locker supports creators with large followings within the local community then Foot Locker also has the opportunity to tap into their followings and convert those consumers into its own customers. 

Power Stores are also experiential in the sense that they also contain event spaces for DJs and community events. Since it is more and more difficult to maintain a steady flow of foot traffic into a retail store having a variety of ways to bring customers in is the key to every retailer’s success.  Speaking about the rollout of Power Stores Foot Locker’s CEO Richard Johnson said: “we believe we are well positioned to capitalize on evolving customer shopping behaviors through a sustained emphasis on digital as well as evaluating a further pivot off-mall, including through our Power Store offense.” 

2. Stay relevant. The first Foot Locker store opened over 40 years ago in California. Since then the market for sneakers has only grown more lucrative with sneakerheads creating a passionate culture embraced by millions. For most of its history Foot Locker could count on its relationship with Nike for the bulk of its sales. They are strategic partners with Nike representing two-thirds of Foot Locker’s sales. 

But in recent years Nike has decided its direct-to-consumer business is the future of its company, especially since it is more profitable than selling wholesale. “As part of our recently announced Consumer Direct Acceleration strategy, we are doubling down on our approach with Nike Digital and our owned stores, as well as a smaller number of strategic partners who share our vision to create a consistent, connected, and modern shopping experience,” said Nike in a statement.

Foot Locker is still one of Nike’s strategic partners but now more than ever Foot Locker has to give consumers a reason to shop at Foot Locker instead of at its competitors including Nike. To do this, in addition to its community strategy Foot Locker went on the offensive and invested in a competitor, GOAT. 

The internet’s disruption of all things retail did not leave the sneaker world unscathed. The once informal trading of sneakers amongst friends is now a multi-billion dollar online business with marketplaces like GOAT and StockX leading the way. Instead of ignoring the threat posed by the resale market Foot Locker invested $100 million in GOAT in 2019 its largest investment ever at the time. It was also the largest investment by a retailer in the sneaker resale market. By investing in GOAT Foot Locker doesn’t have to build its own resale platform but can still take advantage of everything that GOAT is learning about this growing segment of the marketplace. GOAT is now valued at $1.75 billion.

Foot Locker did not stop there. In 2019 Foot Locker launched an incubator called Greenhouse. Foot Locker’s CMO Jed Berger, says the initiative is: “a development platform to build and cultivate new relationships [with designers], new initiatives, new brands and new ideas, all while looking at what they could be in the future as opposed to what they are today.” The incubator is a place to help aspiring designers build new brands with financial backing provided by Foot Locker. 

One of Greenhouse’s most recent projects is a capsule collection of upcycled merchandise made by Greenhouse and Russell Athletic, designer Nicole McLaughlin and sustainable streetwear platform O-1. The limited-edition capsule launched earlier this month on the Greenhouse app with limited quantiles dropping on Foot Locker’s website mid-April. Speaking about Greenhouse, Foot Locker’s Chief Commercial Officer Andy Gray said: “we will also continue to build new opportunities through the filter of youth culture as well as create a robust pipeline of exciting energy within our greenhouse incubation team, connecting it altogether with exciting and engaging content and experiences.”

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3. Go off mall. Foot Locker has over 3,000 stores and approximately 80% are located in malls. Mall traffic is falling and as a result many retailers are moving to off mall locations. They believe that presents an opportunity to meet customers where they are. Foot Locker’s Power Stores are part of this strategy as they are located in off mall locations.  

Power Stores are four times the size of Foot Locker’s mall-based stores, coming in on average at over 8,000 square feet. In 2019 Foot Locker opened six of these stores with plans to open 20 more in 2020. But when the COVID-19 pandemic hit Foot Locker had to defer its plans to open as many of these stores as it wanted to but it is still bullish on this strategy. “We believe our Power Store concept and community focus is the right offense to offset mall-related pressures,” said Johnson.

All of the initiatives Foot Locker is working on are designed to protect the retailer from the growing power of competitors whether they be marketplaces or long standing strategic partners like Nike. “Prior to the crisis, we were of the mindset that Nike needed Foot Locker to reach the full breadth of Nike’s potential customers,” said Sam Poser an analyst at Susquehanna Financial Group. “Today, while Nike still needs FL, this need may be to a lesser extent than it had been prior to the crisis, especially if it takes a long time for consumers to return to the mall.”

Tricia McKinnonStrategy & GrowthComment