Nike Inc (NKE)

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Is Nike Abandoning Foot Locker As It Tests Jordan-only Stores?
By: TheStreet | March 24, 2022

• Nike is making a bigger move into Direct-to-consumer (DTC) despite public declarations of support for Foot Locker.

Nike (NKE) gives and Nike takes away.

Foot Locker (FL) owes a lot of its success to the rise of sneaker culture over the past decade plus. That culture has been driven by increased interest in Nike.

More specifically, the culture has been driven by interest in retro Jordans.

Michael Jordan's iconic footwear brand has been good to both Nike and Foot Locker.

Six years ago former Nike CEO Mark Parker set a goal for Jordan brand to reach annual revenue of $4.5 billion. A year ago, the company saw unit revenue jump 31% to $4.7 billion.

This increase in revenue is coming at a time when the rest of the performance sneaker sector is seeing sharp declines.

The performance basketball shoe market peaked in 2015 and has experienced double-digit sales declines most years in the U.S. since then, according to market research firm NPD Group.

But the "retro" or lifestyle shoe industry has bucked that trend, led by Jordan, which controls 96% of the market, according to some estimates.

Is Nike Leaving Foot Locker Behind?

Like many other companies during the pandemic, Nike placed extra emphasis on its direct to consumer channels in order to combat pandemic lockdowns that either completely froze or significantly slowed down its other retail channels.

"Nike Digital continues to be our fastest-growing component of the marketplace. This quarter, downloads of the NIKE mobile app accelerated, and member buying frequency and average order values improved again as we continue to test member engagement," Nike CFO Matt Friend said during the company's most recent earnings call.

Third quarter Nike Digital revenue grew 3 points year over year and now represents 26% of the company's brand revenue.

The company attributed Digital's growth to strong demand through its Nike app.

Despite these trends and plans to increase direct to consumer growth, Nike says it hasn't forgotten about Foot Locker as a partner.

"To be crystal clear, Foot Locker always has been and always will be a large and important partner of NIKE's. And that will continue to be the case," CEO John Donahoe said this week.

"And they'll have a very distinct role in our marketplace strategy as a wholesaler, with a particular focus on the culture of basketball, on the sneaker culture and on kids, which is a really big and important opportunity for us."

Can Foot Locker Rebound?

Despite this reassurance, Nike plans to test out stores in North America that will only sell Jordan brand sneakers.

One of these Jordan only stores already exists in Fulton Mall in Downtown Brooklyn, New York.

That store is just doors down from Foot Locker, and three or four other shoe retailers, and despite what Nike assured investors on its earnings call, the store definitely eats into the competition.

You may see the same new releases at the Champs and Foot Lockers in Fulton Mall, but the Jordan store has the exclusive drops that, sometimes, you can't even get online.

Nike said it plans to widely test a Jordan-only concept in North America starting in fiscal 2023. Nike says the concept has already been "wildly successful" in China, the Philippines and Korea.

It has also seen some success in Brooklyn.

Diversification is key for Foot Locker going forward.

Foot Locker stated during its earnings call that going forward, no single vendor in its stores would represent more than 55% of total supplier spend beginning in Q4 2022. That's down from 65% last year.

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