Nike drops Foot Locker stock

Shares of Foot Locker fell 35% in trading on Wall Street on Friday as the company said it expects earnings to suffer from Nike’s new direct-to-consumer strategy .

The clothing store released its earnings report on Friday, predicting that none of its suppliers will generate more than 60% of total purchases for fiscal 2022.

Although the company did not name Nike, it was clear who it was referring to when it said “the change reflects the accelerated strategic shift to DTC (manager to consumer) by one of the company’s suppliers. “.

In 2020, Nike accounted for 75% of Foot Locker’s total sales, according to Foot Locker’s annual report.

For the quarter that ended in late January, Foot Locker reported net income of $103 million, compared to $123 million for the corresponding period a year earlier.

The company told shareholders it expects lower sales of popular brands such as Nike, which are increasingly reliant on direct-to-consumer marketing.
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Overall, the company earned net income of $893 million for fiscal 2021, a significant improvement from the $323 million it sold in the pandemic-hit fiscal 2020.

Foot Locker also predicts reduced sales from other vendors, including Adidas and Puma. Adidas

Over the past few years, Nike has begun to shift its business strategy, moving away from selling to wholesale partners such as Foot Locker, other sporting goods stores and retailers.

Instead, the Beaverton, Oregon-based apparel giant, which is the world’s largest shoemaker, decided to sell more of its products through its store website, mobile apps and its own outlets.

In 2011, approximately 84% of Nike brand sales were to wholesale customers, while the rest came from its own stores and website.

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Foot Locker’s stock price fell more than 35% on Friday.

In fiscal 2021, nearly 40% of Nike brand sales were direct to consumers, while 61% came from wholesale outlets.

Since launching its “direct-to-consumer infringement” in 2017, Nike has begun removing its products from the shelves of stores such as Urban Outfitters, DSW and Macy’s.

But the company maintained that it would retain relationships with retailers such as Foot Locker, Dick’s Sporting Goods, JD Sports and other smaller stores that relied on the Nike brand.

Yet Nike intends to cut out the middleman and grow direct-to-consumer sales to 60% of its business by 2025. This allows Nike to maximize profits while controlling prices.

Shares of Nike rose about 0.75% on Friday.

James T. Quintero