What's going on?
Shares in Foot Locker plunged by almost 30% on Friday as the company reported its biggest sales decline since 2009!
What does this mean?
Foot Locker’s profits (and stock price) have been steadily declining this year, and things might be getting even worse for the company. On Friday, it reported that its “same-store sales” (a.k.a. sales from its stores that have been open at least a year) in the second quarter dropped by nearly 6% compared to last year. Wall Street was expecting Foot Locker’s sales to have increased, so the report was a big disappointment. Foot Locker’s CEO also warned that the negative trend would probably continue for at least the rest of the year…
Why should I care?
For markets: The news reverberated through the sector.
Investors interpreted Foot Locker’s results as a bad sign for the sports apparel industry in general, as evidenced by Nike and Under Armour’s stocks also falling by about 4% on Friday. Foot Locker sells many different brands and it reported weak sales for pretty much all of them – suggesting that athletic brands like Nike and Under Armour could also be suffering.
The bigger picture: Ecommerce is fundamentally threatening the business model of “middleman” retailers like Foot Locker.
Foot Locker buys shoes from vendors like Adidas or Puma and sells them to consumers, with a markup that includes the costs of operating the company. However, it is becoming increasingly difficult for middleman retailers like Foot Locker to compete with ecommerce, given the technological and logistical (e.g. home delivery) advantages of companies like Amazon and the increased tendency for brands to sell direct to consumers online.