Foot Locker Suffers A One-Two Punch As It Cuts Ties With Yeezy And Nike Pulls Back
Foot Locker was already reckoning with the difficult reality that Nike is pumping the breaks on its relationship and wants to sell significantly fewer shoes in its stores. Then came the sting of losing Yeezys.
The mall-based footwear chain said on Tuesday that it would pull the popular line of Yeezy shoes from stores and its website over the antisemitic rhetoric from hip-hop mogul Ye, formerly known as Kanye West. Adidas cut ties earlier in the day, saying it would halt production immediately. That delivered a one-two punch to Foot Locker, already struggling to replace revenue it has lost from Nike.
“At least in the near term, this is kind of the straw that breaks the camel’s back as far as I’m concerned,” said Sam Poser, a footwear and apparel analyst at Williams Trading. “The new CEO already had a lot of challenges and yesterday they got a lot worse.”
Ye’s hateful tirades have not only upset brands the rapper and fashion designer has direct relationships with, such as Adidas and Gap, they’ve roiled the sneaker industry. Foot Locker, which tapped Ulta Beauty veteran Mary Dillon as its new chief executive in August, had relied on Yeezy to deliver easy, full-price sales. Launches were promoted ahead of time and inventory sold out within hours, if not minutes.
“Yeezy was a type of shoe that was as close to riskless, fast-turn sales that you can have,” Poser said.
That’s gone now. While Foot Locker doesn’t disclose numbers, analysts say that the financial hit from losing Yeezy will actually be fairly minimal, estimating that it likely accounted for somewhere between 1% and 4% of Foot Locker’s sales.
That pales in comparison to its reliance on Nike, which accounted for as much as 75% of sales in 2020. Nike has been shifting volume away from retailers like Foot Locker, instead opting to sell a larger chunk of its products directly to consumers online and at its own Nike stores. In the fourth quarter of this year, the percentage of sales that Foot Locker generates from Nike will drop to about half.
Foot Locker has been trying to diversify, giving more shelf space to brands like New Balance. It began selling Hoka shoes this summer. Crocs have been “explosive,” according to comments made by then-CEO Dick Johnson during an August call to announce earnings.
“They’re leaning into their best partners that are not named Nike,” said Warren Cheng, an analyst at Evercore ISI. “Losing Yeezy, which is one of the last really big sneakerhead, hype banners, sort of just accelerates this transition that they’re making.”
Foot Locker will now double down on other Adidas products, including a basketball line and its “original” sneakers. Earlier this year, the two companies said they were targeting $2 billion in annual sales by 2025, up from $700 million last year.
“You get the sense that they’re making improvements with other brands, but that they just need more of that product. That the brands they’ve been replacing Nike with are not enough,” said Telsey analyst Cristina Fernandez. “It’s just going to take some time.”