Foot Locker has a beat in its step as omni-channel mix proves successful

Profile picture for user ddpreez By Derek du Preez August 25, 2021 Audio mode
Summary:
Foot Locker’s second quarter results show the importance of blending digital and physical experiences for the customer, as well as rewarding loyalty.

Image of the Foot Locker logo
(Image sourced via Foot Locker website)

Foot Locker appears to be manoeuvring the omni-channel challenge with success as the Vaccine Economy begins to take shape, with its focus on blending a strong digital presence, physical stores and a growing customer loyalty programme. The athletic footwear and apparel brand released a stomping set of second quarter results in recent days, beating analyst expectations by a mile, sending its shares soaring. 

In recent weeks diginomica has highlighted how retailers are handling operations as customers gain confidence in returning to physical stores, whilst still expecting the convenience of digital sales they became accustomed to during COVID-19 lockdowns. Some are handling this better than others, but it seems that Foot Locker has struck a winning combination. 

The company reported that for the quarter ended July 31, its net income stood at $430 million, compared with $45 million a year earlier (during the height of the first wave of the pandemic). Revenue for the year was up 9.5% to $2.28 billion, up from $2.08 billion a year earlier. 

Not only this but its comparable store sales roles 6.9%, where analysts were expecting a decline. In fact, Foot Locker beat market expectations across all metrics. 

Foot Locker is reaping the rewards for placing a strategic bet on digital a number of years back, where it increased spend on customer-facing technology, an enhanced e-commerce platform, a new point of sale system, as was well as upgrading its back-end capabilities, such as new infrastructure and data analytics. 

During the peak of the pandemic as in-store shopping became impossible, this meant that Foot Locker was able to double down on its digital and direct-to-consumer channels. However, now that the Vaccine Economy is beginning to take shape, Foot Locker has been able to quickly scale up demand for the in-store experience too. 

Foot Locker CEO Dick Johnson told investors that the mix of channels is proving effective in maintaining good traction with customers. He said: 

For the second quarter, our global fleet was open for approximately 94% of possible operating days with temporary closures in Canada, certain markets in Asia and Germany. With economies reopening to a greater extent throughout most of the markets in which we operate, we saw low double-digit lift in traffic compared to fiscal 2020, which demonstrates the ongoing importance of our stores, where our customers enjoy spending time after connecting with us digitally. 

Together with the strength of our stores, our digital channels also drove important connections with our customers. Our digital sales penetration rate was 20.1%, normalizing from the peak levels we saw in 2020 while remaining well above 2019 levels, a trend we expect to continue going forward. I am proud of the great progress our teams have made against the ongoing challenges created by the COVID-19 pandemic, delivering great customer experiences despite lean inventory levels and temporary store closures in certain countries.

The company said that the results highlight the success of its ongoing strategy to strengthen the relationship with its current customer base, whilst bringing new customers into the business. The three core objectives for Foot Locker, according to the leadership team, are: maximize product leadership, utilize its global scale to elevate both store and digital experiences, and double down on serving local communities. 

Interestingly, the strength in Foot Locker's sales this quarter was driven by its stores - representing a 28.4% increase. The company's direct-to-consumer channel returned to a "more normalized level", accounting for 20.1% of total sales for the quarter, down from 33.2% last year, but up from 14.3% in the second quarter of 2019. 

But evidence of Foot Locker's approach to an omni-channel mix can be seen in its expansion strategy for Asia. CEO Johnson said: 

We launched our local Foot Locker website in South Korea, which will help us connect with our customers and grow our social media following and create a stronger omni-channel business in the market. We also opened 2 new stores in South Korea and 1 store in Singapore. 

In addition, we are excited to announce that we have signed a licensing agreement to enter the Indonesia market in partnership with MAP Active, the leading brand commerce and athletic retailer in Southeast Asia. We expect to launch the local Foot Locker website and open two Foot Locker locations, a power store and a core store this year, with the first store slated to open by early Q4.

Building loyalty

A key part of Foot Locker's strategy is continuing to build out its customer loyalty programme, FLX. Membership and reward schemes have become a central part of retailers' digital strategies in recent years, which has been driven by the success of such schemes at supermarkets. Johnson explained: 

Turning to an update on FLX, we continued to see our membership program gaining traction as enrollment increases. We finished the second quarter with over 25 million members, up from over 20 million members at the end of the first quarter. 

We are excited about the momentum and engagement in the program and the overall benefits it will provide to our business, including higher average spend for members versus non-members. 

It's worth noting that members spent over 75% more than non-members in the second quarter as their average order values were approximately 10% higher than non-members and they shopped more frequently at our banners. 

We are excited about where FLX is going and we will continue to create new features and evolve the customer experience for members within existing markets, while also working to launch the program in additional countries where we operate.

My take

Foot Locker is effectively highlighting how retailers in the Vaccine Economy need to have all of their channels operating effectively to keep the attention of the customer. Each part needs to be as strong as the other, giving customers a range of choice and the experience they want at any given time.