ANALYSIS: Foot Locker unveils new expansionist strategy
Foot Locker looking to expand despite recent gloom
Retailer Foot Locker is poised to enter a new era of expansion, vowing to grow annual sales by 25% to US$6bn over the next five years.
Ken Hicks, the chairman and CEO who joined the company in August last year from JC Penney, explained the retailer’s “clear strategic vision” to investors in New York.
Other financial targets include achieving sales per gross square foot of $400, an EBIT margin of 8% and a net income margin of 5%.
To bring this about, in the short term Foot Locker will focus on achieving improved sales and profitability from its existing businesses, but in the longer term, it will pursue a more diverse customer base, expansion and potential acquisitions, he said.
“The achievement of these financial objectives will require us to reach beyond what the company achieved during its most productive years of the past decade,” said Hicks.
“We believe that they are realistic and attainable, but will require our team to ‘stretch’ to achieve them.”
Looking at the strategy in more detail, Hicks indicated a desire to increase apparel sales and margins, which he believes can have a knock-on effect on footwear revenues.
He would also like to see more diversity in terms of revenue sources, with more emphasis on running over basketball – a possible indication that the company’s Run retail prototype has an important future role.
Geographically, the company is eyeing long-term opportunities in as yet untapped areas such as central and south America, and Asia.
And Hicks also sees a need to better differentiate the different store concepts – somewhat ironic, given that Foot Locker, Lady Foot Locker, Kids Foot Locker and Footaction have recently been consolidated under a single management team.
There’s another irony in talking in such expansionist terms, when only two months ago the company announced plans to shut 106 under-performing stores and axe 120 jobs.
Nor were its recently announced fourth quarter results especially inspiring, despite enhanced profitability.
Same-store sales in the fourth quarter fell 2.3%, while total sales edged up just 0.6% to $1.325bn.
Foot Locker has pointed to recent improvements in same store sales trends, and would no doubt add that this five-year strategy is all about the long-term future, rather than the recent past and the difficulties the company has suffered during the recession.
But the financial world at least still seems cautious at best, if not downright sceptical: shares in Foot Locker have fallen by nearly 5% in the 48 hours since the plan was unveiled.
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