The retail sector has had its share of recent casualties with Sears Canada, Toys ‘R’ Us, Payless Shoes, and most recently, accessory retailer Claire’s all in financial trouble, ranging from closing locations in an effort to stay afloat to filing for bankruptcy. Athletic apparel and shoe retailer Foot Locker announced plans to close 110 stores in 2018, after shuttering 147 locations in 2017. The interesting part of this strategy is that the retailer intends to open 40 new stores, signalling that it’s taking a different approach to tackling the reality that consumers are rejecting brick-and-mortar retail. But will this approach prove successful, or is Foot Locker simply delaying the inevitable?
Is Retail Still Viable?
A shift in consumer habits, brought on by online shopping, has made people less reliant and interested in retail, leading to a steep decline. Online prices are typically lower because merchants don’t have to subsidize the cost of their business. In addition, the convenience and experience of online shopping is hard to match.
The future of retail may not seem bright, but despite Foot Locker closing over 100 stores, its strategy to invest in its more profitable locations might not spell the end of the storied brand. However, it does seem like a curious decision to simply open more physical stores rather than invest greater resources in online marketing and e-commerce. Foot Locker reported fourth quarter losses of close to $50 million, and stock subsequently dropped almost 13%; 2018 isn’t shaping up to be a banner year for the company. Without a bold move, the company’s woes are poised to deepen.
Historically, shoes and clothing operate on thin margins, so it’s not surprising to see retailers in that sector suffer more than some others. The real mystery is why Foot Locker and other retailers like Payless didn’t adopt the online model years ago. By investing in e-commerce and developing an online retail presence, they could have stayed ahead of the game.
Has Foot Locker Adopted a Confusing Strategy?
By investing in a smaller number of financially viable stores, Foot Locker is sending a message that it expects to still to turn a profit despite the overall decline of retail. The issue with this is that retail will only continue to weaken, exacerbated by mall closures and the growing embrace of online shopping by consumers who had previously rejected it. Even if Foot Locker finds success in the short term, the strategy still seems shortsighted. With a laser focus on high-end locations, Foot Locker is hoping that its sales will increase to offset the cost of staff, rent, inventory, and dozens of other expenses that come with operating brick-and-mortar stores.
Foot Locker might be clawing its way out of a period of loss and instability, or it might just be delaying the inevitable. Time will tell, but if sales continue to nosedive, then the newly-opened stores might be permanently closing their doors not long after their grand openings.
Rob Shapiro | Contributing Writer