Foot Locker weathers COVID-19 storm as digital business leads the way

Foot Locker weathers COVID-19 storm as digital business leads the way
Derek du Preez
Mon, 11/23/2020 – 04:00

Athletic footwear giant Foot Locker is one of the retailers that has managed to balance its losses from store closures with digital gains.

Image of the Foot Locker logo

(Image sourced via Foot Locker website)

It’s been an incredibly difficult year for retail businesses, as the COVID-19 pandemic and national government lockdowns have forced store closures and resulted in a significant reduction in customer footfall. However, a trend that’s beginning to emerge as we near the end of 2020 is that retailers that have been fostering digital consumers through omni-channel investments, are proving resilient in riding out the impact of the novel Coronavirus. 

This week we saw evidence of this being true for athletic footwear brand Foot Locker, which delivered a solid set of third quarter results. As we have noted previously on diginomica, Foot Locker has been placing a strategic bet on digital for a number of years, by increasing spend in areas that include customer-facing technology, an enhanced e-commerce platform, a new point of sale system, as well as back-end capabilities, such as new infrastructure and data analytics. 

This has meant that Foot Locker has been able to double down on its digital and direct-to-consumer (DTC) channels as demand for in-store shopping declined throughout the year. The company has said during its Q3 results call that it is ready and prepared to go where consumer demand is, with margins between digital and physical shopping largely being comparable. 

Foot Locker CEO Dick Johnson told investors on a call that the experience of COVID-19 has proven that the company can remain agile, whilst focusing on the relationship with customers. He said: 

This third quarter was unlike any we’ve seen before. COVID-related uncertainty around the timing of school reopening and team sports participation delayed and elongated the back to school selling season, yet despite kicking in later than usual, momentum built as the quarter progressed. We delivered a strong top and bottom line performance, demonstrating the resilience of the Foot Locker portfolio of brands.

These results not only reflect our deep connections with our customers in the strategic relationships we have with our vendor partners, but also speak to the tremendous teamwork of our store teams, DCs and customer contact centers. They continue to go above and beyond to create seamless and safe shopping experiences for our customers. I remain incredibly proud of their focus and dedication. 

With the majority of our stores open throughout the quarter, we were able to utilize all of our omnichannel tools to enhance the customer experience, including buy online, ship from store, and buy online, pick up in store.

Total sales for the quarter increased 9% compared to the same period last year, rising to $2.1 billion. Net income in Q3 stood at $265 million, up from a net income of $125 million in the same period last year. 

Running towards digital

Johnson said that Foot Locker’s digital business led the way in Q3, delivering growth of over 50%. He added that he doesn’t expect this shift to online to subside, even if and when COVID-19 passes. Johnson added: 

This was especially impressive in September and October, when digital continued to outperform, even as we saw double digit store comps in those months. We’re frequently asked how sustainable these digital trends are. What I will tell you is that while we expect the penetration level to moderate, we don’t expect to go back to pre-COVID percentages.

Over the last few years, we have invested in and significantly strengthened our digital foundation. This drove sustained digital traffic growth through Q3 with strong upticks across all banners and geographies. At the same time, we’ve been evolving our organization to be digitally led. We’re committed to great digital product storytelling and our customers have noticed how much their experience has improved.

Johnson also highlighted that the company’s digital loyalty programme, FLX, continues to make great strides – surpassing 11 million members in the US in Q3. This is significant as FLX members are spending on average 40% more than non-members and they tend to shop more frequently, with the number of orders per customer more than 50% higher on average than non-members. FLX will be a priority going forward, Johnson said: 

While still in early days, FLX has also been well-received in Europe, with member enrollment and engagement trending positively. We will continue to refine FLX globally and look forward to sharing more with you as the program continues to scale.

Foot Locker is also making good progress towards becoming a fully integrated omni-channel company, Johnson added:

I’ll highlight a few of the notable achievements in Q3. First, we made additional investments in our BOPIS (buy online, pick up in store) program, making several improvements to drive convenience for our increasingly omnichannel customer. For example, we added BOPIS functionality to our native apps, which enables us to capitalize on our physical footprint with flexible fulfillment options. 

We also established dedicated areas in more than 700 stores for customers to pick up their online orders, simplifying the pickup process while helping to maintain social distancing protocol.

Further investments include the introduction of Klarna in North America, which is a digital payments solution that aims to spread out the cost of buying goods for consumers. This complements Foot Locker’s use of a similar platform, Afterpay, in Australia and the UK. This has been made possible by the Foot Locker’s investments in a new foundational payment platform, the work on which concluded in Q2. 

Further to this, Johnson added: 

Finally, we continued to enhance our store POS systems. For example, more countries and languages are supported, processing returns and web orders is simpler for our associates, and we can accept e-wallet payments such as WeChat and Alipay in certain geographies.

Looking ahead

Johnson said that as the Christmas season approaches, which is unsurprisingly a peak period for retailers, Foot Locker is taking proactive actions to manage capacity and throughput, both in stores and digitally. He explained that the company is focused on ensuring the safety of its colleagues and customers, whilst also delivering an “outstanding customer experience” through the holiday peaks. Johnson said: 

These initiatives include implementing mobile checkout devices in our highest volume stores as well as stores that have limited open registers due to social distancing; installing cash rep extensions to over 250 stores to create 6 feet of social distancing space between POS stations; and establishing a virtual line queue app that will allow customers to see their place in line when a store reaches capacity. 

We will also continue to partner closely with our strategic vendors, market by market, while keeping a close eye on customer demand fluctuations, given the uncertainty of COVID and the likelihood of further restrictions. All in, even against this backdrop, we are well-prepared to anticipate, react to and capitalize on evolving customer shopping behaviors. Our financial position remains strong and we are poised to continue advancing our long-term strategies as we build value for our stakeholders.

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