The (long?) Road to Expansion: Foot Locker

In a recent article written by Andria Cheng in the Wall Street Journal, Foot Locker Shoots for 7% Annual Profit Growth explains the goals management at Foot Locker, Inc. believes will boost the company’s revenue from $5.6 billion to $7.5 billion. The key lies within increasing gross margins and sales per square foot (an increased $500 in 5 years) rather than demanding more from vendors. Foot Locker aims for continued growth using organic action including varying marketing tactics, diversifying and expanding apparel, and capitalizing on external factors.

• Market to the four areas in which the greatest opportunity for growth and revenue exists: apparel, women, kids and athletic teams.
• Sensing opportunities: diversified options including color, utilizing IT for online ordering, sensing opportunities with women, partnerships with Nike, the European market and House of Hoops.
• Capitalize on external factors such as the upcoming London Summer Olympics and the recent popularity of New York’s point guard Jeremy Lin to bring in additional revenue.

Though sales have slowed globally due to worldwide economic problems, Foot Locker is still profitable and eagerly looking for ways to improve. Though the company closed more stores than it opened just last year, Chief Executive Ken Hicks plan of attack includes adding 60 to 70 stores each year. Additionally, Hicks believes there is a need to change the target customer from the 15-25 year old range to the 25-35 year old range to suit the current economic stage, suggesting that young adults will continue to spend money on shoes and athletic gear at Foot Locker while the younger generation may not.

I believe part of Foot Locker’s success has been their ability to sense what the customer wants. In our recent Jim Collins reading How the Mighty Fall, it can be inferred that companies may fail because they lose the mindset of “We’re successful because we understand why we do these specific things and under what conditions they would no longer work” and replace it with “We’re successful because we do these specific things”. Footlocker has realized and accepted external conditions and has acted accordingly in decision making. In particular, the plan to alter the target customer age group better aligns with the current economic situation and Hicks’ idea concerning young adults spending habits in this economy.

Honestly, I admit I am wary about Hicks’ idea to open 60 to 70 new stores a year. I cannot find an argument that would suggest it is anything except stage two of the five stages on decline in Collins’ reading: the undisciplined pursuit of more. Yes, expansion can be a really great thing- but only if the thing being expanded is in its own time. (In the Toll Brothers case we saw continuous expansion and all it left them with was tremendous debt and empty houses). Why would Foot Locker invest so heavily in new arenas where recent history proves that locations close at a faster rate than the open? It seems that Hicks is slightly veering off course and losing sight of his core purpose in pursuit of growth and expansion because they are so thirsty for greater revenues, they are willing to do almost anything. Expanding the customer base through utilization of celebrities such as Lin or events such as the London Summer Olympics provide opportunities to excel and increase revenue- Foot Locker should continue to focus on these values. With such a wide variety of products available online (online sales rose 20% from last year, contributing to 11% of total sales) it seems unnecessary and catastrophic to construct 60-70 new stores.

Foot Locker, Inc. locations Map (US)

Comparing Foot Locker to the Six Flags case discussed in class earlier this evening, many proposals for innovation exist though they are not all the right ones. Should Six Flags open more theme parks, expanding locations even further? I would argue no. Should Six Flags focus on each individual park, making each park the best park possible by incorporating local customs, history and food, under the solid brand of Six Flags? I would argue yes. Similarly, I believe Foot Locker would have the best opportunity to increase revenue by focusing on what is going on inside each of their individual stores- selling more per square unit. In our reading, Collins so eloquently phrased it, “But never give up on the principles that define your culture. Be willing to embrace loss, to endure pain, to temporarily lose freedoms, but never give up faith in your ability to prevail.” Foot Locker receives my praises for recognizing the difficult economic times and dealing with it accordingly, keeping their faith, perseverance, and strategy to be the leading global retailer of athletically inspired shoes consistent.