Foot Locker Stock Forecast

Foot Locker Stock Forecast: One of the biggest areas where people spend their extra income is fitness. They set new year’s resolutions, work at losing weight before an event, or simply embrace a more active lifestyle, and they need the gear to do those activities. Leggings, sneakers, yoga pants – it is a big business, and it is one that you can play as an investor.

One option to start with where you spend. Do you have a pair of sneaks for every occasion? If you love a company, other people may too. However, buying into a brand is a pure play on whether that label can be successful. Another strategy is to hedge your bets by focusing on a company that sells multiple brands, like Foot Locker [NYSE: FL].

Foot Locker [NYSE: FL] is a retail chain that sells name-brand athletic shoes and apparel. It has been around since 1974, when it was part of the Kinney Shoe Corporation, itself a subsidiary of the Woolworth Company.

In 1988, Woolworth incorporated and took over Foot Locker. Since then, Woolworth acquired Champs Sports, Eastbay, and Athletic Fitters.

Eventually, Woolworth rebranded itself under the name Venator, but Foot Locker had begun to eclipse its parent company. In 2001, Venator took on the name Foot Locker and began to focus solely on athletics.

Foot Locker: (Brick & Mortar) + (Direct-to-Consumers)

Foot Locker has two segments to its operations: brick-and-mortar stores and direct-to-consumers.

The company’s physical stores include the chains Foot Locker and Lady Foot Locker as well as Champs Sports, Footaction, and Runners Point.

Most of its 3,221 stores are located in malls or urban retail areas, like high streets.

There is a ton of traffic and that helps the company attract customers. For the direct-to-consumer segment, Foot Locker has its namesake website – footlocker.com – as well as affiliated sites like Eastbay.

Is Foot Locker Stock a Buy?

The strength of Foot Locker [NYSE: FL] is really in its brand portfolio. The company carries Adidas, Nike, Reebok, and Under Armour – and little else besides.

Foot Locker has agreements in place that allow it to showcase the newest models as they are released, and customers can trust that anything they buy at Foot Locker is a quality product.

At the same time, Foot Locker is big. With more than 3,200 stores, it can exploit economies of scale and scope that a smaller athletic footwear and apparel company simply wouldn’t have.

Its prices are extremely competitive, even in a world dominated by Amazon.

Foot Locker really is something unique. While Amazon and other online retailers may have low prices, most consumers find that you get exactly what you pay for.

Foot Locker stands in direct contrast to that – high quality products at good prices. Not everything is reduced or discounted from its established retail value, nor maybe should it be.

Some athletic items are very pricey. There are Nikes that cost well over $200. Most consumers do not want to risk that on an online transaction. They want to come into a store, see the item in-person, consider different colorways, and ultimately try it on.

Foot Locker’s vast physical presence means that consumers can do just that.

What are the Risks of Buying Foot Locker Stock?

Obviously, online shopping is a major trend and there is nothing to guarantee that consumers won’t try on items in Foot Locker only to buy them online, possibly before they ever leave the store. Smartphones make price comparison that easy.

To be successful, Foot Locker has to work hard at doing what it does well – and that takes planning. The company has been renovating its stores and working to establish its brand as a resource that provides value to its customers as opposed to a faceless retail giant that only takes.

It all starts with its people and atmosphere. Foot Locker works hard to attract and retain people who are knowledgeable about sports or fitness, even though an increasing volume of its business is taking place online.

It also tries to make its stores attractive places to be, and this strategy requires investment. If buying trends continue to push towards Internet-based shopping, that could hurt Foot Locker because so much of its efforts are focused on brick-and-mortar shopping – and it’s not like malls are as popular as they once were.

And that risk is not confined to its retail competitors. One of the biggest trends that are proving to be a hallmark of the new decade is that suppliers, like Nike, are increasingly selling their products directly to consumers – and that’s a problem.

Take Nike for example. The company has all the brand recognition and it can offer the most advantageous terms to consumers.

Nike gives buyers free shipping and free returns up to 30 days. Foot Locker offers free shipping at $20 but it requires its customers to pay the shipping costs on any merchandise they return.

Nike, not needing to cut in a middleman on its sales, can offer lower prices. At the time of this writing, Nike sells the Air VaporMax Flyknit 3 for $153.97 while Foot Locker has it for $190. Big difference.

Foot Locker Stock Forecast Summary

Right now, many consumers like to visit stores to try shoes on, especially the expensive ones. To this end, Foot Locker identifies not successfully managing inventory levels as a major risk factor. After all, a customer may be more apt to buy a pair of shoes if the company has their size.

However, with free shipping and returns, the barriers to a customer ordering several pairs from Nike and returning what they don’t want is minimal.

Further, Foot Locker has to be careful. Maintaining inventory levels that are too high means that the company will have to mark it down to move it, reducing profit margins.

Investing in a stock that is so entrenched in brick-and-mortar locations is bound to carry some risks. Don’t ignore them. If you want to invest in a stock like Foot Locker, take the time to understand what the company is doing to be competitive.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.