Apparel — both private label and branded — will be a primary focus for Foot Locker Inc. over the next five years as it strives to significantly increase sales and profitability.
Calling it his “coming-out party,” chief executive officer Ken Hicks, who joined the company from J.C. Penney Co. Inc. in August, laid out Foot Locker’s plan to become “the leading global retailer of athletically inspired shoes and apparel” at an analysts’ meeting at the firm’s headquarters on 34th Street in New York on Tuesday morning.
The goal, executives said, is to increase sales to $6 billion from $4.9 billion in 2009; raise sales per square foot on average to $400 from $333; increase the earnings before interest and taxes profit rate to 8 percent of sales from 2.6 percent; elevate the net income margin to 5 percent of sales from 1.8 percent, and boost inventory turnover to 3 times from 2.2 times last year. Gross margins are projected to increase to between 30 percent and 31 percent of sales from 27.7 percent, while sales, general and administrative expenses are expected to fall to 20 percent to 21 percent of sales from 22.6 percent.
The main drivers of these improvements are creating differentiation among the company’s divisions, which include 3,500 stores under the Foot Locker, Lady Foot Locker, Kids Foot Locker, Footaction, Champs Sports and Eastbay names; enhancing the apparel and footwear assortments, and aggressively pursuing growth opportunities both domestically and overseas.
Hicks said the divisions had become “homogenized” and carried many of the same products, causing cannibalization among the stores. The plan is to carve out an identity for each group, with Foot Locker becoming “sneaker central” for the athletic connoisseur; Lady Foot Locker addressing the needs of the active woman; Kids Foot Locker becoming the choice for athletic children; Footaction, for fun, fast, sport-inspired style for the urban customer; Champs for the sports fan, and Eastbay for the true athlete. The company’s newest test concept, CCS, is designed to appeal to the style-conscious skater.
At Foot Locker, the stores had become too heavily invested in the basketball category, Hicks said, but the company sees opportunities to enhance other growth areas such as running, cross-training, court, skate and toning shoes that purport to condition the legs.
An enhanced assortment of apparel is expected to help increase sales at all divisions. “Apparel allows you to sell more shoes,” Hicks said. He would not provide a breakdown of sales between footwear and apparel, saying only that while apparel sales are “significant, they’re not a majority of the business.”
Hicks said that last year, “almost half of our sales decrease came out of apparel, and we want to get that back.” For the year, sales decreased 7.3 percent to $4.85 billion with same-store sales declining 6.3 percent. Hicks said the apparel offering was not fresh: “We stayed too long at the party, the pricing was not competitive and the brands didn’t provide as much as we would have liked. We didn’t do the job, and we didn’t clear it the way we should have. But it’s also given us a tremendous opportunity.”
Hicks said the company will increase the assortment of popular national brands such as Adidas and Under Armour, and will also create a “meaningful” private label business. For both national and private brands, in-store merchandising will be enhanced. “We merchandised our apparel like we merchandised our shoes,” Hicks said. But since the stores have started to better showcase the offerings, sales have increased. “It’s already making a difference,” he said.
Regarding expansion, the company intends to add around 60 stores annually, with about half of those opening overseas.
Lastyear, the company closed 106 underproductive stores and eliminated 120 corporate and divisional field and home office positions.
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