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Maybe Foot Locker Should Be Afraid of Amazon Selling Nike

August 18, 2017, 3:09 PM UTC
Inside a Foot Locker Inc. Store Ahead Of Earnings
Nike Inc. sneakers sit on display at a Foot Locker Inc. store inside the South Park Mall in Strongsville, Ohio, U.S. on Tuesday, March 4, 2014. Foot Locker Inc. is scheduled to release earnings figures on March 7. Photographer: Luke Sharrett/Bloomberg via Getty Images
Photograph by Luke Sharrett — Getty Images

Foot Locker (FL) CEO Richard Johnson seems to be living in a bit of denial.

The executive told analysts on a conference call on Friday to discuss the sports retailer’s abysmal second quarter results that he wasn’t concerned about companies like Adidas and Nike (NKE) selling on (AMZN), saying that quality in-store experience remained a crucial protection against the massive online retailer.

At the same time, Foot Locker shares, already down sharply this year, tumbled 25% in heavy trading as the retailer reported that comparable sales fell 6% in the second quarter—a stunning result given the 1.7% increase expected by Wall Street, according to Consensus Metrix. It was Foot Locker’s first decline in that key metric since 2009, according to Citi Research. And Foot Locker expects similar pain for the rest of the year.

Particularly worrisome for sports retailers and vendors is that Foot Locker’s results showed weakness in the high-end sneaker category, which was high-flying until recently.

The results should not have been entirely surprising: NPD Group has said that its data showed that sales at athletic and sporting goods retailers were down by a low-double digit percentage in the quarter. Indeed, Hibbett Sporting (HIBB) also reported poor results on Friday, while Dick’s Sporting Goods (DKS) underwhelmed investors with a tiny sales increase earlier this week.

The poor Foot Locker results also dragged down shares of Nike and Under Armour, among others.

Against this backdrop, the retailers are now facing additional pressure as the likes of Nike, Adidas, and Under Armour (UAA) sell more merchandise directly on Amazon. (Nike, whose products are available on Amazon via third-party sellers, is testing this on a small scale after years of resisting the online giant.)

In his comment to analysts, Johnson downplayed the risk, touting the value of special events at Foot Locker stores, or YouTube vides of athletes touting a new shoe. (It’s not clear how that would prevent someone from buying it on Amazon.) He also said there was “no indication” Nike and others would sell their better running shoes on Amazon. What’s more he claimed, people like to come to stores to touch the product, hang out with friends and have conversations with sales staff.

“For that reason, We do not believe our vendors selling products directly on Amazon is an imminent threat,” Johnson said.

At the same time, part of the quarterly sales short fall was the lock of new innovative products as well as a decline in shoes that only recently had been best sellers.

In the second quarter, Foot Locker had earnings of $51 million, or 39 cents a share, down from $127 million, or 94 cents a share, a year earlier. Excluding a one-time pretax litigation charge, earnings were 62 cents per share, far below the 90 cents analysts expected. Total revenue fell 4.4% to $1.7 billion, also missing Wall Street’s consensus forecast for $1.8 billion.