Why Nike’s Foot Locker Exit Could Devastate Other Retailers

For any retailer shocked by Nike’s move last week to pull all of its products out of Foot Locker
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, two things: first, you should have seen this coming and, second, it’s going to happen to you too.

Some 70% of Foot Locker’s sales in 2021 were in Nike product, the retailer said in its 2021 public filings, meaning this is a devastating hit for the company. Its stock immediately took a 30% dive last week following the news and while it recovered some of that as the new week began Foot Locker shares are still off about a quarter since the start of the year and, at a $31.62 close on Monday, less than half of their 52-week high set last May.

Foot Locker said it expects sales to decline between 8% and 10% this year as it looks to expand offerings from other brands like Adidas, Puma, New Balance and Crocs
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. But as CEO Richard Johnson told analysts last week in referring to the big sales spike a Michael Jordan-branded drop from Nike can generate, “That’s a tough dynamic to overcome.”

Maybe Foot Locker should have seen this coming, as over the past few years Nike has been systematically cutting back its third party distribution to focus on its own direct-to-consumer efforts, both in-store and online. The first big shoe to drop, so to speak, was for Amazon when it discontinued selling directly on the online giant, although Nike products are still available on the marketplace through third parties.

Since it began ending third-party selling, it has dropped a number of big national retailers, including DSW, Zappos, Dillard’s, Urban Outfitters and Shoe Show. At one time it said it planned to retain Foot Locker, as well as Dick’s Sporting Goods, but obviously it reversed course on the former. Dick’s website still lists more than 12,000 Nike products on a search this week and Nike has not said it has any plans to end that relationship.

But the “Swoosh” effect is not likely to stop with Nike. Any national retailer that sells brands from other companies has to be looking at this move as a potential harbinger of what’s to come. Fashion brands like Ralph Lauren and Calvin Klein have always had restrictions on what retailers could sell their products (even as both brands sell heavily into the so-called third-tier nameplates like the TJX brands and other off-pricers).

But the Nike move is different and it should be sending shivers up and down the backs – and bottom lines – of big retailers, particularly in the department store channel, but also discounters and specialty chains. Any national brand that is opening more of its own stores – something we’re seeing with increased frequency in the fashion, jewelry and footwear sectors – has to be looking at how it can control its distribution, keeping its products away from the myriad price-cutting, couponing and one-day sales that have become the lifeblood of many big chains. The increased sales through e-commerce give these brands another way to connect with shoppers directly, bypassing the stores that had been their selling partners for generations.

It’s why we’re also likely to see more of those stores opting for private label programs, captured brands and exclusivity deals that come with more control for retailers…and less caveats all around.

The last holdouts could be the many fashion, accessory and beauty brands that don’t have the scale, finances or stomach to get further into the business of retailing. There will be many of them still…but not as many as there used to be.

All of this comes down to control: control of pricing, control of where your products are sold and control of how they are shown on store selling floors and on websites. That control is something retailers have had for more than decades but now it could be gone in a swoosh.