We also talk about “The Great Wealth Transfer” from baby boomers.
In this podcast, Motley Fool analyst Jim Gillies and host Ricky Mulvey discuss:
- Nike‘s strategic pivot, and what it means for its retail partners.
- Why turnaround stories are difficult to implement.
- Foot Locker‘s impressive leadership.
Then, Motley Fool host Alison Southwick and personal finance expert Robert Brokamp discuss “The Great Wealth Transfer,” and how to factor a potential inheritance in a financial plan.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our beginner’s guide to investing in stocks.
Ricky Mulvey: A retailer wants to turn, and there’s only one person to call. You’re listening to Motley Fool Money. I’m Ricky Mulvey. Joined today by the person we are calling now for the third time to talk about this turnaround. The first time you’re hearing it. It’s Jim Gillies. Jim, thanks for being here.
Jim Gillies: Thanks for the invite, Ricky.
Ricky Mulvey: We’re doing pleasantries for the third time. A couple of false starts with today’s recording. Let’s get into it, because we talked about Nike’s trouble on Friday’s show, Asit, Ron, and Dylan covered it. You like the little companies. You like a retailer that makes some money that not a lot of people are talking about. That’s Foot Locker, which is an interesting position.
There’s a good story in CNBC about it from Gabrielle Fonrouge. But basically, Nike had this idea a few years back under its then CEO John Donahoe, which was that, You know what? We have distribution partners like DSW and Foot Locker. Sure, they sell a lot of shoes for us, but we’re going to be a tech company. We’re going to start selling shoes directly to the consumer. We’re going to do it through apps. That hasn’t really worked. Now what we might be seeing, Jim is maybe the new CEO Elliott Hill is going outside of the Foot Locker with the Boombox playing the Bleacher song, “I want to Get Better”. Maybe this relationship is starting to repair, and could mean something for Foot Locker. Do you think we’re going to see that new appreciation under Nike’s new leadership for those distribution partners that they’ve set aside for a few years?
Jim Gillies: I think so, yes. I’m going to lead out full disclosure when the news that John Donahoe. Look, you bring a guy over from PayPal. This is what happened, he was, “Oh, we’re going to turn into a tech company,” because he came from a tech company. But in the wake of when they said they were going to be reducing reliance on distribution venues like Foot Locker, the stock fell about 30 percent in the day. That would be Foot Locker’s stock, not Nike’s. Into that particularly strange breach, Hidden Gems Canada stepped. Since then, Foot Locker is down about 7 percent, because we could talk about the turnaround efforts going on under CEO Mary Dillon, which I have to praise as one of the great hires CEO transitions. You can keep your Starbucks, Brian Niccol. I’m going to take Mary Dillon with Foot Locker. But Foot Locker is down about 7 percent. Nike’s down about 34 percent, so it didn’t quite go the way John Donahoe was hoping. But I call this a bit of a breakfast problem. By the breakfast problem, I mean you go have your fairly standard American breakfast, eggs and bacon. The chicken is involved, the pig is committed.
The thing is, what you did, Nike, what they did to Foot Locker by basically saying, we are going to try to disintermediate things like Foot Locker and moving to the apps and selling direct. What you did was light a fire under Foot Locker to diversify their business. They had perhaps somewhat unintelligently, perhaps, but moved to, was about 75 perfect of their sales were Nike related, Nike brands, at that time. i think they’re down to about 55 or 60 percent, which is still high, But along with some acquisitions of a couple of companies called WSS and Atmos as well, that Foot Locker affected a couple of years back, and a move to going out of the malls.
Foot Locker is essentially relying on brands other than Nike. They’ve been encouraged to rely on brands other than Nike. They’ve been encouraged to go beyond the malls, so you can go to Les Hall District in Paris, and there’s a Foot Locker store, with all the other areas in the shopping districts. They have essentially said, “Okay, fine, we are going to prepare for a life with less Nike.” I think after two years, and about a year and a half of that boom, a year and a quarter of that’s been with Mary Dillon at the helm. I think that pivot that Foot Locker has been doing is actually starting to bear fruit. It’s not over yet, but they’ve got what they call their Lace Up program that she’s driving the strategy to the next 50 years of Foot Locker. But they’ve been planning for life with less Nike. Now here perhaps, comes Nike going, “About that. Maybe we want to be. ” That’s only a good thing for Foot Locker in my book.
Ricky Mulvey: You mentioned Brian Niccol going to Starbucks, you said Mary Dillon was a better hire. Mary Dillon had come in from Ulta Beauty in 2022 into Foot Locker. Immediately, what she does cuts guidance, spends the dividend, and also touts an improving relationship with Nike, because at the end of 2010, 75 percent of Foot Locker products were Nike. While they do want to break up a little bit, there’s a lot of cheddar cheese there. Why is this such a great higher for Foot Locker?
Jim Gillies: Well, the end of 2021, 75 percent of their product was Nike. Wasn’t even 2010. I think it’s a good hire. I didn’t mind that she cut guide. When the CEO comes in, that is the time to take the tough choices because you still got that halo effect of you’ve just arrived. She came from Ulta Beauty, where she had a market beating track record, and she was looking for her next achievement, and she comes to Foot Locker. It was interesting to me that she was willing to come because she could have stayed at Ulta, made millions of dollars a year and been fine. She didn’t have to do this. Just like Brian Niccol didn’t, Brian Niccol could have happily stayed at Chipotle, wanted a new challenge. I do like the new challenge.
But I’m going to suggest that the tougher slog is going to be, and probably already has been, Foot Locker because of the perceptions of, “Hey, it’s easier to buy coffee, and we go there repeatedly,” whereas shoes, there’s a lot of places. You could argue shoes are a commoditized product. You don’t have to buy your Nikes at Foot Locker. You can go to Dick’s Sporting Goods, you can go to Academy Sports + Outdoor. You can buy online on the apps, if you want. She saw a retailer that a lot of people had written off, frankly. I know there was some bankruptcy talk earlier this year. If you’re at all familiar with the financials of Foot Locker, is never that bad, frankly, it’s a little silly that that was some talk, but that’s fine. She’s come in with a new strategic plan. That, frankly, I think, like I said, I believe it is working. Yes, you cut your dividend early, but actually, the first thing they did was they suspended share repurchases, because prepandemic, what people don’t necessarily realize is Foot Locker was a cash machine. I think I’m going to get my numbers precisely wrong, but going to get it roughly right, I hope. In the decade prior to the Nike announcement that they were going to deemphasize places like Foot Locker.
