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With Acquisition Rumors Swirling and Nike Declining, Footwear Retailers Must Act Quickly

FL, NKE | September 28, 2017

With Finish Line Inc (NYSE: FINL) acquisition rumors swirling, the footwear retail industry is in dire need of a change.

Retailers Finish Line and Foot Locker, Inc. (NYSE: FL)'s heavy reliance on Nike Inc (NYSE: NKE) has spelled doom for the companies' stock for several reasons: Nike just turned in its worst performance in six years, the Jordan brand is losing its luster and Nike is right in the thick of a direct-to-consumer offensive.

On Nike’s second quarter earnings call, CEO Mark Parker outlined its Consumer Direct Offense, with the purpose of reinventing the business and the industry. This offense poses a significant threat to Foot Locker and Finish Line, where 71 percent of 2016 sales came from Nike products.

“With the new Consumer Direct Offense, we’re taking that consumer connection one step further. We’re going deeper. We’re connecting more personally to help each individual make the right choice for them. That’s incredibly powerful for a brand that motivates people to do more,” Parker said.

What does this mean? Nike is bypassing the traditional retailers to create a closer connection to customers.

And footwear outlets are being forced to either diversify their product holdings, foster smaller niche brands or change their strategy altogether.

“We firmly believe that this downturn in the category is product-driven, and it starts and ends with Nike,” Canaccord Genuity analyst Camilo Lyon said last month.

British retailer Sports Direct, which is reportedly in talks to acquire Finish Line, would likely keep the Finish Line banner, “but create a DSW of athletic shoes and offer sneakers at lower prices,” a Susquehanna analyst said.

These brands have significant value and recognition, but with retail partners placing heavy emphasis on direct-to-consumer sales, their business models need to adjust quickly.

'Panic' May Be Setting In Among Nike Investors