Business Analysis On Foot Locker Essay

Length: 9 pages Sources: 5 Subject: Business Type: Essay Paper: #60338309 Related Topics: Industry Analysis, Ratio Analysis, Disruptive Innovation, Financial Ratio Analysis
Excerpt from Essay :

¶ … Foot Locker

Company Evaluation

Foot Locker is one of the global leaders in the athletic footwear, apparel and multichannel retailing market., with 3,500 stores globally operating in 21 countries. The company operates retail outlets across a variety of brands including Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction and CCS. As of this writing the company employs just over 38,007 employees with the majority being part-time (approximately 25,000) (Foot Locker Investor Relations, 2012). Top-line revenue growth continues to be strong with Foot Locker recording $5.049B in their latest full fiscal year ended in January, 2011 (FY2011). This represented a 4% increase over the previous year. As of the latest financial reporting Foot Locker has provided, their revenue is $5.6B and operating profit is $443M. This compares to previous fiscal periods where the company earned an operating profit of $262M in FY2011 and $80M in FY 2010 (Foot Locker Investor Relations, 2012). Foot Locker has seen their margins significantly rode during the recession yet has been able to stage a strong return to profitability by concentrating on more internal process efficiency including more effective inventory control. For a full financial ratio analysis of Foot Locker please see Appendix A and B, Foot Locker Financial Ratio Analysis and Foot Locker Income Statement Analysis.

Foot Locker Economic and Industry Analysis

As of 2012, the North American shoe retailing industry is generating $20.2B in sales while still battling back from a -5% annual growth from 2006 -- 2011. Industry wide profit for the latest calendar year of North American business is $786.6M with 10,362 businesses competing in this industry. Annual growth from 2011 to 2016 is projected to be just 1.2% with a total of $2.3B in wages paid during this year alone (Foot Locker Investor Relations, 2012). This is an industry known for massive churn in its part-time employment, at times averaging well over 60%. This churn places a major cost of hiring, training, and eventually replacing employees in the many Foot Locker retail locations throughout North America and globally (Investment Weekly News, 2012). Foot Locker has found that North American footwear retailing trends are a leading indicator of global trending, and therefore have invested heavily in understanding this market first. Another factor in Foot Locker investing so heavily in North American operation is their command market share of 18.7% relative to their closest competitor, Designer Shoe Warehouse Inc., (10.5%), Collective Brands (9.6%) and Brown Shoe Company (8.4%). Globally Foot Locker's competitive position is even more fragmented with the competitive dynamics being significantly different across all 21 countries they compete in (Foot Locker Investor Relations, 2012).

After seeing the sales drop globally for all shoes, with athletic shoes being particularly hard-hit by the recession, the industry only attained a very small .3% increase in sales in 2011. Shoes are now considered a commodity item given the extreme price competition brought about by contract, offshore manufacturers in Vietnam and throughout China. Approximately 97% of all Nike shoes for example are manufactured in Asia, with Vietnamese manufacturers contributing the majority of time and materials (Investment Weekly News, 2012). As the price levels of shoes continue to drastically drop, the entire retail landscape globally is shifting away from smaller retailers who cannot survive on the gross margins available today. As a result, there is rampant consolidation occurring in this industry with many smaller competitors to Foot Locker either being acquired by competitors, creating industry consortiums of their own, or going out of business altogether. The drop in global sales of 5% from 2006 to 2011 is the primary catalyst of this consolidation, further depressing profit margins and squeezing the smallest, less capitalized competitors from the market. It is also forcing many of the largest competitors, including Foot Locker, to initiate an entirely new approach to their business model. The new focus on real-time inventory management, better collaborative planning forecasting and replenishment (CPFR) and more effective use of cost controls have helped Foot Locker increase sales over time (Foot Locker Investor Relations, 2012). This is a significant accomplishment for a shoe retailer dealing with an intense competition from highly-trusted, reputable shoe retailers including Amazon.com and their acquired Zappos business, the continued investments by Nike in their NikeID program to bring shoe customization online, and the continual cost reductions by smaller retailers. Despite all of these companies already fighting to survive due to rapidly declining margins. One industry analysis projection of the lifecycle of a part-time employees can be as short as seven months or as long as two years, best case. This represents a very significant cost for Foot Locker specifically and the industry in general. With 65% of their employees being part-time, Foot Locker is faced with the daunting costs and challenge of educating these workers on how to sell shoes profitably, operate a store and most importantly, how to serve customers. All of these factors, when aggregated to see their financial effect, are taking a major tool on activity-based financial metrics shown in Appendix A, Foot Locker Financial Ratio Analysis Report. Days-To-Sell-Inventory has exponentially increased from 87.9 days in 2011 rising to 108.2 days in 2011, nearly a 22% increase in ten years. This can be attributed to the continual time lost with ongoing training and development internally and the slowing economic throughout these years of the analysis. It also shows that price competition is making the sales cycle within stores slow down as well. Operating Cycle has also increased significant from 89 to 114 days during the same period, also showing that both the economy and the continual heavy burden of training and retraining associates is taking a significant toll on sales and profit productivity in the company. Foot Locker however is in an excellent position to overcome this issue by investing more effectively in Information technologies (IT) that can rapidly train their sales teams and better manage personnel throughout their over 3,000 stories (Foot Locker Investor Relations, 2012). Human resource management is one of the major weaknesses in the industry today, and is contributing to its continued consolidation. The potential exists for Foot Locker to create Web-enabled training and development systems to drastically reduce churn and stabilize their workforce, 65% of which are part-time and churn at best within two years.

Based on this analysis it is clear the global footwear industry is stagnant and in decline mode in terms of its industry lifecycle. Foot Locker, with majority of the North American market share, which is the largest segment of the global footwear market however is well-positioned to lead human resource management best practices and stabilize their transitory labor force. If Foot Locker can do this, they will accelerate their most critical financial metrics analyzed in this paper and also forestall the effects of a rapidly consolidating industry. Based on an analysis of the Foot Locker series of filings with the Securities and Exchange Commission (SEC), executive presentations made by their management team, and a series of analysis from their financial reports, the following analysis is provided of the global footwear retailing industry. Comparing the percentage (%) growth of profit and Gross Domestic Product…

Sources Used in Documents:

References

By, A.C. (2012). Foot locker unveils expansion effort, targets $7.5 billion in 2016 sales. Dow Jones DBR High Yield,, n/a.

Chapman, M. (2011, Apr 04). Foot locker pushes converse range with underground ad. Marketing Week (Online),, n/a.

Holmes, S. (2007, Feb 07). Can Nike do it? Business Week (Online),, 1.

Foot Locker Investor Relations (2012). Investor Relations. Retrieved March 25, 2012, from Foot Locker Investor Relations and Filings with the SEC Web site: http://www.footlocker-inc.com/investors.cfm?page=investor-relations


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