This is one of the shortcomings of how the industry is shortchanging itself in terms of technology adoption. In addition, the majority of spending in this industry is going to most likely be centered on marketing (Bourdeau, 26) in addition to merger and acquisition activity. The dual strategy of driving for greater differentiation but also acting as the consolidator are the most likely strategies of market leaders in this industry looking for growth strategies going forward. As a result of all of these factors, Foot Locker faces a very challenging future.
Tables 5 and 6 provide analysis of the footwear industry by comparing Foot Locker's performance relative to their top ten global competitors. Table 5, Footwear Industry Analysis, Q1, 2008 and Table 6, Footwear Industry Analysis: 2007 provide insight into how dependent this industry has become on inventory turns and sales to sustain its basic operating models. Tables 5 and 6 specifically show how difficult it is for companies to attain ROA in this industry today, followed by the high variability of EBITDA of Revenue across the top ten leaders in this industry globally.
Strengths and Weaknesses Assessment of Foot Locker
From an analysis of the company's financial statements, this section defines their relative strengths and weaknesses. Table 2, Income Statement Analysis, Table 3,-Foot Locker Balance Sheet Analysis, and Table 4,-Foot Locker Business Segment Analysis are used as part of this analysis. The financial strengths of the company include stable revenue growth in a highly turbulent market while also consistently generating the majority of sales from their stores and also in the U.S., which are the fulfillment points in their supply chain the company is most effective at serving as shown by the stabilized operating expenses. Additional strengths of the company include their ability to manage to a low Days Sales Outstanding (DSO) as shown by the consistent level of Accounts Receivables, in addition to inventory management minimizing risk in this area. The company, while having much debt, is managing ti well over the three-year period.
The financial weaknesses of the company from this analysis highlight a financial structure however in need of an overhaul. With stagnating sales the operating expense per store is escalating and profits per square foot have been declining. This dynamic is also reflected in the increased store counts over the last three years with little increase in revenues and the declining ROA and ROE figures indicating a lower level of returns on assets and equity.
Opportunities for Future Growth and Expansion
First, Foot Locker needs to find strategies that will re-connect them with customers and increase sales. The stagnating sales the company is experiencing is eventually going to drag margins lower than 3%, where they are today. This has already been quite a slide for a company accustomed to 7% margins in a retail channel.
Foot Locker needs to follow the following series of four recommendations to address their financial challenges.
First, complete a thorough profitability analysis of all stores and trim back those that are below 70% of profitability objectives. The stores in low-traffic malls and centralized shopping locations need to be the first to go. This is essential to have additional funds for investing in marketing and the development of more efficient supply chain, order management and logistics systems. These store closures will have an immediate positive effect on ROA and ROE, in addition to creating more liquidity for paying down debt.
Second, Foot Locker must look recruit or acquire a branding firm to get their messaging, retail experience, and product selection to align with the most profitable segments of shoe purchasers. The company today is continuing to focus on the brands they carry as the brand support them need, rather than actively investing in their own brand. For Foot Locker to return to growth the company must re-invent the brand and inject it with greater energy and enthusiasm. The investments to date in the website have been minimal, leaving e-commerce to Brown Shoe Company to dominate. An entirely new marketing and product strategy is required to reconnect with the younger consumers, who purchase the majority of shoes.
Third, Foot Locker needs to realize that shoe vendor-owned stores are the greatest competitor, not other shoe distributors and aggregators and not rely on store build-out but process efficiency. In this respect the company is in danger of being disintermediated out of the channel it helped to create. This is the most strategic threat to the company. As vendor-owned stores had, between 2001 and 2007, a 9.5% compound annual growth rate in 2007 according to SEC filings (Foot Locker 2008), the same period Foot Locker experienced a -.2% growth rate, This further underscores the need for Foot Locker to look beyond the stores and move further into process efficiencies in their supply chain. The company therefore needs to embrace more an internal investment strategy to make their existing stores more agile in responding to unique requests, and also use these investments in supply chain process improvements to further drive greater performance of the stores in place after the 70% of those not performing are gone.
Fourth, the company must choose one of the top-line vendors are seek to create a highly integrated partnership with them to further support their turn-around efforts and gain additional brand equity from the vendor partner. Partnering specifically with Nike and positioning the chain as an opportunity for the vendor to gain greater independence from the pressure from mass merchandisers, Foot Locker needs to consider offering financial incentives to Nike in exchange for having their latest product introductions features exclusively in their stores. This could also be part of their marketing strategy to reinvigorate the chain as well. Foot Locker needs to realize that their consolidator strategy, so successful in the 1980s and 90s, is going to be increasingly difficult to continue and the...
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