Mary N. Dillon, former Executive Chair and CEO of Ulta Beauty, Inc., has been appointed President and Chief Executive Officer and a member of the Foot Locker Board, effective September 1, 2022.
Dillon has over 35 years of experience leading consumer-driven businesses in a diverse range of industries, from consumer-packaged goods to restaurants to telecom to beauty and retail. Most recently, she served as Executive Chair of Ulta Beauty, after having served as CEO for eight years. Previously, Dillon served as President, CEO and a member of the Board of Directors of U.S. Cellular, the Global Chief Marketing Officer of McDonald’s Corp., and held leadership roles at PepsiCo.
Mary Dillon is an impressive executive and her arrival signals that Foot Locker will probably begin to square away their digital platforms and she may be perfect as the new CEO after showing to be extremely proficient in guiding the growth of Ulta. Dillon walks into the sneaker Zapatillas world at the most difficult point of Foot Locker’s business. Ulta Beauty provides considerable lessons in where and how Foot Locker can begin to develop some programs to offset the vast array of issues on the table for Dillon, but unfortunately those issues might be beyond the scope of repairing digital. Beauty was ripe for disruption and with the growth of social media marketing was presented new opportunities to expand and develop plans of actions. The sneaker Zapatillas industry is developing in reverse and is unlike beauty. In beauty the old guard was fading away. In sneakers, the old guard has some competition from growing rivals, but the brand dominating the market is chopping branches and growing its own doors. In 2017 I wrote an article tracking website traffic growth:
The intent was to always have a record of how brands were improving their direct-to-consumer strategies and to monitor how it shaped retail website traffic. It should be noted that shopping takes place within apps, but desktops allow for a wealth of data. I once wrote that Foot Locker had a GPS connecting the business to Nike. It becomes clear that Nike’s dominance and Consumer Direct Offense, now Acceleration, disconnected the navigation. In the 2017 post Foot Locker’s website traffic was 15.95 million/month. Nike’s website traffic was 77.3 million/month. Today Foot Locker’s website traffic is 17 million/month and Nike’s traffic is 149.5 million/month. The contrast is stunning. In 2017 third party platforms didn’t have to be considered. GOAT, StockX, Grailed, and other sites hadn’t come into their full growth, but StockX was at 3.21 million/month. StockX is at 37.1 million/month today dwarfing Foot Locker. It has to be noted Foot Locker invested into GOAT and the company has some answers about digital within the desktop traffic growth of GOAT, but it becomes clear digital is problematic for Dillon. Instead of naming these problems, they should be considered opportunities. Below are four areas to note with some predictions.
Real Estate
Foot Locker stayed in the malls for too long. There is a reason Dick’s (big box) and Hibbett Sports (small store) have seen an increase in product from Nike and Foot Locker saw a reduction in allotment. Foot Locker locations are often mall based and overlap with their own stores. The move towards Power Store concepts is a logical strategy, but to do so they will have to close store locations. Dillon will have to make a decision to shut down another arm of the Foot Locker chains. Footaction was closed under Johnson. Champs will either be folded or closed next. Once this is done, the brand will have to make a decision to open Power Stores, and this will require a considerable amount of time and effort to find locations and build them out. The buildout is supposed to incorporate neighborhood elements from the surrounding community, but so far Power Stores look like bigger versions of Foot Locker stores.
The Cash Customer
Foot Locker’s decision to remain in dead malls was strategic. The underbanked consumer, cash customer tends to shop at these locations. In many cases this consumer can keep an entire dead mall alive simply through sneaker Zapatillas and apparel shops. Foot Locker has to fight stores like City Gear, DTLR and Shoe Palace in these instances. With the reduction in inventory from Nike and a lack of the style of apparel this consumer purchases, although many of these dead mall stores are “up” on the year, they are experiencing considerable turnover of employees leading to staffing issues. The stores catering to Cash Customers also deal with an inordinate amount of loss prevention problems which are exacerbated by the lack of part timers. Cash customer’s typically function as moats for businesses, but with Zelle, Cash App, Paypal.me, Apple Pay and the vast array of digital ‘banking’ services available to the community, cash customer and unbanked numbers are diminishing. The hood store is one pick up location away from being disrupted. There is a powerful solution sitting in this area.
Hiring Issues
One of the most interesting transitions I’ve witnessed is the shift of managers and district managers from Foot Locker to other companies. One in particular is the move from Foot Locker to City Gear/Hibbett Sports. One of the biggest assets Foot Locker had for years in this region was a consistency in staff. Over ten years ago Wynn East was an incredible DM. Under his guidance the Memphis area was capable of operating against a trifecta of a growing City Gear, Nike Employee Store and Nike Clearance Store. The managers and assistant managers in the district flourished, but during his tenure Foot Locker offered part timers commission. Foot Locker’s minimum wage for part timers was always poor, but between discounts and commissions it was much easier to keep stores staffed. Now, Foot Locker doesn’t provide great discounts to employees or commissions. As Wynn East elevated in the company, his team elevated becoming auditors and managers, but a revolving door of DMs began. Other sneaker Zapatillas retailers adjusted their pay, FTL managers who blossomed and saved stores in dead malls were made to feel like they couldn’t elevate any higher. New DMs couldn’t grasp the difficulty of the Memphis region being the most difficult region in the country. Nike’s Employee Store has gotten stronger and understanding that people will check there before stepping foot in a mall seems like a small thing, but it isn’t. Nike also has distribution centers in Memphis and temp companies start those temps off at 12-16 dollars an hour, those employees provide access to Nike’s stores for friends and families (which is emblematic of how a Nike store shapes sneaker Zapatillas retail in a city). Foot Locker hasn’t adjusted minimum wage. This has left store managers in the difficult position of constantly interviewing to find part timers who are critical as the holiday season ramps up and so do loss prevention issues. Memphis is ground zero for Nike’s growth and how it will affect any city that gains a new Nike location. Dillon will have to go into the heart of the business to increase the payscale at the company and Wall Street doesn’t like that, but there isn’t any other choice. I’ve seen first-hand the defection of Foot Locker employees to City Gear. I’ve seen DMs become RVPs and managers become DMs by leaving Foot Locker. This is problematic.
FLX, Resale, and Killing Foot Traffic
Apps and botting are constant thorns for every company, but Foot Locker’s FLX apps are extremely glitchy. Non-notifications, inability to sign in on release days to confirm the win of a raffle, the removal of VIP awards/discounts, which Hibbett/City Gear sends a reward almost immediately after shopping at their stores (pictured above), out Foot Locker. When this is added to a request for cash customers to provide an e-mail at checkout, there are some systemic problems for the company which can only be experienced on the ground, not from the C-Suite. In the process of Foot Locker looking to prevent resale, they’ve killed their own foot traffic. One of the best things to happen to sneaker Zapatillas retail has been a broken supply chain. I haven’t mentioned this as an issue, because it’s been beneficial. Even with the reduction of Nike product about to take place for Foot Locker in the upcoming quarter their stores are filled with Nike and Jordan product because shipping has been erratic. This has also led to product being placed in stores without the need for a raffle.
During a recent retail dive, Jordan retro, Nike Sportswear running retro (Air Max 1, 97, etc) could be found on the shelves with an abundance of adidas product and other brands. Foot Locker shows a great product mix, but because they have conditioned the customer to try for shoes via raffle on FLX, customers don’t visit as much. One of the biggest issues in the battle against resale has been the ability to decipher between healthy resale and aggressive, hyped resale. When a sneaker Zapatillas is hot, the abundance of resellers who visit a store becomes a pain and frustration for teams at stores. However, Foot Locker, and they aren’t the only retailer, should find a way to adjust policies. Resale is problematic in most instances, but the abundance of third-party platforms being born shows that every retailer and brand is at the mercy of blind spots in their business strategies. Retailers have policies in place on footwear that could end up sitting for countless months, clogging up storerooms and creating issues with inventory that lead to promotional environments that aren’t good for brands or retailers. This is not a call to allow purchasing of multiple pairs by resellers. However, an adjusted strategy should hinge on the store managers decision. Why sit on a 200-dollar sneaker Zapatillas marked down to 19.99 when a store could sell every pair at one time?
The opportunities don’t Pantalons there, but these are some of the more serious situations Dillon is walking into. How will Foot Locker look in 2023? A lot different than the map at the lead of this story, but that’s not a bad thing for the company.
