Popular retailer closing hundreds of stores, slashing big brand

The 2023 retail apocalypse continues.

It has been a year in which weaker retailers continue to fall and secondary malls continue to become less relevant. At a time where cash has become expensive, a number of big-name retailers have simply run out of it.

Bed Bath & Beyond, Tuesday Morning, and Christmas Tree Shops all moved from Chapter 11 into liquidation despite having significant customer followings. The market has become unforgiving for companies with significant debt, and a number of brands that burned cash during the covid pandemic have been unable to recover.

Related: Popular retailer starts surprise going-out-of-business sale

The situation has forced retailers — even successful ones — to make tough decisions. Amazon, for example, has shuttered multiple store formats in order to focus on Whole Foods, its Amazon Fresh grocery chain, and its convenience stores.

The retail giant has even greatly slowed its expansion into grocery because while Amazon Fresh would win market share, it would be doing so in a very thin-margin space. Now, a leading retail brand has decided to take a proactive approach to its sales decline.

Foot Locker (FL) - Get Free Report, under Chief Executive Mary Dillon, who has held the job for a little more than a year, has decided to close 275 of its namesake locations by 2026 in addition to closing 125 (about half) of its Champs Sport stores.

You can blame Nike (sort of)   

Foot Locker has built its business on the back of Nike (NKE) - Get Free Report. The sporting-goods company has been the leading player in sneaker culture. It offers the biggest limited-edition releases and has the ability to drive people to stores.

That has been a mixed blessing for Foot Locker in recent years as Nike has built out its direct-to-consumer business. Some of the sneakers that used to get sold through Foot Locker and other partners now get sold via Nike's app.

The company has literally cut Foot Locker's allotment of product, and that has been especially bad for the company's Champs Sport chain. Dillon spoke about the changes being forced on that brand during the company's second-quarter-earnings call.

"While the Champs Sports banner continues to be the most acutely impacted by changes in our Nike allocation, the team is getting sharper with the brand's positioning as it appeals to that active athletes," she said.

Basically, Foot Locker is only getting so much Nike product, and it's opting not to send it to Champs locations.

"As I've previously shared, we made the decision to prefer Foot Locker and Kids Foot Locker for that allocated product over Champs Sports," he added.

Foot Locker leaving bad malls

While many people believe that malls are dying, the reality is that B and C malls have struggled while top-tier A shopping centers continue to thrive. That's causing Foot Locker to rethink its store portfolio.

The chain will close 275 Foot Locker locations by 2026. That plan generally lines up with expiring leases. The vast majority of the closing stores will be in less-successful malls. 

Foot Locker's closures, however, will not actually shrink the size of the chain. The company will be culling weaker stores and slowly replacing them with new concepts.

"We will increase our square footage by 10% to over 14.5 million square feet as we open up larger, more experiential expressions of our brands with a wider product assortment. New formats will surpass 400 locations," Senior Vice President of Store Development Anthony Aversa said in a media statement.

The new stores will focus on delivering experiences. That's something both Nike and Dick's Sporting Goods have embraced as well.

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