My Global Hustle » Archive » Foot Locker and Nike Form Own Team to Sell Shoes By SARAH MCBRIDE

Foot Locker and Nike Form Own Team to Sell Shoes By SARAH MCBRIDE

In an unusual partnership between a retailer and its biggest supplier, Foot Locker Inc. and Nike Inc. said they will launch a network of specialty basketball stores called “House of Hoops by Foot Locker.”

The move is part of Nike’s effort to create new retail concepts that cater to specific consumer niches and cut through a cluttered retail environment for athletic footwear. The companies hope to open as many as 50 of the stores nationwide over the next three years, starting with a branch in New York’s Harlem early next year.

The stores will offer exclusively Nike products, including its lines of Jordan and Converse basketball footwear. They will also sell basketball clothing and equipment.

Nike’s Air Force 25 basketball shoe

“We’re going to have an opportunity to create an entirely new experience for the kid who loves basketball,” says Charles Denson, president of the Nike brand. “The basketball category still has a lot of room for growth.”

The arrangement allows Nike, of Beaverton, Ore., to cut its competitors out of the stores. Foot Locker, of New York, gets to position itself as a more high-end, fashion-setting retailer beyond its more staid mall stores.

The question remains of how well Nike and Foot Locker can work together to build the concept. Starting with their days as young companies in the 1970s, the two businesses long enjoyed a symbiotic relationship that tapped into the nation’s booming fitness craze.

But tensions built earlier this decade, when Nike rebelled against Foot Locker’s strategy of heavy discounting. The companies engaged in a tussle in which Foot Locker slashed orders from Nike, and Nike in turn restricted Foot Locker’s access to its most popular brands. A Nike spokesman says those issues are “very much in the past.” A Foot Locker spokesman calls the issues “ancient history.” Nike has cut back on the number of mall retailers it works with, so the field is less crowded with Nike shoes, which in turn has lessened Foot Locker’s need to run so many promotions on Nike products.

Both companies need to concentrate on the basketball category, which has stumbled as young adults and teens move more toward less clunky — and less costly — athletic shoes like those sold by Puma AG. Basketball shoe sales have dropped 10% this year, says analyst John Shanley at Susquehanna Financial Group, while sales of lower-profile skateboarding shoes have climbed 85%. While a young urban male still buys new athletic shoes every six weeks or so, often “he’s buying far less-expensive pairs,” Mr. Shanley says. With the new stores, the companies “hope to reinvigorate his interest in buying … pairs of basketball shoes,” which come with price tags that can top $150. In many cases, including that of the Harlem store, Foot Locker will simply convert an existing store to the “House of Hoops” brand. The concept builds on an existing in-store marketing effort, where many Foot Lockers have featured Nike basketball products in a “House of Hoops” section.

Nike is by far Foot Locker’s most important supplier, with Nike products representing more than half of Foot Locker’s sales, Mr. Shanley estimates. For Nike, Foot Locker represents about 10% of its global sales and 16% of its U.S. sales.

The stores build on Nike’s plans, unveiled last year, to focus on six categories: basketball, running, soccer, women’s fitness, men’s training and sports culture.