Foot Locker cuts outlook with warning on consumer spending and theft

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Foot Locker has warned that elevated levels of theft will continue to weigh on its results for the remainder of the year, with the US sneaker store chain among retailers to this month flag the problem as they continue to grapple with a broader slowdown in consumer spending on discretionary items.

Shares of the company were down more than 30 per cent during lunchtime trading in New York on Wednesday, putting them on course for a record one-day drop, after the company slashed its earnings forecast for the year and paused its dividend.

The sell-off dragged shares of Nike about 3 per cent lower, adding to losses on Tuesday when US retailer Dick’s Sporting Goods cut its own full-year guidance and also warned that a rising trend of thefts could worsen in the second half of this year.

Foot Locker chief executive Mary Dillon said sales had been “softer than expected” in 2023 and that up until more recently, the company had “not yet seen the full weight of the macro environment on our lower income consumer”.

The consumer response to challenging economic conditions, including elevated inflation and higher mortgage rates, “became much more evident through the second quarter, including [in] a weaker start to back-to-school”, Dillon said.

This was in contrast to Walmart’s rosier outlook for a strong start to back-to-school shopping, which typically bodes well for upcoming festive season sales.

Overall, consumers are reining in spending on discretionary items as inflation squeezes their budgets, forcing them to prioritise necessities. When they can splurge, there has been a tendency to spend on services and experiences, rather than goods.

Peloton shares tumbled almost one-quarter on Wednesday after the group said a slowdown in demand for its exercise equipment exceeded expectations in May and June “as consumer spending shifted toward travel and experiences”.

Macy’s on Tuesday said it would take “a cautious view on the consumer and their capacity to spend on the discretionary categories we sell” and reported it had offered large discounts to clear inventory.

Foot Locker on Wednesday cut its full-year outlook for gross margins to a range of 27.8 per cent to 28 per cent. The company said its margins have come under pressure because of more discounts being offered in an effort to reduce inventory, as well as expectations for “elevated shrink levels” will remain steady this year.

US and UK stores have been grappling with increased rates of “shrink” — a catch-all term for theft and organised retail crime — this year, though it is not a new issue for the sector.

In the past week, several US companies including discount retailer Kohl’s, Foot Locker, Dick’s Sporting Goods, Home Depot, Walmart and Target have raised the issue of or fielded analysts’ questions on shrink.

Walmart management took among the most measured lines, observing that shrink is “uneven across the country . . . not in every market”. Chief executive Doug McMillon said: “We do think that in some jurisdictions here in the US, there needs to be action taken to help protect people from crime, including theft. The other part of shrink is more controllable,” he added, in a hint that a portion of theft can be internal.

In the UK, retailer John Lewis said it would be offering free hot drinks and discounted snacks to police officers “to tackle retail crime” in Waitrose and John Lewis stores. The retailer’s chair Sharon White has written to the Home Secretary calling for “tougher enforcement” against “repeat and violent” offenders.

Shop thefts have gone up 27 per cent in the past year across the UK’s 10 largest cities, the British Retail Consortium said in July.