Robert Higginbotham: Look, we finished last fiscal year at about 122 stores, a little over $600 million in top line. So you can do the math at the store per volume. It is a predominantly store-driven consumer sell-through. So digital is a lesser penetration than our total company mix. Over 70% of the sales come from the state of California. And only in the last really 3 to 4 years that we expanded, Texas was the next biggest state that we started to penetrate. Houston, Dallas, we opened simultaneously about 2.5 years ago, went into San Antonio earlier last year. And then we’re opening up Southern Florida. But if you look at the Hispanic population, where they currently exist, where migration and population growth is forecasted, there are plenty of growth pockets.
So we’re very, very confident. And we’ve seen the productivity of the stores hold as we’ve come east, if you will, to Texas and now literally tomorrow opening our first Southern Florida store. So we’re very pleased. The assortment is all the brands that you would expect. It’s Nike, Jordan, adidas, PUMA, Converse Vans, et cetera, but typically at a lower price level. So more accessible price points. We see a lot more family shopping in the Hispanic consumer. It’s typically driven by the mother or home category manager. Take care of the kid first, husband and then what’s left goes for mom, and we see that dynamic. 85% of sales come from their loyalty program. So it’s an incredibly loyal consumer. And those locations are all off-mall and they’re in the community.
So the market planning and site selection is critically important. It’s arguably the most important thing we do. And then the second thing is just living up to the experience of respecting the community and the shopper providing an authentic experience and investing back in the community. So we feel very good about the growth trajectory for WSS.
Mary Dillon: The second question was on drop ship. I don’t know if you want to add anything Was that your second question?
Robert Drbul: Yes.
Franklin Bracken: I think from a drop-ship standpoint, we really started developing the program a year ago. And it’s been a nice program to start to broaden our reach and get some expanded SKU counts and some additional better utilization of our inventory from our brand partners. So it’s been a nice program for the last 12 months. It’s not a significant part of the business, but it is something that can add some good consumer loyalty, add some better partnerships with our brands to better utilize our inventory, and we’ll continue to do that as we go forward.
Alexandra Straton: Alex Straton from Morgan Stanley. Two quick ones from me. The first is just on the trajectory down to 55% to 60% of inventory for Nike. Can you walk us through how that’s going to look in the next few years? And then secondly, I wanted to understand the margin profile of kind of moving further into e-com and then also these non-Nike brands, if you can just break that down for us?
Unidentified Company Representative: Yes. So I think we announced earlier last year that the reset of the relationship through the lens of allocation would continue through most of this year 2023. Largely, we’ll anniversary that through the third quarter. And then holiday really in 2024 is the level set and then the return to growth with Nike. So as we go through that, we saw about a 5.5 to 6-point mix shift of vendors last year. We continue to expect to see, if not similar, but a low single-digit shift in the mix in 2023. And then in 2024, honestly, we haven’t seen and been presented those assortments yet. So we’ll have to so let our buyers and ultimately the consumer decide where it settles, which is why we’ve given ourselves a little bit of room.
But I think the good news is, is that our ability to now go in across all of our vendor partners and buy best available, best offered and what we think the consumer wants based on our segmentation is what’s exciting from us. And as a multi-brand retailer, that’s what it’s all about for sneaker culture. So we’re really enthused by that.
Robert Higginbotham: I’ll touch on the margin aspect. So for the brands, we don’t talk about margin differences by brand. We have said in the past that some of the product that will have less units of going forward, do carry directionally a bit better favorable markdown dynamics, so a better margin there. And so there will be a bit of a drag there, but it’s really not a meaningful amount. On the e-comm side, there’s a bunch of puts and takes there. But all in, it’s really EBIT margin neutral, given that the merch margin drag, there was a bit of a merch margin drag because fulfillment costs are higher for that channel as opposed to the store. But with the work that Elliott is doing to minimize that drag going forward, but then also with the fact that, again, those are all incremental sales, we’ll get the leverage of both occupancy and SG&A to offset that such that it’s EBIT margin neutral going forward.
Mary Dillon: Yes. I mean I would just add that the e-commerce unlock is really big for us. I mean only 7% of our shoppers sit are omni-channel shoppers. And like, again, we see across retail, those are the best shoppers. They spend 3x more than somebody who shops in just one channel. So as well as being margin neutral, it is an unlock for growth for us.
Cristina Fernández: Cristina Fernández from Telsey Advisory Group. I have two questions. How does private label in apparel play into your merchandising strategy? In the past, you’ve spoken about expanding those 2. And then the second question is on the real estate side. The new Foot Locker format that you want to test next year and then scale in 2025. I guess, what do you need to see, why not sooner? Why would it take kind of 2 years to develop that new store format?
Mary Dillon: Why not sooner? I like that.
Unidentified Company Representative: I think I’ve heard that before. Do you want to try private label?
Chris Santaella: Yes, I’ll take the private label one. So we’re very encouraged by our private label development. So we’ve launched multiple brands over the last couple of years. Locker was launched for Foot Locker. Cozi was also launched from a women’s perspective, in addition to our long-standing business with CSG at the Champs banner. So as we really develop our apparel business, private label will become a bigger, broader component of that. And I think when we — as we develop our footwear business to be more brands across more categories, we have a lot of opportunity in apparel through private label to really address those opportunities, whether it’s from a performance or a lifestyle perspective because, certainly, the broader footwear reach creates a lot broader apparel opportunity, and we’re going to focus most of that broader payroll opportunity through our private label area.
So we’re really optimistic about where our business has gone. We’ve created a team to really focus on that of really outside experts to really come in and help develop us — develop the private label business. So we’re pretty encouraged about where our results were a year ago and our go-forward plans with that.
Franklin Bracken: Yes. And then just on the retail concepts, recall, I think Tony presented the power of Community and our House of Play. Those are relatively new concepts that we’re going to continue to invest in this year and in 2024. The store of the future, in many ways, is informed by what we’ve learned up until this time and for the next 18 months as well. The top spin I will say is that we’re going to have global alignment and synchronicity. That’s one of the things that I noticed coming into a global role is that as we looked across North America, Western Europe and some of our Asia, the consistency of the store format, the assortment presentation, fixturing which drives cost to build out and then also the integration of technology was not consistent enough.
So one of the goals is really to synchronize the store experience globally as best possible, of course, allowing for local adaptation as necessary. But also, we’re not slowing down on Power and Community store. I think we shared that they’re outperforming the balance of chain and outperforming our internal targets. So there’s plenty of upside in the next 18 months as we continue to scale.
Gabriella Carbone: Gabby Carbone, Deutsche Bank. I was wondering if you can just dig a little deeper into your plan to seek inventory across channels? And how you expect that to improve your markdown efficiency inventory allocation over time?
Franklin Bracken: Yes. I can jump in here. I think you heard us call it out in the presentation, but that idea of getting to a near real-time inventory picture is really powerful for our business. So you can imagine it coming to life from both channels, right? So in the store side, as we equip our stripers with handhelds, we actually see some pretty nice productivity metric increases. So I think up to 100 basis points in conversion, 150 basis points in NPS increase. So it’s more productive, and it is actually creating a better experience, and it’s allowing the striper to access the product that sits in our DCs and on the web and service the consumer with it if we don’t have it in store. And then the other side of that one consumers are shopping online.
As we sink our inventory across all the different nodes in the network, they’re going to be able to access product that is sitting in a store or sitting somewhere else in the business. So it’s really about creating visibility of inventory for the consumer across both channels.
Janine Stichter: Janine Stichter from BTIG. I wanted to ask about the additional $150 million of cost savings you identified. I think there was 50% that was the merch margin piece, and it was broken down into pricing optimization and supply chain efficiencies. Curious, particularly about the pricing optimization. Is that more on your private label piece of the business or where that’s coming from? And then if you could also dig a little bit more into the supply chain efficiencies where those are coming from as well?
Robert Higginbotham: Elliott, do you want to take that?
Elliott Rodgers: Yes. Yes. So can you hear me? So I think if you think about, we talked today about the — you heard us talk about transformation. And when we talk about costs, I think it’s important to highlight that this transformation, yes, there’s a lot of strategies behind it, but it’s also about changing our ways of working. And one of the things I’m most proud of is, in retail, some of the best ideas come from people who are closest to the customers and to the business. So a lot of our cost ideas have come from our teams, and that includes things like optimizing our direct-to-consumer box sizes, which has a significant impact on our parcel spend, especially as we grow digital penetration, that would just be 1 example.
But another thing I would point out is that we are learning to leverage our scale as a global organization, as Frank mentioned, which translates to things like more effective vendor negotiations, which also translates to a more efficiency and a procurement spit — procurement spend that spans multiple areas. It translates to more effective vendor negotiations. So it has multiple benefits. As you mentioned, we’re leveraging analytics to be more effective in our pricing strategies. We are also leveraging a number of different operational activities. When you think about supply chain, you heard me reference this notion of end-to-end supply chain, which also translates to more efficient on nonselling store costs so that our stripers can spend more time with the customer versus time on operational activities.
So we’re really thinking about this end-to-end and not just with our individual functions, but we think about it, how we can make the best decisions for the overall company.
