This is how Nike just sent Foot Locker stock plummeting

Shares of Foot Locker fell by as much as 35% during trading on Wall Street on Friday as the company said it expects profits to take a hit thanks to Nike’s new strategy of selling direct to consumers.

The apparel store released its earnings report on Friday, predicting that none of its vendors will generate more than 60% of total purchases for fiscal year 2022.

While the company did not name Nike, it was clear whom it was referring to when it said that the “change reflects the accelerated strategic shift to DTC (director to consumer) by one of the company’s vendors.”

In 2020, Nike accounted for 75% of total Foot Locker sales, according to Foot Locker’s annual report.

For the quarter which ended in late January, Foot Locker reported a net income of $103 million — down from $123 million for the corresponding period a year prior.

Overall, the company netted $893 million in income for fiscal year 2021 — a significant improvement from the $323 million it sold during the pandemic-hit fiscal year 2020.

Foot Locker is also projecting a reduction in sales of other suppliers including Adidas and Puma. Adidas

In the last few years, Nike has started to shift its business strategy, moving away from selling to wholesale partners like Foot Locker, other sporting good stores, and retailers.

Instead, the Beaverton, Oregon-based apparel giant, which is the largest maker of shoes in the world, has transitioned to selling more of its wares through its store web site, mobile apps, and its own retail outlets.

In 2011, some 84% of Nike brand sales were to wholesale customers while the rest were from its own stores and website.

In fiscal year 2021, nearly 40% of Nike brand sales were direct to consumer, while 61% were from wholesale outlets.

Since launching its “consumer direct offense” in 2017, Nike has started to pull its products from the shelves of stores including Urban Outfitters, DSW, and Macy’s.

But the company maintained that it would keep its relationships with retailers such as Foot Locker, Dick’s Sporting Goods, JD Sports, and other smaller shops that relied on carrying the Nike brand.

Still, Nike is intent on cutting out the middle man and boosting direct to consumer sales to 60% of its business by 2025. It allows Nike to maximize profit while taking control over pricing.

Shares of Nike rose by about 0.75% on Friday.