Foot Locker Says New Loyalty Program Will Drive Sales in North America

Foot Locker is bullish that its new and improved loyalty program will drive demand and engagement — even after the retailer delayed its long-term financial targets last month.

At J.P. Morgan’s annual Retail Round Up conference on Wednesday, Foot Locker executives touted the company’s new and improved loyalty program, which will launch in North America this year after a successful test in Canada.

“If I learned one thing about studying multiple loyalty programs, whether it’s restaurants or retail, you don’t want it to be too complicated,” Foot Locker chief executive officer Mary Dillon said. “You want it to be something that encourages more share of wallet to you. And that’s what we’re learning is happening with the test we did in Canada.”

Foot Locker’s prior loyalty program, FLX, was more heavily focused on access to launch product, which Dillon said is a smaller part of the business. The new program is more centered on allowing consumers to accrue points for each purchase to use towards discounts in the future.

According to Dillon, the test in Canada led to bigger basket sizes, more frequent shoppers, more engagement, increased sign-ups and more first-time customer engagement.

“The holy grail of loyalty is driving more share of wallet to you as a retailer,” Dillon said. “That’s one of the things that we see as a good lever as we launch it in North America this year and then globally beyond that.”

By growing the program, Foot Locker will also have access to a broader set of consumer data, which will help in planning for demand creation and brand partnerships. Foot Locker is aiming to achieve 50 percent loyalty penetration by 2026 with a long term goal of 70 percent.

Foot Locker said last quarter that it plans to incur a $15 million charge in Q2 related to the conversion of its existing member points to the new loyalty program.

“We expect that over time, we will be able to reduce our reliance on other promotions and other markdown activities,” Foot Locker chief financial officer Mike Baughn said in the conference. “And that’s really where we’re headed from the program overall. We believe this will be margin rate neutral.”

Foot Locker is not the only shoe company leaning into a revamped loyalty program as a major pillar moving forward. Under Armour’s UA Rewards program, which kicked off last year and surpassed 1 million members in its first few months, is also seeing success in terms customer acquisition and increased spend. And Hibbett last year rolled out a connected membership program with Nike after Dick’s Sporting Sporting Goods launched a similar program in 2021.

Foot Locker last month updated its timelines for its Lace-Up plan, revealed in March 2023. The strategy included a plan to grow Foot Locker’s business to more than $9.5 billion in annual revenue by 2026 by diversifying its brand portfolio, relaunching the Foot Locker brand with new store formats focused on an off-mall presence, maximizing its loyalty program and investing in technology to enhance the customer journey. Now, Foot Locker expects these results to come to fruition two years later — in 2028.

Dillon said in the conference that the macro impacts of inflation, higher rents and higher interest rates had a stronger impact on consumers than expected, which caused the company to push back its target for the Lace Up plan.

“And in addition, then we had more inventory than we had demand,” she said.

In the fourth quarter, Foot Locker reported sales of $2.38 billion, up 2 percent over the prior year, ahead of the company’s guidance and ahead of the $2.28 billion expected by analysts surveyed by Yahoo Finance. Foot Locker reported a net loss of $389 million in the fourth quarter, compared with net income of $19 million in Q4 of last year. Non-GAAP earnings per share was 38 cents, compared to 97 cents per share in Q4 of last year. This beat analysts’ expectations of 32 cents and was ahead of guidance provided by the company. Diluted loss per share in Q4 was $4.13.