As European and U.S. traffic come under pressure, Foot Locker Inc. (FL) is looking to Asia to grow its business.
Following a 9.4% drop on Friday, the shares are being depressed even as earnings revealed positive figures on earnings per share, revenue, and only a slight miss in sales.
Still, one area where the New York-based retailer is struggling is store traffic.
"Overall store traffic was down low-single digits for the quarter with traffic at our U.S. banners essentially flat and down high-single digits at our international banners," CEO Richard Johnson told analysts. "
He added that European traffic in particular faces challenges due to lower consumer sentiment on Foot Locker.
On the back of decreased performance, CFO Lauren Peters announced that the company was on track to close 120 stores due to lower performance and traffic. Still, the company plans to open 25 stores.
Yet, it was not all focused on closures, as the company announced new targets at expanding into Asia.
"For the full year we are on track to open 45 new doors including our expansion into Malaysia, Hong Kong and Singapore," Peters reported.
Updating a timeline, Johnson noted that expansion of the stores would begin in the third quarter and conclude in the fourth.
"During the third quarter, our first power store is slated to open in Kowloon, Hong Kong along with two more stores in Singapore," he said. "We will round out the year with the opening of our first location in Kuala Lumpur, Malaysia during the fourth quarter."
The expansion into the world's most populous market, and markets that have growing middle classes, are indicators that retail might be a growth area for Foot Locker to take advantage of in these nations.
Secondarily, these countries have recently shown a marked fondness for athletic footware.
According to the South China Morning Post, Hong Kong hosts one of the largest annual sneaker festivals in the world, which features 200 vendors selling over 60,000 pairs of sneakers.
Meanwhile, the market in Kuala Lumpur is only growing.
According a Statista report, the sneaker market in Malaysia is set to grow by approximately 10.2% per annum as Malaysian consumers purchasing power increases and the popularity of sports shoes grows.
Already, retailers like Sole What have evolved into multi-million dollar empires in the emerging market.
With access to these consumers, the business plan to infiltrate these growing areas at this time seems a logical step to hedge against downturns in America and Europe as they come.
While traffic has been stagnating in developed markets, causing dozens of stores to be closed due to underperformance, Foot Locker's move to emerging Asian population centers with growing middle classes might be a wise play for the long run.