Student loan payments are set to resume this fall, which could mean bad news for retailers and brands in discretionary categories like footwear.
Foot Locker is one of those retailers that could see a negative impact from this trend, according to a recent note from BTIG analyst Janine Stichter.
“Foot Locker’s customer base has the potential to be negatively impacted by student loan repayments given its younger demographic and the discretionary nature of its footwear assortment, which skews towards fashion/sneakerheads,” Stichter wrote, noting that two thirds of Foot Locker’s consumer base is under 34, with most between the ages of 25 and 34.
These note came in conjunction with the results of a BTIG survey of over 15,000 people, which asked consumers how they plan to adjust spending habits once student loan payments resume. The survey focused on Foot Locker and Revolve under the assumption that these retailers would be the most impacted by the change.
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According to the survey, consumers generally plan to cut back on footwear spending and 76 percent of Foot Locker customers with loans planning to spend less at these stores once student loans come in, compared to 65 percent for the broader footwear category. Foot Locker also has a higher exposure to lower income consumers, who are less likely to have student debt or have qualified for the SAVE payment plan, the note read.
“Overall, survey data suggest a potential mid single digit percentage top-line hit [to Foot Locker] from student loan repayments resuming,” the note read, adding that BTIG reduced its price target for the stock, in part due to the student loan pressure.
Previously, some market watchers warned that the resumption of student loans could have a negative impact on consumer spending and the footwear industry.
Matt Powell, an advisor at Spurwink River and senior advisor at BCE Consulting, told FN last month that student loans resuming was “not good for consumer spending. “I read recently that it’s billions of dollars a month that would have been available to spend on other things that’s now going to have to go to loan repayment. So, it’s just one more negative,” he said.
In addition the student loan headwinds, Foot Locker faces other challenges as it approaches its second quarter earnings release date on Aug. 23, such as a promotional athletic footwear market and tough comparisons through the second half of the year.
Foot Locker Inc. in March rolled out a multipronged strategy to help it increase market share and grow sales to $9.5 billion by 2026. Dubbed its “Lace Up” plan, this strategy hinges on Foot Locker 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.
“We believe the buyside bar is low and expect most of the focus to remain around the pace of improvement in ’24 as new CEO Mary Dillon’s initiatives take hold,” Stichter wrote.
