Parts of the United States government seem to think that retail stores getting bigger, something they need to do in the face of online and direct-to-consumer competition, counts as a monopoly.
In reality, many brick-and-mortar spaces can support one major and some minor ones. Barnes & Noble survived because Borders went out of business, while Dick’s Sporting Goods has been more successful since Sports Authority closed down.
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Best Buy might have struggled if Circuit City had stuck around longer.
Monopolies are not defined by store type. Dick’s Sporting Goods (DKS) buying Foot Locker will mean that one less company sells sneakers. It also means that many Foot Locker locations will continue to operate and Dick’s will have another weapon in the fight against Amazon and online retailers.
It’s a deal that will also give Dick’s added leverage with Nike, a company that has cut off lesser wholesale partners.
Dick’s Sporting Goods and Foot Locker shared on May 15 that they have entered into a definitive merger agreement under which Dick’s will acquire Foot Locker. This transaction implies an equity value of approximately $2.4 billion and an enterprise value of approximately $2.5 billion.
U.S Senator Elizabeth Warren opposed the merger.
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Warren wants FTC to block Dick’s/Foot Locker deal
Warren does not seem to understand that Dick’s and Foot Locker working together cuts into Nike’s (NKE) power. Instead, she’s following the math that two is better than one.
That’s sometimes true, but two struggling companies does not equal one thriving one. And Nike might see the Dick’s/Foot Locker combo as one that has enough customers that it has to keep them as a wholesale partner.
Split the two, and Nike may well decide to significantly cut access (as it did for Kohl’s and other lesser chains a few years ago)
“The combination of Dick’s Sporting Goods and Foot Locker would decrease competition in the retail athletic footwear markets, cut jobs, raise prices, and leave Americans to foot the bill. This is particularly concerning, given that more than half of parents ‘plan to sacrifice necessities, such as groceries,’ because of rising prices for back-to-school shopping, including sneakers,” said Warren in a press release.
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Warren is also worried that some stores will close because of the deal, and that will happen.
“The deal also poses a threat to workers. Due to the overlap in Dick’s and Foot Locker stores, Foot Locker has already announced that some stores would likely close as a result of the acquisition. The resulting job losses could put additional strain on local communities, which are already facing historic rates of retail store closures,” she wrote.
Amazon and Nike are the real competition
Warren cited the FTC’s short-sighted decision to block the Albertson’s and Kroger merger. She cited recent comments by the new CEO of Albertsons, who said the company now planned to keep prices low “to attract more shoppers” in order to compete with rival companies.
“This is a striking example of the benefits of competition for consumers, and should give antitrust agencies the confidence to continue vigorously enforcing antitrust law,” said Warren.
What the FTC missed is that a combined grocery giant would have had greater resources to compete with Amazon, Walmart, and Costco — three retail giants that can afford to make low margins on grocery.
Foot Locker and Dick’s may be competitors, but the real enemy is Amazon, which can offer lower prices, and Nike, which can restrict access to product.
Foot Locker, it should be noted, is fighting for survival. Its first-quarter numbers were not good.
- Total sales were down 4.6%, to $1,788 million, as compared with sales of $1,874 million in the first quarter of 2024.
- Comparable sales decreased by 2.6%, with comparable sales in the North American region decreasing by 0.5%.
- Gross margin decreased by 40 basis points, as compared to the prior-year period.
- Net loss was $363 million, as compared to net income of $8 million in the prior-year period.
- On a non-GAAP basis, net loss was $6 million for the first quarter, as compared with net income of $21 million in the corresponding prior-year period.
Foot Locker also risks running out of cash. At quarter-end, the company had cash and cash equivalents of $343 million, and total debt was $445 million.
A merger with Dick’s keeps many Foot Locker stores open. Warren and the FTC stopping that merger does not help consumers; it helps Nike and Amazon.
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