Don’t Catch Falling Knives: The JCPenney Story

In this week's episode of IF: Consumer Goods, host Dylan Lewis and Motley Fool analyst Dan Kline explain why JCPenney (NYSE: JCP) is doomed, and why Nike's (NYSE: NKE) shoe subscription service will probably be a home run. JCPenney's much-discussed turnaround hasn't materialized, but its intimidating debt pile remains stubbornly corporeal. Find out why this retailer is likely too far gone to save -- and why investors should stay far, far away from its stock.

On the other side of the retail coin, Nike just announced a shoe subscription service for kids, and Dan makes the case that this could gain traction not just for kids, but maybe someday adults, too. Plus, the hosts discuss Nike's new acquisition -- find out what RFID technology is, and how it could change the way the company operates.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on Aug. 13, 2019.

Dylan Lewis: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's Tuesday, Aug. 13. We're doing a news roundup on some interesting stories in the CG world. I'm your host, Dylan Lewis, and I've got fool.com's Dan Kline with me in studio. Dan, what's up?

Dan Kline: Oh, not too much. How are you?

Lewis: It's always a treat to have you at the office.

Kline: For those of you listening and not watching, Dylan is sitting up on a phone book, and he's already six inches taller than me, so I'm literally looking up at Dylan Lewis here.

Lewis: You make me sound like I'm Mark Zuckerberg in front of Congress. I am simply sitting on a stool. I like being a little higher up. It gives me good posture. I think it makes my voice a little more resonant.

Kline: I don't know, feels like a power move to me.

Lewis: [laughs] I offered you a high stool!

Kline: [laughs] You did.

Lewis: I'm having you on today because we're talking about some stuff going on specifically in the retail space. This is a space that you follow particularly well, I will say. Why don't we kick off with our first story about JCPenney? This is a business that's been struggling for quite some time. We've seen news over the past week that they are now trying to work with creditors to arrange some debt-swap arrangements.

Kline: For a long time, I was a believer. I truly felt Marvin Ellison, the former CEO, was doing all the right things. He was going into areas that Sears was abandoning. He was adding toys when Toys R Us went out of business. Really smart moves. Then, maybe about a year ago, when they were looking for his successor, I started visiting JCPenney stores and looking at how they were executing things. Toys were in a clump on the floor, and they weren't a good selection. Being someone who used to run a toy store, I can fairly say that. It was almost like, "What toys can you get the best terms on?" And a lot of their merchandise was filled with whatever they could get. We joked about this earlier, but they literally have racks of the cheap novelty suit that has dollar bills printed on it, or the American flag. I don't see a big market for those.

Lewis: No, I'm not buying that every day.

Kline: So, they're not connecting the moves that seemed like they were going to work, like appliances -- Jill Soltau, the new CEO, immediately got rid of that. I get it. It's a very cash-intensive business. She believes more in apparel for the turnaround. I don't agree with it, but I understand it. They have $4 billion in long-term debt and only $1.7 billion in what they call liquidity, but that is largely a revolving credit line. They have under $200 million in cash, is that accurate to say?

Lewis: Yeah, $170 [million].

Kline: They report on Thursday. They lost over $100 million in the last quarter. It is very likely that they will have eaten up a lot of their available cash. If I'm a vendor, and you're going to place an order from me, I am not sending you that order if you don't have the cash on hand. I'm not taking it based on you having a credit line when there's media reports about how much trouble you're in. So, what they're trying to do -- and they've brought in a restructuring firm to help them do this -- is get some more credit, extend the terms of their deal, push off their balloon payment to 2023, which is really far away if you actually are doing well, it should be plenty of time to pay that bill. But the reality is, they are trying to get ahead of the stories that started happening with Sears of vendors aren't going to sell to us.

Lewis: And that's part of the death spiral. You wind up in a situation where you have a very large debt burden, people start getting worried about whether they're going to get paid, and your inventory isn't nearly as attractive as it would be if vendors trusted you.

Kline: Yeah. And this is anecdotal, but I've been to many JCPenneys, I am a JCPenney customer -- this shirt isn't from JCPenney, but I have many similar ones like it that are. When you go to JCPenney, and you're trying to buy shoes, and they only have the oddball sizes, or you need something simple, like, I want a Star Wars T-shirt, and you have 15 different Star Wars T-shirts, and you're like, "Wait a minute, you only have smalls?" That's a sign of the inventory being put on shelves just to fill space and look filled. And honestly, as someone who's been in retail, there were times of year, like in February, at the toy store, a lot of our inventory, we had no intention of ever selling it. We knew we weren't going to sell anything again until April, so were pushing off some of our expense and faking our inventory. The problem is, JCPenney at Christmastime doesn't look good.

And yeah, it becomes a death spiral. You go to JCPenney to buy something specific. You get there, and they don't have it. And nobody goes, "Hey, I wanted a Star Wars T-shirt. You don't have that. I'll buy a sweater."

Lewis: And it's not that that this business isn't committed to inventory. If you look at their current assets, all told, they have about $3 billion in current assets. I think $2.5 billion there has been eaten up in inventory in some phase or another. So, a lot of the money they have tied up right now is in physical goods they're trying to sell. It's just not the right stuff.

Kline: Right. And the problem is, one, I don't believe their issue is a "right stuff" problem. Yes, you need the right inventory. Jill Soltau may be correct when she says they need higher-end women's apparel, and they need to go with what worked in the past. They just partnered with Shaq on a line for big and tall guys. Those might be all the correct moves. But if you don't have the money -- and they do not -- to revamp how you do business, meaning, full omnichannel; I can more or less think what I want from JCPenney and either pick it up in the store -- I'm teasing when I say think, but like, type it in the app, know if I can get it delivered in the store. They are not set up to ship most orders direct from stores, which leads to inefficiency. You look online, the JCPenney down the street -- I don't know if there's a JCPenney down the street here...

Lewis: There is!

Kline: The JCPenney down the street has it, but they send it to you from a warehouse in Sheboygan. That's very inefficient. They don't have the money. They've talked about revamping some of their checkout process, which is awful. It's a very old-school department store checkout, where the men's section has a checkout, but you can never tell if someone's working there. There's also a general checkout, but it's built around loss prevention, not convenience. So, they can't afford to redo the layout of all their stores. They should be figuring out how to offload expense in their stores, things like store-within-a-store, which didn't quite work for Sears but has worked very well for Best Buy; even Walmart has made a lot of money doing that. And I don't see any of those moves being made.

Lewis: One of the other major issues when you start looking at a business that is circling the drain, maybe it's fair to say that here, is when you have a large looming debt load, you have these interest payments that come due. For the last couple of quarters, it's been about $70 million for JCPenney. They have some people that they've brought on to help them manage their debt better, but that becomes a pretty big burden to carry, especially for a business that's lost I think $300 million over the last 12 months.

Kline: And when you're in a situation where the people who've loaned you the money start to become worried about your ability to pay the money back, they're not generally willing to be like, "Let's cut the interest rate! Let's give you six months where you don't have to pay interest!" This isn't a mortgage. This isn't a situation where, yeah, you lost your job, but then got a new job that pays a little more, so they'll let you catch up. There's nothing about the JCPenney business, there is no move Jill Soltau can make, to turn this around. And I feel bad saying that. I like this company. I like this brand. I want it to survive. It's bad for malls for JCPenney to go away. But think about how you shop -- it's primarily digital first, even if you're going to go to a store. Their app is behind the times. Their efficiency is behind the times. A lot of what they sell is sold by Amazon or Target. Even the things they don't, like a suit, you're going to go to a store to buy a suit. JCPenney's, maybe some of them do, but all the ones I've been in don't have a tailor. The Macy's that's down the mall corridor, which might cost a little more but sell you a suit that isn't labeled to Michael Strahan -- and no offense against Michael Strahan, but I prefer a suit designer than a football player have his name on my suit.

Lewis: You don't want the linebacker cut, Dan? [laughs]

Kline: [laughs] I could probably wear the linebacker cut! It just comes down to, we've seen this before. If you don't have assets -- Sears sold off a ton of assets trying things that didn't work. JCPenney sadly doesn't have anything to sell off, or not much that I can see. So, they're in a situation where, unless someone comes in and takes them private, and says, "I see value in the store base, I see value in the brand name. I'm going to invest," let me just guess, "$4 billion in it," that all they can do is extend the debt cycle. And as a creditor, I don't know why... maybe you get a little more blood out of the stone by doing that? Maybe there's some assets you can claim at the end of this? I feel like the game is already over, and they're still trying to convince us it isn't.

Lewis: Yeah. If you look at the share price over the last, I don't know, 12 months or so, it is not the chart you want to see. It is down and to the right. Usually, we like to see up and to the right. And recently, it has gotten to the point where it is below $1. That's where things start to get problematic for companies that are listed on the New York Stock Exchange.

Kline: They got a delisting warning. Essentially, when that happens, you have six months to get your share price over $1 for a period of time. I don't remember the actual period of time. To do that, there's a few levers you can pull. You can have a good quarter, [laughs] and people might go, "Ooh, this stock is more valuable than we thought it was!"

Lewis: We'll call that the organic route.

Kline: That doesn't take that much. If you remember with Sears, maybe 11 out of 12 quarters for three years, to diminishing returns, would deliver an upbeat press conference. "It's working! We're turning it around! Even though all these numbers are terrible, our last three weeks of the quarter beat last year!" Like, they'd find whatever way it was to spin. Like, "Tuesday's No. 1 hit drama." It's like "Wait, that's the only drama on Tuesdays, and it's not getting any viewers?" That's kind of how... But, the stock, in the short term -- sometimes for days, sometimes just for hours, would spike because people only read the beginning of the earnings release. And Eddie Lampert, the former CEO of Sears, now owner of Sears, was brilliant at spinning bad numbers good while meeting the legal requirements of reporting bad numbers.

JCPenney has not been as aggressive in doing that. But they could very well come out this quarter and say, "Hey, we're really seeing big numbers in women's apparel, and that's what we're moving into more, so we expect to be profitable six months from now." And the stock might bump above $1, which would be a really big bump...

Lewis: It's $0.60 a share right now.

Kline: ...but it's not going to sustain it.

Lewis: Yeah. So, you need to go a second route when we're not getting the results.

Kline: Which is a reverse split. A reverse split essentially says, I have one share of stock worth $0.60; now I own one-tenth of a share of stock -- they can pick whatever number they want, in terms of one-for-10, one-for-50, one-for-12.5 if you really wanted to. But, it takes the amount of shares down, so it makes what's left more valuable; or, at least, [valued at] a higher dollar amount. They're actually the same. But what happens with that is, there's a psychological effect. It's very discouraging. It's like, you come home, and -- you're not married, I am -- and you say to your wife, "Good news! We have to buy a much smaller house. But... yeah, there's no positive."

Lewis: Yeah, there's no positive. Anyone that's familiar with stock splits, usually the opposite is happening.

Kline: And that's the same thing. There's no actual new value created, but it's exciting, and it tends to send a stock up. A reverse split tends to be a move that investors perceive as a death throe. And I don't know what the percentages are, but it often is a death throe.

Lewis: Yeah, it's one of those signs I see and say, "This is probably a business that's struggling," particularly if they're doing it to maintain their listing status. It seems like that might be a route that JCPenney has to go down at some point in the next six months.

Kline: Yeah. The interesting piece is, you can wait until very late in the game. But we now have two years of JCPenney planning for Black Friday so they can get a piece of the pie. And the last two years, it seemed really hopeful. There'd be news stories like, "There's lines at JCPenney!" And it's like, there's lines everywhere! Did people buy stuff? Or did they get lured in by, JCPenney had a good deal on something, and yes, they made a lot of transactions, but the people making those transactions and buying, whatever, the $8 polo was only $6, and they bought two of them -- it's not needle-moving, and the overall sales numbers will be disappointing. And I can't imagine there's anything JCPenney could do this Black Friday to change that.

Lewis: We'll see what the most recent quarter's results look like later this week. But I think you and I are both a little skeptical of the turnaround story that's being pitched here.

Kline: It is. When you look at Best Buy or Macy's, two companies that -- Best Buy, to a greater extent, has already completed a turnaround -- they had assets. They identified that they needed to change their business before their business was in significant trouble, or at the very early stages. And they laid out a clear plan with bullet points. Renew Blue, literally, laid out everything they were going to do. Store-within-a-store; here's how we're going to cut expenses; here's how we're going to raise this; and digital. JCPenney has a vague outline, like, "Uh, merchandise." [laughs] And I'm not being fair, because there's other points to their plan, but it feels very paper-thin compared to what the success stories did. And even if they came out and said, "This is everything we need to do," and they were dead-on right, who's going to pay for it?

Lewis: Yeah. Alright, the other company that we want to talk about today is Nike. A couple of news items coming out about them. One of the more interesting ones is that they're launching a kids' shoes subscription service. Dan, what are the details there?

Kline: This is a really interesting idea. When they say kids' shoes, they mean little kids, up to about 10 years old. And they're selling this as, the idea is to take stress out from parents. I actually found that the sneaker stress happens a little later, when what sneaker you wear is cool. I've had the fight with my son 100 times that, I'm not buying $200 sneakers until your feet stop growing.

Lewis: You're in a particularly unique position, though, because you have a sneakerhead 15-year-old.

Kline: I do. He's actually moved away from that. But he's very conscious of what other kids are wearing, or what the coo-kid sneaker is. We've strategized. I make him ask for gift cards for his birthday. But even then, I'm not letting him spend $200. It's too much.

But, this is a subscription program. You can join for $20 a month, $30 a month, $50 a month. And your child can literally get a new pair of sneakers three times a year, a new pair of sneakers four, or 12. I don't know what kid needs 12 new -- little kids aren't collecting sneakers. There's no value in those small sizes. Sneakers are dramatically cheaper for little kids. Even the trendy ones, when they start to get to be 8, 9, 10, there's a huge price break on the trendiest sneakers. Parents, depending on what they pick, would save money with this, or would break even. The hardest part, and what Nike is trying to take out of it, is sizing. They actually send you a magnetic sizing chart that can go on the fridge for your kid.

I think this is a prototype. We've read about that they might do this for marathon runners who go through sneakers very quickly. I think this makes sense for adults. You're not a sneakerhead, I don't think.

Lewis: No.

Kline: All the sneakerheads I know, if I said to them, "You're going to pay a premium, you're going to pay 25% more, but you are going to get access to things that you used to have to wait in line for four times a year, and you're going to get a new pair of sneakers, and you'll have a range to pick from every month, and also, you'll have them a week before they're in stores," that's a home run.

And this is Nike worrying about retail, and saying, "We have to have a direct relationship with our consumers because even places we sell are either seeing lower traffic," or, we've talked about Dick's Sporting Goods, which is leaning more on its own owned-and-operated brands. They've cut back on their Under Armour supply. Maybe they'll cut back on their Nike sneaker supply. That doesn't matter if Nike is communicating directly.

Lewis: I think, whether we're talking about the kids market here, the marathon market, maybe some ultra-premium sneakerhead-type service down the road, what we're really looking at is convenience and getting people into the regular purchasing decision of buying Nike.

Kline: Yeah. I've got to be honest, I go through sneakers really hard because I walk a lot. So, every three or four months, I go to the New Balance outlet and buy new sneakers. This time, I went to the fancy mall running store and got fitted for nice -- and they're silly looking, because the right ones were not the best color. But, if I could say, "Hey, this is the New Balance I wear. It's comfortable. I need a new one every four months, and boy, I'd like to have them not be purple, could I get black please," and I could do that as a subscription service, where I didn't have to go to the mall? That would be fabulous.

Lewis: I think Nike is doing something here where they are latching onto a concept that a lot of other retailers have been trying to push recently in getting that direct-to-consumer relationship. I am a huge fan of RXBARs. I don't know if you know those?

Kline: I do.

Lewis: So, I love them! The ingredients are printed on there. It's a very millennial-ish granola bar brand. I order them through their site because you get bulk discounts and stuff like that. And what I've noticed recently is, they have focused on, "OK, you can buy this for $25.99, this pack of 12. Or you can buy it on a 30-day re-up and get a 5% discount." And they are not the only ones that are doing that.

Kline: Amazon does that. And the problem with Amazon is their program's not flexible. I think I've told you this story before. I take Prevacid for acid reflux. It's an over-the-counter medicine. For some reason, it's sold in either one-week supplies or three-week supplies. Amazon, whenever I buy the three-week supply, says, "Do you want to save 5% and subscribe?" And I say, "Yes, but then I'd only have three weeks, and I need a month." And there's no way to fix it. There are holes in it.

But, I am a Dollar Shave Club subscriber. I used to buy the very expensive razor company blades. I won't disparage the razor company.

Lewis: You're a true New Englander.

Kline: [laughs] They are very involved with the football team I support. But, it was an astronomical amount of money for four blades. I ordered Dollar Shave Club. The blades and razors are not quite as nice. I would say it's like 98% as much as I liked the old ones. But they show up every month! And it's four, so it's one a week, which is what I use. And every now and then, you can go into their system and be like, "I need new handle. I want an extra four because I want to put them in my travel bag." And, a few months ago -- and this is cost management on them -- they came back to me and said, "Hey, would you mind if we just sent your once-a-month once a quarter?" I went, "I'll only have to go get the mail at the front desk once -- yeah, that's great, that works for me, too." And that's a relationship that I won't change. I buy Harry's sometimes when I forgot my razor, and that's what's in my travel bag because they sell it at Target. But I'm not going to switch from Dollar Shave Club to Harry's. They already have my info. That's a lifetime relationship, as far as I'm concerned.

Lewis: And that's the beauty of it. Anyone that's seen the videos of our podcasts know that I am not someone who buys a lot of razors, but I think that's exactly what these businesses want -- if you're in something that is a repeated consumer purchase, especially something like razors, or toothpaste, or the snacks that you have on a regular basis, that are part of your routine, they want that to be as mindless as possible, so that it just shows up and it's there.

Kline: And if they're smart, they build a relationship with you. Dollar Shave Club does a really nice newsletter. It has really fun stories. And I'm not saying I wouldn't quit just to keep getting the newsletter. But there are some businesses -- if Nike sells a high-end sneaker concierge line, they should have a person who's Member Services who talks to you, who builds a relationship, who, if you leave, calls you up and is like, "Hey, Dylan, did we do something wrong?" and entices you back. That's where these things are going.

In my mind, I want to automate as much of my life as possible. I live in a building, it's difficult to bring things in and out. My parking space is not on the same floor as where I live. So, I get water delivered. It's automatic. They call me, and if I'm not home, I tell them to leave it outside, and I've left the empties outside the door, so I have to lug it in. But that's a lot better than, I have to lug it in from the curb. Kitty litter, all the heavy things in my life, I try to make sure I get automated. Sneakers, clothes? Most people would do that.

Lewis: I wanted to talk about this Nike story in particular because, while I do think it's interesting for Nike, I think it is a representation of what we're seeing more and more in retail, and that is the automation, the subscriptionification...

Kline: It's the Dollar Shave Club of things that work like Dollar Shave Club. I've always been surprised that there's no monthly toilet paper delivery service. It's bulky. It's not a fun thing to pick up. It just makes shopping difficult. It fills up a lot of your cart. You probably can estimate how much you're going to need a month. Why can't that just show up?

Lewis: Somewhere, one of our listeners, Dan, just started a business based on your idea. [laughs]

Kline: The toothbrush, that's in sold and Target now...

Lewis: Quip.

Kline: I wasn't sure if we were going to mention the brand name.

Lewis: I'll throw the brand name in there.

Kline: They're a sometimes podcast advertiser. It's brilliant. It's telling you when you need to replace your toothbrush. It's just showing up. I would say, at some point in life, you've overused a toothbrush.

Lewis: Most certainly.

Kline: Or underused a toothbrush. I know that I bought 24 toothbrushes when I moved, from Costco, and I haven't gone through them all. I've lived where I live for three years. But I've supplemented them by the free dentist ones, or forgetting I have them and buying them. I don't want to have to think about this stuff. A lot of the retail world is moving to that. Target is engineering some of its business around, even if they're not delivering it to you, the convenience of having things easy grab-and-go in those sections. I think retail convenience is something that's going to be, the next 10 years, a big piece of the story.

Lewis: The other Nike story that we wanted to talk about hits on a similar theme, where we are looking at the direct-to-consumer and ease-of-use side of retail.

Kline: I predicted this being 100% common 10 years ago, and it's barely being used.

Lewis: Is there a public record of that, Dan?

Kline: Well, my dad could probably talk to you about it. I wanted to do it at the family ladder company. Nike is using RFID to track inventory. What that means is, they can pull up and see exactly where each set of shoes has moved. That allows them to say, "This store has inventory it's not going to sell, so we can ship it to another store, we can fulfill a digital order from that store; this store isn't going to get its next shipment before it sells out of that size." And they've bought a couple of technology companies to help them process that data. But they're getting into a situation where, using AI and other techniques and real-time data, they're going to be able to make better predictions about what inventory goes in what stores.

They might figure out that for some odd reason, the Nike outlet in West Palm Beach, maybe they sell more size 12s, and maybe they go through running sneakers faster, because it's hot and shoes wear out in a different pattern. Whatever it is, they're going to know so much more.

I truly thought that this would be part of every non-cheap retail product, because it makes so much sense. We track real-time data on the website. Why wouldn't retailers want to know?

Lewis: Yeah, it seems like a bit of a no-brainer. This focus comes by way of an acquisition. They bought Celect. It's a predictive analytics firm founded by two MIT professors, I believe. The focus here is making sure we can match inventory to the consumer needs, and that the products are in the right place at the right time.

Kline: Yeah, and it's taking omnichannel to the next level. Amazon has talked a lot about how they can predict that somebody's going to order the RXBARs you talked about, a spare razor, and a deodorant, all in the same package on Tuesday. They don't know who it is, but they know that's going to happen, so they can package that up and not have to wait for the order to come in. This is going to give Nike the ability to match its inventory to where demand is, and as things change, maybe the guy who comes in and buys 12 pairs of sneakers for every new release to resell them on eBay, maybe he gets sick that week, and he doesn't come in. Well, they can then fulfill a digital order using those sneakers that didn't sell, because they will know statistically, if it doesn't sell by the third day, these collectible sneakers won't sell. And that happens. So, at the outlet store, people hide sneakers. Usually, what happens is, they hide them because they're going to come back, but they never come back, because most of those exclusives, all the demand -- it's like a movie -- it's pent up for the beginning, and then it becomes much smaller, unless the occasional thing crosses to mainstream, but that's not that common.

Lewis: The way that I look at this focus on a retail perspective is almost like if you were looking at a beehive or an ant colony as a human. You have a sense of where all the ants are at any one point. You can see the flows of everything, hopefully in real-time. I imagine that leads to much better decisions. My understanding is that this acquisition, Celect, was not a particularly large one.

Kline: No, it wasn't.

Lewis: I was looking at their Crunchbase fundraising history. They raised like $22 million over the last six years, so it couldn't have been expensive.

Kline: The founders are still active MIT professors. I think their goal was to prove concept, and then sell. I don't know what percentage of it they owned, but I'm guessing this was a very nice payday. It's very expensive to live in Cambridge. You probably need a couple of extra million if you're an MIT professor.

We're going to see more of this. And we might see, if Nike makes this work, just like Starbucks has spun off a technology arm, and they're going to develop things that they may license to other retailers, this could be something that Nike licenses to its retail partners, or to other sneaker companies, or unrelated companies. No company is what it is anymore. If you're a certain level of company, you're a technology company. This is admitting Nike probably shouldn't build from scratch, they should find the expertise. They've bought other companies in this space before. This just builds on what they do and what they've been doing. And now we're seeing real-world application for it.

Lewis: Yeah. And for me, it also is a major point for them in owning more of the consumer relationship, and relying a little bit less on retail middlemen to handle their fulfillment. It seems like it's going to be focused on, Nike owns stores, and then, obviously, the subscription thing is going to be focused on a direct relationship with consumers. We've talked so much about the very difficult relationship that apparel makers or consumer product makers have with the likes of Amazon or Walmart because those are, by nature, difficult relationships. You're kind of competing, you're kind of friends. It's tough.

Kline: And Nike is even more complicated. I don't know how they term it internally, but there are tiers of what you can sell. Kohl's gets mostly lower-end Nikes or things that didn't sell or things that are off-model. Maybe Foot Locker gets certain exclusives, and Champs gets other exclusives. I'm sure if I was a sneakerhead, I would know exactly what the cadence and the rules for this are. But the sneaker selection in the mall between four different stores that sell Nike can be very, very different. There's a lot of stock models that are at every place. But it's not like a new iPhone comes out, and you can line up at any store that's an Apple partner, and they will have it. A new pair of Jordans comes out that's a very limited edition, maybe it's only at Foot Lockers of a certain mall level. It's very hard to track. And if Nike starts to take some of that back for themselves, well, Foot Locker might decide, "Maybe we're going to become more of an Adidas seller." These are very perilous relationships. I'll liken it to the cable company carriage deals. Yes, we carry HBO, but HBO is also a competitor. It's very tricky. So, I think you might see some availability changing. We talked about Dick's before. Maybe Foot Locker says, "We have Foot Locker Kids. You're going after us with this. We're not going to feature you as much." This is a big shakeout, and I think there's a lot of shoes left to fall.

Lewis: We highlight these moves from Nike because, while a lot of apparel companies have struggled, tastes change pretty dramatically in a short period of time, Nike has endured and been a pretty solid performer in the retail space over the last couple of years. If they're investing in these spaces, obviously, you want to see other apparel companies, other retail businesses, making the same investments, because they've been doing it right.

Kline: So, you're saying I shouldn't be wearing Crocs when we hang out later? [laughs]

Lewis: You know what? Crocs have their place. It's in the kitchen, if you're working a job that you are on your feet for hours and hours and hours.

Kline: To answer you credibly, it's a lot like what we talked about with JCPenney. You have to solve the problem before it's a problem. Motley Fool as a company has a one-on-one relationship with a lot of people. I responded yesterday on Twitter to some listeners. Well, is that listener going to be more likely to listen? Of course, because it's a friend now. It's someone who knows me. I've communicated with them. If Nike messaged me and said, "Hey, it's Joe from Nike! We've got a new shoe for middle-aged guys that's more supportive. Boy, we think that's a better fit for you than the one your stuffing your foot into now," that'd be great. [laughs] And it works. If you told me, "Hey, listen to a podcast," that would mean more than somebody on social media who I don't know saying, "Listen to a podcast." This is building that interpersonal relationship, and it takes the store out of it at some point.

Lewis: I love that! Let's wrap it there, Dan! Thanks for hopping on today's show!

Kline: That went a little weird. [laughs]

Lewis: [laughs] Listeners, that does it for this episode of Industry Focus. If you have any questions or you want to reach out and say hey -- like Dan said, let's build that relationship -- you can shoot us an email at industryfocus@fool.com, or you can tweet us @MFIndustryFocus. If you want more of our stuff, subscribe on iTunes, or you can catch some of the videos from the podcast on YouTube. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for all his work behind glass today! For Dan Kline, I'm Dylan Lewis. Thanks for listening and Fool on!

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline owns shares of Apple. Dylan Lewis owns shares of Amazon, Apple, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool owns shares of and recommends Amazon, Apple, Nike, Starbucks, Twitter, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has the following options: short January 2020 $180 calls on Costco Wholesale, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, long January 2020 $115 calls on Costco Wholesale, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com