Photo: Nike
Nike says goodbye to more longtime wholesale partners
Nike reportedly plans to stop selling to six additional wholesale accounts — DSW, Urban Outfitters, Shoe Show, Dunham’s Sports, Olympia Sports and Big Five — as it increasingly emphasizes direct-to-consumer (DTC) commerce and exits “undifferentiated” wholesale accounts.
Nike apparel will also soon no longer be found at Macy’s, although athletic footwear sales will continue through in-store shops operated by The Finish Line.
Sam Poser, equity analyst at Williams Trading, broke the news based on his proprietary checks. Nike didn’t confirm the exits but several stores have done so to the media.
Nike first announced its Consumer Direct Offense strategy in 2017 as a five-year plan to focus growth on 40 “strategic” retail partners and its own DTC.
Last year, Mr. Poser reported Nike was ending its relationship with nine accounts: Belk, Bob’s Stores, Boscov’s, City Blue, Dillard’s, EbLens, Fred Meyer, VIM and Zappos. The brand has also cut off numerous smaller independents.
The latest exits were more surprising — three sporting goods chains that helped first establish Nike in the sports space, two major off-pricers that reach families and fashion players in Macy’s and Urban Outfitters.
Since 2017, digital has become a bigger priority for Nike. Online across owned and partner sites are expected to eventually account for half of sales, up from 35 percent in its most recent quarter. The company has developed three digital-first retail concepts — Live, Rise and Unite — and is set to accelerate the store openings.
Nike officials have also regularly called out the importance of select retailers, including Dick’s Sporting Goods, Foot Locker and Nordstrom in North America, that are collaborating with the brand on unique in-store concepts or driving member engagement.
Last summer, CEO John Donahoe expressed what the strategic vision would be. “Consumers want modern, seamless experiences, online to offline, so we’re accelerating our approach,” he said. “Our OneNike marketplace strategy leads with Nike Digital in our own stores and embraces a small number of strategic partners who share our vision to provide a consistent premium shopping experience.”
On Nike’s recent third-quarter earnings call, Mr. Donahoe said, “We’ll work with a smaller number of strategic partners that see the same future we do, and that want to and are willing to share membership data so that we can, together, deliver a very seamless experience, a very personalized experience for our consumers.”
- Nike Will No Longer Sell to DSW, Urban Outfitters, Shoe Show + These Stores, Analyst Says – Footwear News
- Nike Inc (NKE) Q3 2021 Earnings Call Transcript – Nike
- Nike Inc (NKE) Q2 2021 Earnings Call Transcript – Nike
- NIKE, Inc. Announces New Consumer Direct Offense: A Faster Pipeline to Serve Consumers Personally, At Scale – Nike
- FY 2020 Q4 Earnings Release Conference Call Transcript – Nike
- What? Should Nike drop Zappos and others to focus on consumer-direct? – RetailWire
- Nike turns its back on ‘undifferentiated, mediocre’ retailers – RetailWire
- Nikes are getting harder to find at stores. Here’s why – CNN
Discussion Questions
DISCUSSION QUESTIONS: Is Nike at risk of no longer reaching certain customer segments or geographies with its pivot to direct-to-consumer and select “strategic” wholesale partners? Do you think Nike may need to make adjustments (if so, what kind) along the way?
Poll
BrainTrust
Paula Rosenblum
Co-founder, RSR Research
Dave Wendland
Vice President, Strategic RelationsHamacher Resource Group
Some Nike products are bought on impulse at department stores or through other channels and if Nike pulls out of such points of distribution it could see those sales go to rivals. This is especially so as more and more brands are ramping up their efforts in all kinds of athleisure products. However Nike is such a powerful brand that this will likely be a very small deterioration that is more than offset by gains elsewhere – and the benefits of higher margins, more control over the brand, and gathering more customer data via direct selling.
Nike has been transitioning from a retail model to a multi-channel model of selling in a breathtaking display of strategic finesse. It started with pushing through the retailers, opening its own stores, launching major digital initiatives, creating community, and developing gigantic brand equity. All this came together to allow Nike to virtually dictate the pace of the transformation of its sales channel mix.
It is not easily repeated for other brands. Clothing and apparel is the kind of category where the product usage, purchase frequency, lifestyle attributes, and aspirational aspects all come together to create a unique opportunity for brands to dictate the terms. But of all the clothing and apparel brands out there, Nike is one that has set the standard.
One of the most important things you need to know is that Nike is a brand. This is built into their core vision and mission. As they continue to look for new ways to grow the brand, it has become critical for them to protect their brand. You see that in their growth of digital and DTC brick and mortar locations where they can control their brand image. They have little control over the way their brand is displayed with their wholesale partners so this move makes them stronger above all.
In terms of immediate sales, this will hurt Nike. In terms of collecting more customer information from DTC, and exercising more control over the brand, it may help in the long term. I would prefer for Nike to participate in a drop-ship program for their retailers.
In the future, Nike’s strategy and tactics will be taught as a prime example of not just brand building, but as exemplifying agility and adaptability within shifting market dynamics. So of course they will make adjustments in the future. That’s what they do. And if they lose a little business in the short term, it is far more important to protect the brand for the long term. Several brands and retailers could take a lesson here.
Nike has taken a bold and strategic approach to drive a more meaningful and authoritative DTC distribution. By taking control of its distribution channels, Nike will take greater ownership of the brand, marketing, pricing, and messaging strategies. This will certainly drive a greater exclusivity level, enabling Nike to drive higher margins while blending a more personalized and localized customer experience.
By limiting their wholesale partner distribution network, there is a level of convenience and accessibility that will be lost. Perhaps the most loyal Nike fans will follow the brand wherever they are. However, those who are more value-conscious may find the more affordable and accessible alternative at their favorite department or specialty shoe stores.
It will be fascinating to see how this plays out. This approach absolutely disrupts and changes what has been a working wholesaler and retailer long-term partnership.
I’m sure they’ve done the math on the lost gross margin dollars and revenue vs. eliminating wholesaler shipping, technology and process costs in the pivot to being a pure DTC brand.
It’s not a popular opinion, but I think Nike has been thrashing for years. Opening very cool (and costly) stores, then deciding they didn’t really care about most of them. Now this.
I suppose if the math works and the Street is happy with it, it’s fine. They get rid of the grey market (maybe) and hone their image. Of course, they’ve changed that (their image) a bit a few times over the past few years, so I’m not completely sure what their image is right now.
I’m not sure who their target customer is, nor am I really sure what the following means:
“‘Consumers want modern, seamless experiences, online to offline, so we’re accelerating our approach,’ he said. ‘Our OneNike marketplace strategy leads with Nike Digital in our own stores and embraces a small number of strategic partners who share our vision to provide a consistent premium shopping experience.’.”
I’m not sure what it has to do with going DTC.
Their statements sound to me like they are chasing absolute control – over brand, sales, and customers. And they are willing to tolerate only the retailers that play along with them. Everyone else gets shut out. So far, I’d argue it’s working for them, but my guess is they are playing a long game here and willing to take some initial losses from places like Macy’s and Urban Outfitters. Then again, my last pair of Nike shoes were purchased at Olympia Sports on a sale, otherwise, I wouldn’t have purchased them. I don’t have a Nike store near me, so are they willing to abandon me as a customer?
I’ll wager the company changes this strategy in around three years, and someone will lose their job. It’s fine to order online once you know how a shoe fits, but their stuff has a pretty short lifecycle. In fact, the last time I found a pair that fit well, I bought up as many as I could (mostly from the grey market) because I couldn’t deal with finding another style that works and didn’t really want to go to Lincoln Road, where their store is (which is another story for another day).
Nike has a 27% global market share in athletic footwear and NikePlus has 140 million members. It has an app portfolio that is available in 22 countries. It has 1100 stores in a variety of formats. It has purchased a predictive analytics firm (Celect) and a computer vision/AI firm (Invertex). The Melrose store in LA, which I have visited, has too many personalized features to list here and many of them are connected to apps and in-store technology (omni-everything). Nike is becoming the Apple of retail — premium products and services, owning the customer connection, advanced tech, redefining the shopping experience.
Joe — excellent points. I’d dare say Nike already is the new Apple of retail when it comes to blending store experience with digital and being omni-everything. They’re chasing loyal customers and doing everything they need to do to keep creating more brand loyalty — much like Apple has done over the years, without ceding any of the control over that customer base to other parties.
With my personal example the logical question is, how badly do I want my next pair of sneakers to be Nike? If I do, I’ll seek them out, likely starting with their mobile apps (of which I have multiple Nike apps on my phone) and then see if a store is convenient for me. Does that mean I won’t look at competitors? We’ll see…. 🙂
“Nike is becoming the Apple of retail…” What a great way to say it! Perfect!
I’m more than happy with the selections available at the DSW just down the street, and even with the vaccine I just don’t care enough to make a special trip to a Nike standalone store. If it works for them, great, but meanwhile NB, Sketchers, etc will be pleased to take my money.
Interesting. Is Nike strategically selecting wholesale partners or strategically re-risking retailers that are in danger of going out of business? Are they the same thing?
In this case, they might be the same thing. Perhaps the only question is, how elite does Nike get? When does the brand become inaccessible to those that made it popular?
Phil, an interesting observation.
Nike has such a large and loyal consumer base (with unparalleled brand power) that this seems a good move, especially with the move to digital personalization. There are more people shopping online than ever before, meaning personalized efforts should refocus on what the brand can offer to online shoppers rather than through wholesalers. They will have to, of course, make sure they understand who these customers are on a deeper level, but I don’t see that being a problem for a brand like Nike, who are already personalizing the e-commerce space and omnichannel.
One of the biggest profitability mistakes manufacturers make is not cutting off the long tail — both product line and customers. The drag they create on productivity and focus is underestimated. The surge in online access makes cutting the customer roster much easier but it can also encourage maintaining the slower sellers in the product line. Nike has no doubt done the analysis to understand the implications of the long tail customers and most likely has reached the right conclusions.
“Consumers want modern, seamless experiences, online to offline…” Speaking purely from consumer point of view, it will be hard to have a seamless experience with the brand when the number of places to purchase product is limited.
Nike has a cult following so it will be relatively easy to retrain those customers on where and how to buy its products. It’s the consumers who shop at retailers like DSW and Macy’s who will be out of luck.
Yes, streamlining its collaborations means Nike may reach fewer consumers. Yet Nike is relying on partners who can deliver seamless service to optimize omnichannel success.
Concentrating on fewer retail partners will boost Nike’s efficiency and agility. Shortening the supply chain with direct-to-consumer sales gives Nike access to data to make its marketing more personalized and competitive.
If the wholesaler cuts upset certain communities, Nike will need contingency plans to reconnect with consumers who feel abandoned. Using its core retail partners and DTC sales can help Nike reestablish its reach among those shoppers.
Nike is in the enviable position of having the brand strength to reach customers directly, and the existing brick-and-mortar support system to stand on their own. Culling their sellers is something they have needed to do for some time. When your products are sold through so many different partners you water down your brand appeal and lose control of the relationship you have with your customers. By pulling back and regaining some of their original exclusivity, they are ensuring a longer and better life for the Nike brand.
Nike came to fame by focusing on making the best shoes, and later attire, for athletes. Nike outcompeted first on performance. Their running shoes were unmatched for a while. They were part of the athletic community and participated in all of the relevant competitive sporting events. Then their marketing efforts popularized their brand and products for mass commercial consumption too. In the process of becoming one of the top global athletic brands, the quality of their product for the best athletic performances has gone down. It did not impact their bottom line because more and more people wanted Nike’s inspiring stories. Eventually, the past excellence stories will run out as a new generation of athletes bring their own stories to light. The most important strategic move that Nike can make is to renew its reputation in being the top quality athletic performance brand with a new generation of athletes.
Let me begin by suggesting that Nike will undoubtedly make adjustments as they go, but as Tina Fey said, “Say yes and you’ll figure it out afterwards.” Taking that first step is often the most difficult — but for Nike they have been taking short strides in this direction for quite some time and this broader commitment pushes them farther toward DTC without the safety net of more traditional retail.
Will the company potentially make it more difficult for some to be reached? Yes — in the short term. But the Nike brand is ubiquitous enough to shore up the gaps quickly and recover strongly.
Not every company is ready to make such a bold move. However I feel Nike has much more to gain than lose with this latest pivot.
Strategy is all about making choices – where to play and how to win. They seem to have made the choice that they want to focus on digital-savvy customers, move closer to them and create a more intimate relationship with them. They are eliminating distractions to focus on the most profitable segment and seem confident about seeing higher growth.
I think you’ve nailed their strategy, Venky Ramesh. I agree that their likelihood of success has been calculated based on potential loss of less-than-profitable segments versus those engaged in and fully-committed to the brand.
If I am Nike and my brand image is important, as it should be, do I want to be in off-price retailers? No. In trendy fashion retailers? No. In a retailer whose survival is less than assured? No. In sporting goods? Only if they can support my products with expertise.
What does the strategy mean for Nike? They are essentially trading off low-end business. It means better margins, better inventory control, better data and an organization that is ready to execute an online business that will exceed 50 percent of their sales by 2030.
Nike is pursuing a strategy of absolute control over their brand, their customers, and how they interact with those customers. Retailers and wholesale partners that don’t play along with them are getting the boot. Will it work for Nike? I believe they’ve quietly made significant inroads in building sticky customer relationships through their mobile apps and digital footprint to the point that those customers that engage with them digitally will follow them anywhere they go. Whether that is a Nike store or select retail partners like Nordstrom, it is OK with Nike since they can maintain a certain brand presence in each case. I find the mix of retailers they are leaving to be interesting. Macy’s and Urban Outfitters I would have thought produce meaningful apparel sales for Nike. I assume they’ve run the numbers on this and decided it wasn’t worth it to them. Perhaps that says more about the state of those retailers than anything about Nike. For example, Kohl’s appears to be safe from this exodus. The Macy’s decision may have more to do with going off-mall than Macy’s itself.
What Nike has shown is a willingness to adapt to changing conditions quickly. So, if this doesn’t work out for them, I expect we’ll see them adding new retail partners in response.
This is a smart move and long overdue (probably because of contract hold ups). It is simple because the customer today has so many options including the incredible website Nike has. So in my opinion, not being in certain, dated physical locations just doesn’t matter as much — at least not to Nike, who’s holding all the cards. This also gives more cred to their own stores, which, unlike many other dying brands, are still a viable option for them, especially now.
Nike’s new message is elite scarcity. The new Nike model, product placement in very few, selected retailers — retailers who eschew higher price points as a framework to elevate variations of basic design as rarefied rarities.
Nike has in the past commoditized basic design as a means to elevate the Nike brand to attract millions of mainstream consumers. The “new” Nike will essentially exclude or limit access to millions of past Nike mainstream customers as a means to reestablish the Nike brand as out of reach for the many. Scarcity leading to elitism. A market opportunity for others. And of course, back to the years of Nike-like knockoffs for the masses.
Nike is not at risk at all — quite the opposite. The move is part of its customer-centric strategy to gather data to inform insights directly from their customers to make their brand the BEST. And believe me, they know they are the best.
This is not a bold move. This is a natural move towards owning the data, using the data to inform product decisions and the only way to do that is to take more ownership of which retailers they get into bed with.
Nike may lose certain customer segments, but it will not break them. It will give them more power.
Success depends on what percentage of their customers “really” care about a differentiated experience.
I was in some Fred Meyer locations recently (very close to Nike HQ actually) and all still had plenty of Nike products available. That was an account they were supposedly shutting down last year.
Meanwhile, Nike is gone from J.C. Penney in my area, but I have not heard that is an account they formally announced they were shutting down.
I think they are making a mistake cutting some of these accounts. It is going to impact their ability to reach consumers in smaller markets cutting off chains like Big 5. I suspect this will hurt their marketshare. Those sales won’t all move online.
The move to cut off the competing sporting goods retailers appears to be a bow to Dick’s. Well, Big 5 runs in a lot of smaller markets hundreds of miles from a Dick’s. So they are going to lose access to a lot of consumers in smaller markets with this move.
Hey more customer “engagement” … right? Not selling sports shoes thru sporting goods stores: I’m sure this will be the subject of case studies for years to come.
I doubt Nike will ever stop reaching “certain customer segments.” The presence of the brand in global sports culture, pop culture, active lifestyles, and fashion will ensure almost complete coverage of all potential consumers.
Nike is protecting its brand as a premium sports/active life product, and being found in the dusty aisles of a shoe discounter doesn’t quite fit the brand. As mentioned above, Nike is a fashion brand, and is behaving like fashion brands do.
Let’s see if this increases the demand based on some limited “supply” (in the form of how many retailers now carry Nike products. Furthermore, this will give Nike better control on how their products are discounted.
From what I know about retail, Nike has determined that they can survive without the revenue from these stores and even if they miss a few pennies initially, they are willing to take the gamble that sales will transfer to a strategic retail partner or DTC.
If you are bold enough to bring such a vision to Nike, then you have to be bold enough to act on it. I am not sold that Nike is a destination driver for DSW, but it is an undeniable equity builder (something DSW needs). Considering DSW has a loyalty program with valuable shopper insights (something Nike wants); I’d say this is less about severing ties with “undifferentiated retailers” and more about Nike using it’s muscle to demand “my way or the high-way” with retail partners.
If any brand has the cache to entertain this Brand Experience/DTC idea, it’s Nike. But there is a saying, the same people you meet on your way up, you meet on your way down. All decisions, come with a price. Can only assume Nike has determined they can just pay it, and move on. Time will tell.