Source: Nike
Has Nike Learned It Just Can’t Do It With DTC Sales Alone?
Reunited and it feels so good. Nike and Macy’s are getting back together more than a year after the athleticwear brand stopped selling its apparel to the department store chain as it emphasized direct-to-consumer (DTC) sales and exited what it determined were “undifferentiated” wholesale accounts.
Macy’s chairman and CEO Jeff Gennette, speaking on the retailer’s first-quarter earnings call, said Nike’s apparel is “one of the most important brands for our customer. We had lots of customers that were disappointed that we didn’t carry it over the past year.”
Nike merchandise will be back on Macys.com and in select stores nationwide starting in October with plans to scale up by the spring of 2024. The retailer will carry an expanded selection of apparel including plus sizes for women and big and tall merchandise for men. It will also sell kids’ bags and gear. Select Nike footwear remains available in licensed Finish Line shops inside Macy’s stores.
The 2021 break with Macy’s was part of Nike’s 2017 “Consumer Direct Offense” strategy, which envisioned Nike growing its sales through its own physical and digital DTC channels and in partnership with 40 “strategic” retail partners. At the time, Nike said that the move was necessitated by its conclusion that “undifferentiated, mediocre retail won’t survive.”
Macy’s is not the only retailer where Nike has sought to reset its business.
Foot Locker said in March that it had built closer ties with Nike and expected up to 60 percent of its sales to be tied to the brand within several years.
The retailer, in February of last year, said it expected Nike’s share of its sales to fall to 55 percent in the fourth quarter, down from 68 percent in 2021. It said the decline would result from Nike’s DTC business push and further consolidation of the wholesale accounts it worked with.
“I have spent a great deal of time with Nike, revitalizing our partnership, developing a shared vision of the future marketplace, aligning on growth plans in key strategic areas like basketball, kids and sneaker culture,” said Mary Dillon, Foot Locker’s CEO, during the company’s Investor Day. “We’ve reestablished joint planning as well as data and insight sharing so that we can better serve customers.”
Discussion Questions
DISCUSSION QUESTIONS: Has Nike learned the value of “place” to its products’ sales over the past couple of years? What is your evaluation of Nike’s DTC business?
Poll
Loading …BrainTrust
Liza Amlani
Principal and Founder, Retail Strategy Group
Michael Zakkour
Founder - 5 New Digital &International Marketing Lead at UNILEVER
Yes, it seems that Nike has learned that they cannot live by DTC alone. When Nike announced that they were dramatically cutting their wholesale/retail business, it was a very bold move – too bold. Nike completely underestimated the impact of the retail channel on their sales, and so this change reflects the business realities. The numbers speak for themselves. Nike is re-considering their channel strategy because DTC alone wasn’t delivering the business outcomes it expected.
I have heard from some retailers that lost their Nike partnership that Nike came back pretty quickly, and that the driver was the need to sell slower-moving inventory that Nike could not unload in their stores. Nike was zigging when all other DTC brands were zagging – cutting off relationships right as DTC natives were finding wholesale distribution to be essential.
Predicting omnichannel impact is not a simple case of running the numbers – it’s more like predicting the weather. We have in no way modeled the full impact that each aspect of omnichannel has on consumer behavior, and Nike just proved it.
The term multi channel did a disservice to understanding the Shopper Journey. Shoppers interact with a retailer across multiple touch points, and Nike was probably missing the broad product distribution keeping physically present eyeballs in front of physically present product.
Nike needs wholesale just as much as the retailer needs Nike.
Wholesale is important for any brand that is looking to scale or connect with a market that their own retail strategy can’t penetrate.
Nike needs Macy’s for part of their assortment strategy. They also need Footlocker to tap into the sneakerheads and markets where Nike doesn’t have physical stores.
Wholesale relationships can be a tremendously impactful partnership if both the brand and retailer learn from each other. Customer insights can help drive marketing and product strategies. It can also inform fit, function and aesthetic of products.
I have to believe that pretty much everyone in the retail universe has rediscovered the importance of “place” in the grand scheme of things. It also seems like profitability has taken on renewed importance versus growth. Brands have discovered that it takes a combination of ecomm + physical retail to fully deliver on their brand promise. Customers have discovered that it takes both for the best overall CX. Ultimately, the lesson for both brands and retailers is to choose wisely. CX and profitability are now more important than growth for many brands.
Nike has put great effort into its digital strategy and now has over 160 million members in its loyalty program and they have spent the last few years working on its DTC strategy. Moving forward, Nike needs to continue its strategic partnerships that build off its digital and DTC businesses. Nike’s playbook has worked well for the brand including pulling back wholesale distribution when it did. Now is a great time to methodically add in broader wholesale accounts, although Macy’s is no small step. Nike will make sure its strategic partners share the same brand image. It’s a slam dunk for Nike to expand out its wholesale markets again. The multiple points of entry into a brand play into unified commerce and meeting the customer in their shopping journey.
You’ve got to be where customers are. My activewear wardrobe is mostly Nike, and I haven’t purchased directly from Nike in over 10 years. It makes sense to rationalize your wholesale doors and partner in alignment with your brand values and positioning, but cutting too deep can have serious financial implications beyond the short-term.
The value of ” place’ is one factor. Having working with Nike on some of their channel accounts programs , I learned the importance of retailer sales associates as brand ambassadors. If Macy’s and Foot Locker team members are wearing the latest Nike footwear, they become peer- to- peer advocates. Nike can play a major role in differentiating retailers such as Finish Line to it’s competitors. They used to deliver strategic promotions and merchandising to each . At a higher level, Nike could step up to the challenge of helping department stores and other ” undifferentiated” formats become experiential and even exceptional.
I agree with the points made below but still believe Macy’s needs Nike more than Nike needs Macy’s. From a brand strength perspective, few are in the category of Nike. That said, we know the importance of stores, and providing an assortment that is unique to Macy’s or Foot Locker, for that matter, can create demand that can provide a broader footprint.
Nike has been thrashing for many years. Opening flagship stores and then declaring it didn’t care about most of them (the one in Miami is a very poor use of space with some cool technology to make the customer experience easier), in Amazon, out of Amazon, all DTC, back to wholesaling…..
It’s a brand, and OF COURSE it has to be in retail stores. The footwear business tends to be very cyclical. Nike is very hot now, so it can afford the mistakes it has made business-wise. This will not be true forever. The company should make hay, not thrash like this.
I am not a fan of DTC. I don’t understand why a shopper would go to multiple DTC sites to shop when they could go to just one and see all the brands they might consider.
That being said, Nike had an outstanding 2022 with record revenues and the highest growth rate in over a decade.
I am guessing the adjustment in their marketing has little to do with sales and much more to do with presence. Sneakers rank among the highest in percent of sales that are online. Maybe by returning to some brick presence and mortar, they will convert more shoppers to their DTC site?
Hey Gene. DTC is still a huge part of retail and an important one. My son is a NIKE fanatic an he loves the experience he gets on the Nike site. He also loves going to the physical stores (Nike and other retailers).
No company can survive on DTC alone. The first principle of thee New retail model is full integration of online/offline/technology/content and supply chain and unifying your DTC, B2C, B2B operations.
This quote is interesting “At the time, Nike said that the move was necessitated by its conclusion that “undifferentiated, mediocre retail won’t survive.”
Which is still 100% true, making Macy’s the centerpiece of this article ironic.
Brands as big as Nike need to accept the modern reality that consumers expect them to be everywhere. It’s extremely risky to be such a large name brand and not be available on marketplaces and at multi brand retailers. I’m relieved to see them change their tune on this.
I was intrigued when Nike moved away from third party online outlets – I interpreted it as being a desire for controlling customer experience of their consumers.
What I did not realise at the time that it may also provide them the opportunity to learn more about customers through the data that they can collect.
Nike’s pivot back to wholesale shows that it was difficult to replace lost sales by encouraging customer to shift to Nike’s DTC offering. Retailers need Nike and Nike needs retailers.
If there was much lost sales with the 2022 move to DTC, excluding most wholesale, it sure didn’t show up in revenues or growth.
I do not understand why any brand, let alone Nike, would be so vertically integrated right up to and including selling…you are turning your back on many “moments of truth” where someone convinces themself to purchase your product, instead leaving the door wide open for your competitors. Dumb.
The whole point of Omni-channel is to allow consumers to engage with brands in as many ways as possible. By curtailing their wholesale channel Nike removed products from multiple important cohorts. The path to purchase is fluid and has many touch points.
It was a matter of time. All Nike need do is recognize the number of DTC businesses which are adding retail partnerships for 4 wall expansion, to realize they were headed in the wrong direction. Kudos to them for course correcting quickly. Lessons learned.
Whether Nike has learned this or not is not clear. However, they certainly seem to have been forced back to selling in retail. And that is not the least bit surprising. No massive company in the past 70 years has been able to achieve or maintain size only with direct to consumer.
The more concerning question is: What error inside Nike led it to think DTC was a possible strategy? Unless that error is corrected, their disaster is likely will repeat every decade or so.
Nike is an omnipresent force in the sneaker culture and the athletic footwear arena. While Nike’s strategies to take greater control over its brand narrative, messaging, and social media campaigns have been impressive and paid dividends, increasing the DTC business model has proven challenging. Unfortunately, the increased inflationary pressures and supply chain disruptions have led to an overabundance of Nike products in the marketplace as consumers cut back on their spending.
There has always been a symbiotic relationship between Nike and their retail partners. The wholesale operating model has proven to be highly effective, as retailers offer the scale, reach, and supply chain inventory distribution capabilities to enable the growth that Nike seeks to achieve. There is a clear dependency on the scale and reach that Foot Locker and other retailers have to offer.
Foot Locker was in the process of rationalizing their vendor footprint as Nike pulled back their business. However, Nike and Foot Locker will benefit from the enhanced collaborative model.
Nike is one of the best marketing brands in the world. I was surprised when they changed their focus to DTC. They tried it, and it did not turn out how they wanted. So, what do great brands do? They adapt and change to meet the needs of their customers. I love a win/win/win, and in this case, the retailers who get Nike back on their shelves win, Nike gets back the exposure and distribution that worked in the past, and maybe most important, the customer wins with more opportunity to buy this brand’s excellent merchandise.
NIke is a great example of a company wanting to fully own their brand by bringing it back in house, but during these economic times they just can’t go it alone. Nike should work to improve and strengthen their partnerships and control the brand messaging instead of walking away from high-value distributors.
I may have to upgrade my opinion of macy*s: honestly, of all possible stores where I would have expected Nike to be missed – and make a reappearance – they would have been far down on the list.
As for Nike, for practically any brand retail is at least a somewhat important channel; the idea “we’re too big for that” may have been a little much.
Like many apparel brands, Nike has had to work its way through supply chain issues in past years and misjudging the supply needed to meet demand via their DTC model as well as their remaining wholesale partners. Nike’s long-term DTC strategy was about owning the customer relationship and maintaining a premium on their brand. Did it work? the large number of members in their loyalty program and app ecosystem would suggest it did at least in part, but now they likely have excess merchandise that needs to be sold at a discount to move the inventory. That won’t work within their existing premium brand structure without diluting that brand relationship. At the same time, with shoppers wanting to shop in-store more and more, Nike needs to be present in more physical locations to reach their customers. It’s a win-win for the Macy’s Nike team up!
I doubt there is any retailer or industry specialist who hasn’t gotten something wrong over the past 3 years. Nike’s shift to DTC was bold in light of how the pandemic upended traditional retailers. It was too bold because it was made during a time of unnatural change. Yes, digitization and omnichannel will continue to grow but the lockdown of physical stores was an imposed market condition. Nike is king of the street these days but trends are fickle. Adidas has lost a lot of its brand value in recent times but they were in Nike’s position not that long ago. You only need to watch Air or read Bloomberg’s recent article https://www.bloomberg.com/news/features/2023-05-25/adidas-s-yeezy-mess-has-been-a-billion-dollar-nightmare-for-the-business
Nike has the aspirations to become a digital-first, direct-to-consumer (D2C) company, therefore the brand has accelerated its digital transformation. Nike created and executing two key strategies: the consumer direct offense (CDO) & consumer direct acceleration, and achieved its target of digital penetration.
The brand consider the omni-channel shoppers are more valuable than single-channel ones, therefore the retailer is trying to broaden its ecosystem to its wholesale partners, while keeping the investment in its own digital channels & physical stores. Nike has 30,000 points of distribution, compared to 8,000 of its own stores and looking forward to growth the wholesale channel to reach out to omni-channel customers.
It’s one thing to be bold and take chances in retail, but it’s another thing when you can’t admit you were wrong. Being a retailer and merchant is hard (often thankless) work. There is a reason why manufacturers make stuff and retailers sell stuff. Nike has just learned that one can only go so far without the other.
Our latest research says that over 75% of CPG brands will likely have a DTC sales channel in the next three years. However, less than a tenth of them want it to be the only channel. DTC is a new channel of value, in many ways like Social commerce, but a global leading brand cannot solely rely on it. Accessibility is equally important, where the retail channel plays a big part.
DTC is unpredictable, & inventory is expensive. I think it is the right move to approach the market with a multi-channel strategy because it will help even out lean times & avoid inventory challenges. The Wholesale channel wants Nike product to sell as well, which improves their leverage in key Wholesale relationships, while casting aside the wholesale relationships that are not as advantageous.
Nike, like other retailers, experiments with its strategies from time to time, learning from each endeavor.
Selling products across several brand platforms provides “extra” brand awareness and puts the company’s product at the forefront of customers’ minds. Earlier, Nike underestimated the potential of such an approach, but now they have realized that solely relying on DTC sales is no longer a choice. Depending only on one channel often leads to missed opportunities and significantly hampers brand visibility; after all, “out of sight, out of mind.”
In my opinion, selling through third-party outlets will greatly benefit Nike because they will be able to sell their high-end products from other stores straight to customers.