saucony
saucony
May 5, 2018

How will Nikes direct to consumer strategy affect independent retailers

Paul Sherratt, of Solutions for Sport, takes a closer look at the Nike direct to consumer strategy

In June last year Nike announced a clear strategy to service the end consumer directly.

As I go around visiting retailers the topic has been a discussion point for quite a while now, however this was the first time that Nike had confirmed in public their thoughts on the issue.

The “Consumer Direct Offense” is a new company alignment that allows Nike to better serve the consumer personally, at scale. Leveraging the power of digital, Nike will drive growth — by accelerating innovation and product creation, moving even closer to the consumer through Key Cities, and deepening one-to-one connections.

“The future of sport will be decided by the company that obsesses the needs of the evolving consumer,” said Mark Parker, NIKE, Inc. Chairman, President, and CEO. “Through the Consumer Direct Offense, we’re getting even more aggressive in the digital marketplace, targeting key markets and delivering product faster than ever.”

What about the wholesale strategy?

A few months later and, for the first time ever, during a quarterly figures update, Nike declined to report “future orders,” as a critical measure of wholesale demand from retailers. The Swoosh says the metric doesn’t matter much any more, because now it’s focused on doing business directly with consumers and cutting out the middleman.

By October the strategy became even clearer as the CEO Mark Parker announced a massive shake-up in the footwear giant’s retail business, saying the company will focus investment and resources on just 40 key retail partners.

The company’s current retail network encompasses 30,000 retailers with 110,000 points of distribution. Nike officials said the company won’t necessarily remove Nike products from those other retailers, but over the next several years will focus its resources, marketing efforts and exclusive product offerings on 40 key partners.

UK & Ireland dealers

So the direction is clear.

But where does that leave those existing Nike dealers in the UK & Ireland?

A large number of dealers trading with the brand do so under the Intersport umbrella and certainly, at least in the past, a major reason for being a member of Intersport for many dealers was the ability to access Nike (and adidas) product. If, however, the brand strategy continues to evolve at the pace it has during the past 12 months does it still see Intersport as a key partner?

After all there is no central buying/warehouse for our market and thus, in reality, the brand is dealing directly with many “small spend” customers (outside of DW & Elverys) who don’t appear to be a priority for their future business.

Even if Intersport as a group are in the “group of 40” does that mean that the smaller individual members in our market will get support? Will Nike continue to raise the minimum purchase threshold? Push dealers into a wider range of products that they simply do not want or need?

What future for the group if this happens? - it makes little sense to have a buying group where two members represent 85 per cent plus of revenues.

Do i need nike?

Of course every category is different, but many of the dealers I have visited lately are beginning to look very closely at the product range and assess whether they need Nike or not.

It is true that in many categories there are credible alternative suppliers who offer superior margins, a more personal service and an equal or better product range.

Of course, many of these alternatives do not have the marketing power of Nike and it is often harder to sell these alternatives against the goliath that Nike is. However, there are many dealers who have turned their back on the “big boys”, concentrate on building relationships with brands who they can become important to, and whom are building strong businesses with a long-term core supplier strategy.

What future?

In giving traditional retail the stiff arm the Oregon empire is tearing up the traditional distribution model. The approach is a bold move, but Nike’s numbers show that the bet appears to be working, primarily because Nike has been sharpening its digital game.

CEO Parker has stated that the end goal is to get ahead of the consumer and offer “the most personal, digitally connected experiences” in the industry.

Whether this approach is ultimately successful is open to debate, however, what is clear is that it will be to the detriment of a large number of global Nike dealers who, in the past, have been key in driving the growth of the brand but are now becoming less and less important as core business drivers.

And who knows what impact it will have on the dealers within the UK and Ireland.

And the others?

Of course, Nike are not alone.

For the record, Under Armour is slightly ahead of Nike, with 31 per cent of its sales coming directly from consumers; Adidas is slightly behind, with 23 per cent of revenue from retail. At its current pace, Nike will soon be collecting one in three of its sales dollars directly from consumers.

Its challenge will be making sure that none of them get too good a deal.

The challenge for many dealers will be whether they can live without these major brands.

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