nike direct to consumer case study

Nike E-Commerce: How Nike’s D2C Strategy Hits 50% Digital Penetration

• by Editorial Team
• Jan 14, 2022
• 10 min read

This article is part of Commerce 4.0 , a series about the next frontier of e-commerce along with the strategies and tactics used by iconic brands to transform how we discover, select, and purchase products.

Nike , the largest seller of athletic footwear and apparel in the world, has never been shy about its aspirations of becoming a digital-first, direct-to-consumer (D2C) company. Over the years, Nike has accelerated its digital transformation by expanding its global supply chain and making “ significant investments in digital technologies and information systems” to power D2C e-commerce .

As part of its D2C push, Nike set out to reach 30% digital penetration by 2023, meaning 30% of total sales would be Nike e-commerce revenue. However, Nike blew past that goal two years ahead of schedule. It now expects its overall business to reach 50% digital penetration in 2022 .

Meanwhile, total D2C sales have soared from $2.5 billion in 2010 to $16.4 billion in 2021. And, over the trailing 12 months, the company generated a staggering $46.2 billion in total sales, putting it on track to meet its lofty goal of $50 billion in 2022 .

In this Commerce 4.0 profile, we’ll review Nike’s digital strategy that serves as its foundation for continued success in e-commerce. We’ll also explore the tactics Nike implemented to realize its mission of driving growth through digital and direct-to-consumer initiatives.

Nike E-Commerce Growth Strategy

The world’s largest sportswear brand has rapidly evolved from a traditional marketing-first retailer into a D2C juggernaut by creating and executing two key strategies: the Consumer Direct Offense (CDO) and Consumer Direct Acceleration.

Consumer Direct Offense

Much of the company’s recent success can be attributed to Nike’s company-wide strategy since 2017, aptly named the Consumer Direct Offense (CDO) . Executing the plan has allowed Nike to completely change its business model, shifting away from the lagging wholesale distribution business toward high-growth direct sales to consumers.

Over the last few years, the company has said goodbye to many long-time wholesale partners including Macy’s, Urban Outfitters, Shoe Show, Dunham’s Sports, Dillard’s, Fred Meyer, and Zappos. Nike also ended a high-profile partnership with Amazon after a two-year pilot program, even though Nike products are still among the top 200 most-searched keywords on Amazon.

Instead of working with these partners, Nike is focusing the majority of its efforts on D2C. Leveraging the power of digital has created a much faster pipeline to better serve Nike’s customers personally, and at scale, with tenets outlined in the CDO.

The Consumer Direct Offense involves:

• Accelerating innovation and product creation
• Moving closer to consumers by growing operations in 12 key cities across ten countries
• Deepening one-to-one connections with interactive experiences across different channels

Consumer Direct Acceleration

In 2020, the company announced the Consumer Direct Acceleration , the newest phase of the CDO. This latest strategy involves several initiatives.

The first is to create the connected digital marketplace of the future , which focuses on developing a premium and seamless brand experience wherever customers shop. This leads with digital, online-to-offline services, as well as physical experiences through store concepts such as Nike House of Innovation , Nike Rise , Nike Live , and Nike Unite .

The second is to operate under a more straightforward consumer construct of men’s, women’s, and kid’s categories. Nike’s customers are not just runners or yoga practitioners, so broadening the categories allows Nike to create products with deeper insights and drive even greater specialization. The shift in consumer construct touches every area of the business, including innovation, product creation, marketing, merchandising, and distribution.

Finally, the third is to aggressively invest in digital capabilities in their end-to-end technology foundation to accelerate digital transformation. To date, this has included demand sensing , insight gathering , inventory management , and more.

Nike E-Commerce Growth Tactics

There are many valuable lessons to take away from Nike’s pivot from wholesale distribution to D2C. But, looking back, several critical decisions were made that directly led to the company’s extraordinary results, including:

• Investing in key technologies
• Building a headless commerce platform
• Strengthening the supply chain
• Pivoting with changes in leadership

Without these critical decisions, Nike would not have transformed into the technology-first company it is today and exceed expectations in terms of digital penetration. Below, we will explore each of these choices to see how they contributed to the company’s digital resurgence.

Tactic #1: Investing in key technologies

Nike has been investing aggressively in technologies to further its leadership position. Over the last several years, the company has made several key acquisitions of technology startups to help boost its digital capabilities.

Predictive analytics

Nike acquired the data analytics company Zodiac , a predictive customer analytics platform, in 2018. The platform forecasts the behavior of individual customers and customer segments and uses a company’s historical transaction logs to predict each customer’s future buying habits.

Zodiac’s predictions improve customer acquisition, reduce churn, and enhance the accuracy of sales forecasts. This technology has been important for Nike’s apps—SNKRS, Training Club, Run Club, and its commerce app—which have helped drive immense value for the company. According to John Donahoe, “a consumer who connects with us on two or more platforms has a lifetime value that’s four times higher than those who don’t.”

In addition to data analytics, demand forecasting for retailers is an inexact science that’s notoriously crude and error-prone. To help address this issue, Nike acquired Celect , a demand sensing firm based in Boston, in August 2019. The company’s cloud-based analytics platform provides proprietary insights that allow retailers to optimize inventory across an omnichannel environment through hyper-local demand predictions.

The goal is to integrate the technology into Nike’s mobile apps and website, which would allow them to predict what styles of sneakers and apparel customers want, when they want them, and where they want to buy them from.

Computer vision

Another acquisition is Invertex Ltd., a leading computer vision firm based in Tel Aviv, Israel. Invertex was acquired by Nike in 2018 and specializes in 3-D foot scanning. It even created the FeetID system , which includes an in-store unit that can precisely measure and 3-D-scan a shopper’s feet and send the data directly to their mobile phone within seconds.

According to co-founder David Bleicher, “Invertex’s combination of powerful deep learning and augmented reality, combined with its 3-D body scanning technology and domain expertise, have created the world’s most accurate body-based match engine for footwear.”

Data integration

Nike’s most recent acquisition is Datalogue, which it acquired in February 2021 . The company has “built cutting-edge and proprietary machine-learning technology that automates data preparation and integration.” This latest acquisition will help Nike integrate data from all sources—including the company’s app ecosystem, supply chain, and enterprise data—in a fast, seamless, easily accessible, and standardized platform.

Tactic #2: Building a headless commerce platform

Nike has also invested in custom software to create Nike’s e-commerce platform that is powered by headless commerce , cloud-native technology, and microservices . Early on, Nike recognized that technology was a strategic priority and began shifting its focus to transforming the entire tech stack of the organization.

Nike software engineers carefully examined many areas of the company’s engineering organization where off-the-shelf vendor software was routinely used and found that, in many cases, the software did not meet their strategic needs for functionality, security, or scale.

At the time, commerce-in-a-box solutions for enterprises were slow, prone to problems, difficult to scale, and wholly inadequate for a company the size of Nike. Today’s commerce platform-as-a-service (PaaS) providers would have supported all of Nike’s use cases and allowed it to focus on its core IP instead of managing technology infrastructure and services. However, these platforms were still years away from development.

As a result, Nike engineered its own solutions from the ground up. Its engineering teams aggressively marched towards cloud-native, microservice architecture and developed cloud-based software, resulting in cutting-edge applications and platforms that serve at a global scale. These investments enabled speed, scale, and stability across the enterprise.

In addition, they helped ramp up its backend capabilities to capture more of the demand generated from its industry-leading personal experiences.

According to Murali Narahari, Nike’s Director of Engineering, Shared Commerce, and Retail:

“Over the last five years, we have re-imagined our entire technology stack using observability, security, reliability, availability, and performance as core principles for software development.”

Tactic #3: Strengthening the supply chain

Nike’s products are sold directly to consumers through: Nike-owned retail stores; Nike-owned digital platforms; retail accounts; and a mix of independent distributors, licensees, and sales representatives in practically every country around the world. Simply put, getting Nike’s vast catalog of products to its customers requires a robust and highly complex supply chain strategy .

Not surprisingly, the company has invested heavily in IT systems ( p.16 ) to beef up its supply chain. Key areas include product design, production, forecasting, ordering, manufacturing, transportation, sales, distribution, and processing financial information for external and internal reporting purposes, retail operations, and other business activities.

Manufacturing

Independent contractors manufacture virtually all of Nike’s products. In an effort to be transparent, the company releases up-to-date data on the independent factories and material suppliers used to manufacture Nike products, including the name and location of each factory and the products they produce. As of August 2021 , 193 footwear factories in 14 countries and 342 apparel factories in 33 countries supplied the company.

Nike has been actively developing new technologies to enhance its manufacturing business model with investments in automation, modernization, sustainability, and innovative new manufacturing methods.

For example, Flyknit is a digitally engineered knitting process used to manufacture shoes that produce 60% less waste than traditional cut-and-sew methods. Nike has also invested in 3D printing technology for years and announced the Flyprint in 2018, the world’s first 3D-printed textile upper in performance footwear.

Fulfillment

As part of the CDO strategy, Nike has been trying to improve the speed and efficiency of its fulfillment capabilities. For example, in response to the global pandemic, Nike tripled its digital fulfillment capacity across North American, European, Middle Eastern, and African markets last year. The company also opened a U.S. fulfillment center in Los Angeles and ramped up in time to reduce fulfillment costs per unit on West Coast shipments before the holidays in 2020.

Increasing total fulfillment capacity has also included the introduction of robots to fulfillment operations. In 2020, Nike developed more than 200 robots in collaboration with Geek+ and met the rapid growth in e-commerce while also mitigating labor shortages and high labor wages.

Supply chain challenges

Disruptions are testing the resiliency of Nike’s supply chain. Container shortages, transportation delays, and U.S. port congestion interrupted the flow of their inventory last year. In addition, government-mandated COVID-19 lockdowns in Vietnam and Indonesia also caused inventory issues. In response, Nike maximized its footwear production capacity in other countries and shifted apparel production to countries like Indonesia and China to offset the impact of the shortages.

The good news is that consumer demand has never been higher , which will likely help accelerate the company’s D2C strategy . Moreover, according to Nike’s CFO Matt Friend, the temporary supply chain disruptions will likely trigger an even greater acceleration in the transformation of the marketplace—toward Nike and their most critical wholesale partners.

Tactic #4: Pivoting with changes in leadership

When Nike announced that John Donahoe would become the company’s third President and CEO, many people were surprised to learn that a career technology executive was taking the reins of the iconic sports apparel brand.

Donahoe, who served on Nike’s board since 2014, was the former President and CEO of Bain & Company, eBay, and ServiceNow, and still currently serves as the Chairman of the Board of PayPal Holdings.

After serving as Nike’s Chairman, President, and CEO for 14 years , this well-publicized transition of power allowed Mark Parker to relinquish his day-to-day management duties and step into an Executive Chairman position within the company. More importantly, Donohoe’s carefully planned appointment as CEO made it clear that Nike would not be making any drastic or significant shifts in its strategy and would safely stay the course with its new leadership.

According to former CEO Mark Parker, “Donahoe’s expertise in digital commerce, technology, global strategy, and leadership—combined with his strong relationship with the brand—make him ideally suited to accelerate our digital transformation and build on the positive impact of our Consumer Direct Offense.”

However, even though Donahoe is a strong choice for the company to continue executing its plans, he is making moves with other leadership changes to try and accelerate Nike’s growth with the Consumer Direct Acceleration strategy.

Nike recently announced a series of senior leadership changes shortly after he became the CEO. The company also shuffled the management team and announced massive job cuts, which resulted in “one-time employee termination costs of approximately $200 million to $250 million.”

More recently, a Nike VP/GM that oversaw the brand’s North America business stepped down from her position after a Bloomberg Businessweek story uncovered her son’s sneaker resale operation. Sarah Mensah immediately replaced her and was named the VP/GM of North America.

With these leadership changes in place, and with Donahue’s recent appointment as CEO, it will be interesting to see how fast and how far Nike can take its digital transformation.

The Future of Nike E-Commerce

It’s not easy to replicate Nike’s digital transformation strategy. Scale matters, and with the company’s breadth and depth, no one has the advantage in this space that Nike has to connect with consumers directly. Nike’s size, products, brand strength, direct consumer relationships, and ability to create seamless and differentiated shopping experiences is how it has set itself apart from competitors such as Adidas and Under Armour.

The company recently filed trademark applications that indicate it might sell digital versions of its sneakers, clothing, and other goods in virtual worlds, such as videogames or other online platforms. Perhaps it sees blockchain technology as yet another opportunity to deepen connections with its customers.

However, the company understands that it’s in the midst of a multi-year journey with lots of opportunities ahead, which is why the company isn’t resting on its laurels. According to CEO John Donahoe, “While we’ve had tremendous success in digital and quickly pivoted to the accelerated consumer shift, I truly believe that Nike is just scratching the surface of what’s possible.”

Key Takeaways

• Executing on Nike’s Consumer Direct Offense strategy has transformed the company from a traditional marketing-first retailer into a massive D2C technology juggernaut.
• Key technology acquisitions and investments in cloud-native microservices that power Nike’s e-commerce platform have increased the lifetime value of customers.
• Nike engineered its own e-commerce platform since no flexible, headless commerce solution was available years ago.
• New President and CEO John Donahoe is attempting to push digital transformation forward with leadership changes and the Consumer Direct Acceleration strategy.

Digital content editorial team @ fabric.

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Künstliche Intelligenz in Unternehmen: Innovative Anwendungen in 50 erfolgreichen Firmen

Der Bestsellerautor und Geschäfts renommierter KI-Experte Bernard zeigt, wie sterben Technologie des maschinellen Lernens das von Unternehmen verändert. Das Buch bietet einen Überblick über einzelne Unternehmen, beschreibt das spezifische Problem und erklärt, wie KI die Lösung erleichtert. Jede Fallstudie bietet einen umfassenden Einblick, der einige technische Details wichtige Lernzusammenfassungen enthält. Marrs Buch ist eine aufschlussreiche und informative Untersuchung der transformativen Kraft der Technologie in der Wirtschaft des 21. Jahrhunderts.

Bernard Marr

Bernard Marr is a world-renowned futurist, influencer and thought leader in the fields of business and technology, with a passion for using technology for the good of humanity. He is a best-selling author of over 20 books, writes a regular column for Forbes and advises and coaches many of the world’s best-known organisations. He has a combined following of 4 million people across his social media channels and newsletters and was ranked by LinkedIn as one of the top 5 business influencers in the world.

Bernard’s latest books are ‘Future Skills’, ‘The Future Internet’, ‘Business Trends in Practice’ and ‘ Generative AI in Practice ’.

Bernard Marr ist ein weltbekannter Futurist, Influencer und Vordenker in den Bereichen Wirtschaft und Technologie mit einer Leidenschaft für den Einsatz von Technologie zum Wohle der Menschheit. Er ist Bestsellerautor von 20 Büchern, schreibt eine regelmäßige Kolumne für Forbes und berät und coacht viele der weltweit bekanntesten Organisationen. Er hat über 2 Millionen Social-Media-Follower, 1 Million Newsletter-Abonnenten und wurde von LinkedIn als einer der Top-5-Business-Influencer der Welt und von Xing als Top Mind 2021 ausgezeichnet.

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How Nike Is Using Data to Sell Directly to Customers

24 March 2022

Nike is successfully transforming from a traditional consumer goods business into a digital direct-to-consumer company. Find out how Nike’s DTC sales have skyrocketed as the company focuses on big data and predictive analytics.

Leading footwear and apparel company Nike has been ahead of the game for years, inspiring millions of other companies to follow their strategies for accelerating growth.

Now, nearly 60 years after its founding, Nike is not just an innovator in sports science – they’re also leading the way in using artificial intelligence and predictive analytics to sell directly to consumers.

In June 2020, Nike announced the launch of its Consumer Direct Acceleration strategy to speed up direct-to-consumer (DTC) sales.

Their initiatives are clearly working. In 2011, DTC sales accounted for 16% of Nike brand revenue (or $2.9 billion of the total revenue of $18.1 billion). By the end of the 2020 fiscal year, DTC sales had grown to 35% of overall sales, or $12.4 billion.

This bump in DTC sales is driven by Nike’s new formula for growth, which focuses on building a data-centric organization that can compete with existing e-commerce giants like Amazon.

Let’s take a look at how Nike is making the successful transition to direct-to-consumer sales and how data science fits into their plan to enhance the customer experience and boost profits.

A Wellspring of Customer Data

Nike offers sales support, workouts, training programs, and loyalty incentives through a large array of apps. These apps allow Nike to optimize the consumer experience, but they also provide Nike with a veritable treasure trove of incredibly valuable customer data.

The Nike Fit app creates a digital picture of a customer’s foot using a combination of computer vision, artificial intelligence, and machine learning – then uses that picture to make informed product recommendations to the consumer. Long term, this intelligence on people’s feet also helps Nike create better shoes!

Nike uses their data to serve customers more targeted offers, including products and services. Through the Nike Plus rewards program, customers can get access to personalized workouts and sports experts.

Predictive Analytics

Nike acquired two predictive analytics companies – Zodiac and Celect – in 2018 and 2019, respectively. These solutions help Nike crunch data from their apps and from IoT devices like Fitbits and use that data to understand customer habits and predict purchasing behavior. For instance, Nike now incorporates Zodiac’s marketing data into its app to serve up personalized content and make product recommendations.

Using Celect’s inventory management tools, Nike can now anticipate consumer demand and determine what products they should produce and where those products should be sold. Nike's hyper-local approach to inventory management ensures the customers can always find what they need and be able to purchase the items they're most interested in.

Making Data-Driven Decisions at the Highest Levels

Nike’s data analytics systems are fully integrated, so business leaders can use predictive data – including purchase patterns and social media behavior – to anticipate customer needs, create better products and services, and improve business processes. Every member of Nike’s senior leadership team has access to a personalized analytics dashboard and data visualization tools that are customized for their decision-making needs.

Nike’s Data-Driven DTC Initiatives

As new startups continue to enter the apparel industry, Nike has chosen to defend its mega-giant status by investing heavily in Big Data and AI to better understand its customer journey and capitalize on DTC revenue streams.

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Bernard Marr is a world-renowned futurist, influencer and thought leader in the fields of business and technology, with a passion for using technology for the good of humanity.

He is a best-selling author of over 20 books, writes a regular column for Forbes and advises and coaches many of the world’s best-known organisations.

He has a combined following of 4 million people across his social media channels and newsletters and was ranked by LinkedIn as one of the top 5 business influencers in the world.

Bernard’s latest book is ‘ Generative AI in Practice ’.

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How Nike’s Direct-to-Consumer Plan Is Crushing the Competition

Hilary George-Parkin

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In June 2017, Nike outlined a new strategy to drive growth into the coming decade, which it called Consumer Direct Offense. The pillars of the plan included focusing on key cities , ramping up its innovation pipeline, editing its product catalog while offering a deeper selection of its best-performing styles and enhancing its digital efforts with mobile as the primary channel.

Today, it’s clear the brand has more than made good on its goals: Its stock has risen more than 73% since then, reaching all-time highs this week on the back of impressive earnings. Its revenues, too, soared to $10.7 billion in the first quarter, with digital up a staggering 42%.

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“The key to expanding our competitive edge continues to be our total commitment to the consumer through the consumer-direct offense,” Nike CEO Mark Parker said on a call with investors and analysts Tuesday. “We’re focused. We’re investing in our brand in key markets and we’re accelerating in the high growth dimensions of our business. And that’s especially important in the volatile macroeconomic and geopolitical environment that we see today.”

Watch on FN

The approach has meant that Nike has intentionally choked off its business with what it calls “undifferentiated multi-brand wholesale” partners while doubling down on direct retail and key accounts such as Foot Locker , JD.com, Amazon and Zalando in what Parker called “a tale of two cities.”

This is bad news for so-called mediocre retailers who were once able to rely on a heavyweight like Nike for top-selling product. These companies now have to compete with the Portland-based giant’s well-financed direct channels for consumer dollars.

It’s great news, though, for the “differentiated” retail partners who made the cut, because Nike said this segment saw high single-digit growth during the first quarter . Foot Locker, for instance, last month became the first third-party retailer to integrate the Nike app into one of its stores, allowing shoppers to scan products to pull up inventory and product information, win free merchandise and get access to exclusive releases. Nike, for its part, is also investing heavily in its app, growing the platform by almost triple digits in the quarter — and this is before it goes live in China over the holiday season.

“The company continues to take share by delivering more compelling innovation at a faster pace than competitors and continuing to enhance customer engagement via digital platforms,” Susquehanna International Group LLP analysts led by Sam Poser wrote in a Wednesday note. “Nike’s increasing digital prowess, scaling of new and existing product platforms, as well as increasing speed-to-market capabilities are leading to improved full-price sell-through across the globe.”

Here, as Poser suggests, Nike is besting its rivals: Under Armour has said in several recent earnings calls that its direct-to-consumer business has been weaker than expected, with North America sales slipping 3.2% last quarter on falling traffic in stores. And while Adidas’ investments in its direct-to-consumer business are paying off, resulting in double-digit growth in 2018, Nike is seeing even larger gains.

Cowen analyst John Kernan also pointed to Nike’s recent personalization-driven M&A activity. “Transformational growth and investments are extending Nike’s competitive advantage, particularly with its acquisition of retail predictive analytics and demand-sensing company Celect in Q1,” he wrote. “Nike’s technology investments and acquisitions in the data science field will support Nike’s ability to read and react to digital demand signals and increase full-price selling.”

“With the acquisition of Celect, Nike greatly accelerates our digital advantage by adding a platform developed by world-class data scientists,” Nike COO Eric Sprunk said in a statement announcing the deal. “As demand for our product grows, we must be insight-driven, data-optimized and hyper-focused on consumer behavior. This is how we serve consumers more personally at scale.”

Scale is important for a behemoth like Nike, which now has a market cap of nearly $144 billion; in comparison, Adidas has a market cap of $53 billion while Under Armour’s is at $8.5 billion. It will become even more essential as it seeks to grow across markets, which it is had done successfully this year: Its sales in China were up 27% in the first quarter, while its North America business grew 4%. While its focus on connecting directly with the consumer is already leading to improved margins, Nike seems to understand that its real value may be in forging deeper loyalties over time.

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The Radical Strategy That Drove Nike’s Pandemic Success

• Doug Stephens

Amid the sea of turmoil in the retail sector and the weekly waves of disastrous news, at least one brand is not merely staying afloat but thriving. Nike has not only endured the crisis but also managed to accelerate through it. But far from being the result of a desperate pandemic-induced pivot or some happy accident, the seeds of Nike’s current resilience were planted deep into its strategy several years ago.

With a big unveiling on October 25th, 2017, with his company’s stock trading at roughly $51, then chief executive Mark Parker committed corporate suicide. At least that’s what many believed at the time. Because it was on that day that Parker revealed a dramatic culling of Nike’s distribution network. Out of a roster of more than 30,000 retail partners, Parker declared that the Nike brand would focus its time, attention and financial resources on a mere 40 of them. Relationships with the rest, comprising what Parker called “undifferentiated retail,” were very publicly cut off or pared back. Where most CEOs are reticent to fire even a single customer, Parker had just pink-slipped thousands in a single day.

The crucial realisation driving the decision was that while Nike was spending billions to pump equity into its brand, sub-optimal customer experiences at the hands of lacklustre merchants were simultaneously undermining the brand’s equity with consumers. While Nike worked to convince its customers that its products were unique, they were all too often being dumped next to competing labels in a manner suggesting anything but premium or exclusive positioning.

Parker knew that if Nike was to succeed it had to partner only with those retailers that had both the means and the desire to create more fulsome Nike buying experiences. Monies and effort previously squandered on counterproductive distribution would be redirected to what Nike was calling its “Consumer Direct Offense” — a radical strategic move away from wholesale distribution announced in June of the same year.

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In a growth-at-all-costs retail world, Parker had stuck a finger in the eye of both investors and distribution partners, boldly launching what Nike captioned its “Triple Double Strategy” — doubling its innovation efforts, doubling its speed to market and doubling its direct connection to consumers.

With that, the brand poured itself into direct-to-consumer sales and in 2017 established a direct-to-consumer sales target of 33 percent of total volume by 2022. By 2019, three years ahead of plan, Nike achieved that goal. In fact, by that time, Nike’s direct-to-consumer trade was achieving a percentage growth rate more than double that of its wholesale volume.

Whether anyone at Nike was conscious of it or not, the organisation had awakened to a momentous reality: that wholesale was largely a manifestation of the industrialised era of retail, a time where true scale, for any brand, could only be achieved through vast networks of indirect retail distribution. Wholesale was, at its core, a devil’s bargain that often came with commodification, brand dilution and a fracturing of the relationship with the end customer. But it was all part of a dance that virtually all brands engaged in. Not because they liked the music or their dance partners, but out of pure necessity.

Wholesale was a devil’s bargain that often came with brand dilution.

By 2017 however, technology and innovation had brought Nike and every other brand full circle, to a place where relationships with individual consumers could indeed be directly formed, nurtured and well-serviced. A time where one pair of running shoes could be made in a bespoke fashion and created at scale. Research also pointed quite clearly in favour of direct selling. A focus on direct-to-consumer sales would — according to credible studies — generate up to 86 percent more revenue than through their wholesale channels, with better margins. All while retaining brand equity and achieving superior customer satisfaction.

At the time, all brands could vividly see these opportunities beckoning. Hardly a week went by between 2017 and now that I haven’t listened to a brand bemoan its hostage-like wholesale situation. Most threatened to launch direct-to-consumer efforts. But while the majority ruminated, vacillated and procrastinated, Nike Just Did It, setting off a brand reinvention that would pay dividends years later, when they needed it most.

The Everything (Except Nike) Store

Almost exactly two years after Parker’s Consumer Direct Offense was unveiled, Nike divorced yet another customer… Amazon. Referring to its work with Amazon as a “pilot project,” aimed at giving Nike more control over grey market and counterfeit Nike items being sold on Amazon, the brand ultimately decided to sever the arrangement .

According to those close to the breakup, even becoming part of Amazon’s brand registry program couldn’t allay the endless stream of third-party merchants that, who, like a game of whack-a-mole, would get whacked, only to pop up again on the platform under a different name. Nike faced a decision. It could either continue the charade or once again reclaim the resources being dumped into Amazon, and instead redeploy them to its direct-to-consumer channel. It chose the latter and never looked back.

Flipping the Funnel

By 2018, Nike began challenging retail paradigms in the physical realm. Its new House of Innovation 000 design in New York City departed entirely from anything the brand had done before. With a deep focus on hands-on engagement and product customisation, Nike’s stores were no longer the well-lit, mini warehouses that most big box shoe stores had become. Instead, Nike was creating beautiful and dramatic stages upon which its powerful brand and product stories could be told. Customers across major cities could not only see the unique store experience but become part of it, engage in it, play and be inspired by it. By October of the same year, House of Innovation 001 opened in Shanghai. But they didn’t stop to congratulate themselves. Instead, they continued to poke at the universe, and this time on a smaller scale.

Nike’s next innovative incarnation was a concept called Nike Live, a small, local and heavily technologically-integrated retail space, the prototype for which is located on Melrose Avenue in Los Angeles. What few recognised at the time was that the store was designed to be as much a hyper-local data point as it was a distribution point. Data from in-app transactions as well as in-store experiences would be parsed and deciphered into highly localised and curated selections of products, as well as unique and technologically integrated member services, such as curbside pick-up and returns, in-store events and even free products. Most notable however was the fact that the Nike By Melrose store was converting shoppers into Nike Plus members at a pace 6 times greater than any other Nike stores. Even more stunning perhaps was the fact that customers that visited the physical store prior to buying online spent 30 percent more on average than customers who enjoyed no such physical experience.

The store was no longer the end of the marketing funnel. It was the beginning.

What Nike had locked onto was a simple yet profound idea and something I wrote about at length in my 2017 book Reengineering Retail . They realised that stores were no longer simply distribution points for products. Brick-and-mortar spaces had indeed become powerful acquisition points for customers. In fact, physical stores had emerged as the most effective means of drawing shoppers into the brand ecosystem. Once acquired, shoppers could operate across any number of channels, all elegantly woven together with branded technology. Physical stores had become a media channel and media had become the store. Where the retail industry had spent centuries using media to drive people to stores, the future would be about using stores to drive people to media. The store was no longer the end of the marketing funnel. It was the beginning. And Nike knew it.

Tech as a Tether

Unlike so many other brands, Nike’s foray into technology was not simply a table-stakes move with the goal of “omni-channel” sales.

Instead, three consistent themes rang through every one of Nike’s technological endeavours: customisation, community and content. Whether through its Nike Running or Training Club, the subtext was always clear. Individuals with unique personal goals and achievements, brought together to form a global community of athletes, fed a never-ending stream of rich, powerful and inspiring stories of human performance.

Put a different way, Nike never viewed technology as simply another channel for transactions, but rather a means of creating an ongoing connection with their customers, while also connecting their customers to the community. The simple goal being, to create a specialty app that is so good it gets real estate on home screens. With over 100 million Nike+ members, logging billions of hours of workouts, and an in-app average spend that is three times greater than on Nike.com, it’s was clear that the company and its app developers had hit the mark.

The True Product

In October of 2020, Nike competitor Under Armour announced that, like its swoosh-brandishing nemesis, it too would begin to trim its wholesale customer counts. As Nike had done three years earlier, Under Armour declared that it would exit thousands of its wholesale agreements to redouble its focus on its direct-to-consumer channel.

But what Under Armour will learn, if they don’t know it already, is that the foundation of Nike’s success extends far deeper than simply exiting or reducing wholesale relationships. Their resilience has much more to do with what Nike, unlike most apparel companies, sees as being its core product.

For most brands, the product is very clearly the physical objects they sell: shoes, apparel and accessories. For Nike it’s something much bigger. It’s about powerful human ideas. When we buy Nike, we’re buying into a cultural story. It may be a story about social justice and equality. It may be a story about perseverance against the odds, as was the theme of their memorable Find Your Greatness campaign. Or it may be a story about the many failures we all (even legends like Michael Jordan) experience en route to victory.

Nike is, above all else, a master storyteller that also happens to make well-designed products; products that become an emblem declaring one’s cultural alignment with the brand. The actual things Nike sells are simply the outward symbolism of that cultural affiliation. Thus, the relationship with a brand like Nike becomes transformational where the relationship with brands like Under Armour remains purely transactional.

Today, amid the pandemic, Nike’s stock sits at roughly $135 per share, a 150 percent increase in value since Parker’s momentous announcement in 2017. While Nike could never have predicted the pandemic, the decisions it made almost four years ago, have powered its performance through it and provided a roadmap for others.

The lessons for retailers across categories are clear. First, no single customer or level of sales volume is worth sacrificing your brand. The brand is really all you have. Second, direct-to-consumer sales aren’t a departure from the norm but rather a return to the way retail was done for millennia. Wholesale was the aberration.

Moreover, the true (and perhaps only) value of a brand rests in the power of the stories it tells. Lose the story and you lose the brand. Lose the brand and you lose everything. And lastly, while media in every form is now “the store,” physical stores have become the most powerful media channel on earth, real life stages from which those unique brand stories can be told.

Doug Stephens is the Founder of Retail Prophet and the author of three books on the future of retail, including the forthcoming ‘Resurrecting Retail: The Future of Business in a Post-Pandemic World.’

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Inside Nike’s Radical Direct-to-Consumer Strategy — Download the Case Study

Despite Setbacks, Nike Is Scoring with Direct-to-Consumer ‘Offense’

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Unbundling Nike: How Direct-To-Consumer Retail Is Being Disrupted

• December 20, 2021
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Traditional retailers are shifting more focus to direct-to-consumer channels, and Nike has been no exception. From demand planning to metaverses, here's how brands are unbundling the sportswear giant.

American sportswear retailer Nike has made strides to position itself to pioneer the next era of direct-to-consumer (DTC) selling.

In 2021 so far, the company has grown its direct-to-consumer sales to 39% of its Nike brand revenues — up from 16% a decade ago. By 2025, DTC sales are expected to account for more than half of revenues, based on the company’s growth outlook.

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Aiming to deliver a more consistent experience and deeper connections with consumers, Nike has shifted away from wholesale partners, toward its own distribution. The company has constructed a technology ecosystem to support its shift to DTC, investing in technology and distribution and acquiring start-ups with expertise in content creation to data analysis.

DTC sales offer deeper insights into customer data that can be used to enhance the customer experience. In going direct, brands like Nike have greater access to its customers and by layering on customer analytics further allows them to effectively market, merchandise, promote and launch new products to satisfy customers’ demands.

Below, we look at how companies are unbundling Nike, from customer data platforms to fulfillment and logistics.

Note: This graphic is not exhaustive of the space. Categories are not mutually exclusive.

Category breakdown

We categorize technologies and products unbundling Nike across 3 segments:

• Product management & visualization: This segment includes new ways to present traditional retail products, leveraging tools like inventory management and merchandising tech.
• Digital shopper experiences: This segment features customer engagement tools to enable omnichannel and personalized customer experiences, to help brands better engage their audiences.
• E-commerce enablement: This segment features companies that enable and streamline online retail sales.

Product management & visualization

Inventory management & merchandising.

As supply chain issues and unpredictable demand remain ongoing, retailers need a dynamic, tech-enabled approach to inventory planning. Companies in this category use predictive analytics and demand forecasting tools to help predict future consumer buying patterns, both online and in-store.

Notably, in August 2019, Nike acquired Celect , a retail predictive analytics and demand sensing company. 

• Companies like Toolio and Brightpearl offer merchandising and inventory planning software. Toolio, co-founded by ex-Walmart employees , provides its commerce enablement platform to retailers like Chubbies , Mack Weldon , and Rothy’s .
• H ivery is focused on AI-driven category and merchandising simulation and assortment optimization solutions that are used by Merchandise Directors, Retail Buyers, and Category Managers among others.

For a more in-depth look at startups boosting retail store efficiency and productivity, check out our market map of brands boosting performance at the shelf .

VIRTUAL TRY-ON

The global virtual fitting room market is expected to grow from $3.4B in 2020 to a $19.3B industry by 2030 , according to CB Insights’ Industry Analyst Consensus. The technology has become especially popular during the pandemic as a way to boost online conversion rates and reduce returns.

3DLOOK and Perfitly use AI to convert 2D photos of people into 3D custom avatars that can be used to virtually try on clothes and provide size recommendations. 

3D DIGITAL CONTENT

Shoppers are searching for more effective ways to experience products online and buy with confidence. To improve the online experience, startups here are using visual technology to improve designing and prototyping.

ThreeKit uses product information and design files to inexpensively create unlimited interactive 3D, AR, and photorealistic 2D visuals. The company claims its customers see higher conversions, reduced returns, and reduced photography costs. Among its customers are Crate & Barrel, Herman Miller, and California Closets.  

Digital shopper experiences

Conversational commerce.

Conversational commerce makes the shopping experience more personal by leveraging messaging apps for convenience, personalization, and decision support to consumers. While the tech was once used exclusively for customer service, startups today are integrating existing e-commerce, chat apps, and bots into one interface. 

• Germany-based Charles and UK-based Blueprint offer software and commerce integrations to help brands sell via WhatsApp and other messenger apps. Blueprint’s solution sends replenishment reminders with pre-loaded checkout links to speed up future purchases.
• Yalo uses AI to enable businesses to communicate and transact directly with customers. In May 2021 the company raised $50M in a Series C led by Sierra Ventures. Its customers include Coca-Cola, Unilever, and Nike. 

CUSTOMER DATA ANALYTICS

Consumer data platforms (CDP) and vendors offer solutions for ingesting different datasets to create unified shopper profiles, optimizing cross-channel messaging and improving customer segmentation. AI-powered CDPs can help retailers unify and deduplicate shopper profiles, cluster similar shoppers together, and generate advanced business and operational insights.

In February 2021, Nike acquired data integration platform Datalogue to pull data from multiple sources — including the company’s app ecosystem and supply chain — to glean deeper customer insights.

• mParticle helps retailers simplify their customer data architecture by connecting and cleaning data from disparate sources. One of the most well-funded companies in the space, mParticle raised a $150M Series E in October 2021, receiving investment from Greylock Partners, Google Ventures, and Bowery Capital, among others. 
• ActionIQ stitches together first- and third-party data to personalize the customer experience. The company has received investment from Sequoia Capital and Andreesen Horowitz, and its clients include Shopify, Neiman Marcus, and Michael Kors .

MARKETING AUTOMATION

Marketing automation software automates repetitive tasks such as email marketing, social media posting, and ad campaigns. 

With e-commerce growing at a staggering rate, brands and retailers are grappling with reaching, engaging, and converting customers shopping across a variety of channels. Omnichannel customer engagement platforms can help marketers reach the right customer with the right message at the right time.

• Attentive and Klaviyo automate personalized text messaging, sending notifications about sales, product recommendations, and cart abandonment.
• Iterable ‘s brand affinity tool analyzes cross-channel engagement to measure customer sentiment. The company counts Boxed, Care/of, and DoorDash among its customer base.
• MoEngage uses analytics to understand customer behavior across digital touchpoints and send personalized campaigns on customers’ preferred channels.

SOCIAL COMMERCE & CONTENT

Content creation is critical for building and engaging online communities. Brands are partnering with influencers across social apps to build trust and authenticity and better connect with new and existing audiences. According to CB Insights’ Analyst Consensus, influencer marketing market is worth $14.8B today, compared to just $2B in 2016.

In addition to influencer marketing strategies, an increasing number of brands and retailers are turning to livestreaming as more platforms emerge to allow viewers to instantly buy featured products.

• Product Wind and Influence.co offer brands tools for finding and working with influencers.
• Buywith allows influencers to broadcast live online shopping sessions to their followers, who can buy directly during the session.

virtual stores & Metaverses

As brands aim to foster new forms of customer engagement, virtual spaces ( metaverses ) are opportunities for retailers to sell more products. This is especially true as v irtual spaces like  Roblox and Fortnite have gained significant traction during the pandemic, attracting millions of users and partnering with brands to create unique digital experiences. 

Nike has signaled its interest in the space, recently filing seven trademark applications outlining its intent to make and sell virtual branded sneakers and apparel, as well as making key hires to support its newly established metaverse studios. In November 2021, the company launched Nikeland on Roblox for fans to connect, create, and share experiences inside Roblox’s immersive 3D space. In December 2021, the brand   acquired virtual sneakers creator RTFKT Studios . 

• New York-based Obsess raised a $10M Series A in June 2021 to expand its virtual stores and showrooms solution beyond beauty and fashion. The company offers an AR/VR platform for enabling online 3D shopping experiences.
• DressX is an online multi-brand retailer for virtual-only garments and accessories.

Clients can view our lates t  metaverse market map here .

E-commerce enablement

Checkout & payment solutions.

Buy now, pay later (BNPL) is a popular payment method among millennial and Gen Z consumers, whose spending power reached more than $2.5T in 2020, according to YPulse. BNPL apps allow customers to make purchases online and pay them off over time in recurring installments.

As a generation of shoppers has come to expect the ease of Amazon’s one-click checkout, companies are also increasingly allowing users to flow through checkout in one tap.

• Fintechs like Zilch , Zoodpay , and Aplazo offer installment loans to consumers for point-of-sale purchase. These point-of-sale loans are easy for retailers to manage and popular in e-commerce categories like apparel & beauty.
• Bolt and Fast are online checkout tech startups that help users quickly check out of e-commerce sites, improving conversion and retention for retailers. Bolt One Click and Fast Checkout allow consumers to complete purchases with a single click, while offering data and insights to merchants.

For a more in-depth look at the BNPL landscape, check out our buy now, pay later market map .

DATA MANAGEMENT & ANALYTICS

An added benefit of offering products directly to consumers is enriched data access and reporting systems that synthesize deeper insights.  Data visualization takes reporting to the next level. Pouring over spreadsheets is time-consuming and makes it easy to miss key insights. Companies in this category prepare, enhance, or transform raw data into actionable business intelligence and key insights.

• Data preparation startup Trifacta specializes in cleaning and preparing data.
• Peak and Dataiku are centralized data platforms that use AI to help organizations build applications for data analytics.

FULFILLMENT & LOGISTICS

Major retailers and brands have been experimenting with new fulfillment solutions to make the delivery journey more efficient. Companies hope to reduce costs by outsourcing to e-commerce fulfillment providers who achieve economies of scale by aggregating orders and integrating with a network of partners (e.g., third-party logistics providers, point-of-sale system providers, and retailers). 

Consumer brands that have their own retail network often use their stores as e-commerce fulfillment centers. Nike, for example, lets online shoppers pick up their purchases at brick-and-mortar Nike stores. 

• Companies such as ShipBob and ShipMonk offer software solutions that combine order and inventory management, warehouse management, predictive data and analytics, and optimized shipping to fulfill orders for e-commerce companies.

ON-DEMAND WAREHOUSING & DELIVERY MANAGEMENT

The Covid-19 pandemic accelerated the growth of online retail in 2020, driving an increase in demand for consumer packaged goods, medical supplies, and other consumer goods. Companies in this category offer temporary warehousing space, delivery management software, and e-commerce fulfillment support services.

• Flexe , Flowspace , and Stord all offer on-demand warehousing solutions. Stord offers a cloud supply chain that allows users to view and manage their entire distribution network from a single platform. The company integrates physical logistic services such as warehousing, freight, and fulfillment into its digital platform to enhance fulfillment and delivery networks.
• Bringg is a cloud-based delivery and fulfillment platform for retailers and logistics providers. The company focuses on last-mile delivery, fleet management, third-party delivery management, and more. Bringg recently introduced a number of sustainability-oriented tools, including carbon emissions tracking and eco-friendly fleet selection for retailers that prioritize green vehicles. 

RETURNS OPTIMIZATION

As more consumers turn to e-commerce for their shopping needs, reverse logistics has become a priority for retailers and brands. A number of startups have taken on the task of optimizing the returns process, offering platforms that make it easier for consumers to return and exchange products.

• Narvar provides retailers with data and visibility during the returns process, helping to improve plan operations and manage inventory as well as to more quickly identify product issues.
• Loop Returns offers an exchange-first returns platform.
• Trove offers a white-label solution to help retailers resell their returned inventory, working with brands like Lululemon and Patagonia .

shopping platforms & subscription commerce

Shopping platforms integrate all essential commerce and business functionalities into a single platform. Building a well-designed and engaging shopping platform or digital storefront is one of the most important ways that retailers differentiate themselves.

With the rise of e-commerce businesses and online shopping platforms, DTC subscriptions have never been easier to set up. The subscription box model has become popular among direct-to-consumer brands because it allows brands to cultivate long-term customer relationships, improving customer retention and lifetime value. 

• Nacelle and Builder use headless architecture , allowing users to create e-commerce sites using visual tools and no coding. Nacelle raised $50M Series B from Tiger Global Management in August 2021,  while Builder has received funding from a number of well-known DTC founders and angel investors and consumer-focused venture capital funds.
• E-commerce subscription management providers Bold Commerce , Recharge , and Upscribe help online stores create recurring orders and subscriptions. 

Nike: Leading The Athletic Market With A Resilient DTC Strategy

• Nike's direct-to-consumer strategy and loyal customer base acquired during the pandemic are expected to contribute to the company's profitability.
• Q1 results showed mixed performance, with sales falling short in Greater China and Converse, but gross margin exceeded expectations.
• Nike is well-positioned for growth in China as Covid-19 restrictions ease, with the potential for accelerated revenue growth and improved margins.

Investment Thesis

NIKE, Inc. ( NYSE: NKE ) is the global leader in the athletic market, boasting diversification across product categories, geographical regions, and distribution channels. The company stands out with a compelling direct-to-consumer (DTC) strategy in the branded industry. A key aspect of this strategy is a heightened focus on the DTC channel, particularly through Nike Direct and strategic marketplace partnerships. The customers acquired during the pandemic, known for their loyalty, are expected to contribute positively to the company's profitability. I believe that the strong momentum of NKE's brand across the world is sustainable and will shield it from economic fluctuations, ensuring consistent high single to low double-digit revenue growth over several years. I am bullish on the company and assign a buy rating to the stock.

Q1 Review and Outlook

NKE's result for the first quarter of fiscal year 2024 presented a mixed picture, offering points of interest for both optimistic and pessimistic viewpoints. Total sales slightly fell short of expectations, mainly due to weaker performance in Greater China and Converse, while Nike brand sales were on target. On the positive side, gross margin and selling, general, and administrative expenses exceeded expectations, aided by a shift in technology spending and a one-time tax benefit of $0.06, resulting in EPS of $0.94, surpassing the consensus estimates.

To rebalance supply and demand, NKE is carefully managing sales into the retail channel and restricting inventory access to ensure a healthy marketplace. Notably, end-channel sales remain above NKE's expectations for a slightly increased revenue in the second quarter of fiscal year 2024. Regarding the direct-to-consumer market in North America, the liquidation activity from the previous year, especially in the apparel segment, is now being compared, resulting in a net positive impact on merchandise margins. Sales growth, however, is under pressure as lower-quality transactions are avoided. While debates around the bull and bear case may persist until there is greater clarity on wholesale recovery and macroeconomic conditions. Nike continues to maintain a dominant position as a footwear brand, both in North America and globally, and its inventory has been adjusted to align with faster-growing sales, while the wholesale destocking is expected to conclude by the end of the year.

In the upcoming second quarter, Nike foresees a slight increase in reported revenues. The company projects a gross profit margin improvement of approximately 100 basis points due to strategic pricing, better handling of markdowns, and reduced ocean freight costs. However, this gain will be partially offset by higher product input costs and around 50 basis points of adverse foreign exchange effects. The management also expects selling, general, and administrative expenses to rise in the mid-to-high single digits.

Looking at the full year, Nike has reiterated its outlook, anticipating revenues to increase in the mid-single digits. The management projects a gross profit margin increase of 140-160 basis points, which includes roughly 50 basis points of negative impact from foreign exchange fluctuations. SG&A expenses are expected to slightly outpace revenues, particularly at the upper end of the mid-single-digit range. It's worth noting that the company anticipates only a "modest" improvement in markdowns for the rest of the year, suggesting there may be room for better-than-expected performance in this area.

Nike Sales Poised for Boost From China With Margin Set to Expand

With 15% of its sales coming from China, Nike is in a good position to benefit from a rollback in COVID-19 restrictions in the region. The reopening may help growth continue to accelerate into 2024. The sales in China appear poised to keep surging as the country benefits from consumers returning to normal activities, going outside, and playing sports again. Currency-neutral revenue in China jumped 25% in fiscal 4Q ended May 31, but could accelerate significantly in the near term as demand ramps up and Nike launches hyper-local products, such as its Chinese New Year and Year of the Rabbit packs. Faster revenue growth may also benefit overall margins in my view, since China typically boasts the highest profitability, while inventories are relatively manageable. Nike has the highest footwear market share in China and is No. 2 in apparel. In 4Q, 15% of Nike Brand sales came from China.

Moreover, the contribution of China's sports industry to GDP could rise this year as more residents resume outdoor activities after the end of Beijing's Covid Zero policy. This would come after the contribution to GDP dipped to 1.06% in 2020 from 2019's 1.14% and remained at 1.07% in 2021. Covid disrupted many sports-related businesses and activities, which resulted in an 8% fall in the manufacturing of athletic goods. Widespread virus outbreaks across mainland China likely also limited the rise in purchases of sporting goods last year. This might have offset sports-related sales gains driven by the Beijing Winter Olympics.

S&P Global Market

Sports Key to Brand Success

I believe Nike's dominance in sports can continue to foster brand success, given its sponsorship of some highest-ranked teams and players at key sporting events. During NCAA basketball's "March Madness" this year, Nike and its Jordan label sponsored 40 out of 68 teams . The brand also outfitted 13 of the 32 teams in the 2022 Men's World Cup soccer tournament, with two of them making it to the final four. Nike also has 13 of the 32 teams in the 2023 Women's World Cup, with seven of those ranked in the top 10, continuing to keep the brand in the spotlight. Nike also sponsors tennis players Aryna Sabalenka of Belarus, ranked No. 2 in women's, and No.1- ranked men's player Carlos Alcaraz of Spain, which helps the brand's status for key tennis events like the just-completed Wimbledon and the upcoming US Open.

Financial Outlook and Valuation

Nike is actively working to reduce its inventories, which may lead to continued margin pressure due to increased discounts. Nike has already managed to bring down its previously high inventory levels, with growth remaining flat at the end of fiscal year 2023 compared to the previous year. Nike has integrated personalized product recommendations into its e-commerce app to boost the sell-through of available inventory. Nike is trading at 26x forward PE, which is in line with the company's historical three-year average but represents a premium compared to global peers, which typically have lower P/E ratios ranging from low double-digits to mid-teens. The premium reflects the high-quality nature of Nike's business, its leading position in the appealing athletic category, margin-enhancing strategies (despite recent margin challenges), and a robust balance sheet. I believe that Nike continues to be a top-tier company with strong market positioning in both apparel and footwear, further bolstered by its strong digital capabilities. Moreover, Nike's deep connection with customers sets it apart from competitors, especially as consumers increasingly prefer brands that offer a unique experience in both physical stores and online. Hence, I remain bullish on the stock and assign a buy rating to the company.

Seeking Alpha

Investment Risks

I see the biggest risk to a NKE recovery to be the weakening macro backdrop and potential for recession. Even in such a backdrop, I continue to see NKE as a relative brand and market share winner. While NKE would not be immune to a weaker demand backdrop, I believe a strong balance sheet, highly sought after products driving brand equity, and company-specific operational initiatives could still drive margin expansion from current levels. Moreover, competition has risen due to the industry's shift toward performance-oriented products, which has lowered barriers for new entrants, which may threaten the company's market share.

Nike, Inc. is an established player in the global athletic market and is well-positioned for growth. The reopening in China is expected to drive continued sales growth as consumers return to normal activities, engage in outdoor sports, and drive demand for Nike products. Additionally, Nike's sponsorship of top teams and players in key sporting events further enhances its brand's success and visibility in the sports world. The company's direct-to-consumer strategy in the branded industry is particularly impressive. This strategy places a strong emphasis on the DTC channel, primarily through Nike Direct and strategic partnerships with marketplaces. The loyal customer base acquired during the pandemic is expected to make a positive impact on the company's profitability. Hence, I am bullish on the company and assign a buy rating to the stock.

This article was written by

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Nike’s New Business Model Focusing on DTC: What Business Students Stand to Learn

If all companies’ business models stayed the same, they would fail. In recognition of the need to evolve and increase profits, Nike has undergone a dramatic change to how they do business

Just a few years ago, Nike announced a dramatic change to its overall business model. The change to the model, along with its resounding success, is an excellent example of the importance of innovation in business. It also highlights Nike’s extraordinary ability to create a world-recognized brand and maintain its status as an industry leader.

The Changes to the Business Model – In Summary

Historically, Nike has had some direct-to-consumer (DTC) sales but went on to focus primarily on wholesale. Recently, however, the company announced a planned shift to focus primarily on DTC sales.

A Closer Look at the Changes to the Business Model

For most of the company’s history, Nike has worked primarily with wholesalers. The brand had a fairly typical business model. They sold the products to wholesalers, who then displayed the products in their stores and sold them to customers. Wholesale partners included department stores, sporting goods stores, mom-and-pop shops, and more.

Now, it is incredibly difficult for wholesalers to work with Nike. The brand has gone all-in on a direct-to-consumer strategy which means that even wholesalers who worked with them for years can no longer buy the products. This has led to a significant shift in how people buy Nike shoes. Now, Nike primarily sells shoes to consumers via digital channels, such as its various apps and website. The company also has branded immersive stores.

Nike Combines DTC Experiences 

Examining Nike’s DTC approaches shows a significant amount of overlap. Like most brands, there are both digital solutions, like the website and apps, and physical locations. But Nike has taken the integration of technology and the digital experience in stores to the next level.

Specifically, Nike gives in-store shoppers multiple ways to use their phones to improve the shopping experience. They can start a dressing room or pull up products on their phones. To streamline the new customer experience, Nike also has signs throughout its stores highlighting the various smartphone-connected in-store features.

How Wholesalers and Stores Are Adapting 

Stores that used to rely on Nike for a significant amount of their income had to think quickly to determine a way to keep selling the products or fill the gap. For many stores, the only option to stock Nikes became doing so “on consignment.” With this model, the stores themselves do not own the shoes. They are owned by someone else who consigns the shoes to the store. When sold, the store takes a cut of the profit, but the owner of the shoes makes the bulk of the money. There are obvious complications with this new consignment option. For one, it makes it much more challenging for stores to offer Nikes at all, let alone a variety of them. Stores may have to work with multiple people who want to consign their shoes and those people can’t buy the shoes wholesale either.

On top of that, the process cuts into the profit margins of the stores. They can still ultimately control their profits via the price of the shoes, but they have to increase the prices to make the same profit they had previously made as wholesalers. The owner of the shoes who consigns them to the store is essentially another middleman in the process, meaning another cut of the profit is taken out.

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The Role of Influencers 

With the new DTC approach, social media influencers play a larger role in Nike’s overall approach. They become a key part of the brand’s marketing as influencer-created content reaches consumers. On top of that, Nike works with some social media influencers like they previously worked with wholesale retailers. For that part of the relationship, Nike largely determines which influencers to sell to based on audience size and reach.

The Effect on Prices 

For consumers who buy shoes directly from Nike, as is the brand’s goal, there is not necessarily a dramatic change in the prices. However, many shoes are now in high demand. This lets Nike sell them for more, but it also means that shoppers must act fast if they want a particular shoe.

That scarcity, combined with the consignment model many stores are using, has driven prices up. The fact that shoes in stores now feature an extra middleman (the owner who consigns them) has also driven prices up. In fact, some basic models can now reach $1,000 or multiples of that for a single pair. It is not hard to find a pair selling for $10,000 or more.

The Effect on Shoppers

In addition to the rising prices, this change means that Nike buyers will find themselves with limited options for trying the shoes on. This is especially true given that in many stores that sell the shoes on consignment, the sneakers are wrapped in plastic.

Other Key Elements of the Consumer Direct Offense

The Consumer Direct Offense strategy from Nike is a well-rounded approach that involves more than the transition to DTC. It also includes accelerating innovation and the creation of products. It features expanding operations in 12 strategic cities in ten countries as a way to move physically closer to consumers. Finally, it aims to deepen the one-on-one connections with customers by creating more interactive experiences.

Consumer Direct Acceleration Further Emphasizes the DTC Priority

Nike followed up its Consumer Direct Offense in 2020 with the Consumer Direct Acceleration. This began with the creation of a connected digital marketplace for a seamless brand experience. It includes Nike’s store concepts, including the Nike House of Innovation, Nike Unite, Nike Live, and Nike Rise. The common theme is that Nike aims to connect digital services with offline ones.

This Consumer Direct Acceleration also includes more straightforward categories for kids, women, and men. It also features aggressive digital investment. Since announcing the initiative, Nike has invested in demand sensing, inventory management, and insight gathering.

The Extent of the Shift from Wholesalers to DTC

Simply stating that Nike has decided to shift its business model to focus more on DTC than wholesalers is not enough. It doesn’t accurately show the extreme degree to which the shift occurred. The changes began in 2017 when the brand announced a “consumer direct offense.”

A better point of comparison is to look at Nike brand sales in 2011 and again for the 2021 fiscal year. In 2011, 84% of the sales were to wholesale customers. The remaining 16% were direct to customers in Nike stores and via its website. By the end of the 2021 fiscal year, direct sales (from the main Nike brand) were up to 39%. Wholesale sales were at around 61%.

More recent figures show that the focus on DTC continues to be a success. Figures from the most recent three-month period ending on February 28th confirm this. During that time, Nike had a 17% increase in direct-to-consumer sales. Those DTC sales accounted for 42.3% of Nike’s overall revenue for the fiscal third quarter.

Nike Is Still Working with Certain Wholesalers

While Nike has shifted its focus on direct-to-consumer sales, the brand still works with some wholesalers. According to Nike, the focus is on “compelling local neighborhood partners” with connections to sports performance and lifestyle. This includes some of the brand’s larger strategic partners, such as JD Sports, Foot Locker, and Dick’s Sporting Goods. The brand also still works closely with local skate shops.

In practical terms, Nike is only working with retailers that feature it prominently and make the brand seem special. Even then, Nike will not work with every retailer that does this.

The Future of the Transition

If Nike’s plan remains on track, direct sales will account for 60% of its business by 2025 . This figure will include digital sales.

For reference, the original goal was to hit 30% digital penetration by 2023. In this case, digital penetration refers to 30% of the total sales being e-commerce revenue from Nike. But the brand achieved that in 2021. This was then replaced with a goal of 50% digital penetration for 2022.

Reasons for the Shifting Business Model

When Nike announced its “consumer direct offense” in 2017, it highlighted some of the reasons it chose to change strategies.

Direct Sales Boost Profits

One of the likely reasons for the push on direct sales is that it improves the profit margins. With direct sales, there is no middleman taking a cut of Nike’s profits.

The fact that direct-to-consumer sales boost profits is well-known. This is why so many startups follow the model.

Connections to Customers and Customer Data

By focusing on direct sales, Nike also collects data on its customers directly. This can be useful for marketing. Direct sales also mean that Nike has direct contact with customers, something that can also be helpful for marketing as well as customer service.

Nike Has More Control

The other key factor is that focusing on direct sales lets Nike control its brand. By contrast, Nike doesn’t have much control over what retailers do with its products after buying them. They could just place Nike shoeboxes with competitors or in a way that the brand doesn’t prefer. Some experts believe that this lack of control is why Nike decided not to continue working with Amazon.

DTC Trends During the Pandemic

Estimates indicate that the pandemic caused an overall market shift toward direct-to-consumer sales. Of course, these were not on the same level as Nike’s efforts. Research from McKinsey and the World Federation Sporting Goods Industry reported on the shift. Researchers suggest companies aim for at least 20% of their business to be direct-to-consumer. Nike was clearly ahead of the curve with this trend.

Other businesses have since started following the trend led by Nike. For example, Under Armour wants half of its sales to be direct-to-consumer by 2025. Under Armour is on a similar track, closing relationships with thousands of wholesalers.

The Successful Change Highlights Nike’s Brand Power

Sales figures show that the changing strategy has worked well for Nike. According to Nike, digital sales via websites and apps increased by 22%. This included a 33% growth within North America, which led the area. This is especially impressive when compared with the growth figures for other brands and retailers.

Another indication that Nike is on the right track with its innovative strategy is its overall sales. Sales in 2021 for DTC reached $16.4 billion. The trailing 12 months saw $46.2 billion of total sales.

To provide a point of comparison between Nike’s success and that of other brands, consider the figures at the end of fiscal 2020. Nike had revenue of $35.6 billion, $37.4 billion across the company. By contrast, Under Armour only made $4.5 billion in that time, and Adidas made $23.8 billion.

The impressive growth that Nike has achieved with the change highlights not only the company’s innovation but also its brand power. A direct-to-consumer approach cannot take advantage of the marketing from retailers; it must rely on the brand’s own marketing and name power. Nike certainly has this, as it is among the best-known and most popular sneaker companies in the world.

What Nexford MBA Students Stand to Learn

Whether you are studying for a Nexford MBA or an undergraduate business degree , there are some important insights to learn from Nike’s successful changes.

Reinvent to Adjust to Market Conditions

Nike examined the market and noticed that it was time for a change. The company recognized that the demands of consumers were changing, as were the technologies and opportunities available. Nike adapted to these changing market conditions.

Business students of Nexford University can learn the same thing. You must be willing to reinvent yourself when necessary to adjust to changes in the job market. Reinventing yourself and searching for improvement provides a way to stand out from other candidates in a job search.

How to Translate Reinvention into Your Business Life

For Nike, reinvention and adaptation meant changing the balance between wholesale and DTC sales. For business students or anyone in search of career advancements, this can be continuous learning. Lifelong learning at Nexford allows you to improve your skill sets . Each new skill set that you acquire is a way to reinvent yourself and stand out in the market.

Several years ago, Nike announced a transition from focusing on wholesale customers to direct-to-consumer sales. The transition has gone smoothly and is leading the brand to success. MBA students at Nexford can use Nike as inspiration and work to constantly improve themselves. Expanding your skill sets is your personal version of Nike adapting to the changing market demands.

Ready to take the next step?  Download our brochure  or  book a call  with our Nexford Advisors!

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‘We’ve chosen both’: How Nike aims to connect DTC and wholesale

While the athletics giant has invested heavily in its own digital channels and physical stores, the retailer is also trying to broaden its ecosystem to its wholesale partners.

NEW YORK — It’s a refrain throughout retail’s executive ranks that omnichannel shoppers are more valuable than single-channel ones. At Nike in particular, omnichannel shoppers are “at least twice” as valuable as purely online shoppers, according to Daniel Heaf, vice president of Nike Direct.

And that’s coming from a retailer that has invested heavily in digital, both through its website and a variety of apps. Over the past two years alone, the retailer’s digital business has more than doubled, Heaf said in a presentation Wednesday on the retailer’s direct strategy. While much of that was driven by the pandemic, Heaf noted that Nike has sustained that growth where others have not. 

“I think that’s because we’re not focused on growth by any means necessary,” Heaf said. “We’re focused on serving, certainly, areas where we believe we have a need to drive outsized growth.”

That includes areas like women’s fitness and apparel, Jordan brand apparel and performance products, and running.

“So we’re really building some of our most unique experiences with elevated … imagery, comments, UGC — the full nine yards — to ensure that it’s not just a transactional experience in the Nike app. It’s an emotive experience,” Heaf said.

The digital strategy at Nike works in tandem with in-person events and physical stores. Nike has pushed for years to integrate its digital and physical channels, thanks to tech-heavy store concepts like Nike Live and House of Innovation. But lately, despite Nike’s direct-to-consumer push , the retailer has looked beyond its own doors to see how it can engage loyalty members at some of its key wholesale partners as well.

The retailer started the experiment with Dick’s Sporting Goods in 2021 when the two connected their loyalty programs , so that shoppers could link their rewards accounts at both retailers and receive joint benefits. In addition to offering an expanded assortment and hosting joint events, shoppers can buy on the Nike app, for example, and have their order delivered to a Dick’s store.

“We don’t really mind where our consumers choose to engage or interact with us,” Heaf noted. Rather, the retailer is aiming to give customers “the fullest possible experience” by bringing the Nike ecosystem to more of its wholesale partners.

“People always ask me: Are you a direct business or a wholesale business? And the truth is we’ve chosen both,” Heaf said. “We’ve chosen both because it allows us to serve every single athlete with distinction and uniquely across the entire marketplace.”

Through wholesale, Nike has 30,000 points of distribution, compared to 8,000 of its own stores.

The retailer has also gone for a shared physical and digital approach to sneaker sales. Alongside its SNKRS app, which was launched eight years ago, Nike works with a number of wholesale partners and local sneaker stores to coordinate physical product drops. Its SNKRS Pass feature lets shoppers reserve desirable sneaker launches for pickup in stores as well.

The online sneaker experience is far from perfected, though, and represents an area for improvement for the retail giant.

“We know we can be better,” Lucy Rouse, vice president and general manager of SNKRS and NBHD, said. “With any highly coveted marketplace at the moment we’re seeing it: It’s just bad actors, it’s bots … it’s a very brutal reality.” 

Rouse noted that on any highly sought after sneaker launch Nike executes, up to 50% of purchase entries can be bots.

“It's a journey. We're on a constant learning journey here because all of these instances are unique,” Rouse said. “But what our team are really passionate about is how we learn from what's happened, and not make the same mistake again.”

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“Just Do It” – Nike’s Direct-To-Consumer Efforts, Easier Said Than Done?

Nike has made recent efforts on direct-to-consumer and supply chain transformation, but is still experiencing stalling sales. Are the recent initiatives enough?

In September, Mark Parker, Chairman, President, and CEO, of NIKE, Inc. announced first quarter 2018 earnings for the world’s biggest sportswear maker. Despite product innovations in the running shoe segment with premium priced Air VaporMax and in the women’s sportswear category with more stylish offerings, the company reported a 3 percent decline in North American revenues and flat year-over-year revenues company-wide [1,2].

Nike’s struggles are indicative of a larger problem, as major U.S. retailers have shown lackluster performance over the past 18 months. Digitalization and recent online trends have increased customer expectations; people are demanding more customization, faster, at improved service levels [3,4]. Additionally, digitalization has led to an expanded definition of the value proposition of the retail industry. Companies can no longer compete solely on the functionality of discrete products, but rather need to distinguish themselves on the value and performance of their broader product system [5]. With this increase in customer expectations and an expanded business model, traditional retailers have a decision to make: either meet these new customer and industry demands by rethinking the way they design their supply chain, or move over for someone who will.

During its 2017 Investor Day, Nike addressed these near-term customer needs and business-model challenges head-on. The Company expanded on its new “Consumer Direct Offense” which aims to serve the athlete faster and more personally through its “Triple Double Strategy” – a focus to drive double digit growth in three core areas: speed, direct, and innovation [6].

In response to changing customer needs, Nike announced a focus on supply chain efficiency improvement (speed) and direct-to-consumer emphasis (direct). With “2X Speed” – Nike will invest in end-to-end digital capabilities to improve the efficiency of its supply chain and serve consumers faster, doubling the speed to market by reducing the average product creation timeline by over 50 percent. In “2X Direct”, Nike is changing the structure of its supply chain – focusing more on direct-to-consumer distribution by aiming to double direct consumer connections through its NIKE.com platform and other initiatives. Lastly, the “2X Innovation” initiative addresses the changing retail industry, as Nike promises to lead with more distinct platforms that give consumers new aesthetics, spanning both sport and style [6].

Pathways to Just Digital Future

In response to medium-term strategic challenges, Nike is also pursuing new channels for distribution, including a pilot program it began earlier this year to sell lower-end items through Amazon. Additionally, Nike also alluded to discontinuing some of its distributor channels, only focusing on those that are “differentiated retailers” that present Nike’s products in a heightened, curated way [7].

Although it is reassuring to see Nike’s shift in focus towards the direct-to-consumer space, if the company truly wants to have a “Consumer Direct Offense” and transform its supply chain to keep up with today’s digitalization, it needs to “Just Do It”. First, Nike needs to invest in more initiatives that drive e-commerce purchases. An increase in social and other digital ad-spend could drive increased traffic to NIKE.com and allow the company to double down on its direct-to-consumer strategy. Second, Nike needs to figure out Amazon’s long-term role in the company’s strategy. Recognizing that the internet giant has a role to play if Nike truly wants to go all-in on direct-to-consumer is an important step, but a pilot program for only lower-end items isn’t enough. Despite concerns about loss of pricing power and brand control, Nike needs to make its relationship with Amazon more permanent and all-encompassing across product lines. Leveraging Amazon’s expansive supply chain would be the quickest and easiest way for Nike to digitalize its own.

Digitalization may be the cause of the retail industry’s woes, but it can also be its savior. The digitization of the supply chain enables companies to address the new requirements of customers, the challenges on the supply side, and the remaining expectations in efficiency improvement [8]. With increasing pressure to transform its supply chain to be faster, more flexible, granular, accurate, and efficient, what role do traditional partnerships play in Nike’s “Consumer Direct Offense”? Is there any value in investing in “differentiated retailers” such as Nike’s relationship with Nordstrom Inc.? What about more traditional wholesale partners such as the independent running and sporting goods stores? In overlooking these intermediary retailers, is Nike missing a big opportunity to influence athletes that are true champions of the brand? Or do these retailers only pose an additional cog in the outdated supply chain wheel?

(731 words)

References:

[1] “Nike, Inc. Reports Fiscal 2018 First Quarter Results,” press release, September 26, 2017, on Nike, Inc. website, [https://news.nike.com/news/nike-inc-reports-fiscal-2018-first-quarter-results], accessed November 2017.

[2] Pamela N. Danziger, “Nike’s Challenges In The U.S. Market,” Forbes, October 27, 2017, [https://www.forbes.com/sites/pamdanziger/2017/10/27/nikes-challenges-in-the-u-s-market/#64d4cb9427df], accessed November 2017.

[3] Matthew Townsend, “Nike Declines After Athletic Giant Gives Bleak U.S. Outlook,” Bloomberg, September 26, 2017, [https://www.bloomberg.com/news/articles/2017-09-26/nike-s-anemic-u-s-growth-forces-company-to-rely-more-on-asia], accessed November 2017.

[4] Alicke, K., D. Rexhausen, and A. Seyfert, “Supply Chain 4.0 in consumer goods,” McKinsey & Company.

[5] Porter, M. and J. Heppelmann, “How smart, connected products are transforming competition,” Harvard Business Review (Nov. 2014).

[6] “Nike, Inc. is Accelerating a Consumer-led Transformation to Ignite its Next Phase of Long-Term Growth,” press release, October 25, 2017, on Nike, Inc. website, [https://news.nike.com/news/nike-inc-is-accelerating-a-consumer-led-transformation-to-ignite-its-next-phase-of-long-term-growth], accessed November 2017.

[7] Sarah Halzack, “Nike’s Solid Game Plan Has an Amazon-Shaped Hole,” Bloomberg, October 26, 2017, [https://www.bloomberg.com/gadfly/articles/2017-10-26/nike-investor-day-solid-game-plan-amazon-shaped-hole], accessed November 2017.

[8] Rexhausen and Seyfert, “Supply Chain 4.0 in consumer goods,” McKinsey & Company.

Student comments on “Just Do It” – Nike’s Direct-To-Consumer Efforts, Easier Said Than Done?

This is a very interesting topic and certainly a challenge that many retailers are facing today. I found it striking that there seems to be 2 discrete segments emerging among Nike’s customer base – those that will purchase directly from Nike and favor customization, and those that seek out the lower end merchandise that still have the brand and quality behind them. I would suspect that in the former category, Nike will still be able to compete on the basis of individual product quality as well as strong brand recognition. However I do believe they are smart to pursue channels such as Amazon for distribution of the mass-market merchandise. In response to your question regarding other distribution partners such as Nordstrom – I believe this channel can serve primarily as positive marketing and a strategy to keep the brand “elevated” in the eyes of consumers, but is unlikely to achieve scale and be additive to their goal of becoming more direct and efficient.

I agree that digitization and supply chain efficiency is at the core of change management programs as retailers shift from traditional brick and mortar strategies to omni-channel business models (retail, wholesale and e-commerce). I believe large businesses such as Nike, with strong brand presences, should continue selling through all available distribution channels even as their own model becomes more efficient. This includes specialty retailers — Nike currently sells through 900 doors and these respective online platforms (to the extent they exit). Consumers may have to go direct to seller in order to obtain access to breadth of products, but first entry or introduction to a product comes in many different forms for various end consumers. Nike’s decision to sell through amazon did tarnish the already strained relationship with Nike’s 900 independent doors. Unfortunately, these doors have an “outsized influence on the brands that serious runners choose and who set the trends that others follow” [1].

While it is true that specialty retailers have found a way to coexist with Amazon through its seller partnership offering, it is still a tenuous situation when volume-driving brands such as Nike decides to add Amazon distribution. These stores, in turn, provide less support on the customer front in terms of brand exposure, thus leaving room for competitors to take market share.

[1] https://www.forbes.com/sites/pamdanziger/2017/06/27/nike-selling-on-amazon-and-what-it-means-for-specialty-running-retailers/#275af4387f21

Whitney, great article! It is so interesting to learn about how Nike is reorienting themselves in the new ecommerce world. Nike has historically been a leader in product innovation as well as store experience. I remember when the Nike flagship store opened in Chicago and it was beyond a store, it was an experience! I see the initiatives that you document here as Nike’s attempt to start the transformation, but to your point, there’s so much more to be done to become a leader in the future.

The question that you asked that is the most interesting to me is: how do partnerships, such as those with Amazon, Nordstrom and other retailers, play a role in the long-term strategy? In my opinion, they are going to be crucial. Foremost, this will enable Nike to get broad reach to people who are already shopping in these channels and may not otherwise go to Nike.com. Moreover, they will be able to leverage the supply chains to get clients what they want, when they want it. I believe that long-term the branded dot com website plays a strong role in building the brand and should have differentiated products to the other channels that they’re selling in, but it will be a place to cater to Nike aficionados rather than your casual customer buying a new pair of sneakers. That way, Nike will not have to overhaul the supply chain to stay in sync with every supply move that Amazon makes, but rather they can focus on their core customer promise through the dot com property. Moreover, one day they may be able to share warehouse space and leverage the supply chain capabilities of Amazon, even for those shoes they sell on their branded site. Amazon may seem like the foe right now, but one day I could see a very successful and symbiotic relationship between the two companies with each doing what they know best.

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Nike to Double Down on DTC Following Q3 Gains, Plans Standalone Jordan Stores

• March 23, 2022 at 3:37 PM EDT
• By Nicole Silberstein

Nike is pushing forward with its digitally focused direct-to-consumer strategy following a strong Q3, with plans to build “the marketplace of the future” and bring standalone Jordan stores to North America.

Revenues were up 5% YoY in the company’s fiscal Q3, which ended Feb. 28, 2022, led by 15% growth in sales across the company’s owned digital and physical operations, referred to as Nike DIRECT. The brand’s overall digital sales also increased 19% globally, while wholesale revenues were down by 1% .

President and CEO John Donahoe pointed to the results as proof that Nike’s “Consumer Direct Acceleration” strategy is working as the brand approaches its 50 th anniversary in May: “Fueled by deep consumer connections, compelling product innovation and an expanding digital advantage, we have the right playbook to navigate volatility and create value through our relentless drive to serve the future of sport,” said Donahoe. The former eBay CEO took on the top role two-and-a-half years ago with the mission of accelerating the company’s digital transformation and building on its “direct offensive.”

Among the initiatives highlighted by Nike executives were:

• An expansion of the company’s DTC brick-and-mortar presence , including the debut of Jordan-branded stores in North America;
• Plans to strengthen its remaining wholesale relationships following the culling of 50% of that business over the past four years; and
• Growing participation in new digital platforms across social media, livestreaming, metaverse activations and the creation of digital goods.  

Building the ‘Marketplace of the Future’

A big piece of Nike’s direct offensive has been a shift away from wholesale and toward DTC. The company pulled its products off Amazon in 2019 and has shed 50% of its wholesale accounts over the last four years, including its relationships with DSW , Zappos , Dillard’s and Big 5 Sporting Goods .

Looking ahead, Donahoe said the company is focused on “expanding our digital advantage to create the marketplace of the future.” This will feature a full suite of distribution channels that will still include wholesale and third-party digital partners (although not Amazon), but will continue to place a greater emphasis on DTC channels, both digital and physical.

To that end, Nike plans to begin testing a new Jordan-only store concept in North America in 2023. The concept has been “wildly successful” in Greater China, the Philippines and Korea, according to CFO Matt Friend, who said on the earnings call that the company’s approach “is to first pilot these new concepts, iterate and perfect, and then move to scale.” 

Friend also highlighted plans for continued investment in Nike mono-brand stores, including its digitally enabled Nike Live concept . New store investments will focus on “gaps in distribution to serve the growth opportunities we see in women’s apparel and Jordan,” he said.

“Our marketplace strategy is a growth strategy, and it’s driven by the consumer, fueled by their expectations of a consistent, seamless and premium shopping experience,” said Donahoe on the Q3 earnings call. “ Our approach begins with the understanding that consumers expect us to know who they are regardless of channel , online or offline, across the full array of mono-brand stores, Nike Digital and our wholesale partners.”

Wholesale Will Still Play a ‘Very Important Role’

Now that it has completed trimming its wholesale business, the next phase of the marketplace strategy will focus on aligning with its remaining wholesale partners and elevating those relationships, through digitally connected retail experiences such as its recent integration with the DICK’S Sporting Goods loyalty program. A similar integration was also rolled out last quarter with both Topsports and Pou Sheng in China.

“Our wholesale partners continue to play a very important role in our marketplace strategy,” said Donahoe. “We value the strong strategic relationships we have with our partners, particularly through our shared vision of connected data and inventory . This approach lets us serve consumers with the greatest access to the best of Nike, and to do so with speed and convenience in a more personalized, engaging and sustainable way.”

Donahoe also made a point of reinforcing the importance of Nike’s relationship with Foot Locker . Shares in the footwear retailer tumbled to their lowest point in four decades in late February, after Foot Locker reported a disappointing outlook that was due in large part to the wholesale pullback by Nike, which is Foot Locker’s largest supplier.

“To be crystal clear, Foot Locker always has been and always will be a large and important partner of Nike’s and that will continue to be the case ,” said Donahoe on the earnings call. “They’ll have a very distinct role in our marketplace strategy as a wholesaler, with a particular focus on the culture of basketball, on the sneaker culture and on kids, which is a really big and important opportunity for us.”

‘Growing Participation in New Digital Platforms’

Nike also has been making big moves in the emerging tech space: “Our growing participation in new digital platforms lets us create innovative ways to connect with consumers, letting them unlock virtual experiences, products and rewards as we expand access points to Nike across the digital ecosystem,” said Donahoe.

Among the recent examples Donahoe highlighted are:

• New activations in the Nikeland virtual world on Roblox , which has been visited by 6.7 million players from 224 countries since it launched in November 2021. Recent activations included a “visit” by LeBron James during NBA All-Star Week and the launch of virtual products exclusive to Roblox;
• The debut of Nike Virtual Studios, which is aimed at creating Web3 products and experiences. Digital artifact creator RTFKT, which Nike acquired in December 2021, will play a big role in the new division. Quickly following the acquisition, RTFKT released the first official Nike-branded NFT;  
• Leveraging Snapchat’s Try On lens;
• Plans to explore “new dimensions and experiences” in its SNKRS app, including livestreaming, with a focus on women’s products and apparel; and
• A recent collaboration with EA Sports for the Super Bowl that gave members who ran five miles in the Nike Run Club rewards and unlocks within the Madden videogame. To participate, members had to link their Nike and EA accounts, which was an integration first for Nike. “The number of new members we acquired surpassed our expectations,” said Donahoe of the linkup. “And the framework we developed with EA Sports will allow future membership connects to come to life even more efficiently with new partners.”

“In the end, Nike is doing what we always do; we are staying on the offense ,” said Donahoe. “Our confidence as we look long-term hasn’t changed one bit. We’ve been resolute in fueling innovation and our brand is as strong as ever. Nike’s unique strengths continue to set the pace and keep us in the lead.”

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• Tagged With: design:retail News , Dick's Sporting Goods , digital goods , direct to consumer , dtc , Featured , Foot Locker , Jordan , metaverse , NFTs , Nike , Nike Live , Nikeland , Q3 earnings , Roblox , transformation strategy , wholesale
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Direct-to-consumer continues to serve Nike well say experts

An enhanced focus on its direct-to-consumer strategy is paying off for Nike, but the sportswear giant battled against Covid lockdowns in China and a tougher US consumer environment which dented profit for the group during the fourth quarter of the year.

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NIKE direct revenues grew 7% on a year-on-year reported basis and 11% on a currency-neutral basis to US$4.8bn.

This was led by a 25% growth in EMEA, a 43% growth in APLA and a 5% growth in North America, partially offset by a decline in Greater China.

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“In this dynamic environment, Nike’s unrivalled strengths continue to fuel our momentum,” said Matt Friend, executive vice president and chief financial officer, Nike, Inc. “Two years into executing our Consumer Direct Acceleration, we are better positioned than ever to drive long-term growth while serving consumers directly at scale.

Nike Q4 in brief

• Nike Brand Digital grew 15% on a reported basis and 18% on a currency-neutral basis, driven by double-digit growth in APLA, North America and EMEA.
• Nike-owned stores declined 2% on a reported basis and increased 1% on a currency-neutral basis
• Nike Inc revenues declined 1% to US$12.2bn versus the prior year. They were up 3% on a currency-neutral basis.
• Revenues for the Nike Brand were $11.7bn, down 1% on a reported basis and up 3% on a currency-neutral basis, led by 20% growth in EMEA.
• Revenues for Converse were $593m, down 1% on a reported basis and up 3% on a currency-neutral basis, due to wholesale revenue declines offset by growth in the direct-to-consumer business.
• Net income was $1.4bn, down 5%, and diluted earnings per share was $0.90.

Nike Fiscal 2022 in brief

• Revenues for Nike, Inc. increased 5% to $46.7bn , up 6% on a currency-neutral basis. Revenues for the Nike Brand were $44.4bn, up 5% on a reported basis and 6% on a currency-neutral basis, driven by double-digit growth in Nike Direct, partially offset by slight declines in wholesale revenues.
• Nike Direct revenues were $18.7bn, up 14% on a reported basis and up 15% on a currency-neutral basis, led by Nike Brand digital growth of 18% and Nike-owned stores were up 10%.
• Revenues for Converse were $2.3bn, up 6% on a reported basis and up 7% on a currency-neutral basis, led by double-digit growth in the direct to consumer business, partially offset by lower wholesale revenues.
• Net income was $6bn, up 6%, and diluted earnings per share was $3.75, up 5% compared to prior year.

“NIKE’s results this fiscal year are a testament to the unmatched strength of our brands and our deep connection with consumers,” said John Donahoe, President and CEO, NIKE, Inc. “Our competitive advantages, including our pipeline of innovative product and expanding digital leadership, prove that our strategy is working as we create value through our relentless drive to serve the future of sport.”

Analyst reaction

Emily Salter, apparel analyst at Global Data says: Outperforming throughout the pandemic, sportswear specialist Nike has released another good set of results. Its sportswear offer and direct-to-consumer (DTC) focus has been key to its success, and this will continue into FY2022/23, with the brand forecasting currency-neutral revenue growth of low double digits. Nike recently announced that it was permanently pulling out of Russia , after halting operations in the country at the start of its invasion of Ukraine, and it should gain reputational benefits by doing so — especially as it is one of the first apparel players to do so.

Since Nike’s last update in March, the situation in terms of inflation has worsened, with consumers’ discretionary incomes increasingly squeezed. However, Nike is in a better position than many apparel players to survive this turbulent period, with its sportswear and athleisure proposition highly relevant to consumers globally, and its core base of young shoppers will still want to purchase from Nike due to the strength of its brand image. This resilience will be aided by the connection that the brand has forged with consumers through its focus on DTC. This enables stronger shopper loyalty through Nike’s multiple touchpoints with consumers, such as through its apps, podcast, direct marketing, and now in the metaverse.

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Nike’s performance in China has been a concern throughout the year, with FY currency-neutral sales declining by 13%. The country is experiencing continued turbulence due to its zero-Covid policy, with the prolonged lockdown in Shanghai muting demand in Nike’s Q4, and disrupting global supply due to China’s importance as an exporter. The concerns run deeper than this though, with worries about whether Nike has lost its connection with Chinese consumers, which are increasingly preferring domestic brands, such as Li Ning and Anta, despite Western brands’ hefty investments in the country. Nike’s position in China looks uncertain and its performance in the region will likely continue to dull the shine of its otherwise solid results, so it should double down on investment to regain relevance and appeal among Chinese shoppers.”

Meanwhile, Neil Saunders, managing director of Global Data added the results were a “reasonably good outcome” showing Nike has has held on to most of its pandemic gains but has also successfully navigated a tough final quarter which was littered with various challenges from supply chains snafus to lockdowns in China.

But, he says, as reasonable as the overall top line figure is, there are some devils in the detail which put Nike’s performance in a slightly negative light and could impact results going forward. These include higher freight costs compressing margins, inflationary pressures on consumers and further uncertainty around China and its lockdown policies.

Overall, he believes Nike remains in an excellent place.

Saunders concludes: “Its direct-to-consumer strategy is working well, its brands have enormous equity, and it is part of the market that remains of significant interest to consumers. However, some of the very favourable dynamics that have powered the company over the past 18 or so months are now fading. They are doing so at a time when the competitive landscape is becoming somewhat tougher with Under Armour on the front foot and players like Lululemon making more of a play in footwear. Individually, none of these things are a major threat to Nike; however, collectively they mean it will need to work harder to gain share. In our view, this more difficult outlook will act as a drag as Nike enters is new fiscal year.”

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Nike’s wholesale pivot: a masterclass in omnichannel strategy.

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Nike CEO John Donahoe poses for a photograph during a visit to Nike European Logistics Campus in ... [+] Laakdal, June 7, 2023. (Photo by JONAS ROOSENS / Belga / AFP) / Belgium OUT (Photo by JONAS ROOSENS/Belga/AFP via Getty Images)

The ebb and flow of partnerships in retail have always been fascinating to observe. Like watching a chess match, each move represents a calculated decision that aims to propel the players toward a particular end goal. And no one seems to have mastered this game better than Nike NKE , known for making power moves that, more often than not, leave the retail industry in awe.

Case in point: Last week, Nike said it plans to reestablish its relationship with Designer Shoe Warehouse and, even earlier this month, it said it plans to do the very same with Macy's M as well.

What's most intriguing about these announcements is that Nike had pulled back from these partnerships in 2021, a maneuver that stood out and was glossed up as a testament to its commitment to a direct-to-consumer sales approach. Also ensnared in this strategic withdrawal were other retailers , including the likes of Urban Outfitters, Dillard’s, Zappos, and many more.

So, what's the catch?

Why this seemingly about-face strategy from Nike? Are these latest maneuvers a desperate attempt to navigate slowing sales during recessionary times, or do they highlight a flaw in Nike’s theory that an expanded DTC business equates to higher margins for the brand?

Answer: None of the above

Nike's latest strategy is neither a desperate attempt to tackle a sales slowdown nor a reflection of a flawed theory. On the contrary, it is an example of Nike again giving a masterclass in omnichannel retailing.

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In analyzing Nike's actions, it is important to take note of one particular thing.

Nike initiated its pullback from wholesale distribution in 2021, a year in which the world was still ensnared in a global pandemic and one in which e-commerce provided an ample tailwind behind nearly every retailer’s back. Therefore, Nike, likely aware of this tailwind, knew that it could reset its wholesale sales base without the risk of comp sales comparisons.

A bold yet calculated move to say the least.

Fast forward to 2023, Nike has now likely gleaned insights from its 2022 reset year, and, as a result, better understands where it needs wholesale distribution and where it does not. Nike can renew (and renegotiate) whatever wholesale partnerships it wants to renew from a position of enhanced strength, with both DSW and Macy's also likely keen (or even desperate) on reinstating their association with the footwear giant after experiencing the financial pains of a Nike-less year.

In what will go down as a brilliant exploitation of this situation, Nike has not only regained its partnerships but also has likely negotiated favorable terms due to the high demand for its return. As such, this move seems less a reversal and more a natural progression or evolution of a smart strategic play from Nike from the beginning.

And the best part of the move?

2024 could be a financial cake walk for Nike. After resetting their comp sales base in 2023, Nike has built in automatic comp sales growth for 2024 from the renewed wholesale relationships.

Nike's strategy serves as a lesson in how to use the changing dynamics of the retail landscape to one's advantage. The brand's seemingly about-face maneuvers are calculated steps in a long-term game. By leveraging the pandemic, Nike has reaffirmed its reputation as an omnichannel titan, one that continually outsmarts the competition.

That’s why Nike is more than a shoe company; it's a company that knows how to dance gracefully on the constantly shifting stage of retail, proving that there's always a way to turn even the most challenging situations into an advantage.

So, in the end, this is not a tale of desperation or flawed DTC theories.

It's a tale of a brand taking well-calculated strides in a retail world that is always in flux. And in this tale, Nike, without a doubt, is the shrewdest protagonist of them all.

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