Nike turns its back on ‘undifferentiated, mediocre’ retailers
Nike Miami retail store – Photo: Nike

Nike plans to put its eggs in fewer baskets going forward. The athletic wear brand announced yesterday a plan to focus its organizational resources going forward on 40 key retail partners and its own consumer direct efforts while pulling back from “undifferentiated” channels of distribution.

Nike’s announcement leaves many of the 30,000 retailers that sell its products, no doubt, questioning what it will mean for them. While Nike hasn’t ruled out selling to them, it has said that it will focus marketing, exclusive product offerings, in-store events and other resources on retailers like Foot Locker and Nordstrom. The Wall Street Journal reports that Amazon.com, which is currently running a pilot program with Nike, and Farfetch, an online luxury boutique, are on Nike’s short list. The athletic wear brand has not released a full list of the 40 retailers.

Trevor Edwards, Nike Brand president, said the move is being made because “undifferentiated, mediocre retail won’t survive.” Nike’s plan involves a shift that will take place over five years.

“Where others see disruption to old models, we see opportunities for new growth,” Nike CEO Mark Parker said at the company’s annual investor day event (via Portland Business Journal). “Whether that’s redefining our approach to the retail landscape or accelerating our international momentum, we’ve mobilized our priorities and we’re driving growth in new ways.”

Nike has set a target of reaching $50 billion in sales by 2022. Over that time, the company expects digital sales of its products, both consumer direct and through partner channels, to climb from the current 15 percent level to 30 percent.

Consumer direct is a significant element of Nike’s plan going forward. The company, which says it has more than 100 million members who have created accounts using one of its apps or on Nike.com, is looking to triple that number over the next five years. The strategy appears to be key to Nike’s goals as members spend three times more on its site than guests.

Nike plans to build its membership numbers, in part, by having more than a third of the products on the site unique to Nike.com and exclusive to members.

BrainTrust

“Shifting marketing dollars to where the brand can get the best return is a smart move.”

Phil Masiello

Founder and CEO, CrunchGrowth Revenue Acceleration Agency


“I think in the past it’s sometimes been easy for brands to adopt a “throw it all at the wall and see what sticks” attitude to retail channels…”

Cate Trotter

Head of Trends, Insider Trends


“This is a necessary move. Nike could not sit idly buy while big channels like Sports Authority run themselves into the ground.”

Martin Mehalchin

Managing Director, Retail and Consumer, PK

Discussion Questions

DISCUSSION QUESTIONS: How likely is Nike’s “massive transformation” to prove successful? Do you think Nike has a solid plan to grow its consumer direct business? Will its consumer direct efforts result in conflicts with its 40 key retail accounts?

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How likely is Nike’s “massive transformation” to prove successful?

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31 responses to “Nike turns its back on ‘undifferentiated, mediocre’ retailers”

  1. Bob Phibbs Avatar
    Bob Phibbs

    One could say putting your eggs in only 40 baskets makes you much more vulnerable to the fickleness of the few. Yet spreading the brand across many undifferentiated retailers hasn’t proven easy to manage either. Having said that, I’ve been in Nike stores and sorry, it isn’t exceptional except for fixtures. Take a hard look at your own before calling others mediocre and hold tight those who are trying to be different rather than succumbing to the Trojan Horse of partnering with Amazon.

  2. Mark Ryski Avatar
    Mark Ryski

    This is an important move for Nike and the industry. Nike’s move to “prune for excellence” among its retail partners and focus on direct is an attempt to show that a direct and retail hybrid model can work. Historically, any direct sales activity on the part of a brand was considered highly offensive and unacceptable to the retail channel. While Nike’s strong position on direct-to-consumer may still rankle some of the remaining 40 retailers, the reality is that no brand can ignore the direct business and retailers are coming to terms with this. The fact that Nike is significantly reducing the number of retailers it will distribute through is great news for the remaining 40 retailers.

  3. Neil Saunders Avatar
    Neil Saunders

    Like many other brands, Nike is right to pull back from weak retailers: they do no favor to Nike’s image and will account for an ever-declining share of the company’s revenues.

    Unlike some brands, Nike has the power to be selective about where and how it sells. So long as it does not make the purchase process too difficult or too exclusive, consumers will still buy its products.

    That said, the magnitude of the shift should not be underestimated. Pulling back from Macy’s, for example, is a significant move that can only happen over time. However, this is inevitably another nail in the coffin for retail’s underperformers.

  4. Art Suriano Avatar
    Art Suriano

    This is a risky move, and I’m not sure if it’s necessary. The idea of building the e-commerce to 30 percent of sales is okay but what about the other 70 percent? Nike has a great brand and excellent reputation, but store visibility with the opportunity to try on the product before purchasing is how they can boost sales. They will run the risk of losing more sales to competitors when they have less presence and store availability. Only time will tell if this move will work well for them.

  5. Dave Bruno Avatar
    Dave Bruno

    Nike’s move is just further evidence of the need for retailers to evolve in order to stay relevant — only this time with a vendor instead of a shopper. This is certainly not news — retail has been an adapt-or-die business since its inception, but in this era of ridiculously fast-paced change we now have to adopt a philosophy that evolution is a constant, not a “program.” I respect and admire Nike’s move to limiting distribution to retailers who are successfully adapting and, as a result, thriving.

  6. Paula Rosenblum Avatar
    Paula Rosenblum

    It’s going to take a smarter person than I am to ferret out the thread that runs through Nike’s decision-making process. First the company builds expensive new flagships (they built one here in Miami and another in Boston, for sure) and then it announces within a year that it’s going to focus only on 12 key cities, neither of which are Miami and Boston.

    Then it creates a partnership with Amazon and now it talks about increasing its digital sales, and highlights its “members,” which really just entails creating an ID on the company’s site as far as I can see, and insults just about every other retailer on the planet (except for some special 40 to be named later).

    I know that the shoe business is very cyclical — like they say on Project Runway, one day you’re in, the next day you’re out. Nike is going through an “out” period. It will come back. That’s just the cadence of the business. So I ask myself, how does this strategy help the company over the long-term?

    I have no clue. And the company hasn’t made it easy for me to figure it out. It’s a head scratcher.

    1. Lee Kent Avatar
      Lee Kent

      You said it Paula! I’m scratching my head too. Sounds like they are trying to make the brand more exclusive by excluding many retail brands. Let’s think for a minute about today’s consumer. Do they really care where they buy the shoe they want? Not really, as long as it’s easy, convenient and at a price they are willing to spend. For my 2 cents.

      1. Ed Rosenbaum Avatar
        Ed Rosenbaum

        I agree with you and Paula. This is strange and in many ways does not make good business sense. Especially after investing heavily in at least two new flagship locations. Nike does a strong overall business with their brand of running shoes. But the stores selling them are usually the smaller independents. The overall success of that business depends on those smaller companies. Nike’s decision about retaining them, and it does not read as likely, will have a major effect on a complete line of their shoes.

  7. Charles Dimov Avatar
    Charles Dimov

    Wow. Bold move on Nike’s part. This is a scary, scary decision for a business leader to take. However, this is similar to the transformative decision that Apple took many years ago, about limiting its product line from hundreds of items, to simple handfuls of product variations. Scary at the time. Radical. And most importantly it worked at making Apple the most iconic brand in retail.

    Whether it proves successful depends on Nike’s choices. I think this is an exciting development and have to wonder if other retailers will follow suit. Definitely when we start to see success, others will try. I think rarity will improve Nike’s value. If it is everywhere then it is easily forgotten. Good luck, Nike. Exciting times!

    1. Martin Mehalchin Avatar
      Martin Mehalchin

      Good callout on the comparison to Apple. Tim Cook is an active member of Nike’s Board of Directors.

  8. Jeff Hall Avatar
    Jeff Hall

    Nike is doubling down on its direct-to-consumer strategy and with 100 million members, is smart to do so. Honing its remaining retail partners signals the continued
    yet diminishing importance of traditional sales channels. Retail will compete more and more with the closer customer relationships, personalized merchandise recommendations and exclusive offerings to be found only within the Nike digital and app ecosystems.

  9. Brandon Rael Avatar
    Brandon Rael

    Key to Nike’s transformation and return to prominence will be to cut back their distribution channels and reestablish their relationships with their loyal consumers and potentially new ones. The direct-to-consumer engagement model, decreasing the sheer amount of inventory in the marketplace, as well as a laser focus on product innovation, will enable Nike to have what it takes to “just do it” once again.

    Nike would be keen to take a page out of Coach’s playbook, which led to the company removing their products from the department store channels, reducing the markdown elements and taking full ownership of their luxury brand and reasserting its exclusive status. Reducing the distribution channels and focusing on the relationships with the remaining 40 retailers, as well as enhancing their own DTC strategies, both in-store and online, will be a winning combination for Nike.

    The Air Jordan era of dominance may no longer be there, but this strategy is a significant step in the right direction for Nike as they continue their all-out battles with both Adidas and Under Armour.

  10. Phil Masiello Avatar
    Phil Masiello

    This effort will prove to be very successful and takes a strong backbone. This type of bold action is exactly what is needed from the brand side to enhance their brand image and profitability.

    For far too long, mediocre retailers have lived off RDAs to prop up their margins. Shifting marketing dollars to where the brand can get the best return is a smart move. Improving efforts to sell directly to the customer is absolutely the correct thing to do.

    The true retail apocalypse is the shift from a retailer-centric world, where the consumer was beholden to what brands, products and prices the retailer chose to provide, to a consumer-centric world where only the brands who engage and connect with consumers will survive. And marketing dollars will be allocated to deliver customer value versus propping up a retailer’s gross margins.

  11. Ben Ball Avatar
    Ben Ball

    I think this can work — for Nike. For Bounty paper towels, not so much. While Nike may be on an “out cycle” as Paula put it, they are still an iconic brand. And they will need to portray faux exclusivity with special editions, endorsers and even their availability to maintain that position. Think Frango Mints in Marshall Fields. This could be a big part of that strategy.

  12. Lyle Bunn (Ph.D. Hon) Avatar
    Lyle Bunn (Ph.D. Hon)

    The Nike move is a harbinger of increased go-to-market focus by brands. Having achieved wide distribution, now is the time to apply analytics in determining what channels deliver the best value in relationships. While they focus on retailers as point of sale/profile/discovery, the message also focuses on the critical importance of online commerce. This convergence in strategy is essential to customer engagement and brand development moving forward.

  13. Ryan Mathews Avatar
    Ryan Mathews

    I don’t know if the “massive transformation” will be a success, but staying tied to underperforming — read deep discounting — retailers is an almost certain path to failure. In the Nike world it’s all about brand and brand doesn’t benefit from a lack of differentiation or association with weak partners. So I see this less as a bold move and more a strategic necessity. Doubling the consumer direct business is a challenge, especially in a category where certain key purchasers, i.e., late Millennnials and Gen Zers, like to make shoe buying a group activity with final purchases often occurring after a peer consortium has expressed its approval. That said, it all depends on the interface mechanisms and the ease of returns. As to the final question, physical and virtual retailers are going to have to learn how to live and grow together or they are just going to have to go away. There’s plenty of opportunity to create excitement in this category in physical stores — limited releases, celebrity appearances, pop-ups, etc. — to keep non-digital outlets viable for years to come.

  14. Adrian Weidmann Avatar
    Adrian Weidmann

    There are two specific insights that resonated with me. 1.) “undifferentiated, mediocre retail won’t survive.” Nike’s realignment should be (yet another!) wake-up call to retailers that are mired in the status-quo. Nike’s message is — innovate, change, experiment, measure and be relevant to today’s shopping environment. The other is 2.) Consumer direct is a significant element of Nike’s plan going forward.

    Ever since 2007 when the supernova (Internet) exploded, brands began their journey to bypass the traditional retail distribution and sales channels and connect directly with their customers. Here we are, ten years later, and the systems and technology are becoming viable to actually fulfill this promise. Retailers have been forewarned and tomorrow has now become today! Those that don’t innovate and move will wither away and become footnotes in the history of retail.

  15. Doug Garnett Avatar
    Doug Garnett

    Their goal for direct-to-consumer sales is concerning. Distribution through retail multiplies money and the returns are far more than through direct sales.

    This announcement suggests that Nike is intentionally choosing a path that increases expensive and lower margins.

    The theory behind the retail focus sounds quite good. But once a company is of a certain size, it reflects a naïveté to trust nice, neat theories too much. Reality is messy for a $50 billion company. My advice to Nike would be to pursue the theory — but expect to find it to lead to errors.

  16. Roy White Avatar
    Roy White

    This looks to me like a risky move. Could it be a legal minefield that opens Nike up to lawsuits from retailers to which they won’t ship? One hopes that the standards are well defined and ironclad; otherwise one wonders if it may mean huge problems for the footwear company.

  17. Ian Percy Avatar
    Ian Percy

    For any initiative to be successful, the process and content have to match. So if a manufacturer wants to limit itself to exclusive channels it has to have an exclusive product.

    There are SO many athletic shoe manufacturers with many of them very comparable in quality and innovative technology. My runners are so light and comfortable I’d be happy to sleep in them. But honestly, as I sit here, I can’t tell you the brand. They are not Nike because there’s no swoosh, that much I know.

    Finally, thumbs up to Phibbs for his comment on Nike’s mediocre fixtures. Nike needs to ensure consistency with its branding position. This is like buying a luxury car only to find cheap plastic trim. It’s what I call a “dropped ball” and ALL organizations drop the ball somewhere. As many know, a dropped ball can cost you the game.

  18. Rich Kizer Avatar
    Rich Kizer

    I understand Nike’s position clearly, and agree. I also think that there is a lesson here for retailers: We all know that Nike will, and should, manage and protect their brand’s success as completely as possible. However, there will always room for aggressive, forward thinking retailers who create an environment of visual excitement, forge great branded presentations, become sources of rich product information through excited staff members, and constantly focus on creating powerful brand emotions. Nearly everyone wants to be in those stores, because they enhance the brand. So step up your retail game, and vendors will love you. Now let’s let Nike do what they do. It can be a huge WIN for all.

  19. Cate Trotter Avatar
    Cate Trotter

    I think in the past it’s sometimes been easy for brands to adopt a “throw it all at the wall and see what sticks” attitude to retail channels, especially with the growth of e-commerce. It seems that Nike is now pulling back from that and concentrating on the most meaningful and lucrative channels. While a smaller pool of retailers could create its own issues, if it means that Nike is able to put more resources into the chosen 40 and ensure a consistent high level of support and service then it may reflect well on the brand.

  20. Camille P. Schuster, PhD. Avatar
    Camille P. Schuster, PhD.

    If sales of shoes are falling or consistently low at some stores, then leaving those stores makes sense. Since fit and feel, as well as name brand, are important when buying shoes, only selling direct to consumers is not a good strategy for acquiring new consumers. Nike needs to be in stores that consumers in cities, suburbs, small towns and rural areas have access to so they can attract and acquire new consumers.

  21. Shep Hyken Avatar
    Shep Hyken

    Nike should be careful how it treats its retailers. I agree that focusing special promotions with an emphasis on a smaller number of retailers is a good move. Just don’t forget about the people (the 30,000 other retailers) that currently sell and helped Nike get where they are today. I don’t think that will happen, but they should be careful not to alienate others who can help get their merchandise to the consumer.

    As for consumer direct, this model has been in place for a while. In any consumer direct model, the manufacturer needs to be careful about undercutting their retailers, just to keep the field balanced.

  22. Todd Trombley Avatar
    Todd Trombley

    A huge factor for brands is “who’s driving the bus.” Digital gives brands the ability to directly drive experiences and impressions with their consumers. Digital means they no longer have to exclusively rely on, or be vulnerable to, a retailer acting in an intermediary role doing a mediocre job in providing a shopping experience and thus degrading the consumers’ impression of a brand. It’s about not degrading the ROI of the heavy spend a company like Nike puts into building an image for its brand. The Trevor Edwards quote says it all.

    For small retailers, the implications of Nike’s move should be seen as a call-to-action. Other big brands that draw traffic will surely be watching and replicating what Nike does. Narrowing the channel to 40 top retailers presents an opportunity for partnership. How each side nurtures and respects that partnership will determine whether love and harmony or hate and conflict characterize the relationship.

  23. Martin Mehalchin Avatar
    Martin Mehalchin

    This is a necessary move. Nike could not sit idly buy while big channels like Sports Authority run themselves into the ground. Nike is also in an arms race with Adidas as the two brands compete to build ever flashier (and more expensive) flagship stores in key cities around the world. Nike has recognized the need to focus its investment and resources on its direct business as well as those remaining retailers that have the strength to complement and grow alongside Nike’s own distribution.

    Among the big losers here are likely to be the remaining small, independent athletic specialty stores. Some of whom (like Seattle’s Super Jock n’ Jill) still do a great job for their consumer. There could be an opportunity for smaller footwear brands in running, soccer and tennis to fill the gap and serve those independents and their high-end, athletic customers.

  24. Ed Dunn Avatar
    Ed Dunn

    “…undifferentiated, mediocre retail won’t survive.” This environment is the core position of Nike branding strategy.

    We are looking at retailers in the UK fail or go into administration on a weekly basis, looking for brands like Nike to save them. The Nike brand (as well as Apple) are peddled in a cheap way by undifferentiated, mediocre retailers as a desperate survival tactic — the now-defunct Sports Authority is a good example.

    Undifferentiated, mediocre retail won’t survive and Nike is not throwing out any lifelines anymore.

  25. Lee Peterson Avatar
    Lee Peterson

    About time. The “enabler” of this strategy is a strong DTC platform: solid ecom, great stores of their own and of course, Amazon. All of the above sure makes it easier to stop denigrating your brand by being in marginal retailers. I’m sure you’ll see more of this from the likes of their competitors, although I’m not sure Under Armour cares about that.

  26. Kiri Masters Avatar
    Kiri Masters

    I do think that Nike’s consumer direct plan is a solid one. By making a full third of their products only available through their direct channel, they can make this a more “exclusive” feeling channel while attracting a higher margin and ability to directly retarget those customers later, offering personalization options.

    Nike has recognized the pitfalls of being everywhere. In a world when one can find almost everything on Amazon, exclusive products become even more appealing.

  27. Jeff Miller Avatar
    Jeff Miller

    Controlling your distribution and focusing even more on direct to consumer is what every brand who is thinking long term should focus on. However, I don’t believe that this statement is accurate that they will only sell to 40 stores. Perhaps 40 key large retailers that sell wider range of Nike products, but Nike has amazing boutique/niche distribution for some select product lines (running stores, skateboard shops, sneaker heads, etc.) that will extend stores to hundreds when taken into account.

  28. Dave Brewer Avatar
    Dave Brewer

    Pulling back on your distribution and creating more “demand” can generate value that will translate into margin and profitability. The fact that Nike is also looking to feature a significant percentage of “unique” product on nike.com is one massive way for better and luxury brands to stem the Amazon tide. When I want that “unique” running shoe, I will be happy to go to nike.com to get it (Nike Zoom Vaporfly 4%?).

31 Comments
oldest
newest
Bob Phibbs
Bob Phibbs
5 years ago

One could say putting your eggs in only 40 baskets makes you much more vulnerable to the fickleness of the few. Yet spreading the brand across many undifferentiated retailers hasn’t proven easy to manage either. Having said that, I’ve been in Nike stores and sorry, it isn’t exceptional except for fixtures. Take a hard look at your own before calling others mediocre and hold tight those who are trying to be different rather than succumbing to the Trojan Horse of partnering with Amazon.

Mark Ryski
Mark Ryski
5 years ago

This is an important move for Nike and the industry. Nike’s move to “prune for excellence” among its retail partners and focus on direct is an attempt to show that a direct and retail hybrid model can work. Historically, any direct sales activity on the part of a brand was considered highly offensive and unacceptable to the retail channel. While Nike’s strong position on direct-to-consumer may still rankle some of the remaining 40 retailers, the reality is that no brand can ignore the direct business and retailers are coming to terms with this. The fact that Nike is significantly reducing the number of retailers it will distribute through is great news for the remaining 40 retailers.

Neil Saunders
Neil Saunders
5 years ago

Like many other brands, Nike is right to pull back from weak retailers: they do no favor to Nike’s image and will account for an ever-declining share of the company’s revenues.

Unlike some brands, Nike has the power to be selective about where and how it sells. So long as it does not make the purchase process too difficult or too exclusive, consumers will still buy its products.

That said, the magnitude of the shift should not be underestimated. Pulling back from Macy’s, for example, is a significant move that can only happen over time. However, this is inevitably another nail in the coffin for retail’s underperformers.

Art Suriano
Art Suriano
5 years ago

This is a risky move, and I’m not sure if it’s necessary. The idea of building the e-commerce to 30 percent of sales is okay but what about the other 70 percent? Nike has a great brand and excellent reputation, but store visibility with the opportunity to try on the product before purchasing is how they can boost sales. They will run the risk of losing more sales to competitors when they have less presence and store availability. Only time will tell if this move will work well for them.

Dave Bruno
Dave Bruno
5 years ago

Nike’s move is just further evidence of the need for retailers to evolve in order to stay relevant — only this time with a vendor instead of a shopper. This is certainly not news — retail has been an adapt-or-die business since its inception, but in this era of ridiculously fast-paced change we now have to adopt a philosophy that evolution is a constant, not a “program.” I respect and admire Nike’s move to limiting distribution to retailers who are successfully adapting and, as a result, thriving.

Paula Rosenblum
Paula Rosenblum
5 years ago

It’s going to take a smarter person than I am to ferret out the thread that runs through Nike’s decision-making process. First the company builds expensive new flagships (they built one here in Miami and another in Boston, for sure) and then it announces within a year that it’s going to focus only on 12 key cities, neither of which are Miami and Boston.

Then it creates a partnership with Amazon and now it talks about increasing its digital sales, and highlights its “members,” which really just entails creating an ID on the company’s site as far as I can see, and insults just about every other retailer on the planet (except for some special 40 to be named later).

I know that the shoe business is very cyclical — like they say on Project Runway, one day you’re in, the next day you’re out. Nike is going through an “out” period. It will come back. That’s just the cadence of the business. So I ask myself, how does this strategy help the company over the long-term?

I have no clue. And the company hasn’t made it easy for me to figure it out. It’s a head scratcher.

Lee Kent
Lee Kent
  Paula Rosenblum
5 years ago

You said it Paula! I’m scratching my head too. Sounds like they are trying to make the brand more exclusive by excluding many retail brands. Let’s think for a minute about today’s consumer. Do they really care where they buy the shoe they want? Not really, as long as it’s easy, convenient and at a price they are willing to spend. For my 2 cents.

Ed Rosenbaum
Ed Rosenbaum
  Lee Kent
5 years ago

I agree with you and Paula. This is strange and in many ways does not make good business sense. Especially after investing heavily in at least two new flagship locations. Nike does a strong overall business with their brand of running shoes. But the stores selling them are usually the smaller independents. The overall success of that business depends on those smaller companies. Nike’s decision about retaining them, and it does not read as likely, will have a major effect on a complete line of their shoes.

Charles Dimov
Charles Dimov
5 years ago

Wow. Bold move on Nike’s part. This is a scary, scary decision for a business leader to take. However, this is similar to the transformative decision that Apple took many years ago, about limiting its product line from hundreds of items, to simple handfuls of product variations. Scary at the time. Radical. And most importantly it worked at making Apple the most iconic brand in retail.

Whether it proves successful depends on Nike’s choices. I think this is an exciting development and have to wonder if other retailers will follow suit. Definitely when we start to see success, others will try. I think rarity will improve Nike’s value. If it is everywhere then it is easily forgotten. Good luck, Nike. Exciting times!

Martin Mehalchin
Martin Mehalchin
  Charles Dimov
5 years ago

Good callout on the comparison to Apple. Tim Cook is an active member of Nike’s Board of Directors.

Jeff Hall
Jeff Hall
5 years ago

Nike is doubling down on its direct-to-consumer strategy and with 100 million members, is smart to do so. Honing its remaining retail partners signals the continued
yet diminishing importance of traditional sales channels. Retail will compete more and more with the closer customer relationships, personalized merchandise recommendations and exclusive offerings to be found only within the Nike digital and app ecosystems.

Brandon Rael
Brandon Rael
5 years ago

Key to Nike’s transformation and return to prominence will be to cut back their distribution channels and reestablish their relationships with their loyal consumers and potentially new ones. The direct-to-consumer engagement model, decreasing the sheer amount of inventory in the marketplace, as well as a laser focus on product innovation, will enable Nike to have what it takes to “just do it” once again.

Nike would be keen to take a page out of Coach’s playbook, which led to the company removing their products from the department store channels, reducing the markdown elements and taking full ownership of their luxury brand and reasserting its exclusive status. Reducing the distribution channels and focusing on the relationships with the remaining 40 retailers, as well as enhancing their own DTC strategies, both in-store and online, will be a winning combination for Nike.

The Air Jordan era of dominance may no longer be there, but this strategy is a significant step in the right direction for Nike as they continue their all-out battles with both Adidas and Under Armour.

Phil Masiello
Phil Masiello
5 years ago

This effort will prove to be very successful and takes a strong backbone. This type of bold action is exactly what is needed from the brand side to enhance their brand image and profitability.

For far too long, mediocre retailers have lived off RDAs to prop up their margins. Shifting marketing dollars to where the brand can get the best return is a smart move. Improving efforts to sell directly to the customer is absolutely the correct thing to do.

The true retail apocalypse is the shift from a retailer-centric world, where the consumer was beholden to what brands, products and prices the retailer chose to provide, to a consumer-centric world where only the brands who engage and connect with consumers will survive. And marketing dollars will be allocated to deliver customer value versus propping up a retailer’s gross margins.

Ben Ball
Ben Ball
5 years ago

I think this can work — for Nike. For Bounty paper towels, not so much. While Nike may be on an “out cycle” as Paula put it, they are still an iconic brand. And they will need to portray faux exclusivity with special editions, endorsers and even their availability to maintain that position. Think Frango Mints in Marshall Fields. This could be a big part of that strategy.

Lyle Bunn (Ph.D. Hon)
Lyle Bunn (Ph.D. Hon)
5 years ago

The Nike move is a harbinger of increased go-to-market focus by brands. Having achieved wide distribution, now is the time to apply analytics in determining what channels deliver the best value in relationships. While they focus on retailers as point of sale/profile/discovery, the message also focuses on the critical importance of online commerce. This convergence in strategy is essential to customer engagement and brand development moving forward.

Ryan Mathews
Ryan Mathews
5 years ago

I don’t know if the “massive transformation” will be a success, but staying tied to underperforming — read deep discounting — retailers is an almost certain path to failure. In the Nike world it’s all about brand and brand doesn’t benefit from a lack of differentiation or association with weak partners. So I see this less as a bold move and more a strategic necessity. Doubling the consumer direct business is a challenge, especially in a category where certain key purchasers, i.e., late Millennnials and Gen Zers, like to make shoe buying a group activity with final purchases often occurring after a peer consortium has expressed its approval. That said, it all depends on the interface mechanisms and the ease of returns. As to the final question, physical and virtual retailers are going to have to learn how to live and grow together or they are just going to have to go away. There’s plenty of opportunity to create excitement in this category in physical stores — limited releases, celebrity appearances, pop-ups, etc. — to keep non-digital outlets viable for years to come.

Adrian Weidmann
Adrian Weidmann
5 years ago

There are two specific insights that resonated with me. 1.) “undifferentiated, mediocre retail won’t survive.” Nike’s realignment should be (yet another!) wake-up call to retailers that are mired in the status-quo. Nike’s message is — innovate, change, experiment, measure and be relevant to today’s shopping environment. The other is 2.) Consumer direct is a significant element of Nike’s plan going forward.

Ever since 2007 when the supernova (Internet) exploded, brands began their journey to bypass the traditional retail distribution and sales channels and connect directly with their customers. Here we are, ten years later, and the systems and technology are becoming viable to actually fulfill this promise. Retailers have been forewarned and tomorrow has now become today! Those that don’t innovate and move will wither away and become footnotes in the history of retail.

Doug Garnett
Doug Garnett
5 years ago

Their goal for direct-to-consumer sales is concerning. Distribution through retail multiplies money and the returns are far more than through direct sales.

This announcement suggests that Nike is intentionally choosing a path that increases expensive and lower margins.

The theory behind the retail focus sounds quite good. But once a company is of a certain size, it reflects a naïveté to trust nice, neat theories too much. Reality is messy for a $50 billion company. My advice to Nike would be to pursue the theory — but expect to find it to lead to errors.

Roy White
Roy White
5 years ago

This looks to me like a risky move. Could it be a legal minefield that opens Nike up to lawsuits from retailers to which they won’t ship? One hopes that the standards are well defined and ironclad; otherwise one wonders if it may mean huge problems for the footwear company.

Ian Percy
Ian Percy
5 years ago

For any initiative to be successful, the process and content have to match. So if a manufacturer wants to limit itself to exclusive channels it has to have an exclusive product.

There are SO many athletic shoe manufacturers with many of them very comparable in quality and innovative technology. My runners are so light and comfortable I’d be happy to sleep in them. But honestly, as I sit here, I can’t tell you the brand. They are not Nike because there’s no swoosh, that much I know.

Finally, thumbs up to Phibbs for his comment on Nike’s mediocre fixtures. Nike needs to ensure consistency with its branding position. This is like buying a luxury car only to find cheap plastic trim. It’s what I call a “dropped ball” and ALL organizations drop the ball somewhere. As many know, a dropped ball can cost you the game.

Rich Kizer
Rich Kizer
5 years ago

I understand Nike’s position clearly, and agree. I also think that there is a lesson here for retailers: We all know that Nike will, and should, manage and protect their brand’s success as completely as possible. However, there will always room for aggressive, forward thinking retailers who create an environment of visual excitement, forge great branded presentations, become sources of rich product information through excited staff members, and constantly focus on creating powerful brand emotions. Nearly everyone wants to be in those stores, because they enhance the brand. So step up your retail game, and vendors will love you. Now let’s let Nike do what they do. It can be a huge WIN for all.

Cate Trotter
Cate Trotter
5 years ago

I think in the past it’s sometimes been easy for brands to adopt a “throw it all at the wall and see what sticks” attitude to retail channels, especially with the growth of e-commerce. It seems that Nike is now pulling back from that and concentrating on the most meaningful and lucrative channels. While a smaller pool of retailers could create its own issues, if it means that Nike is able to put more resources into the chosen 40 and ensure a consistent high level of support and service then it may reflect well on the brand.

Camille P. Schuster, PhD.
Camille P. Schuster, PhD.
5 years ago

If sales of shoes are falling or consistently low at some stores, then leaving those stores makes sense. Since fit and feel, as well as name brand, are important when buying shoes, only selling direct to consumers is not a good strategy for acquiring new consumers. Nike needs to be in stores that consumers in cities, suburbs, small towns and rural areas have access to so they can attract and acquire new consumers.

Shep Hyken
Shep Hyken
5 years ago

Nike should be careful how it treats its retailers. I agree that focusing special promotions with an emphasis on a smaller number of retailers is a good move. Just don’t forget about the people (the 30,000 other retailers) that currently sell and helped Nike get where they are today. I don’t think that will happen, but they should be careful not to alienate others who can help get their merchandise to the consumer.

As for consumer direct, this model has been in place for a while. In any consumer direct model, the manufacturer needs to be careful about undercutting their retailers, just to keep the field balanced.

Todd Trombley
Todd Trombley
5 years ago

A huge factor for brands is “who’s driving the bus.” Digital gives brands the ability to directly drive experiences and impressions with their consumers. Digital means they no longer have to exclusively rely on, or be vulnerable to, a retailer acting in an intermediary role doing a mediocre job in providing a shopping experience and thus degrading the consumers’ impression of a brand. It’s about not degrading the ROI of the heavy spend a company like Nike puts into building an image for its brand. The Trevor Edwards quote says it all.

For small retailers, the implications of Nike’s move should be seen as a call-to-action. Other big brands that draw traffic will surely be watching and replicating what Nike does. Narrowing the channel to 40 top retailers presents an opportunity for partnership. How each side nurtures and respects that partnership will determine whether love and harmony or hate and conflict characterize the relationship.

Martin Mehalchin
Martin Mehalchin
5 years ago

This is a necessary move. Nike could not sit idly buy while big channels like Sports Authority run themselves into the ground. Nike is also in an arms race with Adidas as the two brands compete to build ever flashier (and more expensive) flagship stores in key cities around the world. Nike has recognized the need to focus its investment and resources on its direct business as well as those remaining retailers that have the strength to complement and grow alongside Nike’s own distribution.

Among the big losers here are likely to be the remaining small, independent athletic specialty stores. Some of whom (like Seattle’s Super Jock n’ Jill) still do a great job for their consumer. There could be an opportunity for smaller footwear brands in running, soccer and tennis to fill the gap and serve those independents and their high-end, athletic customers.

Ed Dunn
Ed Dunn
5 years ago

“…undifferentiated, mediocre retail won’t survive.” This environment is the core position of Nike branding strategy.

We are looking at retailers in the UK fail or go into administration on a weekly basis, looking for brands like Nike to save them. The Nike brand (as well as Apple) are peddled in a cheap way by undifferentiated, mediocre retailers as a desperate survival tactic — the now-defunct Sports Authority is a good example.

Undifferentiated, mediocre retail won’t survive and Nike is not throwing out any lifelines anymore.

Lee Peterson
Lee Peterson
5 years ago

About time. The “enabler” of this strategy is a strong DTC platform: solid ecom, great stores of their own and of course, Amazon. All of the above sure makes it easier to stop denigrating your brand by being in marginal retailers. I’m sure you’ll see more of this from the likes of their competitors, although I’m not sure Under Armour cares about that.

Kiri Masters
Kiri Masters
5 years ago

I do think that Nike’s consumer direct plan is a solid one. By making a full third of their products only available through their direct channel, they can make this a more “exclusive” feeling channel while attracting a higher margin and ability to directly retarget those customers later, offering personalization options.

Nike has recognized the pitfalls of being everywhere. In a world when one can find almost everything on Amazon, exclusive products become even more appealing.

Jeff Miller
Jeff Miller
5 years ago

Controlling your distribution and focusing even more on direct to consumer is what every brand who is thinking long term should focus on. However, I don’t believe that this statement is accurate that they will only sell to 40 stores. Perhaps 40 key large retailers that sell wider range of Nike products, but Nike has amazing boutique/niche distribution for some select product lines (running stores, skateboard shops, sneaker heads, etc.) that will extend stores to hundreds when taken into account.

Dave Brewer
Dave Brewer
5 years ago

Pulling back on your distribution and creating more “demand” can generate value that will translate into margin and profitability. The fact that Nike is also looking to feature a significant percentage of “unique” product on nike.com is one massive way for better and luxury brands to stem the Amazon tide. When I want that “unique” running shoe, I will be happy to go to nike.com to get it (Nike Zoom Vaporfly 4%?).