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Introduction

With more than $31 billion in revenue, Nike is the world's most extensive athletic footwear and apparel brand. This makes its decision to reduce nine wholesale accounts as it doubles down on direct-to-consumer an interesting one.

In a statement issued earlier this year, the company said to continue to increase its number of owned and operated stores for now. Still, CEO Mark Parker didn't rule out future opportunities to partner with other retailers. "We are shifting from a wholesale brand to a brand that's available at retail." Parker said on an earnings call with analysts Tuesday. "We have been working on this transition for five years," he added. "It involves changing how we distribute products through our key accounts, Ecom sites, and DTC channels like Amazon.”

The world's largest athletic footwear and apparel brand is bringing more of its products direct to consumers.

Nike is reportedly hedging its bets on direct-to-consumer (DTC) and is closing nine wholesale accounts: Boscov's, Belk, City Blue, VIM, EbLens, Dillard's, Fred Meyer, Bob's Stores, and Zappos. Analysts see Nike's decision to cut ties with significant wholesalers as a sign that the company is taking control of its future rather than relying on outside parties.

In the past year, Nike has been reducing wholesale accounts to focus more on owned and operated stores (O&O). It will continue this strategy from 2019 as it plans for even greater growth in 2022.

“Nike has a bold vision to create the marketplace of the future, one closely aligned with what consumers want and need,” a Nike spokesperson said in response to questions about the closures. He continued to add, “As part of our recently announced Consumer Direct Acceleration strategy, we are doubling down on our approach with Nike Digital and our owned stores, as well as a smaller number of strategic partners who share our vision to create a consistent, connected and modern shopping experience.”

In addition to Nike wholesalers, including Dick's Sporting Goods, Hibbett Sports, Shoe Carnival, Famous Footwear, DSW, and Foot Locker, Susquehanna Financial Group anticipates the move will benefit other Nike wholesale partners with a huge brick-and-mortar presence.

The move will help Nike control customer experience and get closer to them.

In addition, Nike wants to ensure that it provides a better experience to consumers while browsing through its website or app. This means that certain unique features/things need to be available for consumers to feel like they're at home and have a seamless experience purchasing products from any eCommerce platform or brick-and-mortar store.

Nike began notifying partners nearly a month ago of their intent to terminate the relationships and gave them 90 days to run out of their inventory if they had any.

This move should be no surprise, as Nike's interest in cutting wholesale partnerships was evident even before the pandemic. Nearly a month ago, Nike notified partners of their intention to terminate the relationship, and they were given 90 days to exhaust their inventory.

In November of last year, the retailer stepped back from Amazon, announcing the end of that partnership in favor of “strong, distinctive partnerships for Nike with other retailers and platforms.”  Wells Fargo analysts at the time commented that with the power of the Nike brand, the athletics giant didn’t need to partner with anyone “just for the sake of distribution.” Since then, it has vigorously attempted to bolster its direct-to-consumer strategy.

Nike recently announced that it would double down on its direct-to-consumer strategy as part of a shift toward becoming an omnichannel company. The move comes when Nike faces increased competition from brands like Under Armour and Adidas, which offer more customizable products than it does.

Nike’s DTC Strategy: Why it Makes Sense

Despite being a global brand with a strong history of innovation, Nike is also facing challenges that can't be solved by physical stores alone. To maintain its position as the leader in athletic footwear, Nike needs to continue innovating and improving user experience.

Nike can do this by allowing consumers access to products at their convenience through direct-to-consumer retail channels. This will enable Nike to control pricing and availability while providing consumers access to products they want (or need) most often—in other words: Convenience!

Executives at Nike highlighted the following initiatives:

  • Expansion of the company's DTC brick-and-mortar presence, including the launch of Jordan-branded stores in North America
  • Following the culling of 50% of its wholesale business over the past four years, the company plans to strengthen its remaining wholesale relationships
  • Increasing participation in new digital platforms such as social media, live streaming, metaverse activations, and the creation of digital goods

How does this move benefit Nike?

Nike's move to shut down nine wholesale accounts and double down on direct-to-consumer is a bold one and has the potential to benefit both Nike and its customers.

For starters, Nike can now control more of its distribution channels — which means less reliance on third parties who may not be as invested in delivering an excellent customer experience.

This also makes it easier for consumers to find exactly what they're looking for when searching online or browsing through physical retail stores.

But there's another reason why this might be good news: By eliminating these middlemen between you and your purchase, you don't have to worry about whether or not your order will arrive at its destination intact —like customs fees or delays caused by weather conditions that weren't accounted for during shipping timeframes set forth beforehand.

"We are shifting from a wholesale brand to a brand that's available at retail," CEO Mark Parker said on an earnings call with analysts.

Nike's strategy is to focus on its owned and operated retail stores. The goal is to double the number of owned and operated stores by 2022, accounting for about a third of its revenue.

After announcing the intention to double down on digital offerings, Nike announced plans to test 150 to 200 smaller format stores in the next couple of years that will take inspiration from Nike Live stores geared towards providing personalized, omnichannel experiences.

“The global pandemic has made it clear that consumer behavior is changing rapidly, providing the opportunity for us to accelerate the pace of our transformation,” Executive Chairman John Donahoe said on its earnings call back in June. “Over the past few years, we have shifted from a legacy, wholesale distribution model to invest in a model that gives our consumers a more premium shopping experience.”
He continued, "We have made many changes over the last few years, shifting from a wholesale distribution model towards one that gives our customers a more premium shopping experience."

In line with the strategy, wholesale accounts are closing, and more may shut down as the retailer evaluates its partnerships. Nike has been increasing its direct-to-consumer business for years and made it even more prominent in the last quarter by doubling down with an investment in e-commerce startup Stripe Digital Commerce. The goal of this move is clear: To become a dominant player in omnichannel retailing and e-commerce itself—a space where Amazon continues to hold an upper hand over everyone else.

How does this move impact ECom and DTC?

This move by Nike will have a significant impact on ECom and DTC.

  • Nike is taking control of more of its distribution channels, closing more than 9 wholesale accounts.
  • Nike is increasing its owned and operated stores.
  • Nike is considering partnerships with other retailers to offer lower prices due to the upfront costs of manufacturing them directly through its store brand or online platforms (such as eBay)
  • The company is looking forward to more e-commerce and direct-to-consumer partnerships than just being a retailer.

Conclusion

Considering the digital future of retail, the company announced its goal of reaching 30 percent digital sales by the end of 2023. Still, it has already achieved this milestone by the end of this year. The firm aims to achieve 50 percent digital sales in the near future across various categories, including sportswear and athleisure.

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