Nike’s Distribution Flex
By slashing its North American retail base by 30%, Nike will boost margins, customer loyalty, and brand value
The day you stop changing is the day you die. Nike built its business off a strong wholesale distribution network. In 2016, this channel accounted for 74% of its sales. In 2017, Nike’s distribution network was over 30,000 strong, ranging from independent shoe stores and skate shops to scale players like Amazon and Foot Locker. But the world doesn’t stand still. Winning means skating to where the puck is going, not where it is. The secular shift to e-commerce meant consumer behavior was changing, so Nike changed too.
Skate To Where The Puck Is Going
In 2017, the company replaced its wholesale distribution playbook with Consumer Direct Offense. The new strategy targeted increasing direct sales through Nike’s 7,000 plus stores and digital channels like the SNKRS app, where it drops exclusive merchandise. The five-year plan called for pruning its distribution network, growing direct-to-consumer (DTC) channels, investing in digital capabilities, and doubling down on 40 strategic partners like Dick’s Sporting Goods, Foot Locker, and Nordstrom. By 2025, Nike’s goal is for 60% of revenue to be DTC and 50% to be digital.
The Internet Playbook: Megas & Minnows
Online business is bifurcated. At one extreme, network effects drive a winner-takes-most dynamic, resulting in behemoths like Amazon and Google. By removing the constraints of geography and collapsing distribution costs, the internet enables a proliferation of niches to flourish at the other end. There’s never been a better time to be an AMSR or unboxing enthusiast. While the tails prosper, the middle gets squeezed. Mediocrity doesn’t sell online.
Digital business requires a new playbook. By deepening its connection with customers and controlling its distribution, Nike’s DTC strategy acknowledges this. While controlling supply dictates success offline, controlling user relationships drives success online…