Nike Inc. started clearing up its stats sheet the other day and the first time, the sneaker empire declined to report “future orders,” a critical measure of wholesale demand from the galaxy of retailers who sell the famous kicks. Nike, No. 9 within the B2B E-Commerce 300, says the metric doesn’t matter much anymore, because now it’s dedicated to doing business directly with consumers and removing the middleman.
Nike sells to retailers through a mixture of EDI and e-commerce. While Nike reported its slowest quarterly sales growth since 2010, its performance being a retailer-rather than a wholesaler-was a relative highlight. Sales on Nike’s own web store were up 19% within the recent quarter, while its retail locations notched a 5% grow in same-store sales. 28% of sales are direct this season, compared with 4% five years ago. CEO Mark Parker said the organization is obsessed today with making shopping more personal. “Retailers who don’t embrace distinction will be put aside,” he warned on a conference call Tuesday.
Still, that wasn’t enough to thrill investors-at least, not yet. The overlooked attractiveness of bricks-and-mortar retail is just how well retail chains lend themselves from what economists call price segmentation. Shoemakers like Nike can easily target customers by sending the cheap nike shoes off to the right type of store (think: first-class vs. coach, iPhone X vs. iPhone 8, Banana Republic vs. Old Navy). In Nike’s case, it ships expensive, limited edition sneakers to high-end boutiques, routes its stock Jordans to chains like Foot Locker Retail Inc., and dumps its low-end product and off-key colorways in these places as DSW Inc.
If done properly, this socioeconomic slotting moves as much merchandise as possible with minimal fuss, while not tarnishing the larger brand. And make no mistake: Nike will it correctly. On its face, the Swoosh is actually a design shop supercharged by the kind of storytelling its TV commercials, billboards and magazine ads are famous for. But Nike’s real genius isn’t marketing, it’s merchandising: knowing what to ship where. For every sneaker sketching savant in Beaverton, Ore., there’s a mid-level manager having a giant spreadsheet, making sure “Momofuku” Dunks aren’t too easy to find, ordering up nike wholesale shoes for China, distributing its best-sellers to all the right Di,ck’s Sporting Goods Inc. outlets and dumping a lot of Chuck Taylors at outlet malls.
Nike is currently upsetting its own well-oiled applecart. In giving traditional retail the stiff arm, which Nike made official in June, the Oregon empire is tearing up that playbook and trying to make a stop play the fundamental economics of price segmentation. The strategy-a bold move, given the historical manufacturer-to-retail model being discarded-requires no shortage of swagger. But Nike’s numbers reveal that the bet appears to be working, primarily because Nike has become sharpening its digital game.
Sought-after sneakers now ship out via Nike’s own ecosystem of apps, including SNKRS, which it launched early last year. The heart of their lineup, meanwhile, sells on Nike.com and then in its very own big box stores. When it comes to cheaper, less-popular kicks, they quietly trickle into the company’s “factory” stores (read: outlet) and onto Amazon.com. Nike even includes a studio in Ny which makes cheap nike shoes within an hour.
In a nutshell, the organization is deemphasizing its ready-made network wemjjs retailers to generate a more precise targeting mechanism. Tuesday Parker said the end goal is to get ahead of the consumer and offer “the most personal, digitally connected experiences” in the market. “While changing your approach is never easy, Nike has proven before that if we do, it’s always ignited the following phase of growth for our company,” he explained.
In principle, Nike can know any given customer better-and his or her willingness to cover-by using their own venues and platforms, particularly on its digital properties. The challenge will likely be building the mechanism to sort all of the data, and by doing this, the buyers. In the real world, they sort themselves: The top-end boutique isn’t right near the cut-rate discount outlet. In the virtual world, it’s not easy.
For the record, Under Armour Inc. is slightly before Nike Inc., with 31% of their sales coming right from consumers; Adidas AG is slightly behind, with 23% of revenue from retail. At its current pace, Nike will soon be collecting one out of three of the sales dollars directly from consumers. Its challenge will likely be making sure that none of them get too good an arrangement.