Nike Inc. started cleaning its stats sheet last week and the first time, the Wholesale Nike Shoes empire declined to report “future orders,” a crucial 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 focused on 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 as a retailer-instead of a wholesaler-was a relative highlight. Sales on Nike’s own online store were up 19% within the recent quarter, while its retail locations notched a 5% gain in same-store sales. 28% of all the sales are direct this coming year, in comparison with 4% 5 years ago. CEO Mark Parker said the business is obsessed right now with making shopping more personal. “Retailers who don’t embrace distinction will be left behind,” he warned on the conference call Tuesday.
Still, that wasn’t enough to impress investors-a minimum of, not. The overlooked appeal of bricks-and-mortar retail is how well retail chains lend themselves as to what economists call price segmentation. Shoemakers such as Nike can simply target customers by sending the best 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, exclusive 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 such places as DSW Inc.
If performed correctly, all this socioeconomic slotting moves the maximum amount of merchandise as you can with minimal fuss, without tarnishing the greater brand. Making no mistake: Nike does it correctly. On its face, the Swoosh is a design shop supercharged by the type of storytelling its TV commercials, billboards and magazine ads are famous for. But Nike’s real genius isn’t marketing, it’s merchandising: knowing exactly what to ship where. For each and every Cheap Jordan Shoes in Beaverton, Ore., there’s a mid-level manager with a giant spreadsheet, making certain “Momofuku” Dunks aren’t too easy to find, ordering up a special design for China, distributing its best-sellers to all the best Di.ck’s Sporting Goods Inc. outlets and dumping plenty of Chuck Taylors at outlet malls.
Nike has become 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 working to make a conclusion play the essential 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 is apparently 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 a year ago. The heart of the lineup, meanwhile, sells on Nike.com as well as in its very own big box stores. With regards 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 New York which makes customized shoes on-site in approximately an hour.
In short, the business is deemphasizing its ready-made network of retailers to create an even more precise targeting mechanism. Tuesday Parker said the final goal is to get in front of the consumer and offer “the most personal, digitally connected experiences” in the business. “While switching your approach is rarely easy, Nike has proven before that if we all do, it’s always tmrzsh the following phase of growth for our company,” he explained.
In principle, Nike can know any given customer better-and her or his willingness to pay for-by making use of its own venues and platforms, particularly on its digital properties. The task is going to be building the mechanism to sort all of the data, and in doing so, the shoppers. In the real world, they sort themselves: The top-end boutique isn’t right next to the cut-rate discount outlet. Inside the virtual world, it’s not easy.
For the record, Under Armour Inc. is slightly in front of Nike Inc., with 31% of the sales coming straight from consumers; Cheap Nike Shoes is slightly behind, with 23% of revenue from retail. At its current pace, Nike will soon be collecting one in three of their sales dollars directly from consumers. Its challenge will be making sure that none of them get too good an arrangement.