Nike just made a big move in the wholesale market

Nike knows the power of its brand and in a bid to retain tighter control we've seen a marked changed in distribution strategy.

Nike just made a big move in the wholesale market

Nike and Adidas are the indisputable superpowers of the sports industry, dominating the category and last year jointly raking in approx £50 billion of sales worldwide. Demand (especially for their sneakers) is so strong that retail stockists can make their fortunes through wholesale access to the most popular new releases, using these as hero products to attract and retain shoppers.

Nike knows the power of its brand and in a bid to retain tighter control of it whilst also improving gross margins has in recent months altered its distribution strategy to focus more on growing its direct to consumer channels.

Firstly it pushed up the minimum annual amount retailers need to spend to continue receiving wholesale Nike products and now it’s been reported, by the Sunday Times, that the brand is ending its supply agreements with independent retailers over the next two years—striking another bitter blow for struggling retailers.

This cull is the next stage in Nike’s growth plan, Triple Double Strategy (2X), announced back in 2017 when the company promised to double its “cadence and impact of innovation,” double its speed to market and double its “direct connections" with consumers.

Nike is now implementing this change to its distribution strategy. By reducing the volume of retailers selling Nike products, sales can be funnelled through its own website and network of stores. Undoubtedly a good move for Nike who knows that cutting out the middleman improves their profit margins—Nike’s gross margins rose to a healthy 44.7% last year.

Added to this, the latest change enables them to retain control of the customer relationship helping avoid any destruction of brand value through 3rd party discounting. Nike and Adidas both already forbid wholesale customers from selling their products on eBay or Amazon.

As part of its growth plan, Nike has stated that it aims to generate 50% of its sales through its own stores and e-commerce platforms. Retaining control of the relationship between their brand and its consumers will help Nike boost profits and margins but also protect its brand value by giving customers a consistent shopping experience. An increase in direct-to-consumer delivery channels also allows for a more responsive consumer feedback process ensuring Nike are able to maintain their desirability and continue designing the products their consumers want. This feeds strongly into Nike's strategy for growth through the use or data and insights.

But what of the retailers who rely on stocking Nike hero products?

For many independents, this will be the final deathblow in what is an increasingly tight market. But there are also others who have had the foresight to reduce their reliance on dominant brands, expanding their own label product ranges and diversifying their offerings—hopefully, these retailers can continue to thrive and someday maybe even challenge the power of the superbrand.

Nike is clearly king in the footwear market and it knows it, this new move showcases the desire to strengthen this position even further and move down the retail funnel. With this change in strategy Nike might though have opened up space in the market for competitors, although only time will tell.

This article was originally posted on Forbes on 15/10/19

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Cally Russell

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