Nike Inc. started cleaning its stats sheet the other day and the very first time, the Cheap Jordans 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 in 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 being a retailer-rather than a wholesaler-was a relative highlight. Sales on Nike’s own online store were up 19% in the recent quarter, while its retail locations notched a 5% gain in same-store sales. 28% of all the 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 is going to be left out,” he warned over a conference call Tuesday.
Still, that wasn’t enough to thrill investors-at the very least, not. The overlooked appeal of bricks-and-mortar retail is just how well retail chains lend themselves from what economists call price segmentation. Shoemakers such as Nike can easily 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 of this socioeconomic slotting moves as much merchandise as possible with minimal fuss, whilst not tarnishing the bigger brand. And make no mistake: Nike can it correctly. On its face, the Swoosh is really a design shop supercharged by the sort 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 Cheap Jordans From China in Beaverton, Ore., there’s a mid-level manager having a giant spreadsheet, making sure “Momofuku” Dunks aren’t too simple to find, ordering up a special design for China, distributing its best-sellers for all the right Di.ck’s Sporting Goods Inc. outlets and dumping a lot of Chuck Taylors at outlet malls.
Nike is currently upsetting their 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 attempting to make an end play the essential economics of price segmentation. The strategy-a bold move, because of the historical manufacturer-to-retail model being discarded-requires no shortage of swagger. But Nike’s numbers demonstrate that the bet is apparently working, primarily because Nike continues to be 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 center of its lineup, meanwhile, sells on Nike.com and in their own big box stores. With regards to cheaper, less-popular kicks, they quietly trickle in to the company’s “factory” stores (read: outlet) and onto Amazon.com. Nike even includes a studio in Ny that creates customized shoes on-site within an hour.
In a nutshell, the business is deemphasizing its ready-made network of retailers to produce a more precise targeting mechanism. Tuesday Parker said the conclusion goal is to get ahead of the consumer and provide “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 the company,” he explained.
Theoretically, Nike can know any given customer better-and his or her willingness to pay-by using their own venues and platforms, particularly on its digital properties. The challenge will be building the mechanism to sort all of the data, and in doing so, the buyers. In real life, they sort themselves: Our prime-end boutique isn’t right near the cut-rate discount outlet. Within the virtual world, it’s not easy.
For the record, Under Armour Inc. is slightly before Nike Inc., with 31% of its sales coming directly from consumers; Cheap Nike Shoes China is slightly behind, with 23% of revenue from retail. At its current pace, Nike will soon be collecting one in three of its sales dollars right from consumers. Its challenge will be making sure that not one of them get too good a deal.